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.
<PAGE>
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
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
CREE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
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<PAGE>
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------ ------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
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<PAGE>
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
------------
1996 1995
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) - (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------
1996 1995
---------- ----------
<S> <C> <C>
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
==========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
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<PAGE>
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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<PAGE>
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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<PAGE>
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.
-9-
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
-15-
<PAGE>
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
-16-
<PAGE>
CREE RESEARCH, INC.
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1996 1995
---------------- -----------
Primary Fully Diluted Primary Fully Diluted
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding:
Common Stock 12,227,630 12,227,630 10,370,890 10,370,890
Shares Available Under Options
and Warrants 888,566 909,343 -- --
----------- ----------- ---------------- -----------
Weighted Average Common and Common
Equivalent Shares Outstanding 13,116,196 13,136,973 10,370,890 10,370,890
=========== =========== ================ ===========
Net Income 204,343 204,343 (56,908) (56,908)
=========== =========== ================ ===========
Earnings (loss) per Share $ 0.02 $ 0.02 $ (0.01) $ (0.01)
=========== =========== ================ ===========
For the Nine Months Ended March 31,
1996 1995
---------------- -----------
Primary Fully Diluted Primary Fully Diluted
----------- ----------- ---------------- -----------
Weighted Average Shares Outstanding:
Common Stock 11,681,533 11,681,533 10,358,754 10,358,754
Shares Available Under Options
and Warrants 1,156,879 1,156,879 -- --
----------- ----------- ---------------- -----------
Weighted Average Common and Common
Equivalent Shares Outstanding 12,838,412 12,838,412 10,358,754 10,358,754
=========== =========== ================ ===========
Net Income 1,220,232 1,220,232 (224,567) (224,567)
=========== =========== ================ ===========
Earnings (loss) per Share $ 0.10 $ 0.10 $ (0.02) $ (0.02)
=========== =========== ================ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000895419
<NAME> CREE RESEARCH, INC.
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 14,624,427
<SECURITIES> 1,800,431
<RECEIVABLES> 5,644,843
<ALLOWANCES> 0
<INVENTORY> 3,190,851
<CURRENT-ASSETS> 25,559,517
<PP&E> 24,067,330
<DEPRECIATION> 6,630,737
<TOTAL-ASSETS> 44,848,043
<CURRENT-LIABILITIES> 3,327,313
<BONDS> 0
0
0
<COMMON> 45,274,765
<OTHER-SE> (3,754,035)
<TOTAL-LIABILITY-AND-EQUITY> 44,848,043
<SALES> 11,719,231
<TOTAL-REVENUES> 11,719,231
<CGS> 8,418,043
<TOTAL-COSTS> 11,171,451
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,478
<INCOME-PRETAX> 1,230,232
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 1,220,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,220,232
<EPS-PRIMARY> $0.10
<EPS-DILUTED> $0.10
</TABLE>
