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Cree Inc – ‘10QSB’ for 3/31/96

As of: Thursday, 5/9/96 · For: 3/31/96 · Accession #: 950168-96-747 · File #: 0-21154

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/09/96  Cree Inc                          10QSB       3/31/96    3:37K                                    Donnelley Financial/FA

Quarterly Report — Small Business — Form 10-QSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10QSB       Cree Research 10QSB 43374                             16     68K 
 2: EX-11       Statement re: Computation of Earnings Per Share        2±     7K 
 3: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K

10QSB — Cree Research 10QSB 43374
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Financial Statements
1	1st Page - Filing Submission
2	Item 1. Financial Statements
15	Item 6. Exhibits and Reports on Form 8-K

10QSB 1st Page of 16 TOC ↑Top Previous Next ↓Bottom Just 1st
 
 U.S. Securities and Exchange Commission
Washington, DC 20549

 FORM 10-QSB

(Mark One)                                        
 [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended March 31, 1996

 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 Commission file number: 0-21154

 CREE RESEARCH, INC.
 (Exact name of small business issuer as specified in its charter)

North Carolina                      56-1572719    
(State or other jurisdiction of incorporation      (IRS Employer                
or organization)                                   Identification No.)        

2810 Meridian Parkway, Suite 176
Durham, North Carolina 27713
(Address of principal executive offices)

 (919)361-5709
 (Issuer's telephone number)

        Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the last 12 months (or for such  
shorter period that the registrant was required to file such reports), and (2)  
has been subject to such filing requirements for the past 90 days.              
[  X  ] Yes               [     ] No        

        State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 12,252,029 shares of common
stock were outstanding on May 1, 1996.                                          

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 CREE RESEARCH, INC.
 FORM 10-QSB

 INDEX

                                                                        Page No.

PART I.  FINANCIAL INFORMATION                                                  

Item 1.  Financial Statements                                                   

Consolidated Balance Sheets at March 31, 1996 (unaudited) and 
         June 30, 1995                                                         3
     Consolidated Statements of Operations for the three and nine months
         ended March 31, 1996 and 1995 (unaudited)                             4

 Consolidated Statements of Cash Flows for the nine months ended
         March 31, 1996 and 1995 (unaudited)                                   5

         Notes to Consolidated Financial Statements (unaudited)                7

Item 2. Management's Discussion and Analysis of Financial Condition             
         and Results of Operation                                             10

PART II.  OTHER INFORMATION                                                     

Item 6.  Exhibits and Reports on Form 8-K                                     15

Signatures                                                                    16

NOTE: On August 14, 1995, the Company effected a stock split, splitting each    
share of common stock into two whole shares of common stock and the par value of
the common stock accordingly decreased by one-half to $0.005 per share. All     
share values reported throughout this document reflect post split data.         

 2

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PART 1 - FINANCIAL INFORMATION                                                  
Item 1 - Financial Statements                                                   

 CREE RESEARCH, INC.
 CONSOLIDATED BALANCE SHEETS

                                                        [Enlarge/Download Table]


                                                                    March 31,       June 30,  
                                                                      1996           1995     
                                                                  ------------   ------------ 
                                                                  (unaudited)                 
                                                                                              
ASSETS                                                                                        

Current assets:                                                                               
       Cash and cash equivalents                                  $ 14,624,427   $  3,748,422 
       Short-term investments, held to maturity                      1,800,431      2,089,278 
       Accounts receivable, net                                      5,644,843      3,599,722 
       Inventories                                                   3,190,851      1,677,092 
       Deferred costs on research contracts                               --           81,006 
       Prepaid expenses and other current assets                       298,965        195,697 
                                                                  ------------   ------------ 
              Total current assets                                  25,559,517     11,391,217 

Long-term investments, held to maturity                                   --        1,821,911 
Long-term accounts receivable                                          462,089           --   
Property and equipment, net                                         17,436,593      6,455,584 
Patent and license rights, net                                       1,132,241      1,020,475 
Other assets                                                           119,578         65,915 
Goodwill, net                                                          138,025        169,026 
                                                                  ============   ============ 
              Total assets                                        $ 44,848,043   $ 20,924,128 
                                                                  ============   ============ 

LIABILITIES AND SHAREHOLDERS' EQUITY                                                          

Current liabilities:                                                                          
       Accounts payable, trade                                    $  3,039,631   $  1,111,562 
       Accrued expenses                                                287,682        309,008 
                                                                  ------------   ------------ 
              Total current liabilities                              3,327,313      1,420,570 

Shareholders' equity:                                                                         
       Common stock,  $0.005 par value; 14,500,000 shares                                     
              authorized; shares issued 12,251,829 and                                        
              10,420,726 at March 31,                                                         
              1996 and June 30, 1995, respectively                      61,259         52,104 
       Additional paid-in capital                                   45,213,506     24,427,446 
       Accumulated deficit                                          (3,716,222)    (4,936,454)
                                                                  ------------   ------------ 
                                                                    41,558,543     19,543,096 
       Less:  Unearned compensation                                       --           (1,725)
              10,000 shares of common stock in treasury, at cost       (37,813)       (37,813)
                                                                  ------------   ------------ 
              Total shareholders' equity                            41,520,730     19,503,558 

              Total liabilities and shareholders' equity          $ 44,848,043   $ 20,924,128 
                                                                  ============   ============ 


The accompanying notes are an integral part of the
financial statements. 

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 CREE RESEARCH, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)

                                                        [Enlarge/Download Table]


                                                  Three Months Ended            Nine Months Ended        
                                                       March 31,                    March 31,            
                                                     ------------                  ------------          

                                                 1996            1995           1996            1995     
                                             ------------    ------------   ------------    ------------ 
                                                                                                         
Revenues                                                                                                 
      Product revenue, net                   $  2,657,193    $  1,133,442   $  6,534,951    $  4,283,297 
      Contract research and grants              1,365,703       1,560,970      3,761,120       3,467,170 
      License fee income                             --              --        1,423,160            --   
                                             ------------    ------------   ------------    ------------ 

          Total revenue                         4,022,896       2,694,412     11,719,231       7,750,467 

Cost of revenues                                3,062,185       2,072,424      8,418,043       6,164,810 
                                             ------------    ------------   ------------    ------------ 

          Gross margin                            960,711         621,988      3,301,188       1,585,657 

Operating expenses                                                                                       
      Research and development                    292,146         237,409        669,999         540,746 
      Sales, general and administrative           718,578         552,632      2,083,409       1,630,781 
                                             ------------    ------------   ------------    ------------ 

          Income (loss) from operations           (50,013)       (168,053)       547,780        (585,870)

Other income (expense)                                                                                   
      Interest income                             254,356         113,654        687,930         372,404 
      Interest expense                               --            (2,509)        (5,478)        (11,101)
                                             ------------    ------------   ------------    ------------ 

          Income (loss) before income taxes       204,343         (56,908)     1,230,232        (224,567)

Provision for income taxes                           --              --           10,000            --   
                                             ------------    ------------   ------------    ------------ 

          Net income (loss)                  $    204,343    $    (56,908)  $  1,220,232    $   (224,567)
                                             ============    ============   ============    ============ 

Net income (loss) per share                  $       0.02    $      (0.01)  $       0.10    $      (0.02)
                                             ============    ============   ============    ============ 

Weighted average shares outstanding            13,136,973      10,370,890     12,838,412      10,358,754 
                                             ============    ============   ============    ============ 


The accompanying notes are an integral part of the
financial statements. 

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 CREE RESEARCH, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)

                                                        [Enlarge/Download Table]


                                                                                Nine Months Ended    
                                                                                    March 31,        
                                                                                  ------------       

                                                                             1996            1995    
                                                                         ------------    ------------
                                                                                                     
Operating activities:                                                                                
       Net income (loss)                                                $  1,220,232    $   (224,567)
       Adjustments to reconcile net income (loss) to net cash                                        
              used in operating activities:                                                          
       Gain on disposal of fixed asset                                       (11,031)           --   
       Depreciation and amortization                                       1,084,086         987,221 
       Amortization of patent rights                                          95,623          64,043 
       Amortization of goodwill                                               31,001          27,592 
       Non-cash compensation expense related to stock options                  1,725           2,583 
       Changes in assets and liabilities:                                                            
              Accounts receivable                                         (2,507,210)       (913,712)
              Inventories                                                 (1,513,759)       (624,777)
              Deferred costs on research contracts                            81,006        (218,694)
              Prepaid expenses and other assets                             (156,931)        192,386 
              Accounts payable, trade                                        289,594          14,793 
              Accrued expenses                                               (21,326)         27,743 
                                                                        ------------    ------------ 

                   Net cash used in operating activities                  (1,406,990)       (665,389)

Investing activities:                                                                                
       Purchase of investment securities                                        --        (2,133,256)
       Maturity of investment securities                                   2,110,758       2,265,338 
       Purchases of fixed assets                                         (10,467,324)     (2,571,161)
       Proceeds from sale of fixed assets                                     51,736                 
       Payment for acquisition of subsidiary                                    --          (214,523)
       Purchase of patent rights                                            (207,390)       (173,363)
                                                                        ------------    ------------ 

                   Net cash used in investing activities                  (8,512,220)     (2,826,965)

Financing activities:                                                                                
       Principal payments on capital leases                                     --          (438,662)
       Proceeds from issuance of note payable                                   --           415,622 
       Net proceeds from issuance of common stock                         20,795,215           9,413 
       Payment of legal fees related to receipt of section 16(b)                                     
              common stock profits                                              --           (16,000)
                                                                        ------------    ------------ 

                   Net cash provided by (used in) financing activities    20,795,215         (29,627)
                                                                        ------------    ------------ 

Net increase (decrease) in cash and cash equivalents                      10,876,005      (3,521,981)
Cash and cash equivalents:                                                                           
       Beginning of period                                                 3,748,422       4,902,090 
                                                                        ------------    ------------ 
       End of period                                                    $ 14,624,427    $  1,380,109 
                                                                        ============    ============ 

The accompanying notes are an integral part of the financial statements.
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 CREE RESEARCH, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited) - (Continued)

                                                        [Enlarge/Download Table]


                                                                               Nine Months Ended
                                                                                  March 31,     
                                                                                 ----------     

                                                                            1996         1995   
                                                                         ----------   ----------

                                                                                                
Supplemental disclosure of cash flow information:                                               
       Cash paid for interest                                            $    5,478  $    10,940
                                                                         ==========   ==========

Supplemental schedule of non-cash investing and financing activities:                           
       Accounts payable recorded for purchases of equipment              $1,638,475   $  362,316
                                                                         ==========   ==========

       The Company through its wholly-owned subsidiary Real Color                               
              Displays, Inc. purchased the net assets of Color Cells                            
              International, LTD.  In conjunction with the acquisition,                         
              liabilities were assumed as follows:                                              

                   Fair value of assets acquired                                     $  366,455 
                   Cash paid                                                           (214,523)
                                                                                      ==========
                   Liabilities assumed                                                $  151,932
                                                                                      ==========


The accompanying notes are an integral part of the
financial statements. 

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 CREE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)

Basis of Presentation                                                           

      The balance sheet as of March 31, 1996, the statements of operations
for the three and nine month periods ended March 31, 1996 and 1995, and the     
statements of cash flows for the nine months ended March 31, 1996 and 1995 have 
been prepared by the Company without audit. In the opinion of management, all   
adjustments necessary to present fairly the financial position, results of      
operations and cash flows at March 31, 1996, and all periods presented, have    
been made. The balance sheet at June 30, 1995, has been derived from the audited
financial statements as of that date.                                           

   Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting  
principles have been condensed or omitted. It is suggested that these condensed 
financial statements be read in conjunction with the financial statements and   
notes thereto included in the Company's fiscal 1995 Form 10-KSB. The results of 
operations for the period ended March 31, 1996, are not necessarily indicative  
of the operating results that may be attained for the entire fiscal year.       

Fixed Assets                                                                    

  During the first quarter of fiscal 1996, the Company changed its
previous estimate on the useful lives of some of it's manufacturing equipment   
from 5 to 9 years. The change in estimate was based solely on Company specific  
experience with like fixed assets. The net adjustment increased net income      
approximately $70,000 or $0.005 per share for the quarter ended March 31, 1996  
and effectively increased net income approximately $210,000 or $0.016 for the   
nine months ended March 31, 1996.                                               

Short Term Line of Credit                                                       

  The Company's wholly-owned subsidiary, Real Color Displays, Inc.
("RCD") has access to a revolving line of credit for borrowing availability of  
$600,000. The line was renewed for a one year period in September, 1995. The    
revolver accrues interest at the banks prime lending rate and carries customary 
covenants, namely the maintenance of a minimum tangible net worth and cash and  
investment balances. The revolver primarily supports the issuance of letters of 
credit by RCD. As of March 31, 1996, there were no outstanding borrowings under 
this facility.                                                                  

Shareholders' Equity                                                            

        On August 14, 1995, the Company effected a stock split, splitting each
share of common stock into two whole shares of common stock and the par value of
the common stock accordingly decreased by one-half to $0.005 per share. All     
share values reported throughout this document reflect post split data.         

         On September 28, 1995, the Company closed the sale of 800,000 shares of
its common stock and five year warrants to purchase 200,000 shares of common    
stock in a                                                                      

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private placement. The sale generated net proceeds of approximately $17.5       
million. The Company also issued to placement agents in the offering five year  
warrants to purchase an additional 100,000 shares of common stock. All of the   
warrants were issued with an exercise price of $27.23 per share. Detailed       
information regarding the placement has been previously reported on the         
Company's Form 8-K filed October 13, 1995. A provision of the private placement 
required the Company to reprice the offering based on a calculation of the      
average stock trading price subsequent to the Company's second quarter earning  
release. Accordingly, the Company issued an additional 279,467 shares of common 
stock early in the third quarter to compensate investors for the decline in     
stock price. There have been and will be no other distributions of stock        
associated with this transaction.                                               

Revenue Recognition Policy                                                      

      The Company recognizes revenue from product shipments at the time of
shipment. Revenues from contract research and grants represents reimbursement by
various U.S. Government entities of research and development costs and a portion
of the Company's general and administrative expenses on either a cost plus or   
cost share basis. The specific reimbursement provisions of the contracts,       
including the portion of the Company's general and administrative expenses      
reimbursed, vary by contract.                                                   

 The contracts are awarded to the Company in order to aid in the
furthering of the development of the Company's technology by supplementing the  
Company's research and development efforts. Any resulting technology obtained by
the Company through these research and development efforts remain the property  
of the Company after the completion of the contract. The Company recognizes the 
contract research and grants funding related to these contracts as the related  
expenses are incurred in accordance with the terms of the contract.             

      The Company entered into its first license fee agreement in October,
1995. The agreement provides for the joint development and manufacture of light 
emitting diodes ("LEDs") using Cree's technology. The license fee agreement     
provided an initial cash payment of $500,000 upon confirmation of the agreement,
with additional $500,000 payments due October, 1996 and October 1997. All       
obligations under the license agreement with respect to fees paid to the Company
have been fulfilled by the Company as of March 31, 1996. The net present value  
of the entire agreement was recognized at the time the technology transfer was  
completed.                                                                      

Research and Development Cost Policy                                            

         The Company benefits from research and development efforts sponsored by
both government contracts and from internal corporate funding. Contracts are    
awarded to the Company to fund both short term and long term research projects. 
Contract research and grants represent reimbursement by various U.S. Government 
entities of research and development costs and a portion of the Company's       
general and administrative expenses either on a cost plus or a cost share basis.

  The Company incurred research and development costs unrelated to
contract research and grants totaling $292,000 and $670,000, for the three month
period and the nine month period ended March 31, 1996, respectively. The Company
spent $237,000 and $541,000 in the same periods the previous year.              

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        Contract research grants funded related expenditures of $1,248,000 and
$2,836,000 for the three and nine month periods ended March 31, 1996 and        
$1,238,000 and $2,069,000 for the three and nine month periods ended March 31,  
1995. These expenses are accounted for as a cost of contract research grants and
are reimbursable to the Company through the individual grants and are included  
in cost of revenues. Also included in the cost of revenues are Company incurred 
research and development costs of $229,000 and $554,000 for the three and nine  
month periods ended March 31, 1996 and $216,000 and $471,000 for the three and  
nine month periods ended March 31, 1995 which represent a cost sharing component
of the government contract research grants.                                     

Acquisition                                                                     

  In August 1994, the Company formed a North Carolina wholly-owned
subsidiary, Real Color Displays, for developing and marketing full color LED    
displays. Subsequently, RCD acquired the assets and assumed the liabilities of a
Hong-Kong based company in this line of business. The terms of the acquisition  
call for an "Earn-Out Payment" based on calculated net profits. To date, no     
amounts have been earned or paid under this agreement. Amounts paid under the   
earn-out, if any, will be included as an increase in goodwill when it is        
determined the Company is obligated under the agreement.                        

      The Company accounted for the acquisition using the purchase method.
The Company has recorded $207,000 in goodwill in connection with this           
transaction. This goodwill is being amortized over a five year period.          

Income Taxes                                                                    

      The Company recorded a minimal provision for income taxes during the
nine months ended March 31, 1996 since the Company has tax loss carryforwards   
and general business credits available for use.                                 

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

         Cautionary Statement Identifying Important Factors That Could Cause the
    Company's Actual Results to Differ From Those Projected in Forward
Looking Statements                                            

In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document, are advised 
that the document contains both statements of historical facts and forward      
looking statements. Forward looking statements are subject to certain risks and 
uncertainties, which could cause actual results to differ materially from those 
indicated by the forward looking statements. Examples of forward looking        
statements include, but are not limited to (i) projections of revenues, income  
or loss, earnings per share, capital expenditures, dividends, capital structure 
and other financial items, (ii) statements of the plans and objectives of the   
Company or its management or Board of Directors, including the introduction of  
new products, or estimates or predictions of actions by customers, suppliers,   
competitors or regulatory authorities, (iii) statements of future economic      
performance, and (iv) statements of assumptions underlying other statements and 
statements about the Company and its business.                                  

   This document also identifies important factors which could cause
actual results to differ materially from those indicated by the forward looking 
statements. These risks and uncertainties include the Company's ability to      
increase production capacity and yield, price competition, the actions of       
competitors, infringement of intellectual property rights and licenses of the   
Company or others, the effects of government regulation, both foreign and       
domestic, availability of U.S. government funded research contracts, possible   
delays in the introduction of new products, customer acceptance of products or  
services and other factors, which are described herein and in the Company's     
10-KSB for the year ended June 30, 1995.                                        

   The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not be  
construed as exhaustive or as any admission regarding the adequacy of           
disclosures made by the Company prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Company to control and in many 
cases the Company cannot predict what factors would cause actual results to     
differ materially from those indicated by the forward looking statements.       

Results of Operations                                                           

Results of operations include the operations of the Company's 
wholly-owned subsidiary, Real Color Displays, Inc. ("RCD") from the date of its 
purchase of the net assets of Color Cells International, Ltd. on August 5, 1994.
Details regarding the purchase were previously reported in the Company's Form   
8-K filed on August 22, 1994.                                                   

     The Company's revenues of $4,023,000 for the three month period and
$11,719,000 for the nine months ended March 31, 1996, represent a 49% and a 51% 
increase over the same periods in fiscal 1995, respectively.                    

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    Product revenue increased 135% to $2,657,000 for the quarter ended
March 31, 1996 compared to $1,133,000 for the same period in fiscal 1995.       
Product revenue increased 53% to $6,535,000 for the nine month period ended     
March 31, 1996 compared to $4,283,000 for the same period in the previous year. 
Product revenue is comprised of wafer products, LED sales, RCD's display sales  
and the Real Color Module(TM).                                                  

      Material and LED sales increased by 144% and 91% for the three month
and the nine month periods ended March 31, 1996, respectively, as compared to   
the same periods in the previous year. The Company shipped 1.5 million DH-85    
chips during the third quarter, which was primarily responsible for the increase
in LED sales. The increase in shipments was made possible by progress in        
achieving some of the Company's manufacturing process and productivity          
improvement goals. These refinements have provided for improved DH-85 yields and
process repeatability, an increase in wafer diameter to 1.625 inches and a      
decrease in chip size to .0013 inches from .0015 inches. The increase in wafer  
size combined with smaller chip size results in an increase in the average      
number of chips per wafer to approximately 12,500 from 6,600. In part, the      
increase in LED sales from prior periods can be attributed to a slow down in    
sales of the Company's predecessor D-9 chip as customers anticipated the        
development of its new super-bright LED. Current period revenue growth for the  
Company's wafer products reflects an increased demand for semiconductor quality 
silicon carbide ("SiC") wafers by groups that are exploring the development of  
SiC based semiconductor devices.                                                

       Revenues for RCD displays and the Real Color Module(TM) increased 63%
to $207,000 in the third quarter and decreased 19% to $1,213,000 for the nine   
months ended March 31, 1996, compared to the same periods last year. RCD's      
selling efforts have shifted substantially to its new modular display           
technology. The Company will continue to sell a number of its existing moving   
message sign products but a primary focus of the business will be production and
marketing of the new Real Color Module(TM). Production of the Real Color        
Module(TM) has been restrained however by a limited supply of blue LED chips.   
If Cree continues to increase chip production the Company expects the Real Color
Module(TM) production will also increase beginning in the fourth quarter.       

      Contract research and grants decreased by 13%, to $1,366,000 for the
three months ended March 31, 1996 compared to the three months ended March 31,  
1995. For the nine month period ending March 31, 1996 these revenues increased  
8% to $3,761,000 compared to the same period last year. The decline in the      
current quarter is due to resources being used for production of the            
super-bright LED chip that could be utilized for contract research. The Company 
expects contract billings to increase as production yields increase and some of 
the resources are then available for contracts. Two contracts accounted for 63% 
and 58% of the revenue for the three and nine month periods ended March 31,     
1996, respectively. These contracts relate to improving performance of the      
Company's super-bright LED and improving its SiC wafer technology. These        
contracts expire March, 1997 and May, 1998, respectively.                       

         The Company's gross margin increased to 24% and to 28% of sales for the
three and nine month periods ended March 31, 1996, compared to 23% and 20% of   
sales for the same periods in fiscal 1995. The slight increase in gross margin  
for the quarter is mainly attributable to the increase in sales of SiC wafers.  
The improvement in year to date gross margins is entirely attributable to the   
recognition of a $1.4 million licensing fee from a customer in the second       
quarter for the transfer of certain LED chip making technology.                 

         The Company produced a record 2.2 million chips in the current quarter,
more than double that of the second quarter. The increased production was made  
possible by various                                                             

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manufacturing and technology improvements that allowed the Company to increase  
its wafer diameter to 1.625 inches, for a portion of the Company's third quarter
production, while decreasing the LED chip size to .0013 inches on side from     
 .0015 inches and concurrently improving yield and manufacturing predictability.
Additional production increases are necessary for the Company to offer pricing  
that it believes will make the product suitable for higher volume applications. 
If the Company is successful in increasing production capacity and making       
improvements in the manufacturing process the Company expects that it will      
achieve improving margins. Likewise, the Company's failure to continue to       
increase production could result in higher prices and lower demand by the       
Company's customer base and therefore Cree's ability to generate a margin on    
this product. The Company has increased its overall expense structure over the  
previous nine months by making significant investments in personnel, production 
equipment and facilities. Accordingly, if the Company is unable to improve      
manufacturing yields, specifically wafer yields out of its epitaxial deposition 
process, to offset these increased fixed costs, the Company's future operating  
results would be negatively impacted including the possibility of generating a  
net loss. In addition, the fragmented nature of the market and the relative     
newness of the product make it difficult for the Company to gauge accurately the
size of the potential market. Therefore, even if the Company successfully       
attains increasing capacity for production of the new DH-85 there can be no     
assurance that the market will develop at the pace necessary for the Company to 
meet its margin and operating growth objectives.                                

         The Company benefits from research and development efforts sponsored by
both U.S. Government contracts and from internal corporate funding. Contracts   
are awarded to the Company to fund both short term and long term research       
projects. Contract research and grants represent reimbursement by various       
government entities for research and development costs and a portion of the     
Company's general and administrative expenses either on a cost plus or a cost   
share basis. Funding for projects with near term applications for the Company   
typically include a cost share component that the Company is responsible for    
absorbing as a cost of revenues. Projects that may not have readily available   
production applications or projects that relate to longer term development are  
normally awarded on a cost plus basis with built in margins of 7% to 10%.       
Contract research grants funded related expenditures of $1,248,000 and          
$2,836,000 for the three and nine month periods ended March 31, 1996 and        
$1,238,000 and $2,069,000 for the three and nine month periods ended March 31,  
1995. These expenses are accounted for as a cost of contract research revenues  
and are reimbursable to the Company through the individual grants and are       
included as a cost of revenues. The Company also contributed $229,000 and       
$554,000 for the three and nine month periods ended March 31, 1996 and $216,000 
and $471,000 for the three and nine month periods ended March 31, 1995 as a cost
sharing component of the government contract research grants. Total contract    
research and grant margins decreased for the third quarter, (8%) compared to 7% 
from the third quarter of fiscal 1995, and 10% compared to 27% for the nine     
month period ended March 31,1996 and 1995, respectively. Increased cost share,  
lower built-in profits and accrued rate adjustments accounted for the declines. 

  The Company incurred research and development costs unrelated to
contract research and grants totaling $292,000 and $670,000, for the three month
period and the nine month period ended March 31, 1996, respectively. The Company
spent $237,000 and $541,000 in the same periods the previous year.              

         Sales, general and administrative expenses increased by 30% to $719,000
and 28% to $2,083,000 for the three and nine month periods ending March 31, 1996
compared to the same periods in fiscal 1995, respectively. Increases in general 
and administrative expenses offset cost savings from consolidation of Cree's and
RCD's selling efforts. For the third quarter comparison the write off of a bad  
debt totaling $130,000 was primarily                                            

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responsible for the increase. For the nine month comparison an increase in      
headcount, and an increase in legal and corporate communications costs were     
associated with the increase in general and administrative expenses             

   Interest income increased from $114,000 to $254,000 for the three
months ended March 31, 1996 and from $372,000 to $688,000 for the nine months   
ended March 31, 1996. The increase is attributable to significantly increased   
cash balances available for investment as a result of the Company's private     
placement in the first quarter. For the third quarter, the Company would have   
posted a net loss of $50,000 without the contribution from interest income.     

         The Company manufactures and markets advanced semiconductor products to
electronic component and system manufacturers in rapidly changing and highly    
competitive international markets where a number of factors, including, but not 
limited to, changes in currency exchange rates, product cycles, production      
efficiency and trade restrictions could impact financial results.               

Liquidity and Capital Resources                                                 

      The Company's cash and current investment balance was $16,425,000 at
March 31, 1996 and $5,838,000 at June 30, 1995. For the first nine months of    
fiscal 1996, the Company's operations utilized $1,407,000. The net utilization  
was attributable to increasing receivables and inventory balances. For the same 
period in fiscal 1995, $665,000 was utilized by operations.                     

       The Company has historically experienced a higher accounts receivable
turnover rate than the general industry. For the three and nine month periods   
ended March 31, 1996 the Company's accounts receivable turnover rate was 125    
days and 124 days compared to 102 days and 118 days for the same period the     
previous year, respectively. The higher turnover rate is primarily due to the   
character of the production and sales cycles which has traditionally resulted in
a significant portion of product revenue being recognized and invoiced in the   
latter part of each quarter. Additionally, the Company has historically invoiced
government contract research grants in the period following the period in which 
the revenue was recognized.                                                     

 The Company invested $10,467,000 and committed to an additional
$1,638,000 for capital equipment during the first nine months of fiscal 1996    
compared to $2,571,000 and $362,000 in the prior year. The Company has expanded 
its manufacturing capacity through these investments which include the          
acquisition of redundant equipment, a new manufacturing facility to house the   
Company's fabrication and package and test operation and a reconfiguration of   
the Company's existing facility. It is anticipated that capital spending will   
remain elevated through the calendar year, but at a lower rate.                 

         Financing activities provided for $20,795,000 for the nine months ended
March 31, 1996, compared to $30,000 utilized in the year prior. The majority of 
the funding was provided by the Company's September 28, 1995, private placement 
which netted the Company approximately $17.5 million. In conjunction with the   
placement agreement, the Company issued an additional 279,467 shares of common  
stock early in the third quarter to restore the value contributed by the initial
investors for a subsequent decrease in stock price.                             
There have been and will be no other distributions of stock associated with this
transaction.                                                                    

      The Company's wholly-owned subsidiary, Real Color Displays, Inc. has
access to a revolving line of credit for borrowing availability of $600,000. The
line was renewed for                                                            

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a one year period in September, 1995. The revolver accrues interest at the banks
prime lending rate and carries customary covenants, namely the maintenance of a 
minimum tangible net worth and cash and investment balances. The revolver       
primarily supports the issuance of letters of credit by RCD. As of March 31,    
1996, there were no outstanding borrowings under this facility.                 

       The Company expects to continue to finance its operations and capital
expenditures, including those of Real Color Displays, using existing cash and   
investment reserves. Further, Cree expects to use contract funding to defray the
majority of the costs of its on going research and development programs.        

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PART II - OTHER INFORMATION                                                     

Item 6.  Exhibits and Reports on Form 8-K                                       

(a) Exhibits:                                                 
  Exhibit 11:  Computation of Earnings per Share

(b) Reports on Form 8-K:                                      
None.                                       

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SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.                                                                     

                                     CREE RESEARCH, INC.

Date: May 7, 1996                                /s/Alan J. Robertson_______    
                                            Alan J. Robertson, CFO and
                           Secretary

Date:  May 7, 1996                               /s/F. Neal Hunter__________    
                                               F. Neal Hunter, President and
                                         Chief Executive Officer

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Dates Referenced Herein

		Referenced-On Page
This ‘10QSB’ Filing	Date	First	Last	Other Filings

Filed on:	5/9/96			None on these Dates
	5/7/96	16
	5/1/96	1
For Period End:	3/31/96	1	14
	10/13/95	8
	9/28/95	7	13
	8/14/95	2	7
	6/30/95	3	13
	3/31/95	2	12
	8/22/94	10
	8/5/94	10
				List all Filings

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Filing Submission 0000950168-96-000747 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Cree Inc – ‘10QSB’ for 3/31/96

As of: Thursday, 5/9/96 · For: 3/31/96 · Accession #: 950168-96-747 · File #: 0-21154

Quarterly Report — Small Business — Form 10-QSBFiling Table of Contents

10QSB — Cree Research 10QSB 43374Document Table of Contents

Dates Referenced Herein

Quarterly Report — Small Business — Form 10-QSB
Filing Table of Contents

10QSB — Cree Research 10QSB 43374
Document Table of Contents