UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DCWASHINGTON, D.C. 20549
FORM 10-Q10-QA
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _____________
Commission file number:File number 0-21154
CREE RESEARCH, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1572719
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (IRS Employer Identification No.)
2810 Meridian Parkway, Suite 108144 Durham,
North Carolina 27713
(Address of principal executive offices)
(919)361-5709
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X] Yes [ ]X No As___.
Number of October 21, 1996, 12,306,858registrant's shares of the registrant's common
stock,Common Stock, par value $0.005 per share,
were outstanding.
CREE RESEARCH, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page No.
Consolidated Balance Sheets at September 30, 1996 (unaudited) and
June 30, 1996 3
Consolidated Statements of Operations for the three months
ended September 30, 1996 and 1995 (unaudited) 4
Consolidated Statements of Cash Flows for the three months ended
September 30, 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 Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
CREE RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1996 1996
------------ -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,270,573 $ 10,161,706
Short-term investments, held to maturity 1,788,890 1,787,271
Accounts receivable, net 9,258,426 6,393,394
Inventories 4,404,319 3,226,484
Prepaid expenses and other current assets 238,129 150,990
------------ ------------
Total current assets 21,960,337 21,719,845
Long-term accounts receivable 877,797 464,253
Property and equipment, net 20,811,137 20,218,101
Patent and license rights, net 1,223,836 1,204,738
Other assets 61,714 61,714
Goodwill, net 117,358 127,692
============ ============
Total assets $ 45,052,179 $ 43,796,343
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,067,390 $ 2,657,054
Accrued expenses 300,140 467,201
Total current liabilities 2,367,530 3,124,255
Long-term accrued expenses 172,103 --
Total liabilities 2,539,633 3,124,255
Commitments and contingencies
Shareholders' equity:
Common stock, $0.005 par value; 14,500,000 authorized; issued and
outstanding 12,280,858 and 12,277,418, net of treasury shares,
at September 30 and
June 30, 1996 61,534 61,437
Additional paid-in capital 45,389,194 45,342,063
Accumulated deficit (2,787,679) (4,693,599)
------------ ------------
42,663,049 40,709,901
Less:
20,000 and 10,000 shares of common stock in
treasury, at cost, respectively (150,503) (37,813)
------------ ------------
Total shareholders' equity 42,512,546 40,672,088
------------ ------------
Total liabilities and shareholders' equity $ 45,052,179 $ 43,796,343
============ ============
The accompanying notes are an integral part of the financial statements.
3
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
------------------------------
1996 1995
-------------- ---------------
Revenues
Product revenues, net $ 2,751,683 $ 2,146,796
Contract revenues 2,067,125 1,212,599
License fee income 2,614,976 --
------------ ------------
Total revenues 7,433,784 3,359,395
Cost of revenues 4,263,958 2,506,500
Gross margin 3,169,826 852,895
Operating expenses
Research and development 113,289 84,333
Sales, general and administrative 1,086,405 663,668
------------ ------------
Income from operations 1,970,132 104,894
Other income (expense)
Interest income 147,557 91,653
Interest expense -- (2,858)
------------ ------------
Income before income taxes 2,117,689 193,689
Provision for income taxes 211,769 --
------------ ------------
Net income $ 1,905,920 $ 193,689
============ ============
Net income per share $ 0.15 $ 0.02
============ ============
Weighted average shares outstanding 13,034,738 11,905,258
============ ============
The accompanying notes are an integral part of the financial statements.
4
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
----------------------------
1996 1995
----------- ------------
Operating activities:
Net income $ 1,905,920 $ 193,689
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 737,328 302,175
Amortization of patent rights, write offs and other 42,347 29,341
Amortization of goodwill 10,334 10,334
Loss on write off of Eastern European Division assets 87,000 --
Non-cash compensation expense related to stock options -- 861
Changes in assets and liabilities:
Accounts receivable (3,278,576) (439,752)
Inventories (1,177,835) (398,553)
Deferred costs on research contracts -- 81,006
Prepaid expenses and other assets (87,140) (67,166)
Accounts payable, trade (788,433) (135,395)
Accrued expenses 5,042 (94,406)
------------ ------------
Net cash used in operating activities (2,544,013) (517,866)
Investing activities:
Maturities of investment securities -- 1,996,092
Purchases of property and equipment (1,218,596) (1,987,309)
Purchase of patent rights (63,063) (45,317)
------------ ------------
Net cash used in investing activities (1,281,659) (36,534)
Financing activities:
Repurchase of common stock (112,690) --
Net proceeds from issuance of common stock 47,229 14,753,248
------------ ------------
Net cash (used in) provided by financing activities (65,461) 14,753,248
------------ ------------
Net increase (decrease) in cash and cash equivalants (3,891,133) 14,198,848
Cash and cash equivalents:
Beginning of period 10,161,706 3,748,422
------------ ------------
End of period $ 6,270,573 $ 17,947,270
============ ============
The accompanying notes are an integral part of the financial statements.
5
CREE RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) - (Continued)
Three Months Ended
September 30,
--------
1996 1995
--------- ----------
Supplemental schedule of non-cash investing and financing activities: $198,769 $1,331,110
Accounts payable recorded for purchases of equipment $ -- $ 546,480
Payable recorded for placement agent commissions $ -- $6,263,350
Subscription receivable for common stock
The accompanying notes are an integral part of the financial statements.
6
CREE RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The balance sheet as of September 30,October 21, 1996, the statements of
operations for the three month periods ended September 30, 1996 and 1995, and
the statements of cash flows for the three months ended September 30, 1996 and
1995, have been prepared by the Company without audit. In the opinion of
management, all adjustments necessarywas 12,306,858.
EXPLANATORY NOTE
This Amendment is being filed solely to present fairlyprovide the financial position,
results of operations and cash flows at September 30, 1996, and all periods
presented, have been made. The balance sheet at June 30, 1996, 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 1996 Form 10-K. The results of
operations for the period ended September 30, 1996, are not necessarily
indicative of the operating results that may be attained for the entire fiscal
year.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined under the first-in, first-out (FIFO) method. Inventories consist of
the following:
September 30, 1996 June 30, 1995
Raw materials $1,595,071 $1,308,766
Work-in-progress 1,253,885 947,785
Finished goods 1,555,363 969,933
------------- -----------
$4,404,319 $3,226,484
============= ===========
License Fee Income
On September 30, 1996, the Company entered into a license and
technology transfer agreement and a related supply agreement with Shin-Etsu
Handotai Co. Ltd. ("SEH") and other parties. Pursuant to these agreements, the
Company granted SEH a license to use certain epitaxial and device fabrication
process technology for the manufacture of the Company's super-bright blue
light-emitting diode product and has agreed to supply silicon carbide wafers
required to manufacture the licensed product. The license agreement provides for
payment of a license fee and running royalties based on a percentage of sales of
products made using the licensed technology. The license fee is payable in
installments, with the first installment of $700,000 due upon execution of the
agreement and additional $500,000 payments due December 31, 1996, March 31,
1997, June 30, 1997 and June 30, 1998. The Company recorded a long-term accrued
expense of $186,000 payable June 30, 1998 to the third party that brokered the
license agreement. Substantially all of the Company's obligations to transfer
the licensed technology were performed at September 30, 1996, and the net
present value of the license fee payments and commission was recognized at that
time.
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 revenues 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 unabsorbed by
contract research and grants totaling $113,000 and $84,000, for the three month
periods ended September 30, 1996 and 1995, respectively.
Contract revenues funded direct expenditures of $1,576,000 and
$959,000, net of cost share, for the three month periods ended September 30,
1996 and 1995. These expenses and their related cost sharing component are
classified as a cost of revenues. Also included in the cost of revenues is
$120,000 and $83,000 for the three months ended September 30, 1996 and 1995,
respectively, for research and development overhead recovery, net of cost share.
Contract revenues provided additional funding totaling $148,000 and $133,000
through overhead rates for other operating expenses for the three month periods
ended September 30, 1996 and 1995, respectively. The cost sharing component of
contract revenues totaled $531,000 and $95,000 for the three months ended
September 30, 1996 and 1995, respectively.
Income Taxes
The Company has provided an estimated tax provision based upon an
effective rate of 10%. The estimated effective rate was based upon projections
of income for the fiscal year and the Company's ability to utilize existing net
operating loss carryforwards. However, the actual effective rate may vary
depending upon actual pre-tax book income for the year.
Reclassifications
Reclassifications of certain amounts have been made to the September
30, 1995 consolidated statement of operations to conform to the fiscal 1997
presentation. These reclassifications had no effect on shareholders' equity, the
results of operations or per share data.
Subsequent Event
The Company has been named as a defendant in a purported class
action lawsuit filed October 25, 1996 in the U.S. District Court for the Middle
District of North Carolina. Certain directors and officers of the Company are
also named as defendants. The plaintiff seeks to represent a class of all
persons who purchased the Company's common stock between February 1, 1996 and
July 2, 1996 (the "Class Period"). The complaint asserts claims under the
Securities Exchange Act of 1934, as well as claims of negligent
misrepresentation and common law fraud, based upon alleged material
misrepresentations and omission during the Class Period. The Company believes
that the allegations of the complaint are without merit and intends to defend
the suit vigorously.
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, other actions of
competitors, infringement of intellectual property rights 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. Other risk factors are discussed under "Risk Factors"
described below.
The cautionary statements made pursuant to the Private Securities
Litigation 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
The Company's revenues of $7,434,000, represent a 121% increase over
the same period in fiscal 1996. Included in the current period revenue is a
one-time net license fee of $2,615,000. The license fee was earned pursuant to a
license and technology transfer agreement entered into September 30, 1996 with
Shin-Etsu Handotai Co. Ltd. ("SEH"). Pursuant to this agreement, the Company
granted SEH a license to use certain expitaxial and device fabrication process
technology for the manufacture of the Company's super-bright blue light-emitting
diode ("LED") product. The license fee is payable in installments, with the
first installment of $700,000 due upon execution of the agreement and additional
$500,000 payments due December 31, 1996, March 31, 1997, June 30, 1997 and June
30, 1998. The Company recorded a long-term accrued expense of $186,000 payable
June 30, 1998 to the third party that brokered the agreement. Substantially all
of the Company's obligations to transfer the licensed technology were performed
at September 30, 1996, and the net present value of the license fee payments and
commission was recognized at that time.
Product revenue increased 28% to $2,752,000 for the quarter ended
September 30, 1996 compared to $2,147,000 for the same period in fiscal 1996.
Product revenue is comprised of wafer products, LED sales and RCD's display
sales. LED sales increased 73% to $1,204,000 for the quarter ended September 30,
1996 as compared to the same period in the prior year. Capacity increases and
production yield improvements enabled the Company to significantly increase the
number of LED's produced. The Company expects continued growth in LED product
sales as the Company adds additional capacity to initially fill an order for a
major customer. If the Company were unable to bring additional capacity on line
in a timely manner or failed to continue the current trend of improving yields,
the Company may be unable to deliver LED's according to schedule or at
reasonable cost levels. This would negatively impact margins for the LED product
and may cause the Company to post negative operating results.
On September 6, 1996, the Company signed a Purchase Agreement with
Siemens AG ("Siemens"), pursuant to which Siemens has agreed to purchase LED
chips made using the Company's gallium nitride-on-silicon carbide technology.
The agreement calls for shipments having an aggregate purchase price of
approximately $6.5 million during the fiscal year ending June 30, 1997 and
additional shipments aggregating approximately $5.5 million during the six-month
period ending December 31, 1997, although these additional shipments are subject
to cancellation at Siemens' election by making cancellation payments to the
Company.
The Purchase Agreement provides that the Company's supply
obligations are subject to the condition that it have obtained and installed an
additional epitaxial reactor system not later than November 1, 1996. The
reactor, which is needed to augment existing capacity in order to meet the
volume required by the Siemens' agreement, is presently scheduled to be
delivered on November 18, 1996. As with other complex equipment, bringing the
reactor to an operational status is subject to inherent uncertainties. However,
the Company anticipates that the reactor will be in productive use in time to
meet the shipment schedule under the Purchase Agreement. If the Company does
encounter delays in bringing the reactor on-line, it could redeploy another
system now used for research and development. In that event, the Company's
program to develop a conductive buffer layer product could be delayed, which
would delay the Company's efforts to reduce its LED production costs.
Wafer sales contributed $1,218,000 to product revenues during the
quarter ended September 30, 1996 representing a 37% increase over the same
period in fiscal 1996. Additional sales were realized as a result of consistent
demand for the Company's SiC wafers and the availability of additional crystal
growth capacity as well as capacity improvements to other wafer processing
areas.
Display and module sales fell by 42% to $330,000 during the first
quarter of fiscal 1997 as compared to the first quarter of fiscal 1996. The
decline is mainly attributable to a shortage of quality piece parts that the
Company purchases from a vendor. Issues relating to quality supplies have been
resolved and the Company expects to realize improved sales levels in the second
quarter of fiscal 1997.
Contract revenues increased 71% to 2,067,000 for the three months
ended September, 30, 1996, as compared to the three months ended September 30,
1995. The increase is mainly attributable to an increased contract backlog and
greater resource allocation to contract efforts.
The Company's gross margin increased to 43% for the three month
period ended September 30, 1996, compared to 25% for the same period in fiscal
1996. This increase was caused solely by the license fee income recognized in
the current period. Without the license fee income gross margins would have been
$555,000 or 12% for the current three month period, a decrease from 25% in the
three months ended September 30, 1995. The decrease in gross margin, as
adjusted, is mainly attributable to increased cost sharing on government
contracts which increased from 8% of contract revenue to 26% of contract
revenues and to a decline in margin on RCD's products.
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 revenues 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 revenues funded direct expenditures of $1,576,000 and
$959,000, net of cost share, for the three month periods ended September 30,
1996 and 1995. These expenses and their related cost sharing component are
classified as a cost of revenues. Also included in the cost of revenues is
$120,000 and $83,000 for the three months ended September 30, 1996 and 1995,
respectively, for research and development overhead recovery, net of cost share.
Contract revenues provided additional funding totaling $148,000 and $133,000
through overhead rates for other operating expenses for the three month periods
ended September 30, 1996 and 1995, respectively. The cost sharing component of
contract revenues totaled $531,000 and $95,000 for the three months ended
September 30, 1996 and 1995, respectively.
The Company incurred research and development costs unabsorbed by
contract revenues totaling $113,000 and $84,000, for the three month periods
ended September 30, 1996 and 1995, respectively.
Sales, general and administrative expenses increased by 64% to
$1,086,000 for the three month period ending September 30, 1996 compared to the
same period in fiscal 1996, respectively. The increase is attributable to a
$172,000 selling expense related to the license fee income and to a loss of
$180,000 for estimated expenses related to closing the Company's Eastern
European Division. The Eastern European Division was a basic research division
for some of the Company's material and device development work. The Company has
decided to focus all of its research and development efforts at its domestic
locations. The Company expects general and administrative expenses to increase
as expenses are incurred to defend against a lawsuit recently commenced against
the Company. See Part II, Item 1.
Interest income increased from $92,000 to $148,000 for the three
months ended September 30, 1996. The increase is attributable to higher
investable cash balances available throughout the current three month period as
a result of the Company's September, 1995, private equity placement.
Liquidity and Capital Resources
The Company's cash and current investment balance was $8,059,000 at
September 30, 1996 and $11,949,000 at June 30, 1996. For the first three months
of fiscal 1997, the Company's operations utilized $2,544,000. Funds employed in
operations were used mainly to fund increasing receivables and inventory
balances and decreasing trade payables relating to operating activities. For the
same period in fiscal 1996, $518,000 was utilized by operations.
The Company has historically experienced days sales outstanding
higher than the general industry. For the three month period ended September 30,
1996 the Company's average days sales outstanding was 118 days compared to 102
days for the same period the previous year. For the benefit of isolating
operating activity, all amounts relating to license fee agreements have been
omitted from this calculation. The high days sales outstanding is primarily due
to the timing of production and sales cycles which have generally resulted in a
significant portion of product revenue being recognized and invoiced in the
extreme later part of each quarter. Additionally, the Company has historically
invoiced government contract revenues in the period following the period in
which the revenue was recognized.
The Company invested $1,219,000 for capital equipment during the
first three months of fiscal 1997 compared to $1,987,000 in the prior year.
Although significant expansion and reconfiguration of all production areas has
occurred within the last fifteen months, substantial additional increases in
funding will be required to further expand the Company's production capacity to
meet current orders. It is anticipated that capital spending will remain
elevated over the next six months and that the Company will spend approximately
$3 to $4 million for such capital investments. The Company expects to finance
these expenditures with $4 million in term debt. On October 17, 1996, the
Company obtained a commitment letter from a bank for this funding.
During the current period the Company repurchased 10,000 shares of
common stock for the treasury for $113,000, net of shares issued under option
agreements for $47,000, resulting in a net use of $65,000 for financing
activities. The majority of the prior period's funding was provided by the
Company's September 28, 1995, private placement which netted the Company
approximately $17.5 million. $14.8 million of this funding was received by the
Company in the quarter that ended September 30, 1995 with the remaining $2.7
million being received the first few days of the next quarter.
The Company expects to continue to finance its operations and
capital expenditures, including those of Real Color Displays, using internally
generated funds and from the proceeds from the term debt facility. However, the
Company is always evaluating competitive conditions in the industry and as a
part of its ongoing strategy may seek additional funding sources as market
conditions permit.
Risk Factors
Ownership of the Company's common stock is subject to a number of
risks, including the following:
Since the Company's inception, the Company has derived approximately
half of its revenues from sales of products and the other half from funded
research contracts. Over the same period, the Company estimates that
approximately a third of its product sales have been made to customers for
commercial applications with the balance being sold for evaluation purposes. A
number of customers are still evaluating the blue LED, and on-going sales of
significant volumes of products to these customers cannot be assured. There can
also be no assurance that competitors will not introduce products that are
competitive with or superior to the Company's blue LED.
The Company periodically has experienced lower than anticipated
production yields. Production yield problems in the future could have an adverse
effect on the Company's operations. The Company manufactures several key
components used in its crystal growth and expitaxial deposition processes and
also depends, substantially, on its custom-manufactured processing equipment and
systems. Should the Company experience protracted problems in the production of
its key components or the operation of its proprietary manufacturing systems,
its ability to deliver its products could be materially impacted. The Company is
also dependent on single or limited source suppliers for a number of raw
materials and components used in its SiC wafer products and LED's. An
interruption in the supply of these items could cause the Company's
manufacturing efforts to be hampered significantly and result in customer
dissatisfaction.
The Company relies on a small number of customers for the majority
of its sales, and the loss of any one of these customers could have a material
adverse effect on the business and prospects of the Company. The Company has and
is expected to continue to have a substantial percentage of its sales from
foreign companies, primarily in Japan, Korea, Taiwan, China and Europe. There
can be no assurance that the Company's current intellectual property position
will be enforceable in foreign countries to the extent it is enforceable in the
United States. In addition, the Company's international sales may be subject to
government controls and other risks, including export licenses, federal
restrictions on the export of technology, changes in demand resulting from
currency fluctuations, political instability, trade restrictions, changes in
tariffs, and difficulties managing international operations and collecting
accounts receivable.
The patents and other proprietary rights of the Company may not
prevent the competitors of the Company from developing noninfringing technology
and products that are more attractive to customers than the technology and
products of the Company. The technology and products of the Company could be
determined to infringe the patents or other proprietary rights of others.
To remain competitive, the Company must continue to invest
substantial resources in research and development. The Company's prospects for
long-term success are substantially dependent on its ability to continue
increasing the performance of its blue LED product. The ability of the Company
to compete effectively depends upon its ability to attract and retain
highly-skilled engineering, scientific, manufacturing, marketing and managerial
personnel.
The Company has expanded its operations rapidly and operating
results will be adversely affected if net sales do not increase sufficiently to
compensate for the increase in operating expenses caused by this expansion.
Over the last several years, the Company has been awarded a number
of contracts from agencies of the United States government for purposes of
developing SiC material and SiC-based semiconductor devices. Government policy
is constantly changing, however, and there can be no assurance that the Company
will enter into any additional government contracts or, if such contracts are
entered into, that they will be profitable or produce contract revenues. In
addition, there can be no assurance that after any such contracts are entered
into, changing government regulations will not significantly alter the benefits
of such contracts or arrangements that can be expected to inure to the Company.
Cutbacks in or reallocations of federal spending, including changes which could
be proposed or implemented in the future, could have a material, adverse impact
on the Company's results of operations, as well as its ability to implement its
research and development programs.
The Company is subject to a variety of government regulations
pertaining to discharges and other aspects of its manufacturing process. The
Company believes that it is currently in full compliance with such regulations;
however, any failure, whether intentional or inadvertent, to comply with such
regulations could have an adverse effect on the Company's business.
The market price of the Company's securities has been very volatile
as a result of many factors, some of which are outside the control of the
Company, including, but not limited to, quarterly variations in financial
results, announcements by the Company, its competitors, customers, potential
customers or government agencies and predictions by industry analysts, as well
as general economic conditions. Sales by the Company's existing stockholders,
trading by short sellers and other market factors may adversely affect the
market price of the Company's securities. Any or all of these risks could have a
material adverse affect on the market price of the securities of the Company.
The Company's quarterly operating results have varied significantly
as a result of a number of factors, including the timing and market acceptance
of new product introductions by the Company, the timing of significant orders
from and shipments to customers, non-recurring license fee income, and general
domestic and international economic conditions. The Company's operating results
may fluctuate in the future as a result of these and other factors, including
the Company's success in developing, introducing, and shipping new products, its
product mix, and the level of competition that it experiences.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in a purported class
action lawsuit filed October 25, 1996 in the U.S. District Court for the Middle
District of North Carolina. Certain directors and officers of the Company are
also named as defendants. The plaintiff seeks to represent a class of all
persons who purchased the Company's common stock between February 1, 996 and
July 2, 1996 (the "Class Period"). The complaint asserts claims under the
Securities Exchange Act of 1934, as well as claims of negligent
misrepresentation and common law fraud, based upon alleged material
misrepresentations and omission during the Class Period. The Company believes
that the allegations of the complaint are without merit and intends to defend
the suit vigorously.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.54: License and
Technology Transfer Agreement between the Company and Shin-Etsu Handotai Co.
Ltd.,Ltd, dated September 30, 1996.1996 (the "Agreement"). Confidential treatment for
certain portions of this Exhibit is beingthe Agreement was requested pursuant to Rule 24 b-2.24b-2. Certain
portions of the Agreement that were not previously disclosed pending the
Securities and Exchange Commission's determination of the Company's request for
confidential treatment are included herein.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (3) Exhibits (* filed herewith):
Exhibit 10.55: SupplyNo. Description
10.54* License and Technology Transfer Agreement between the
Company and Shin-Etsu Handotai Co. Ltd. andSummitomo Corporation,Ltd, dated September 30,
1996.
Confidential treatment of this Exhibit is being requested pursuant to Rule 24
b-2.
Exhibit 11: Computation of Earnings per Share
(b) Reports on Form 8-K:
None.1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934,
the registrant hasRegistrant duly caused this report on Form 10-QA to be signed on its behalf
by the undersigned, thereunto duly authorized.
CREE RESEARCH, INC.
Date: November 14, 1996 /s/ Alan J. Robertson
--------------------
Alan J. Robertson, CFO and
Secretary
Date: Novermber 14, 1996By: /s/ F. Neal Hunter
------------------------Name: F. Neal Hunter
Title: President and Chief Executive Officer
Date: January 23, 1997
EXHIBIT INDEX
Exhibit No. Description Sequential Page No.
10.54* License and Technology Transfer
Agreement between the Company
and Shin-Etsu Handotai Co. Ltd
dated September 30, 1996