SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
Commission file number 0-11254
COPYTELE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2622630
------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
900 Walt Whitman Road
Huntington Station, NY 11746
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 549-5900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of common stock, par value
$.01 per share, outstanding as of March 10, 1999: 58,465,576 shares
<PAGE>
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Balance Sheets (Unaudited) as of January 31, 1999 and
October 31, 1998
Condensed Statements of Operations (Unaudited) for each of the
three months ended January 31, 1999 and January 31, 1998,and for the
period from November 5, 1982 (Inception) through January 31, 1999
Condensed Statement of Shareholders' Equity (Unaudited) for the
period from November 5, 1982 (Inception) through January 31, 1999
Condensed Statements of Cash Flows (Unaudited) for each of the
three months ended January 31, 1999 and January 31, 1998,and for the
period from November 5, 1982 (Inception) through January 31, 1999
Notes to Condensed Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Signatures.
2
<PAGE>
Part I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
---------------------
<TABLE>
<CAPTION>
COPYTELE,INC.
-------------
(Development Stage Enterprise)
------------------------------
CONDENSED BALANCE SHEETS (UNAUDITED)
------------------------------------
January 31, October 31,
ASSETS 1999 1998
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash (including cash equivalents and interest bearing accounts of
$4,362,437 and $5,363,522, respectively) $ 4,379,269 $ 5,406,017
Marketable securities, at cost 489,444 -
Accrued interest receivable 6,927 3,983
Inventory 2,991,510 2,719,215
Prepaid expenses and other current assets (including amounts due from
Joint Venture of approximately $677,000 and $825,000, respectively) 776,676 904,656
------------- -------------
Total current assets 8,643,826 9,033,871
PROPERTY AND EQUIPMENT (net of accumulated depreciation
and amortization of $1,423,832 and $1,351,778, respectively) 704,615 766,106
INVESTMENT IN JOINT VENTURE (Note 2) 277,319 345,947
AMOUNTS DUE FROM JOINT VENTURE 2,979,645 3,091,628
OTHER ASSETS 102,914 97,420
DEFERRED TAX BENEFITS (net of valuation allowance of $31,393,000
and $30,910,000, respectively) - -
-------------- -------------
$12,708,319 $13,334,972
============== =============
LIABILITIES AND SHAREHOLDERS'EQUITY
-----------------------------------
CURRENT LIABILITIES:
Accounts payable (including amounts due to Joint Venture of
approximately $677,000 and $662,000, respectively) $ 1,156,978 $ 1,392,321
Accrued liabilities 221,211 81,738
-------------- -------------
Total current liabilities 1,378,189 1,474,059
SHAREHOLDERS' EQUITY
Preferred stock, par value $100 per share; authorized 500,000 shares;
no shares outstanding - -
Common stock, par value $.01 per share; authorized 240,000,000 shares;
outstanding 58,430,276 and 57,871,176 shares, respectively 584,303 578,712
Additional paid-in capital 53,871,819 52,977,110
Accumulated (deficit) during development stage (43,125,992) (41,694,909)
-------------- -------------
11,330,130 11,860,913
-------------- -------------
$12,708,319 $13,334,972
============== =============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these balance sheets.
3
<PAGE>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------
<TABLE>
<CAPTION>
For the three months For the period from
ended January 31, November 5,1982
------------------------------------------ (inception) through
1999 1998 January 31, 1999
--------------------- ------------------- ------------------------
<S> <C> <C> <C>
SALES $ - $ - $ -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, (including
research and development expenses of approximately
$728,000, $1,100,000 and $29,039,000,
respectively) 1,415,282 1,958,397 47,005,416
--------------------- ------------------- ------------------------
LOSS FROM JOINT VENTURE 68,628 136,579 947,681
--------------------- ------------------- -----------------------
INTEREST INCOME 52,827 158,150 4,827,105
--------------------- ------------------- -----------------------
NET (LOSS) ($1,431,083) ($1,936,826) ($43,125,992)
===================== =================== =======================
NET (LOSS) PER SHARE OF COMMON STOCK: Basic and Diluted ($0.02) ($0.03) ($0.92)
===================== =================== =======================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic and
Diluted 57,920,672 57,861,176 46,822,862
===================== =================== =======================
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
4
<PAGE>
<TABLE>
<CAPTION>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
-------------------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION) THROUGH JANUARY 31, 1999 (UNAUDITED)
-------------------------------------------------------------------------------------
Additional Accumulated
Common Stock Paid-in (Deficit) During
Shares Par Value Capital Development Stage
-------------------------- --------------- ------------------
<S> <C> <C> <C> <C>
BALANCE, November 5, 1982 (inception) - $ - $ - $ -
Sale of common stock, at par, to incorporators on November
8, 1982 1,470,000 14,700 - -
Sale of common stock, at $.10 per share, primarily to
officers and employees from November 9, 1982 to November
30, 1982 390,000 3,900 35,100 -
Sale of common stock, at $2 per share, in private offering
from January 24, 1983 to March 28, 1983 250,000 2,500 497,500 -
Sale of common stock, at $10 per share, in public offering on
October 6, 1983, net of underwriting discounts of $1 per
share 690,000 6,900 6,203,100 -
Sale of 60,000 warrants to representative of underwriters, at
$.001 each, in conjunction with public offering - - 60 -
Costs incurred in conjunction with private and public
offerings - - (362,030) -
Common stock issued, at $12 per share, upon exercise of
57,200 warrants from February 5, 1985 to October 16, 1985,
net of registration costs 57,200 572 630,845 -
Proceeds from sales of common stock by individuals from
January 29, 1985 to October 4, 1985 under agreements with
the Company, net of costs incurred by the Company - - 298,745 -
Restatement as of October 31, 1985 for three-for-one stock
split 5,714,400 57,144 (57,144) -
Common stock issued, at $4 per share, upon exercise of 2,800
warrants in December 1985 8,400 84 33,516 -
Sale of common stock, at market, to officers on January 9,
1987 and April 22, 1987 and to members of their immediate
families on July 28, 1987 67,350 674 861,726 -
Restatement as of July 31, 1987 for five-for-four stock split 2,161,735 21,617 (21,617) -
Fractional share payments in conjunction with five-for-four
stock split - - (1,345) -
Sale of common stock, at market, to members of officers'
immediate families from September 10,1987 to December 4,
1990 and to officers on October 29, 1987 and February 26,
1989 628,040 6,280 6,124,031 -
Sale of common stock, at market, to senior
level personnel on February 26, 1989 29,850 299 499,689 -
Continued
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
-------------------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION) THROUGH JANUARY 31, 1999 (UNAUDITED)
-------------------------------------------------------------------------------------
Continued
Accumulated
Additional (Deficit) During
Common Stock Paid-in Development
Shares Par Value Capital Stage
------------------------- ---------- -----------------
<S> <C> <C> <C> <C>
Sale of common stock, at market, to unrelated party on
February 26, 1989 amended on March 10, 1989 35,820 358 599,627 -
Restatement as of January 31, 1991 for
two-for-one stock split 11,502,795 115,028 (115,028) -
Sale of common stock, at market, to members of officers'
immediate families from April 26, 1991 to October 27, 1992 261,453 2,615 2,788,311 -
Common stock issued upon exercise of warrants by
members of officers' immediate families on various
dates from September 1993 through March 1996 579,800 5,798 2,651,462 -
Common stock issued upon exercise of stock options
from December 16, 1992 to June 12, 1996 4,535,340 45,353 28,197,223 -
Restatement as of June 17, 1996 for two-for-one stock split 28,382,183 283,822 (283,822) -
Common stock issued upon exercise of warrants by
members of officers' immediate families on various
dates in July and October, 1996, and March 1997 206,610 2,066 1,062,167 -
Common stock issued upon exercise of stock options
from July 1996 to January, 1999 under stock option
plans, net of registration costs 1,444,300 14,443 3,903,603 -
Common stock issued upon purchase of equipment 15,000 150 74,850 -
Stock options granted to consultants - - 251,250 -
Accumulated (deficit) during development stage - - - ($43,125,992)
--------------- --------------- ---------------- ---------------
BALANCE, January 31, 1999 58,430,276 $584,303 $53,871,819 ($43,125,992)
=============== =============== ================ ===============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
this statement.
6
<PAGE>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
----------------------------------------------
<TABLE>
<CAPTION>
For the three
months ended For the period from
January 31, November 5, 1982
---------------------------------------------- (inception) through
1999 1998 January 31, 1999
-------------------- -------------------- -------------------
<S> <C> <C> <C>
Payments to suppliers, employees and
consultants ($1,417,535) ($ 2,049,250) ($50,864,877)
Interest received 49,883 190,107 4,820,179
-------------------- -------------------- -------------------
Net cash (used in) operating activities (1,367,652) (1,859,143) (46,044,698)
-------------------- -------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and
equipment (8,302) (254,380) (1,991,461)
Disbursements to acquire certificates of deposit and
marketable securities (489,444) - (13,535,443)
Proceeds from maturities of investments - 970,808 13,045,999
Investment made in Joint Venture - - (1,225,000)
-------------------- -------------------- -------------------
Net cash (used in) provided by investing activities (497,746) 716,428 (3,705,905)
-------------------- -------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock and warrants, net of
underwriting discounts of $690,000 related to initial
public offering in October 1983 - - 17,647,369
Proceeds from exercise of stock options and warrants, net of
registration disbursements 838,650 - 36,547,133
Proceeds from sales of common stock by
individuals under agreements with the
Company, net of disbursements made by the
Company - - 298,745
Disbursements made in conjunction with sales of stock - - (362,030)
Fractional share payments in conjunction with stock split - - (1,345)
-------------------- -------------------- -------------------
Net cash provided by financing activities 838,650 - 54,129,872
-------------------- -------------------- -------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,026,748) (1,142,715) 4,379,269
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,406,017 12,329,171 -
-------------------- -------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $4,379,269 $11,186,456 $4,379,269
==================== ==================== ===================
Continued
7
<PAGE>
</TABLE>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
----------------------------------------------
Continued
---------
<TABLE>
<CAPTION>
For the three
months ended For the period from
January 31, November 5, 1982
----------------------------------------- (inception) through
1999 1998 January 31, 1999
---------------- ---------------- ---------------------
<S> <C> <C> <C>
RECONCILIATION OF NET (LOSS) TO NET CASH (USED IN)
OPERATING ACTIVITIES:
Net (loss) ($1,431,083) ($1,936,826) ($43,125,992)
Stock option compensation to consultants 61,650 179,700 251,250
Loss from Joint Venture 68,628 136,579 947,681
Depreciation and amortization 72,054 70,818 1,439,490
Amortization of discount on marketable
securities - 26,365 -
(Increase) decrease in accrued interest
receivable (2,944) 5,592 (6,927)
(Increase) in inventory (272,295) (446,325) (2,991,510)
Decrease (increase) in prepaid expenses and other current
assets 127,980 (210,101) (776,676)
Decrease (increase) in long term amount due from Joint
Venture 111,983 - (2,979,645)
(Increase) decrease in other assets (5,494) 13,969 (102,914)
(Decrease) increase in accounts payable and
accrued liabilities (98,131) 301,086 1,300,545
---------------- ---------------- ---------------------
Net cash (used in) operating activities ($1,367,652) ($1,859,143) ($46,044,698)
================ ================ =====================
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
8
<PAGE>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
JANUARY 31, 1999 (UNAUDITED)
----------------------------
(1) Nature of business and other disclosures:
------------------------------------------
CopyTele, Inc. (the "Company"), which was incorporated on November 5, 1982, is a
development stage enterprise whose principal activities include the development,
production and marketing of a telephone based multi-functional
telecommunications product incorporating the Company's patented compact
ultra-high resolution charged particle E-Paper(TM) Flat Panel Display technology
and the operations of Shanghai CopyTele Electronics Co., Ltd. (the "Joint
Venture" or "SCE"), the Company's 55% owned joint venture in Shanghai, China
with Shanghai Instrumentation and Electronics Holding Group Company and Shanghai
International Trade and Investment Developing Corp. The Company is also in the
process of developing three new products: (i) a compact and portable digital
encryption device which could provide high-grade information security for any
telephone, computer, fax machine, MAGICOM(R) 2000 or "e-way"; (ii) a peripheral
product called "e-way" which could be used with a telephone, computer or fax
machine to provide internet e-mail, simultaneous voice and handwriting and
caller ID all over a single telephone line; and (iii) coated particles derived
from its E-Paper(TM) Flat Panel Display which could potentially be used by
manufacturers of toners and pigments. The Company also is continuing its
research and development activities for additional ultra-high resolution video
and color flat panel displays.
The Company is producing its telephone based multi-functional telecommunications
product, called MAGICOM(R) 2000, incorporating the Company's flat panel display,
called E-Paper(TM), and associated proprietary hardware and software technology
and marketing the product through its United States and international
distributor/dealer network. The Company has also developed, in conjunction with
a Japanese company, a small portable printer called MAGIC PRINTER. The printer
is being produced for the Company by the Japanese company which is also being
marketed through the Company's marketing network, including in China, for use
with MAGICOM(R) 2000 or in conjunction with personal or laptop computers.
The Company plans to sell its products to end-users through a distributor/dealer
network. All of the critical elements of the earnings process will be complete
when a distributor/dealer sells these products to end-users. The Company has had
no sales since its inception other than sales of a limited quantity of products
to certain distributors. Revenue will not be recorded on sales until the Company
determines that its products have been accepted by the end-users. There is no
assurance that the Company will generate significant revenues in the future,
will have sufficient revenues to generate a profit or that other products will
not be produced by other companies that will render the products of the Company
and SCE obsolete. See Safe Harbor Statement Under the Private Securities
--------------------------------------------------------
Litigation Reform Act of 1995 contained in Management's Discussion and Analysis
- -----------------------------
of Financial Condition and Results of Operations for discussions regarding
uncertainties that may significantly affect the results of operations, future
liquidity and capital resources.
Basis of Presentation
---------------------
The condensed financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The information contained herein is for the three months ended January 31, 1999
and 1998 and for the period from November 5, 1982 (inception) through January
31, 1999. In the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments considered necessary for a fair presentation of the
results of operations for such periods) have been included herein. The results
of operations for interim periods may not necessarily reflect the annual
operations of the Company. Reference is made to the October 31, 1998 audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1998, for more extensive
disclosures than contained in these condensed financial statements.
Effective October 31, 1998, the Company adopted SFAS No. 128, "Earnings Per
Share". In accordance with SFAS 128, basic net (loss) per common share ("Basic
EPS") is computed by dividing net (loss) by the weighted average number of
common shares outstanding. Diluted net (loss) per common share ("Diluted EPS")
is computed by dividing net (loss) by the weighted average number of common
shares and dilutive common share equivalents and convertible securities then
outstanding. SFAS No. 128 requires the presentation of both Basic EPS and
Diluted EPS on the face of the statements of operations. The impact of the
adoption of this statement was not material to previously reported EPS amounts.
Diluted EPS for all years presented is the same as Basic EPS, as the inclusion
of the impact of common stock equivalents then outstanding would be
anti-dilutive.
9
<PAGE>
Realizability of Assets
-----------------------
During fiscal 1998 and the three months ended January 31, 1999, the Company
increased its inventory to approximately $3,000,000 to prepare for the
distribution of its products. Management has recorded the Company's inventory at
its current net realizable value, which is based upon the current anticipated
selling price of the Company's MAGICOM(R) 2000 units, and provides for no
further reductions of the selling price of the product. To date, shipments of
the Company's product have been limited. Accordingly, there can be no assurance
that the Company will not be required to further reduce the selling price of the
MAGICOM(R) 2000 below its current carrying value to accomplish certain business
strategies, which would require a further reduction of such carrying value.
In addition, amounts due from SCE totaled approximately $3,657,000 as of January
31, 1999. The advances to SCE have primarily funded the purchase of inventory
components to manufacture the Company's MAGICOM(R) 2000. The ultimate
realizability of amounts due from SCE are dependent, in part, on future sales of
the Company's products. The Company's proportionate share of future losses in
the Joint Venture will continue to reduce the carrying value of the investment
in the Joint Venture until such amount is exhausted. If, after the Company fully
writes off its investment, it makes any additional investments, such additional
investments will be charged directly to the statement of operations.
The Company is continuing to evaluate the realizability of these assets on an
ongoing basis and will make such adjustments, as necessary, to reflect estimated
net realizable values based on current facts and circumstances.
Since MAGICOM(R) 2000's introduction in early 1997, the Company has been
developing and incorporating into the product a number of enhanced features. The
most significant features of MAGICOM(R) 2000 include the capability, with the
addition of a Company developed keyboard, to communicate by e-mail over the
internet; to provide all functions over a single telephone line, including
simultaneous voice and electronic handwriting and editing of documents ("SVD");
to input and retrieve documents to and from a computer's storage device; to edit
and transmit received documents; to send and receive full page paperless fax; to
rapidly scan documents, pictures, and drawings into a computer; to send and
receive handwritten information; and to provide peripheral functions to
computers. MAGICOM(R) 2000 is compatible with and can send information to fax
machines and computers, has the ability to transmit alpha-numeric messages to
pagers, and possess all basic telephone features, including digital voice mail.
Amounts Due from Joint Venture
------------------------------
The amounts due from the Joint Venture of approximately $3,657,000 and
$3,917,000, respectively, on the accompanying Condensed Balance Sheets represent
parts inventory, such as the flat panel assembly components, purchased by the
Company on behalf of SCE which are incorporated into the MAGICOM(R) 2000
product.
10
<PAGE>
(2) Joint Venture:
---------------
Investment in Joint Venture
---------------------------
The Company has contributed to SCE $1,225,000 in cash, and technology that has
been valued for purposes of the Joint Venture at $700,000. SCE does not reflect
the $700,000 in technology as an asset or equity investment in the condensed
financial statements presented below. The other parties have contributed cash
aggregating $1,575,000. The Company has reflected its investment in SCE under
the equity method of accounting and will recognize losses in SCE to the extent
of its cash investment. If future losses result in the write-off of the original
cash investment, and the Company makes additional investments, such investments
will be charged directly to the statement of operations.
Condensed Financial Information
-------------------------------
Condensed Balance Sheets for SCE at January 31, 1999 and October 31, 1998 and
Condensed Statements of Operations for the three month periods ended January 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Condensed Balance Sheets
------------------------
(Unaudited)
-----------
January31, October 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Cash $ 157,080 $ 51,760
Accounts receivable from CopyTele, Inc. 677,400 661,592
Inventories 3,255,004 3,568,202
Other current assets 19,756 68,581
Land occupancy rights, net of amortization; fixed assets,
net of depreciation and other non-current assets 2,061,267 2,105,583
----------------- ------------------
Total Assets $6,170,507 $6,455,718
================= ==================
Short term loans $1,120,147 $ 999,316
Accounts payable and accrued liabilities 316,372 338,052
Due to CopyTele, Inc. 3,657,045 3,916,628
Capital 1,076,943 1,201,722
================= ==================
Total Liabilities and Capital $ 6,170,507 $6,455,718
================= ==================
Condensed Statements of Operations
----------------------------------
(Unaudited)
-----------
For the three months ended
------------------------------------------
January 31, January 31,
1999 1998
----------------- ------------------
Net Sales $ - $ -
Operating (Loss) (104,471) (243,266)
Other Income (Expense) (20,308) (5,060)
================= ==================
Net (Loss) $ (124,779) $(248,326)
================= ==================
</TABLE>
11
<PAGE>
The short term loans from a Chinese bank bear interest at floating rates of
approximately 7.23% to 8.64% per annum at October 31, 1998. These loans will
mature in April, May and August 1999 and are secured by a land-use contract and
building owned by SCE.
The cumulative net (loss) incurred by SCE since its inception on April 10, 1995
is $(1,723,057).
Any valuation reserves related to the Company's inventory will result in a
similar charge to the statement of operations of SCE, as the operations and
certain assets of both entities are inter-dependent. Such a charge would result
in a decrease to the Company's investment in SCE.
(3) Stock option plans:
--------------------
The Company has two stock option plans, the 1987 Stock Option Plan, adopted by
the Board of Directors on April 1, 1987 (the "1987 Plan"), and the CopyTele,
Inc. 1993 Stock Option Plan, adopted by the Board of Directors on April 28, 1993
(the "1993 Plan").
SFAS No. 123, "Accounting for Stock Based Compensation", encourages, but does
-----------------------------------------
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. Compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of grant over the amount an employee must pay
to acquire the stock. In accordance with APB Opinion No. 25, no compensation
cost has been recognized by the Company, as all option grants to employees have
been made at the fair market value of the Company's stock on the date of grant.
Options granted to non-employee consultants are accounted for using the
fair-value method required by SFAS No. 123. Compensation expense recognized in
the three months ended January 31, 1999 and January 31, 1998 was $61,650 and
$179,700, respectively, and is included in general and administrative expenses
for the periods.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
--------------------------------------------------
Condition and Results of Operations.
------------------------------------
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
- --------------------------------------------------------------------------------
1995.
- -----
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: production capability by SCE and the Japanese supplier of MAGICOM(R)
2000 and MAGIC PRINTER, respectively; the ability of a second supplier to
produce and supply a lower cost printer; long-term product performance and the
capability of the Company, SCE, its distributors and its dealers to adequately
service the Company's products; the ability of distributors and dealers to
market their contracted quantities of the Company's products in their respective
territories; the ability of the Company and SCE to obtain all required foreign
government approvals; the volatility of foreign currency exchange rates;
political and economic stability in targeted marketing territories; the ability
of the Company to reduce the cost of MAGICOM(R) 2000 and the related printer;
political and economic stability in China and Russia in which research,
development or production activities are taking place on behalf of the Company;
the ability of the Company to commercially develop and establish a market for
its new products under development; the possible development of competitive
products that could render the Company's products obsolete or unmarketable; and
the ability of the Company to obtain additional financing. See "Business" and
Note 1 to the Company's Financial Statements contained in the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1998 for discussions
regarding uncertainties that may significantly affect the results of operations,
future liquidity and capital resources.
General
-------
The Company, which is a development stage enterprise, was incorporated on
November 5, 1982. The Company's principal activities include the development,
production and marketing of a telephone based multi-functional
telecommunications product incorporating the Company's patented compact
ultra-high resolution charged particle E-Paper(TM) Flat Panel Display technology
and the operations of SCE, the Company's 55% owned joint venture in Shanghai,
China which is accounted for under the equity method of accounting. The Company
is also in the process of developing three new products: (i) a compact and
portable digital encryption device which could provide high-grade information
security for a telephone, computer, fax machine, MAGICOM(R) 2000 or "e-way";
(ii) a peripheral product called "e-way" which could be used with a telephone,
computer or fax machine to provide internet e-mail, simultaneous voice and
handwriting and Caller ID all over a single telephone line; and (iii) coated
particles derived from its E-PaperTM Flat Panel Display which could potentially
be used by manufacturers of toners and pigments. The Company also is continuing
its research and development activities for additional ultra-high resolution
flat panel display technologies including video and color displays. There can be
no assurance, however, that the Company's efforts in these areas will be
successful. There is also no assurance that the Company will generate
significant revenues in the future, will have sufficient revenues to generate
profit or that other products will not be produced by other companies that will
render the products of the Company or SCE obsolete or unmarketable.
In reviewing Management's Discussion and Analysis of Financial Condition and
Results of Operations, reference is made to the Company's Condensed Financial
Statements and the notes thereto.
13
<PAGE>
Results of Operations
---------------------
The Company plans to sell its products to end-users through a distributor/dealer
network. All of the critical elements of the earnings process will be complete
when a distributor/dealer sells these products to end users. The Company has had
no sales since its inception other than sales of a limited quantity of products
to its distributors. Revenue will not be recorded on these sales, which were not
material, until the Company determines that its products have been accepted by
the end-users.
Selling, general and administrative expenses, excluding the loss from SCE, for
the three month periods ended January 31, 1999 and 1998 and for the period from
November 5, 1982 (inception) through January 31, 1999 were approximately
$1,415,000, $1,958,000 and $47,005,000, respectively. These amounts include
research, development and tooling costs of approximately $728,000, $1,100,000
and $29,039,000, respectively, as well as normal operating expenses.
Selling, general and administrative expenses, excluding the loss from SCE,
decreased approximately $543,000 during the three months ended January 31, 1999
as compared to the same period in the fiscal 1998 period resulting primarily
from decreases in expenditures for research and development, engineering
supplies, marketing, and professional fees.
Research and development costs decreased principally as a result of lower costs
incurred in connection with the development of the Company's solid state and
thin film flat panel displays programs. These costs vary over time depending on
the phase of development of each product or technology. Engineering supplies
decreased in the fiscal 1999 period as compared to the fiscal 1998 period
primarily as a result of reduced purchases of components used to develop
engineering changes to MAGICOM(R) 2000. This decrease was offset somewhat by the
cost to eliminate used components as a result of these changes. Marketing costs
decreased in the fiscal 1999 period as compared to the fiscal 1998 period as a
result of the elimination of non-recurring costs associated with marketing
start-up costs. Professional fees were also lower in the fiscal 1999 period as
compared to the fiscal 1998 period as a result of lower fees incurred for legal,
accounting and patent related services. The Company's non-cash charge to
earnings for stock based compensation to consultants mandated by SFAS No. 123
was lower in the fiscal 1999 period as compared to the fiscal 1998 period.
Communication and travel costs decreased as a result of the Company
concentrating its efforts on United States based distributors and dealers.
Employee compensation and related costs increased slightly in the fiscal 1999
period over the fiscal 1998 period as a result of one additional paid employee
and higher payroll taxes associated with stock option exercises. Some employee
benefit programs incurred a slight increase in rates for the fiscal 1999 period.
Rents also increased slightly as a result of annual escalations in certain
leases. A charge to earnings was recorded in order to bring the valuation of new
inventory purchases in line with current estimates.
The Company's portion of SCE's loss for the three month periods ended January
31, 1999 and 1998 and for the period from November 5, 1982 (inception) through
January 31, 1999 were approximately $69,000, $137,000 and $948,000,
respectively. The decrease in the loss for the fiscal 1999 period as compared to
the prior year's period of approximately $68,000 was the result of cost
reductions, production efficiencies and limited production activity to
incorporate engineering enhancements. The Company's proportionate share of
future losses in SCE will continue to reduce the carrying value of the Company's
investment in SCE until such amount is exhausted. If, after the Company fully
writes off its investment, it makes any additional investments, such additional
investments will be charged directly to the statement of operations.
14
<PAGE>
While there is no formal agreement, the Company's Chairman of the Board and its
President have waived salary and related pension benefits for an undetermined
period of time commencing November 1985. Four other individuals, including an
officer and three senior level personnel, then employed at the Company, waived
salary and related pension benefits from January 1987 through December 1990.
While there are no formal agreements, commencing January 1991 these individuals
waived such rights for an undetermined period of time and they did not receive
salary or related pension benefits through December 1992. The Company's Chairman
of the Board, its President and the three senior level personnel continued to
waive such rights commencing in January 1993 for an undetermined period of time.
From February 1993 to September 1998 one additional employee also waived such
salary and benefit rights.
The decrease in interest income of $105,000 from $158,000 during the fiscal 1998
period as compared to $53,000 during the fiscal 1999 period resulted primarily
from a decrease in average funds available for investment aided slightly by a
small increase in interest rates. Funds available for investment during the
three month periods ended January 31, 1999 and 1998, on a monthly weighted
average basis, were approximately $4,641,000 and $11,377,000, respectively. The
investment instruments selected by the Company are principally money market
accounts and commercial paper.
Year 2000 Issue
---------------
The Year 2000 issue relates to computer systems programmed to use two digits
rather than four digits to define the applicable year. Computer systems and
other programmable devices utilizing date/time-sensitive software and hardware
may recognize a date using "00" as the year 1900 rather than Year 2000 which
could result in the computer or device shutting down, performing incorrect
computations or performing inconsistently.
The Company is in the process of determining its risks regarding the Year 2000
issue. Once the assessment is complete, the Company will formulate and begin to
implement a plan to correct or establish contingencies for any Year 2000
problems it uncovers. However, the Company cannot guarantee that its remediation
efforts will prevent the occurrence of all Year 2000 problems.
The Company utilizes brand name personal computers and predominately
off-the-shelf software to perform its daily functions. An initial assessment of
the hardware indicates that the hardware is already Year 2000 compliant, and
non-compliant system operating software will be compliant with the installation
of readily available updates. The Company's financial software has already been
upgraded to be Year 2000 compliant. The Company's MAGICOM(R) 2000 product is
Year 2000 compliant. SCE has performed their initial assessment and will
implement a plan to correct deficiencies which do not appear to be material.
The Company has several material third party relationships primarily with
financial institutions, utilities, and telecommunications companies. The Company
is planning to take reasonable steps to verify the Year 2000 readiness of these
companies. The Company is also planning to contact its key customers, suppliers
and vendors regarding their readiness.
The initial cost to begin the assessment process and the cost expended to update
some items has not been material to date. The Company believes that its total
cost to test and correct any Year 2000 deficiencies will be in line with its
annually budgeted expense for computerization and is estimating the cost not to
exceed $20,000.
Failure by the Company to resolve a material Year 2000 issue could result in the
interruption or failure of certain business activities or operations, and could
materially adversely affect the financial condition, results of operation and
cash flow of the Company. If an interruption or failure does occur, the extent
of the Company's exposure would depend primarily upon the time it takes to
remedy the problem. Based on the Company's current knowledge of its systems,
operations and third party relationships, the Company does not anticipate that
the Year 2000 issue will have a material adverse impact on the Company.
The Company contemplates formulating a Year 2000 contingency plan in the event
of possible interruptions in business operations. This plan is currently
expected to be completed by the middle of calendar year 1999. There can be no
assurance, however, that the Company will be able to develop or implement a
successful contingency plan addressing the Year 2000 issue or that such a plan
will be economically feasible.
15
<PAGE>
Liquidity and Capital Resources
-------------------------------
Since its inception, the Company has met its liquidity and capital expenditure
needs primarily from the proceeds of sales of its common stock in its initial
public offering, in private placements, upon exercise of warrants issued in
connection with the private placements and public offering and upon the exercise
of stock options pursuant to the 1987 Plan and the 1993 Plan.
For the three months ended January 31, 1999, the Company received proceeds
aggregating approximately $839,000 from the exercise of stock options under the
1993 Plan to purchase shares of its common stock. During the period from
February 1, 1999 through March 10, 1999 the Company received additional proceeds
aggregating approximately $53,000 from the exercise of stock options pursuant to
the 1993 Plan. Working capital decreased by approximately $300,000 from
approximately $7,600,000 at October 31, 1998 to approximately $7,300,000 at
January 31, 1999 as a result of the loss incurred for the quarter offset by the
proceeds received in the period.
The Company's operations used approximately $1,365,000 in cash during the fiscal
quarter ended January 31, 1999. The current working capital includes
approximately $4,870,000 of cash and marketable securities, and approximately
$700,000 (net of approximately $677,000 due to SCE) of accounts payable and
accrued liabilities. The Company believes that these net cash resources will be
sufficient to continue its operations, as presently being conducted, into the
second quarter of fiscal 2000 after giving effect to anticipated reductions in
SCE's requirements for components purchases, which amounted to $1,275,000 during
fiscal 1998, and reductions in administrative and support personnel, if
necessary.
Management has recorded the Company's inventory at its current net realizable
value, which is based upon the current anticipated selling price of the
Company's MAGICOM(R) 2000 units, and provides for no further reductions of the
selling price of the product. To date, shipments of the Company's product have
been limited. Accordingly, there can be no assurance that the Company will not
be required to further reduce the selling price of the MAGICOM(R)2000 below its
current carrying value to accomplish certain business strategies which would
require a further reduction of such carrying value. In addition, amounts due
from SCE totaled approximately $3,657,000 as of January 31, 1999. The advances
to SCE have primarily funded the purchase of inventory components to manufacture
the Company's MAGICOM(R) 2000. The ultimate realizability of amounts due from
SCE are also dependent, in part, on future sales of the Company's products. The
Company will continue to evaluate the realizability of these assets on an
ongoing basis and will make such adjustments, as necessary, to reflect estimated
net realizable values based on current facts and circumstances.
The Company is seeking to improve its liquidity through the sale of products,
the collection of amounts due from SCE, and through possible sales of its common
stock, each as more fully described below.
In an effort to stimulate sales, the Company has reduced the selling price of
MAGICOM(R) 2000 and MAGIC PRINTER and is attempting to lower the cost of
producing these products so that further price reductions may be made. The
Company is hopeful, although there is no assurance, that with the price
reductions and the addition of the encryption device, which is still in the
process of being developed, sales of MAGICOM(R) 2000 will increase.
The amounts due from SCE are primarily costs related to the purchase by SCE of
components for use in MAGICOM(R) 2000 units. It is expected, although there can
be no assurance, that SCE will pay the Company during the current and succeeding
year through the sales of units and financing from banks. SCE repaid the Company
approximately $165,000 in November 1998. As of January 31, 1999, the Company
owed SCE approximately $677,000 which when paid would be used by SCE to repay
the Company. Sales of units by SCE to the Company may result in an increase in
the Company's inventory before units are then sold by the Company in the
ordinary course of its business.
16
<PAGE>
The Company may also attempt to raise additional funds, if necessary, through
private sales of its common stock at offering prices at or near the then market
price of the Company's stock. The market price of the Company's stock at the
time of the sales would affect the amount of dilution that would result to
stockholders from such sales. There can be no assurance, however, that the
Company will be able to consummate any private sales of its common stock.
The NASD requires that the Company maintain a minimum of $4 million of net
tangible assets to maintain its NASDAQ-NMS listing. If the Company's stock were
delisted, the delisting could potentially have an adverse affect on the price of
the Company's common stock and could adversely affect the liquidity of the
shares held by the Company's stockholders. The Company anticipates that it will
seek additional sources of funding, when necessary, in order to satisfy the NASD
requirements.
The Company's estimated funding capacity indicated above assumes, although there
is no assurance, that the waiver of salary and pension benefits by the Chairman
of the Board, the President and senior level personnel will continue. The
Company anticipates that it may require additional funds to continue its
research and development activities, maintain the NASD funding requirement and
participate in SCE beyond its initial capital contribution. There can be no
assurance that adequate funds will be available to the Company or that if
available, the Company will be able to obtain such funds on favorable terms and
conditions. The Company currently has no definitive arrangements with respect to
additional financing.
SCE required an initial aggregate capital investment of $3,500,000 from the
parties to the joint venture. The Joint Venture Agreement contemplates an
additional $3,500,000 of funding which may be borrowed from banks, of which
$1,120,000 has been borrowed to date. Three short-term loans aggregating the
$1,120,000 are from a Chinese bank and are secured by a land-use contract with
the Land Administration Bureau of Shanghai County and the building. The Company
has contributed $1,225,000 in cash, and technology valued for the purposes of
SCE at $700,000, and the Chinese parties contributed $1,575,000 in cash to SCE.
SCE may require additional capitalization depending upon the nature and extent
of its business activities. There can be no assurance that adequate funds will
be available to SCE, including any future capital contributions, if any, beyond
its initial capital contributions or that, if available, SCE will be able to
obtain such funds on favorable terms and conditions.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
----------------------------------
(a) Exhibits
--------
10.10 - Agreement dated March 3, 1999 between
Harris Corporation and CopyTele, Inc.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed for the
Company during the quarter ended January 31, 1999.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CopyTele, Inc.
By:/s/ Denis A. Krusos
---------------------------
Denis A. Krusos
Chairman of the Board,
Chief Executive Officer
and Director (Principal
March 16, 1999 Executive Officer)
By:/s/ Frank J. DiSanto
---------------------------
Frank J. DiSanto
March 16, 1999 President and Director
By:/s/ Gerald J. Bentivegna
---------------------------
Gerald J. Bentivegna
Vice President - Finance,
Chief Financial Officer and
Director (Principal Financial
March 16, 1999 and Accounting Officer)
19
<PAGE>
PURCHASE AGREEMENT
Buyer: CopyTele, Inc.
900 Walt Whitman Road
Huntington Station, NY 11746
Seller: Harris Corporation
RF Communications
1680 University Avenue
Rochester, NY 14610
1. GENERAL
1.1
A Confidentiality Agreement was entered into August 18, 1998 between CopyTele
and Harris Corporations RF Communications Division (Harris) to discuss the
development of a technically viable and cost effective solution for providing
digital voice and data cryptographic security to CopyTele's Magicom 2000
communications product.
1.2
As a result of these discussions, a product concept has emerged which will
utilize the Harris Citadel cryptographic engine. The product is being developed
by CopyTele under code name "The Bump." "The Bump" is being developed as a
stand-alone product with broad market applications. The device will provide
security to numerous products within the telecommunications, facsimile,
computer, cellular, internet, and radio industries.
1.3
The incorporation of Citadel will allow for high-grade security capable of
serving both domestic and international markets. Citadel was developed for and
has been approved for export applications. Overseas delivery of Citadel or
Citadel based product is subject to an approved Department of Commerce Export
License.
1.4
The product development is underway and Harris has provided CopyTele with a
number of prototype Citadel IC's, a Citadel embedment manual and limited product
definition and embedment engineering support. Certain of the foregoing
information provided is Harris Proprietary Information.
1.5
It is the parties' mutual desire to develop a broader relationship that would
potentially include joint Marketing, Sales, Distribution, Product Enhancement,
Manufacturing and possibly Joint Ownership or Joint Venturing of "The Bump."
1.6
Upon completion of "The Bump" prototype unit, CopyTele and Harris will define
their future relationship. The options will include:
1.6.1
Enter into a broader agreement for the purpose of bringing "The Bump" to market.
1.6.2
Terminate the program completely (if both CopyTele and Harris agree).
1.6.3
In the event that Harris elects not to enter into a broader agreement (option
1), Harris will, subject to agreement on mutually agreeable terms, enter into a
long term supply agreement with CopyTele to provide CopyTele with its
requirements for the Citadel IC and the necessary technical support and
technology license(s) for CopyTele to develop, manufacture (or have
manufactured), market and sell commercial versions of "The Bump."
1.7
During the Term of this Agreement (as defined in section 3.4) and during the
term of any agreement pursuant to Section 1.6.1, Harris and CopyTele agree to
participate exclusively with each other in pursuing the development described in
paragraph 1.2. During the period of exclusivity, neither party will participate
with any other entity in the design, development, nor manufacture of a product
equivalent to "The Bump" unless such other participation has been mutually
agreed upon in writing by the parties hereto. However, nothing contained herein
shall be deemed to restrict either party from quoting, offering to sell, or sale
to others of standard commercial product or services regularly offered to the
public at published prices. It is further the intention of the parties hereto
that this working relationship will apply to any other contracts emanating from
or awards made later in connection with "The Bump" by way of a change,
amendment, modification, or enlargement thereof.
20
<PAGE>
1.8
Should CopyTele, within 15 months of this agreement, not bring "The Bump"
product to market, Harris will be free to work with other companies on an
equivalent product.
1.9
The goal of this effort is to create a viable secure product, which both
companies will jointly own and launch successfully into the market. It is
anticipated that this joint ownership will include a sharing of cost to
Manufacture, Market, Sell, Promote, Distribute and Support the product as it
enters the marketplace. Additionally, if the parties proceed under Section
1.6.1, it is anticipated that CopyTele and Harris shall jointly own any
intellectual property rights in "The Bump" arising from the work performed
pursuant to this Agreement.
1.10
Jointly made inventions shall be owned by CopyTele and Harris. Any ownership
rights provided for by this paragraph shall survive the completion of this
purchase agreement. Any intellectual property, which includes patents,
trademarks, copyrights, tradesecrets, and any other confidential technical
information developed or provided by CopyTele shall remain the property of
CopyTele. Any intellectual property, which includes patents, trademarks,
copyrights, tradesecrets, and any other confidential technical information
developed or provided by Harris shall remain the property of Harris. The
expiration date specified in paragraph 6 of the Confidentiality Agreement is
hereby revised to coincide with the expiration date of this Agreement.
2. SCOPE OF WORK
2.1
This purchase agreement shall provide a vehicle whereby Harris can provide
reasonable engineering support to CopyTele for the purpose of embedding the
Citadel IC into "The Bump" and completion of a prototype device.
2.2
Harris shall evaluate "The Bump" and provide recommendations or alternate
technical approaches for CopyTele's consideration.
2.3
Harris shall provide independent technical advice, including but not limited to
electrical, mechanical, software, firmware and security related matters.
2.4
Harris shall provide specific assistance and direction under the direction of an
appointed CopyTele technical representative or manager.
21
<PAGE>
2.5
Harris shall evaluate the manufacturability of "The Bump" and provide CopyTele
an estimate of the recurring cost to produce the device in Harris' Rochester NY
factory.
2.6
Harris shall assist CopyTele in presenting "The Bump" to appropriate individuals
in the Department of Commerce, State Department or National Security Agency as
necessary to gain approval for the exportability of the device.
2.7
Harris shall provide support on a time and material basis as defined in section
3. TERMS AND CONDITIONS
3.1
This purchase agreement is established at a "not to exceed" value of $50,000.00.
3.2
Harris has been providing technical assistance for some time in anticipation of
this purchase agreement. Harris will not invoice for any of the time spent prior
to January 1,1999. Time spent since January 1, 1999, will be invoiced in the
first month's invoice.
3.3
This purchase agreement shall be governed by Harris Corporations standard Terms
and Conditions of Sale, as attached, solely for purposes of this agreement.
3.4
The Term of this agreement shall be 15 months from the date of execution of this
purchase agreement unless mutually agreed and extended in writing by both
parties.
3.5
Harris will submit invoices on a monthly basis per the rates as defined in
section 4.
3.6
Citadel pricing is included as a "not to exceed" figure primarily for planning
purposes. It is desired and expected that the price will be lower should
CopyTele and Harris agree to enter into a broader agreement upon completion of
the prototype unit. There is a minimum order requirement of 500 units for
purchase of the Citadel.
22
<PAGE>
4. PRICE
4.1
Harris will invoice CopyTele for technical support at Harris standard sub
contract rates or as negotiated in a future agreement.
4.2
Harris will invoice CopyTele for Citadel IC's at Harris standard commercial
price or as negotiated in a future agreement.
5. COMPLETE AGREEMENT
5.1
Each party hereto acknowledges (i) the risks of its undertakings hereunder, (ii)
the uncertainty of the benefits and obligations hereunder, and (iii) its
assumption of such risks and uncertainty. Each party has conducted its own due
diligence and requested and reviewed such contracts, business plans, financial
documents and any other written material as in such party's opinion shall be the
basis of said party's decision to enter into this Agreement.
5.2
Each party has consulted such legal, financial, technical or other experts it
deems necessary or desirable before entering into this transaction. Each party
represents and warrants that it has read, knows, understands and agrees with the
terms and conditions of this transaction. Neither party has relied upon any oral
representation of the other party in entering into this transaction. All
discussions, negotiations, estimates or projections developed by a party during
the course of negotiating the terms and conditions of this transaction are by
way of illustration only, and, unless specifically contained in this Agreement
or one of its Exhibits or Attachments, are not binding or enforceable against
the other party in law or in equity.
5.3
Each party hereto is an independent contractor and nothing herein contained
shall be construed to be inconsistent with this relationship or status. Neither
party owes a fiduciary duty to the other. Nothing in this Agreement shall be in
any way construed to constitute either party as the agent, employee or
representative of the other. As an independent contractor, each party has relied
on its own expertise or the expertise of its legal, financial, technical or
other agents.
5.4
This Purchase Agreement, consisting of sections 1 through 5 constitutes the
complete agreement between CopyTele and Harris. No other additions, alterations,
modifications or waiver of any of the provisions herein shall be valid unless
made in writing and executed by authorized representatives of CopyTele and
Harris.
Date: 2-25-99
By: Denis A. Krusos By: Chris Fedde
Denis A. Krusos Chris Fedde
Chairman of the Board Director, Secure Products Group
CopyTele, Inc. Harris Corporation
Richard M. Mattei 3/2/99
RMM 3/2/99
DAK 3/3/99
23
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<NAME> CopyTele, Inc.
<PERIOD-START> NOV-1-1998
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 4,379,269
<SECURITIES> 489,444
<RECEIVABLES> 22,987
<ALLOWANCES> 0
<INVENTORY> 2,991,510
<CURRENT-ASSETS> 8,643,826
<PP&E> 2,128,446
<DEPRECIATION> 1,423,832
<TOTAL-ASSETS> 12,708,319
<CURRENT-LIABILITIES> 1,378,189
<BONDS> 0
0
0
<COMMON> 584,303
<OTHER-SE> 10,745,827
<TOTAL-LIABILITY-AND-EQUITY> 12,708,319
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,483,910
<OTHER-EXPENSES> (52,827)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,431,083)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,431,083)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,431,083)
<EPS-DILUTED> (.02)
<EPS-PRIMARY> (.02)
</TABLE>
