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 July 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 September 10, 1999: 60,057,376 shares
<PAGE>
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of July 31, 1999 (Unaudited) and
October 31, 1998
Condensed Statements of Operations (Unaudited) for the nine months
ended July 31, 1999 and July 31, 1998, and for the period from November
5, 1982 (Inception) through July 31, 1999
Condensed Statements of Operations (Unaudited) for the three months
ended July 31, 1999 and July 31, 1998
Condensed Statement of Shareholders' Equity (Unaudited) for the period
from November 5, 1982 (Inception) through July 31, 1999
Condensed Statements of Cash Flows (Unaudited) for the nine months
ended July 31, 1999 and July 31, 1998, and for the period from November
5, 1982 (Inception) through July 31, 1999
Condensed Statements of Cash Flows (Unaudited) for the three months
ended July 31, 1999 and July 31, 1998
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 4. Submission of Matters to a Vote of Security Holders
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)
July 31, October 31,
ASSETS 1999 1998
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash (including cash equivalents and interest bearing accounts of
$2,287,704 and $5,363,522, respectively) $2,349,246 $5,406,017
Marketable securities, at cost 488,038 -
Accrued interest receivable 4,767 3,983
Inventory 3,618,005 2,719,215
Prepaid expenses and other current assets (including amounts due from
Joint Venture of approximately $663,000 and $825,000, respectively) 744,699 904,656
------------ ------------
Total current assets 7,204,755 9,033,871
PROPERTY AND EQUIPMENT (net of accumulated depreciation
and amortization of $1,559,131 and $1,351,778, respectively) 599,036 766,106
INVESTMENT IN JOINT VENTURE (Note 2) 274,941 345,947
AMOUNTS DUE FROM JOINT VENTURE 2,359,637 3,091,628
OTHER ASSETS 102,914 97,420
DEFERRED TAX BENEFITS (net of valuation allowance of
$32,708,000 and $30,910,000, respectively) - -
------------ ------------
$10,541,283 $13,334,972
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable (including amounts due to Joint Venture of
approximately $663,000 and $662,000, respectively) $1,319,285 $1,392,321
Accrued liabilities 272,916 81,738
------------ ------------
Total current liabilities 1,592,201 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 59,152,376 and 57,871,176 shares, respectively 591,524 578,712
Additional paid-in capital 54,971,178 52,977,110
Accumulated (deficit) during development stage (46,613,620) (41,694,909)
------------ ------------
8,949,082 11,860,913
------------ -------------
$10,541,283 $13,334,972
============ =============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these balance sheets.
3
<PAGE>
<TABLE>
<CAPTION>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------
For the nine months For the period from
ended July 31, November 5, 1982
----------------------------------------- (inception) through
1999 1998 July 31, 1999
------------------ ------------------ --------------------
<S> <C> <C> <C>
SALES $ - $ - $ -
------------------ ------------------ --------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, (including
research and development expenses of approximately
$2,203,000, $3,032,000 and $30,514,000, respectively) 4,909,332 5,530,414 50,499,466
------------------ ------------------ --------------------
LOSS FROM JOINT VENTURE 142,506 301,546 1,021,559
------------------ ------------------ --------------------
INTEREST INCOME 133,127 394,954 4,907,405
------------------ ------------------ --------------------
NET (LOSS) ($4,918,711) ($5,437,006) ($46,613,620)
================== ================== ====================
NET (LOSS) PER SHARE OF COMMON STOCK: Basic and Diluted ($0.08) ($0.09) ($0.99)
================== ================== ====================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic and
Diluted 58,491,880 57,864,033 47,177,199
================== ================== ====================
</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 STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------
For the three months
ended July 31,
---------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
SALES $ - $ -
-------------------- --------------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES, (including research and
development expenses of approximately
$724,000 and $926,000, respectively) 1,897,197 1,697,141
-------------------- --------------------
LOSS FROM JOINT VENTURE 29,411 94,165
-------------------- --------------------
INTEREST INCOME 36,352 106,187
-------------------- --------------------
NET (LOSS) ($1,890,256) ($1,685,119)
==================== ====================
NET (LOSS) PER SHARE OF COMMON
STOCK: Basic and Diluted ($0.03) ($0.03)
==================== ====================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING: Basic and Diluted 59,085,633 57,869,654
==================== ====================
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
5
<PAGE>
<TABLE>
<CAPTION>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
-------------------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION) THROUGH JULY 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>
6
<PAGE>
<TABLE>
<CAPTION>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
-------------------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION) THROUGH JULY 31, 1999 (UNAUDITED)
----------------------------------------------------------------------------------
Continued
---------
Additional Accumulated
Common Stock Paid-in (Deficit) During
Shares Par Value Capital Development 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 purchase of equipment 15,000 150 74,850 -
Common stock issued upon exercise of stock options from
July 1996 to July 1999 under stock option plans, net
of registration costs 1,766,400 17,664 4,406,962 -
Sale of common stock, at market, to a related party and an
unrelated party on April 30, 1999 400,000 4,000 596,000 -
Stock options granted to consultants - - 251,250 -
Accumulated (deficit) during development stage - - - ( 46,613,620)
------------ ------------ -------------- ---------------
BALANCE, July 31, 1999 59,152,376 $591,524 $54,971,178 ($46,613,620)
============ ============ ============== ===============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
this statement.
7
<PAGE>
<TABLE>
<CAPTION>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
----------------------------------------------
For the nine
months ended For the period from
July 31, November 5, 1982
------------------------------------------- (inception) through
1999 1998 July 31, 1999
-------------------- -------------------- ----------------------
<S> <C> <C> <C>
Payments to suppliers, employees and consultants ($4,533,039) ($6,513,801) ($53,980,381)
Interest received 132,343 410,654 4,902,639
-------------------- -------------------- ----------------------
Net cash (used in) operating activities (4,400,696) (6,103,147) (49,077,742)
-------------------- -------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and
equipment (41,767) (105,805) (2,024,926)
Disbursements to acquire certificates of deposit
and marketable securities (488,038) (972,469) (13,534,037)
Proceeds from maturities of investments - 970,808 13,045,999
Investment made in Joint Venture (71,500) - (1,296,500)
-------------------- ----------------- ---------------------
Net cash (used in) investing activities (601,305) (107,466) (3,809,464)
-------------------- ----------------- ---------------------
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 600,000 - 18,247,369
Proceeds from exercise of stock options and warrants, net of
registration disbursements 1,345,230 28,125 37,053,713
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 1,945,230 28,125 55,236,452
-------------------- ----------------- -------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,056,771) (6,182,488) 2,349,246
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,406,017 12,329,171 -
-------------------- ----------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $2,349,246 $6,146,683 $2,349,246
==================== ================= ===================
Continued
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
----------------------------------------------
Continued
---------
For the nine
months ended For the period from
July 31, November 5, 1982
-------------------------------------------- (inception) through
1999 1998 July 31, 1999
------------------- ------------------- ---------------------
<S> <C> <C> <C>
RECONCILIATION OF NET (LOSS) TO NET CASH (USED IN)
OPERATING ACTIVITIES:
Net (loss) ($4,918,711) ($5,437,006) ($46,613,620)
Loss from Joint Venture 142,506 301,546 1,021,559
Stock option compensation to consultants 61,650 255,000 251,250
Depreciation and amortization 207,353 219,684 1,574,789
Amortization of discount on marketable
securities - 9,729 -
(Increase) decrease in accrued interest
receivable (784) 5,971 (4,767)
(Increase) in inventory (898,790) (1,709,832) (3,618,005)
Decrease (increase) in prepaid expenses and
other current assets 159,957 8,848 (744,699)
Decrease (increase) in long term amount due from Joint
Venture 731,991 - (2,359,637)
(Increase) decrease in other assets (5,494) 14,610 (102,914)
Increase in accounts payable and accrued
liabilities 119,626 228,303 1,518,302
------------------- ------------------- ---------------------
Net cash (used in) operating activities ($4,400,696) ($6,103,147) ($49,077,742)
=================== =================== =====================
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
9
<PAGE>
<TABLE>
<CAPTION>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
----------------------------------------------
For the three months
ended July 31,
------------------------------------------------------------
1999 1998
--------------------------- -------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Payments to suppliers, employees and
consultants ($1,803,893) ($1,914,301)
Interest received 45,178 91,007
--------------------------- -------------------------
Net cash (used in) operating activities (1,758,715) (1,823,294)
--------------------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equipment (17,312) (15,477)
Proceeds from maturities of investments 1,406 -
Investment made in Joint Venture (71,500) -
--------------------------- -------------------------
Net cash (used in) investing activities (87,406) (15,477)
--------------------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and
warrants, net of registration disbursements 453,630 28,125
--------------------------- -------------------------
Net cash provided by financing activities 453,630 28,125
--------------------------- -------------------------
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,392,491) (1,810,646)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,741,737 7,957,329
--------------------------- -------------------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $2,349,246 $6,146,683
=========================== =========================
RECONCILIATION OF NET (LOSS) TO NET CASH (USED IN) OPERATING
ACTIVITIES:
Net (loss) ($1,890,256) ($1,685,119)
Loss from Joint Venture 29,411 94,165
Stock option compensation to consultants - 75,300
Depreciation and amortization 67,911 72,749
Decrease (increase) in accrued interest receivable 8,826 (1,636)
(Increase) in inventory (794,378) (1,102,208)
Amortization of discount on marketable
securities - (13,544)
(Increase) decrease in prepaid expenses and other
current assets (78,162) 430,959
Decrease in long term amount due from Joint
Venture 621,133 -
Decrease in other assets - 321
Increase in accounts payable and accrued liabilities 276,800 305,719
--------------------------- -------------------------
Net cash (used in) operating activities ($1,758,715) ($1,823,294)
=========================== =========================
The accompanying notes to condensed financial statements are an integral part of
these statements.
</TABLE>
10
<PAGE>
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
JULY 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 production
and marketing of the USS-900, a hardware based peripheral digital encryption
device; the SCS-700 which combines the USS-900 with MAGICOM(R) 2000, a telephone
based multi-functional telecommunications product incorporating the Company's
E-Paper(TM) Flat Panel Display technology to provide a secure telecommunication
system; and the operations of Shanghai CopyTele Electronics Co., Ltd. (the
"Joint Venture" or "SCE"), the Company's 55% owned joint venture in Shanghai,
China. The Company is also continuing its research and development activities
for additional ultra-high resolution flat panel displays, including video and
color displays, and coated particles which could potentially be used by
manufacturers of toners and pigments.
The Company is producing and has commenced a marketing program for the USS-900,
with technical assistance from Harris Corporation ("Harris"). This device
utilizes Harris' digital cryptographic chip - the Citadel(TM) CCX - which is
capable of providing high-grade information encryption. A limited number of
USS-900 devices have been produced by the Company with the assistance of a U.S.
based sub-contractor. SCE is supplying quantities of materials, sub-assemblies
and accessories. Harris is supplying the Citadel(TM) CCX chip under a new three
year agreement at a negotiated price based in part on sales of USS-900 with all
units to contain the designation of "Secured by Harris".
The Company continues to produce additional limited quantities of modified
MAGICOM(R) 2000 which are configured for the SCS-700 system. The Company has
also developed, in conjunction with a Japanese company, a small portable printer
called MAGIC PRINTER. The printer is being marketed by the Company for use with
the SCS-700 or in conjunction with personal or laptop computers.
The Company plans to sell its USS-900, SCS-700 and MAGIC PRINTER products to
end-users directly and through a distributor/dealer network. All of the critical
elements of the earnings process for a product will be complete when a
distributor/dealer sells the product to end-users. The Company has had no sales
since its inception other than sales (which were not material) of limited
quantities of the MAGICOM(R) 2000 and MAGIC PRINTER products to certain
distributors. In late August 1999, the Company began initial shipment of limited
quantities of its USS-900 product for sale to office equipment suppliers, dealer
and end-users. Revenue will not be recorded on sales until the Company
determines that the product(s) 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.
11
<PAGE>
Realizability of Assets
-----------------------
The Company's inventory of approximately $3,618,000 consists of USS-900,
MAGICOM(R) 2000 units for the SCS-700 system, MAGIC PRINTER and parts.
Management has recorded the Company's inventory at its current net realizable
value, which is based upon the current anticipated selling price of the
products. To date, shipments of the Company's products have been limited. There
can be no assurance that the Company will not be required to further reduce the
inventory carrying value of the modified MAGICOM(R) 2000 units for the SCS-700
system below its current value in the future, in order to accomplish certain
business strategies.
In addition, amounts due from SCE totaled approximately $3,023,000 as of July
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 believes that the ultimate realizability of its current inventory of
modified MAGICOM(R) 2000 units is dependent upon its salability/market
acceptance through the SCS-700 system. Accordingly, if the SCS-700 does not
result in measurable market acceptance, a full value or significant writedown of
its present modified MAGICOM(R) 2000 inventory may be required and SCE's ability
to repay the amount due the Company would be directly impaired, as both assets
are inter-dependent (Note 2). 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.
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 nine and three month periods ended
July 31, 1999 and 1998 and for the period from November 5, 1982 (inception)
through July 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.
Amounts Due from Joint Venture
------------------------------
The amounts due from the Joint Venture of approximately $3,023,000 and
$3,917,000, respectively, as of July 31, 1999 and 1998, 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.
12
<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 advanced an additional $71,500 in cash to
SCE as of July 31, 1999. 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 July 31, 1999 and October 31, 1998 and
Condensed Statements of Operations for the nine month periods ended July 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Condensed Balance Sheets
-------------------------
(Unaudited)
-----------
July 31, October 31,
1999 1998
----------------- ------------------
<S> <C> <C>
Cash $ 26,115 $ 51,760
Accounts receivable from CopyTele, Inc. 663,060 661,592
Inventory 2,748,999 3,568,202
Other current assets 22,566 68,581
Land occupancy rights, net of amortization; fixed assets, net
of depreciation; and other non-current assets 1,972,583 2,105,583
----------------- ---------------
Total Assets $5,433,323 $6,455,718
================= ===============
Short term loans $1,080,268 $ 999,316
Accounts payable and accrued liabilities 316,296 338,052
Due to CopyTele, Inc. 3,022,637 3,916,628
Advances from CopyTele, Inc. 71,500 -
Capital 942,622 1,201,722
----------------- ------------------
Total Liabilities and Capital $5,433,323 $6,455,718
================= ==================
Condensed Statements of Operations
----------------------------------
(Unaudited)
----------- For the nine months ended
------------------------------------------
July 31, July 31,
1999 1998
----------------- ------------------
Net Sales $ - $ -
Operating (Loss) (201,203) (513,365)
Other Income (Expense) (57,897) (34,901)
----------------- ------------------
Net (Loss) $ (259,100) $ (548,266)
================= ==================
</TABLE>
The short term loans bear interest at floating rates ranging from approximately
5.86% to 7.13% per annum at July 31, 1999. These loans will mature in November
1999, February 2000, and May 2000. Approximately $1,000,000 in loans 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 $(1,857,378).
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.
13
<PAGE>
(3) Shareholders' Equity:
---------------------
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 nine months ended July 31, 1999 and July 31, 1998 was $61,650 and $255,000,
respectively, and is included in general and administrative expenses for the
periods.
Sales of common stock and issuance of warrants:
-----------------------------------------------
On April 30 1999, the Company sold 400,000 shares of its common stock in two
private placements for $1.50 per share, or an aggregate of $600,000, of which
300,000 shares were sold to a nominee for election to the Company's Board of
Directors at the 1999 Annual Meeting of Stockholders. In conjunction with the
sales of common stock, the Company issued warrants to purchase 400,000 shares of
common stock at an exercise price of $1.50 per share which expire on April 30,
2001.
14
<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: the ability of the Company to successfully market its new digital
encryption system called the USS-900 and its SCS-700 system consisting of the
MAGICOM(R) 2000 telecommunications product as modified to include encryption
based on the USS-900; the production capability required for the USS-900, the
modified MAGICOM(R) 2000 and MAGIC PRINTER; the ability of the Company to reduce
the cost of the modified MAGICOM(R) 2000 and the related printer; the ability of
the Company to obtain additional financing; 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; 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 products under development; and the possible development of
competitive products that could render the Company's products obsolete or
unmarketable. 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 USS-900, a hardware based peripheral digital
encryption device; the SCS-700, which combines the USS-900 with MAGICOM(R) 2000
to provide a secure telephone based multi-functional telecommunications product
incorporating the Company's 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. The Company is
also continuing its research and development activities for additional
ultra-high resolution flat panel displays, including video and color displays,
and coated particles which could potentially be used by manufacturers of toners
and pigments. 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.
15
<PAGE>
The Company is producing and has commenced a marketing program for the USS-900,
a hardware based peripheral digital encryption system, with technical assistance
from Harris Corporation ("Harris"). This device utilizes Harris' digital
cryptographic chip - the Citadel(TM) CCX - which is capable of providing
high-grade information encryption. A limited number of USS-900 devices have been
produced by the Company with the assistance of a U.S. based sub-contractor. SCE
is supplying quantities of materials, sub-assemblies and accessories. Harris is
supplying the Citadel(TM) CCX chip under a new three year agreement at a
negotiated price based in part on sales of USS-900 with all units to contain the
designation of "Secured by Harris". The agreement provides that neither Harris
nor the Company will participate with any other entity in the design,
development or manufacture of a product functionally equivalent to the USS-900.
This exclusivity is for the term of the agreement.
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.
Results of Operations
---------------------
The Company plans to sell its USS-900, SCS-700 and MAGIC PRINTER products to
end-users directly and through a distributor/dealer network. All of the critical
elements of the earnings process for a product will be complete when a
distributor/dealer sells the product to end users. The Company has had no sales
since its inception other than sales (which were not material) of limited
quantities of the MAGICOM(R) 2000 and MAGIC PRINTER products to its
distributors. Beginning in late August, 1999, the Company began initial shipment
of limited quantities of its USS-900 product for sale to office equipment
suppliers, dealer and end-users. Revenue will not be recorded on sales until the
Company determines that the product(s) have been accepted by the end-users.
Selling, general and administrative expenses, excluding the loss from SCE, for
the nine month periods ended July 31, 1999 and 1998 decreased by approximately
$621,000, to approximately $4,909,000 in the fiscal 1999 period from
approximately $5,530,000 in the fiscal 1998 period. These amounts include
research, development and tooling costs of approximately $2,203,000 and
$3,032,000 for the fiscal 1999 and 1998 periods, respectively, as well as normal
operating expenses. Selling, general and administrative expenses, excluding the
loss from SCE, for the three month periods ended July 31, 1999 and 1998
increased by approximately $200,000, to approximately $1,897,000 in the fiscal
1999 period from approximately $1,697,000 in the fiscal 1998 period. Also
included in these amounts are research, development and tooling costs of
approximately $724,000 and $926,000 for the fiscal 1999 and 1998 periods,
respectively, as well as normal operating expenses. From November 5, 1982
(inception) through July 31, 1999 selling, general and administrative expenses,
excluding the loss from SCE, were approximately $50,499,000 including
approximately $30,514,000 for research, development and tooling costs, as well
as normal operating expenses.
The decreases in selling, general and administrative expenses, excluding the
loss from SCE, of approximately $621,000 during the nine month fiscal 1999
period as compared to the same period in fiscal 1998 resulted primarily from
decreases in expenditures for engineering supplies, marketing costs,
professional fees, and research and development for video and color flat panel
displays. The increases in selling, general and administrative expenses,
excluding the loss from SCE, of approximately $200,000 during the three month
fiscal 1999 period as compared to the same period in fiscal 1998 resulted
primarily from charges to earnings to bring the valuation of inventory in line
with current estimates and for obsolete, spare and scrap parts.
16
<PAGE>
Engineering supplies decreased in the fiscal 1999 periods as compared to the
fiscal 1998 periods primarily as a result of reduced purchases of components
used to develop engineering changes to MAGICOM(R) 2000 in fiscal 1998.
Engineering service costs increased in the fiscal 1999 periods as compared to
the fiscal 1998 periods as a result of the USS-900 development effort. Marketing
costs for the MAGICOM(R) 2000 decreased in the fiscal 1999 periods as compared
to the fiscal 1998 periods as a result of the elimination of non-recurring costs
associated with marketing start-up costs and reduced travel and entertainment
costs. Professional fees were also lower in the fiscal 1999 periods as compared
to the fiscal 1998 periods as a result of lower fees incurred for legal,
accounting and patent related services. Research and development costs for flat
panel displays decreased in the aggregate during the comparable periods
principally as a result of lower costs incurred in connection with the
development of the Company's solid state and optical video and color display.
This decrease was offset somewhat by higher costs in the field emission (FED),
vacuum fluorescent (VFD) and liquid crystal (LCD) flat panel displays programs
under development. These costs vary over time depending on the phase of
development of each product or technology.
Employee compensation and related costs increased in the fiscal 1999 periods
over the fiscal 1998 periods as a result of the hiring of three additional sales
and marketing employees and one additional paid engineering employee. Payroll
taxes increased as a result of the additional compensation costs and employee
stock option exercises. Other employee benefit programs increased commensurate
with the additional employees as well as some rate increases for the fiscal 1999
periods. Rents also increased as a result of annual escalations in certain
leases and the leasing of storage space. A charge to earnings was recorded in
the nine and three month periods ending July 31, 1999 in order to bring the
valuation of inventory in line with current estimates and for obsolete, spare
and scrap parts. The Company also incurred a charge to earnings for interest
expense relating to certain prior year tax payments. 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 periods as compared to the fiscal 1998
periods.
The Company's portion of SCE's loss for the nine month periods ended July 31,
1999 and 1998 decreased by approximately $159,000 to approximately $143,000 in
the fiscal 1999 period from approximately $302,000 in the fiscal 1998 period.
The Company's portion of SCE's loss for the three month periods ended July 31,
1999 and 1998 decreased by approximately $65,000 to approximately $29,000 in the
fiscal 1999 period as compared to the prior year's period of approximately
$94,000. The decrease in the losses was primarily the result of cost reductions,
production efficiencies and limited production activity with respect to the
MAGICOM(R) 2000. From April 10, 1995 (SCE's inception) through July 31, 1999 the
Company's portion of SCE's losses were approximately $1,022,000.
SCE continues to produce additional limited quantities of modified MAGICOM(R)
2000 and panel assemblies while supplying the Company with materials,
sub-assembles and accessories for the USS-900. The modified MAGICOM(R) 2000s are
configured for the SCS-700 system. 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.
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.
17
<PAGE>
Interest income during the nine month periods ended July 31, 1999 and 1998
decreased by approximately $262,000 from approximately $395,000 during the
fiscal 1998 period as compared to $133,000 during the fiscal 1999 period. There
was also a decrease of approximately $70,000 in the three month comparable
periods ended July 31, 1999 and 1998. The decreases resulted primarily from a
decrease in average funds available for investment and slightly lower interest
rates. Funds available for investment during the nine and three month periods
ended July 31, 1999 and 1998, on a monthly weighted average basis, were
approximately $4,000,000, $9,492,000, $3,194,000 and $7,621,000, respectively.
The investments selected by the Company are principally treasury bills, 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 final stages of determining its risks regarding the Year
2000 issue. The Company has begun to implement a plan to correct or establish
contingencies for any Year 2000 problems it uncovered to date. 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. The 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 an assessment and will begin to 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 still in the process of contacting (although many have
already replied) its key customers, suppliers and vendors regarding their state
of readiness.
18
<PAGE>
The cost of 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 operations and
cash flows 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 is in the process of formulating a Year 2000 contingency plan in the
event of possible interruptions in business operations. The first draft of the
plan is completed and will be revised and updated as necessary. 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.
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.
During the nine month period ended July 31, 1999, the Company received proceeds
aggregating approximately $1,345,000 from the exercise of stock options under
the 1993 Plan to purchase shares of its common stock and $600,000 from sales of
its common stock in private placements. During the period from August 1, 1999
through September 10, 1999 the Company received additional proceeds aggregating
approximately $7,500 from the exercise of stock options pursuant to the 1993
Plan and $900,000 from sales of its common stock in private placements. Working
capital decreased by approximately $1,947,000 from approximately $7,560,000 at
October 31, 1998 to approximately $5,613,000 at July 31, 1999 as a result of the
loss incurred for the nine month period ended July 31, 1999 offset by the
proceeds received in the same period.
19
<PAGE>
The Company's operations used approximately $4,401,000 in cash during the nine
month period ended July 31, 1999. The current working capital includes
approximately $2,837,000 of cash and marketable securities, and approximately
$929,000 (net of approximately $663,000 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 and without
taking into consideration potential revenue from sales, 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, and the cash proceeds from the sales of its common stock in September
1999.
The Company advanced an additional $105,500 in cash to SCE to date in 1999 for
the purpose of having SCE continue the production of a limited number of
modified MAGICOM(R) 2000 units for the SCS-700 system and panel assemblies. The
Company, at its option, may elect to have these advances increase its ownership
percentage in SCE or have the amount satisfy a portion of its accounts payable
to SCE. Additionally, the Company has reacquired from SCE a portion of its
MAGICOM(R) 2000 inventory of parts for the purpose of minimizing Chinese import
duty and value added taxes. The account receivable due from SCE was reduced by
the value of the inventory. The parts inventory will be made available to SCE in
the future based on SCE's production requirements.
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 as modified for the SCS-700 system. To date, shipments
of the Company's MAGICOM(R) 2000 product have been limited. The Company believes
that the ultimate realizabilty of its current inventory of modified MAGICOM(R)
2000 units is dependent upon its salability/market acceptance through the
SCS-700 system. Accordingly, if the SCS-700 does not result in measurable market
acceptance, a full value or significant writedown of its presently modified
MAGICOM(R) 2000 inventory may be required and SCE's ability to repay the amount
due the Company which totaled approximately $3,023,000 as of July 31, 1999,
would be directly impaired. The advances to SCE have primarily funded the
purchase of inventory components to manufacture the Company's MAGICOM(R) 2000.
The Company will continue to evaluate the realizabilty 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 generate sales, the Company has commenced marketing the USS-900
to major U.S. office equipment distributors and government agencies. The Company
also has commenced marketing the SCS-700 system utilizing the MAGICOM(R) 2000,
as modified to function as a secure communication system, to government agencies
and units of the armed forces. The Company is hopeful, although there is no
assurance, that by marketing the USS-900 encryption device and the modified
MAGICOM(R) 2000 SCS-700 system sales will be generated.
20
<PAGE>
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 $226,000 in the nine months ended July 31, 1999. As of July 31,
1999, the Company owed SCE approximately $663,000 which when paid could 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 the units are then sold by the
Company in the ordinary course of its business.
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 future 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.
NASDAQ-NMS also requires that an issuer maintain a minimum bid price of $1.00
for continued listing. If at any time the bid price for an issuer's common stock
falls below $1.00 per share for a period of thirty consecutive business days,
NASDAQ-NMS has the right to delist the stock if within ninety days thereafter
the bid price for the stock is not at least $1.00 per share for a minimum of ten
consecutive business days. 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'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.
21
<PAGE>
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
$1,080,000 has been borrowed to date. Short-term loans aggregating the
$1,080,000 are from a Chinese bank, secured by the building and a land-use
contract with the Land Administration Bureau of Shanghai County, and from one of
the Chinese parties. 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. To date in
1999, the Company advanced an additional $105,500 in cash to SCE. 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.
22
<PAGE>
PART II OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
-----------------------------------------------------
At the Company's Annual Meeting of Shareholders held on July 28, 1999, six
directors were elected and the selection of Arthur Andersen LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending October 31, 1999 was ratified. The following is a tabulation
of the voting with respect to the foregoing matters:
(a) Election of Directors -
Nominee For Withheld
Denis A. Krusos 50,533,657 1,380,970
Frank J. DiSanto 50,533,907 1,380,720
John R. Shonnard 50,533,657 1,380,970
George P. Larounis 50,533,907 1,380,720
Gerald J. Bentivegna 50,533,907 1,380,720
Lewis H. Titterton 50,533,907 1,380,720
On August 18,1999, Mr. John R. Shonnard, a Director of the Company since 1988,
retired from the Board for health reasons.
(b) Ratification of selection of Arthur Andersen LLP as Independent Auditors for
the Fiscal Year Ending October 31, 1999:
For Against Abstain
50,514,194 1,322,331 78,102
23
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K, dated July
28, 1999, which included a press release with respect
to the Business Agreement between CopyTele, Inc. and
Harris RF Communications, together with a copy of the
agreement.
24
<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
September 13, 1999 Executive Officer)
By:/s/ FRANK J. DISANTO
-------------------------
Frank J. DiSanto
September 13, 1999 President and Director
By:/s/ GERALD J. BENTIVEGNA
-----------------------------
Gerald J. Bentivegna
Vice President - Finance,
Chief Financial Officer and
Director (Principal Financial
September 13, 1999 and Accounting Officer)
25
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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 2,349,246
<SECURITIES> 488,038
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,618,005
<CURRENT-ASSETS> 7,204,755
<PP&E> 2,158,167
<DEPRECIATION> 1,559,131
<TOTAL-ASSETS> 10,541,283
<CURRENT-LIABILITIES> 1,592,201
<BONDS> 0
0
0
<COMMON> 591,524
<OTHER-SE> 8,357,558
<TOTAL-LIABILITY-AND-EQUITY> 10,541,283
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 5,051,838
<OTHER-EXPENSES> (133,127)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,918,711)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,918,711)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
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