SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
-------------
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended October
31, 1995
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 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 Identification
Incorporation or Organization) No.)
900 Walt Whitman Road
Huntington Station, NY 11746
(516) 549-5900
- ---------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------------- -----------------------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
- ---------------------------------------------------------------------------
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [x].
Aggregate market value of the voting stock (which consists solely of shares
of Common Stock) held by non-affiliates of the registrant as of January 19,
1996, computed by reference to the closing sale price of the registrant's
Common Stock on the NASDAQ National Market System on such date ($10.25):
$219,415,938.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [_] No [_]
On January 19, 1996, the registrant had outstanding 26,290,153 shares of
Common Stock, par value $.01 per share, which is the registrant's only
class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Item 1. Business
CopyTele, Inc. (the "Company" or "CopyTele"), a development stage
enterprise, is engaged in the design and development of telecommunications
products incorporating its ultra-high resolution charged particle
(electrophoretic) flat panel display screen ("flat panel") for the
receipt, transmission and printing of text, facsimile, graphics and
pictures, as well as voice transmission.
The Company's principal activities are the development of products,
further enhancement of its flat panel technology, and its interest in
Shanghai CopyTele Electronics Co., Ltd. ("Shanghai CopyTele" or "Joint
Venture"), the Company's 55% owned joint venture in Shanghai, China,
with Shanghai Electronic Components Corp. ("SECC") and Shanghai
International Trade and Investment Developing Corp. ("SIT"). The
strategy of Shanghai CopyTele is to develop, manufacture and market
multi-functional telecommunications products in China, utilizing the
Company's flat panel and associated proprietary hardware and software
technology. The Company plans to purchase the Joint Venture's products
for marketing outside of China.
The Company has not had any revenues to support its operations and has
expended an aggregate of approximately $16.9 million for research and
development since its inception in 1982. There is no assurance, and
the Company is not able to predict, if and when marketable
telecommunications products incorporating the Company's flat panel
technology will be produced and sold in commercial quantities. Even if
the Company were to produce marketable products, directly or through
the Joint Venture, there is no assurance that the Company will
generate revenues in the future, will have sufficient revenues to
generate profits or that other products will not be produced by other
companies that will render the products of the Company and of the
Joint Venture obsolete.
The Company's Chief Executive Officer, Denis A. Krusos, and its
President, Frank J. DiSanto, are engaged in the management and
operations of the Company and Shanghai CopyTele, including the
technical aspects of the development of the Company's products, and
are important to the future business and financial arrangements of
the Company and the Joint Venture.
The Company was incorporated on November 5, 1982, under the laws of
the State of Delaware. Its principal executive offices are located at
900 Walt Whitman Road, Huntington Station, New York 11746 and its
telephone number is 516-549-5900.
Multi-Functional Telecommunications Products
--------------------------------------------
During the past year, the Company concentrated on the development of
products for Shanghai CopyTele. The basic emphasis of the Company's
contribution to the Joint Venture's products is to incorporate the
Company's communications and imaging expertise and its advanced flat
panel technology into a new generation of telephone-based multi-
functional telecommunications products. Currently, two products are
anticipated to be produced by
Shanghai CopyTele, which are designed to attract the high and low ends
of the market, respectively.
The Prototype
-------------
A pre-production prototype of the Company's first product, called
"Magicom"TM, has been produced by the Company and is directed toward
the higher end of the potential market. This prototype has unique
capabilities that are incorporated into a compact, attractive design
with the capability of performing numerous functions while being
simple to operate by users. The prototype is a unique, telephone based
multi-functional telecommunications product whose features include
compactness, ease of use, compatibility with numerous devices and
display quality approaching that of a printed page. The Company
believes that these features will position the product for the needs
of the developing digital information field and various on-line
services. The product would enable users to have a personal
information center in a single, compact unit which integrates voice
communication, digital messaging, fax (transmission and paperless
reception), copier, electronic handwriting, touch sensitive keyboard
screen, data storage and transmission, and computer interfacing.
CopyTele's patented flat panel technology incorporated in this
prototype brings a new standard of readability to visually displayed
electronic information, since its display image forms in a manner
closely resembling the way a printed image forms on a page. Business
documents, letters, diagrams, written messages or notes, magazine
articles and other forms of information that can be received
electronically can be read with the ease approaching that of a printed
page. Users can view in a single image an entire page of information.
The display images can be viewed from any angle under all lighting
conditions. Once an image is seen on the display, it can be retained
with minimal display power. This provides additional user-friendliness
since no refreshing is necessary to view an image. Conventional
displays, such as CRT's and LCD's, require refresh (quick repetition
of an image) which is one reason why people find reading a printed
page easier and more natural. The display, in combination with a high
quality writing screen and pen, allows writing with ease approaching
that of writing on paper. The display-writing screen combination can
be used to create and transmit information and edit received
documents. CopyTele has described these unique display features as
"electronic paper". In addition, the high resolution of its display
has enabled CopyTele to produce a compact, lightweight product capable
of displaying a full page of information, considerably smaller than
conventional lower resolution displays would allow. The product size
is suitable for office and home use.
Main Features of Prototype
--------------------------
The prototype has the following main features:
* Compactness and ease of use.
* Capable of displaying in a single image an entire page of
information.
NYFS11...:\95\38995\0004\1196\FRM1196M.52C
* Flicker-free, ultra-high resolution display provides reading
capability similar to that of a printed page.
* Information easily readable from any direction, under
sunlight or nighttime light conditions.
* Capable of retaining an image on the display with minimal
power.
* Incorporates a scanner to send a fax or to input into a
computer and provides a copier capability by interfacing
with a compatible printer.
* Compatible with fax and PC computer terminals to send or
receive information.
* Fax and data modems to send to and receive from fax and
computer terminals.
* Handwriting viewed on the Company's flat panel display
incorporating a writing screen and a pen. Handwriting
information can be written clearly in any language and can
be printed or transmitted to other fax terminals.
* Capable of editing received information via use of the
writing screen and pen and transmitting such edited
information.
* Utilization of a touch screen sensitive keyboard to achieve
certain telephone and fax functions and for additional
future capability, including pagers and on-line services,
and accessing the Internet.
* Utilization of electronic memory to scan documents before
transmission and for unattended reception.
* Capable of reading information, such as faxes, e-mail,
handwriting and editing, which are sent via telephone,
satellite or cellular links.
* Capable of broadcasting information to multiple locations.
* Capable of automatically extracting information from or by a
remote fax terminal.
* Capable of interfacing with cordless and cellular phones.
* Digital voice answering machine capability.
* Voice communication via a telephone handset or via a
simultaneous, two-way digital speaker system.
* Capable of interfacing to a printer being developed by the
Company or to other commercially compatible available
printers.
* Utilization of user friendly screen icons and an on-screen
instruction manual for easy use.
The prototype also has other telecommunications capabilities, such as
speed dialing, re-dial, flash, electronic directory, date and time. It
is capable of incorporating on a continuing basis other functions that
may be derived from the Company's proprietary software development.
The Company is continuing to develop proprietary software to provide
interfacing with on-line services, such as the Internet, and the use
of a keyboard displayed on the Company's flat panel in conjunction
with a touch screen and pen. The same software development would
permit the product to communicate with pager systems. In addition,
simultaneous voice and information capability is being developed.
Second Prototype
----------------
A second pre-production prototype is being developed which would
provide many of the first prototype's functions but would not include
the Company's flat panel. It is anticipated that this prototype would
address the lower end of its potential market. Except for the
Company's flat panel, it would contain many of the same features as
the first involving voice, fax, and computer communication, as well as
self-contained printing capability and instructions to eliminate the
need for a complex detailed manual.
The prototypes are being designed to meet safety, interconnection,
radiation emissions and non-interface requirements necessary for
various regulatory approvals in various countries. The Company is
proceeding with the testing necessary to obtain such approvals but
there is no assurance that those approvals will be obtained. The
success of the prototypes will be contingent upon a number of factors,
including the ability of the Joint Venture to effectively manufacture
the products at competitive prices in commercial quantities.
Joint Venture
-------------
The Joint Venture was formed on April 10, 1995 pursuant to a Joint
Venture Agreement dated March 28, 1995 ("the Agreement") between
CopyTele and SECC. With this Agreement, Shanghai CopyTele was formed
as a limited liability company in Shanghai, China having a duration of
20 years. The Company has been advised that SECC is wholly owned by
the government of China and is the largest electronic components
company in China.
The Agreement contemplates an initial investment of $7 million, of
which half may be borrowed from banks, and a registered capital of
$3.5 million. The parties have agreed in principle to increase the
investment to a maximum of $25 million, depending on the nature and
extent of the Joint Venture's business. CopyTele, which owns a 55%
interest in the Joint Venture, is required to contribute $1,225,000 in
cash (of which $857,500 had been contributed as of January 19, 1996)
and technology (which was valued for purposes of the
Agreement at $700,000 and represents 20% of the registered capital)
which has been licensed to the Joint Venture pursuant to a Technology
License Agreement. In accordance with Chinese regulations, the maximum
percentage of technology which can be contributed as registered
capital is 20%. SECC and SIT (which has acquired a 10% economic
interest in the Joint Venture from SECC) had contributed $1,102,500 of
their required cash commitment of $1,575,000 to the Joint Venture as
of January 19, 1996. The Company accounts for its investment in the
Joint Venture under the equity method of accounting. See Notes 2 and
3 to the Company's Financial Statements.
It is contemplated that additional financing for the Joint Venture, if
required, would be obtained from a combination of third party
borrowings and equity investments contributed by the Company and the
other parties to the Joint Venture in proportion to their respective
equity interests and on terms to be agreed upon. The Company may
require additional financing in order to participate in the Joint
Venture following its initial capital contributions and to continue
its research and development activities. There can be no assurance,
however, that adequate financing will be available to the Company or
the Joint Venture, or that, if available, it will be available on
favorable terms and conditions.
CopyTele licensed only the flat panel application technology to
Shanghai CopyTele for exclusive use in China. Neither SECC nor the
Joint Venture has any rights to manufacture the Company's flat panel
which will be supplied by the Company. As a result of licensing the
technology, CopyTele will receive royalties for the duration of the
Technology License Agreement on all net sales by Shanghai CopyTele,
including sales to CopyTele for resale. CopyTele is solely authorized
to market and sell the Joint Venture's products outside of China while
Shanghai CopyTele is responsible for marketing and selling within
China.
The Board of Directors of Shanghai CopyTele is comprised of seven
directors. In accordance with the Agreement, CopyTele has appointed
four directors, the Vice-Chairman and the General Manager, and SECC
has appointed three directors, the Chairman and the Vice-General
Manager. The Joint Venture is currently engaged in limited
administration and technical planning. It is contemplated that
manufacturing personnel, as well as additional administrative and
technical personnel, will be hired as Shanghai CopyTele progresses
toward its planned mass production of products. Initial production is
contemplated to commence in 1996 in a leased facility in Shanghai,
China until a new facility is constructed and equipped. Equipment for
the leased facility is in the process of being ordered.
On October 11, 1995, Shanghai CopyTele signed contracts with the Land
Administration Bureau of Shanghai County in Shanghai, China to obtain
land-use rights and with a general construction company for off-lot
infrastructure requirements. The land-use contract provides Shanghai
CopyTele with the rights to use land in the Shanghai Songjiang
Industrial Zone to design and construct a multi-level manufacturing
facility of up to 100,000 square feet. The rights are for a plot of
land approximately 100,000 square feet in size and for a duration of
50 years. The cost of the land-use rights and infrastructure fees are
approximately $310,000 and has been paid by the Joint Venture from the
equity contributions of the parties. Shanghai CopyTele also has signed
a contract with a design company for an architectural and engineering
design, which is near completion, of a new facility presently
anticipated to be
approximately 30,000 square feet in size. The cost of the contract is
approximately $41,000 and is being paid in installments through its
completion. The Joint Venture is in the process of selecting a
construction company with the decision anticipated shortly. A
construction plan is required to be submitted to relevant government
authorities for their examination and approval. It is presently
contemplated that construction of the new facility will commence in
the spring of 1996. Upon completion, production would be relocated
from the rental facility into the new facility. (See "Manufacturing".)
On July 10, 1995, an Assignment Agreement was entered into by
CopyTele, SECC and SIT whereby SECC assigned a 10% economic interest
to SIT in the capital and profits of Shanghai CopyTele from SECC's
original interest of 45%. SIT, an investment and trade developing
company, is a state owned enterprise operating under the leadership of
the Shanghai Foreign Economic Relations and Trade Commission in
Shanghai, China. The Assignment Agreement is subject to government
approval which is anticipated shortly. As a result of the assignment,
SECC's interest in Shanghai CopyTele has been reduced to 35%. SECC has
agreed to appoint to the Board of Directors one director to be
selected by SIT (as one of the directors SECC is entitled to appoint)
and retains all its duties and obligations under the Joint Venture
Agreement. SIT has assumed a 10% obligation with respect to the
capital contributions payable by SECC to Shanghai CopyTele.
As of January 19, 1996, $1,960,000 in cash had been contributed by the
parties. This amount represents 70% of the $2,800,000 required cash
contributions. The remaining 30%, or $840,000, will be contributed by
the parties when required by the Joint Venture. It is presently
contemplated that these capital contributions will be sufficient to
enable the Joint Venture to construct and equip the new facility.
Additional funding, if required, and working capital requirements are
expected to be financed through third party borrowings, as previously
noted.
Company Technology
------------------
Flat Panel Technology
---------------------
The Company is continuing to enhance the characteristics of its
compact, ultra-high resolution charged particle flat panel. The flat
panel possesses a combination of features that are not presently
available in other display screens, such as ultra-high resolution,
compatibility with facsimile terminals (200 lines per inch in the
horizontal and vertical directions with up to a full page of
information with real-time display), a minimal amount of inactive
space between pixels or picture elements (allowing the image to appear
smoother), image retention without refreshing (eliminating the need
for image repetition with resulting flicker and operator fatigue),
approximately 180 degree viewing angle, low power consumption for
writing and image retention with minimal power consumption. The
Company has developed flat panels with viewing areas whose diagonals
are 7.8, 7.2 and 5.7 inches, and containing approximately 1,150,000,
800,000 and 630,000 pixels, respectively. The Company is utilizing its
7.8 inch diagonal flat panel for its pre-production prototype. This
flat panel has 1,280 lines by 896 lines with a resolution of 200 lines
per inch in both directions. The image area is approximately 6.4 x 4.5
inches.
The Company is continuing to purchase, for testing and demonstration
purposes and for incorporation into the pre-production prototypes,
production quality flat panels from Hoya Corporation ("Hoya")
utilizing the Company's design and technology. The flat panels
incorporate the latest designs and improvements in production
technology by reducing the number of steps necessary to construct the
flat panels, thereby allowing multiple flat panels to be produced from
a single primary glass substrate, while achieving the enhancement of
image brightness and contrast. Hoya, a major Japanese high technology
manufacturer of glass products, is assembling the flat panels. The
overall size of the flat panel has been reduced while maintaining the
same image area, thereby allowing a larger number of flat panels to be
produced from a single glass substrate and reducing the size and
potentially the cost of the display. The chip carrier drive system
(see "Monolithic Technology" below) is presently being mounted on the
flat panel by the Company, but the Joint Venture will be incorporating
this process into its manufacturing operations. Also, the Company has
installed in its facilities the capability of handling large scale
fluid production in order to supply the fluid to Shanghai CopyTele for
insertion into the flat panel.
The Company's flat panel design is utilizing a new chip which has 128
outputs as compared to the prior chip which had 64 outputs. The new
chip is approximately the same size, has substantially higher speed to
accommodate faster panel operation, and is capable of using minimal
power when viewing an image. The new chip will be purchased by the
Company and supplied to Shanghai CopyTele for incorporation into
production units.
The flat panel also utilizes fluids which were developed by the
Company and which are suitable for production processing (see "Fluid"
below). The fluid contains yellow particles suspended in a dark dye.
Thus, the flat panel contains a yellow background with black writing
or vice versa.
Included as an integral part of the Company's flat panel display is a
pen and touch writing screen. Due to the ultra-high resolution of the
flat panel display, any language may be clearly written with the use
of a pen. In addition, with the use of a pen, various modes of
communication can be initiated, such as fax, e-mail and access to
information services. An integrated front illumination system (see
"Illumination" below) also is incorporated into the flat panel. This
system provides viewing of the flat panel from nighttime to sunlight
ambient light conditions. By incorporating these capabilities, the
Company's flat panel technology provides clear and comfortable
viewing, from any angle, of pictures, text in any language, and
graphics.
System Technology
-----------------
The Company is continuing to pursue an overall image communication and
information system strategy for the utilization of its flat panel and
associated proprietary software and hardware technology. This strategy
has been evolving over the years and has been based on major
information industry trends, such as the information super-highway
involving on-line services and the Internet being evolved by various
companies, as well as the Company's objectives.
In addition to development efforts involving the flat panel and its
components, the Company also has been devoting its efforts to
developing the sub-systems necessary to incorporate the flat panel
into future telecommunications products. These include several unique
controllers which are designed to operate in, but are not limited to,
personal computers utilizing DOS, Windows and X-Windows environments.
The controllers enable the Company's flat panel system to capture and
display specific image frames, move blocks of information from place
to place on the panel, blink areas of interest, detect changing areas
of information, and erase and rewrite specific character lines with
enhanced writing speed. The Company also has developed a method of
presenting an indicator or pointer (frequently called a "mouse"
indicator in personal computer systems) which can be moved rapidly
without loss of contrast on the flat panel.
Illumination
------------
As part of the Company's product strategy, an illumination system has
been developed and has been included in its pre-production prototype
model to provide illumination from nighttime to sunlight. The front
illumination system has been integrated with the flat panel assembly.
The light is generated by cold cathode fluorescent lamps. The design
of these lamps was developed in conjunction with another company in
accordance with the Company's specifications. The Company determined
experimentally the dimensions, slit angle and phosphor color of the
fluorescent lamp. The development also included the design of the
optical system, its optical quality, mechanical mounting techniques
and the generation of standards for quality control of the systems,
brightness, contrast and uniformity.
The Company is continuing to pursue the development of new techniques
designed to further improve light output efficiency. These development
activities involve advanced optics and designs, such as light shaping
diffusers, edge illuminated holograms and pixellated illumination. As
part of its strategy to provide a fully integrated illumination system
with its display, the Company has initiated an advanced optics
research and development effort in the area of holographic optical
gratings. This effort complements the Company's front illumination
system using conventional optical light coupling, and could lead to
lower cost and higher efficiency.
A goal of the Company's advanced optics development effort includes
the achievement of color for the flat panel display, using holographic
grating techniques. To that end the Company also has engaged the
services of an optical development company. Furthermore, the Company
is in the process of expanding its advanced optical development by
staffing and leasing a 5,000 square foot optical facility on Long
Island, New York which is equipped for carrying out photopolymer and
photoresist holographic grating development. The Company believes
these developments, if successful, would provide the means to achieve
color capability for the Company's flat panel display.
Fluid
-----
The Company's development efforts in fluids have proceeded by using
several combinations of surfactant types and solvent systems. In these
efforts, several proprietary surfactants have
been synthesized by the Company in conjunction with arrangements with
Lehigh University. Other surfactants have been synthesized under
Company direction by outside vendors. An outgrowth of this work has
been the development of an alternative method of fluid preparation
which improves performance of the Company's flat panel display. This
fluid has been incorporated into the pre-production prototype model.
An environmentally controlled chamber, capable of handling the demands
of large scale fluid production, is being prepared for delivery to the
Company's principal offices. This chamber would provide the means to
insure the uniformity of the characteristics of fluids produced. The
Company has also developed methods for storing and shipping fluids for
use at Shanghai CopyTele. In addition, both the method of filling the
flat panel display with fluid and of sealing the display chamber have
been developed. These developments enhance the performance of the
Company's flat panel and make the filling and sealing procedure
adaptable to production requirements.
The Company believes that the display is environmentally comparable to
a liquid crystal display and presently is not aware of any
"environmental hazards" associated with the small quantity of fluid
medium inside the flat panel.
Monolithic Technique
--------------------
The monolithic technique presently utilized by the Company has reduced
the thickness of the flat panel to approximately one-eighth (1/8) of
an inch. With this technique, which utilizes individual pixels having
dimensions approximately equal to the diameter of a human hair, flat
panels with ultra-high resolution of 200 lines per inch in both the
vertical and horizontal directions (40,000 pixels per square inch)
have been achieved. In addition, there is only a minimal amount of
inactive space between pixels. This allows digital pictures, text or
graphics to look smoother to the human eye as compared to most other
currently available displays.
The ultra-high resolution of the Company's flat panel technology
decreases the size of the viewing area necessary to display
information, as compared with most commercially available display
devices. This is accomplished by compressing the size of the
characters, using the flat panel's small pixel size and achieving a
greater number of characters within an area. The 5.7, 7.2 and 7.8 inch
diagonal flat panels can display approximately 1,500, 2,000 and 2,800
characters, respectively, whose type size is approximately that of a
standard typewriter font. By further reducing the type size to
characters that are slightly smaller than those used for stock
quotations in newspapers, the 5.7, 7.2 and 7.8 inch diagonal flat
panels can display approximately 6,000, 8,000 and 11,200 characters,
respectively.
The flat panel structure consists of two sheets of clear glass, one or
both of which are coated with patterned layers of transparent
electrically conductive material. A micro-structure of thin layers of
insulators and metals, together with a fluid, is contained between the
transparent sheets.
The monolithic technique integrates the structure of the flat panel
and the chip carrier drive system. This design simplifies assembly of
the drive system controlling all the pixels within the image area of
the Company's flat panel. The monolithic system presently utilizes a
low power CMOS type chip having 128 outputs per chip which has been
incorporated into the pre-production prototype model.
Manufacturing
-------------
The Joint Venture's employees are in the process of production
planning at a portion of a facility currently being leased from SECC.
It is presently contemplated that initial production will begin in
1996 in a leased facility in Shanghai, China until the construction of
the new facility is completed. In the leased facility, Shanghai
CopyTele plans to install a multi-purpose production and assembly line
which was designed by the Company. The Joint Venture has begun placing
orders for production equipment.
The planned production line for the leased facility will utilize
modern technology and will be capable of manufacturing more than one
product. The Company believes that there is an ample supply of low
cost manufacturing labor in China. The manufacturing process will
include assembling various sub-assemblies, such as printed circuit
boards, a scanner, the flat panel and the case. The flat panel's
components, including the fluid and the 128 output chips, will be sold
by the Company to the Joint Venture. With the exception of the fluid,
which CopyTele will manufacture, the components of the flat panel will
be purchased by the Company from third party vendors, such as Hoya.
The Joint Venture's products will contain various electronic
components. The commodity-type components, such as resistors,
capacitors and multi-purpose chips, are available from various vendors
world-wide, including SECC. Special purpose components, such as the
facsimile and data chip set, the chip carrier drive chips, and the
flat panel's coated glass plates, are expected to be purchased from
individual vendors. Although it is expected that such components will
only be available from single-sourced vendors, it is possible that
such components may become available from other vendors given
sufficient production lead time.
It is anticipated that at such time the new facility is completed in
1996, additional production lines will be purchased and installed.
The planned facility has been designed for mass production and will be
located in the Shanghai Songjiang Industrial Zone. It will be
approximately 30,000 square feet in size, will have a potential
production capacity of over 700,000 units per year, and will be
constructed on a parcel of land approximately 100,000 square feet in
total area. This planned facility will be capable of housing multiple
production lines, warehouse space and administrative offices.
The Songjiang Industrial Zone is approximately 20 miles from downtown
Shanghai, 30 miles from a deep harbor and 13 miles from an
international airport. A transportation system of connecting
expressways, railroads and waterways, provides efficient routes to
import raw materials and export the Joint Venture's products to world-
wide markets. (See "Joint Venture".)
Marketing
---------
During 1995 the Company focused its initial stage marketing activities
on the creation of a marketing team and identifying distribution
channels for its Joint Venture products. As a result of these efforts,
the Company has added to its staff a Senior Vice President of
Marketing, commencing as of February 5, 1996, with extensive
experience in the areas of imaging and multi-media communications. The
Company contemplates opening a sales office in the metropolitan New
York area and anticipates growth in its marketing staff during 1996.
Additional consulting personnel have been added to provide marketing
support for the United States, Europe and the Far East.
Marketing efforts have been initiated and directed at making marketing
alliances with major companies for distribution in the United States,
Europe, Russia, Southeast Asia and South America.
The Company plans to penetrate these international and domestic
markets through independent distributors and established Original
Equipment Manufacturers (O.E.M.'s) positioned in the field of
telephony, inter-connect, multi-media telecommunication and business
machines. It is intended that this marketing effort will be
complemented by utilizing independent sales representatives who could
capitalize on their local goodwill within their respective
territories. The Company does not contemplate that sales, if any,
would necessarily be dependent upon a limited number of customers due
to the variety of possible applications and distribution channels.
Shanghai CopyTele, which is also in its initial marketing stage, is in
the process of developing a market plan. Shanghai CopyTele, which will
market the Joint Venture products exclusively in China, has also been
identifying sales channels within China. It has been reported that the
demand for electronic equipment, including telecommunications,
computers, and audio and video equipment in China, will continue at a
20% growth rate.
The overall marketing plan for the Joint Venture products anticipates
the Company selling approximately 80% of the planned production
outside of China and for Shanghai CopyTele to sell approximately 20%
within China.
Competition
-----------
The telecommunications market has a substantial number of competitors
who are larger and possess financial resources greater than those of
the Company or the Joint Venture. Relevant competitive products
contain displays which primarily include liquid crystal displays
("LCDs"). The Company believes that, if marketable telecommunications
products incorporating the Company's flat panel are successfully
produced, they will have an acceptable productive life and have many
commercial applications. These products could combine many
characteristics which the Company believes would be desirable to
potential customers. However, there is no assurance that comparable
or superior products or systems will not be developed which would
render the Company's products and those of the Joint Venture difficult
to market or technologically or otherwise obsolete.
Patents
-------
The Company has received fifty-two (52) patents, including those from
the United States and certain foreign patent offices, expiring at
various dates between 2005 and 2014. The foregoing patents are
related to the design, structure and methods of construction of the
flat panel, methods of operating the flat panel with certain
characteristics, method of producing colored particles, applications
using the flat panel, and particle generation. At the present time,
additional patent applications with respect to the flat panel and its
applications are pending with the United States and certain foreign
patent offices. The Company has been advised by its patent counsel
that in his opinion the subject matter of the pending applications
contain patentable material.
The Company anticipates licensing a portion of its patents, excluding
the flat panel manufacturing technology, to the Joint Venture on an
exclusive basis in China.
There is no assurance that patents will be obtained for any of the
pending applications. In addition, there is no assurance that any
patents held or obtained will protect the Company against competitors
either with or without litigation. There is also no assurance that,
if the Company or the Joint Venture successfully develop marketable
products, such products will not infringe the patents of others, or
that the Company and the Joint Venture will not have to obtain
licenses under patents of others.
The Company believes that the foregoing patents are significant to the
future operations of the Company.
Research and Development Expenses
---------------------------------
Research and development expenses, which have comprised a significant
portion of the Company's selling, general and administrative expenses
since its inception, were approximately $2,353,000, $2,677,000,
$1,780,000, and $16,885,000 for the fiscal years ended October 31,
1995, 1994, 1993 and for the period from November 5, 1982 (inception)
through October 31, 1995, respectively. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Company's Financial Statements.
Employees and Consultants
-------------------------
The Company has twenty-one employees and twelve consultants. Nineteen
of these individuals, including the Company's Chairman of the Board
and its President, are engaged in research and development. Their
backgrounds include expertise in chemistry, optics and electronics.
Five individuals are engaged in marketing and the remaining
individuals are engaged in administrative and financial functions for
the Company. None of the Company's employees are represented by a
labor organization or union.
Item 2. Properties.
-----------
The Company leases approximately 9,050 square feet of office and
laboratory research facilities at 900 Walt Whitman Road, Huntington
Station, New York (its principal offices) from an unrelated party
pursuant to a lease which expires November 30, 1998, for a rental of
approximately $151,000 per annum. The Company has the right to cancel
the lease as of November 30, 1996 and November 30, 1997. This lease
does not contain provisions for its renewal and management will
continue to evaluate the adequacy of this facility. See Note 8 to the
Company's Financial Statements. The Company is in the process of
entering into a one year sub-lease for approximately 5,000 square feet
at an optical laboratory facility located in Long Island, New York.
It is contemplated that the lease would provide for a one year renewal
option with the right to cancel with a 60 day notice. The annual rent
for this facility would be approximately $42,000.
Management believes that the facilities, which are fully utilized at
the present time, are adequate for the Company's current requirements.
It is anticipated that more space may be needed depending on the
nature and extent of the Company's business activities with the Joint
Venture and with the growth of its marketing department.
Item 3. Legal Proceedings.
------------------
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
During the fourth quarter of the Company's fiscal year ended October
31, 1995, no matters were submitted by the Company to a vote of its
shareholders.
Executive Officers of the Company
---------------------------------
The only executive officers of the Company are Denis A. Krusos, Frank
J. DiSanto and Gerald J. Bentivegna. The information required to be
furnished with respect to these executive officers is set forth in,
and incorporated by reference from, Item 10 Part III of this Form 10-
K.
PART II
-------
Item 5. Market for the Registrant's Common Equity and
---------------------------------------------
Related Stockholder Matters.
----------------------------
The common stock of the Company has been traded on the National
Association of Securities Dealers, Inc. Automated Quotation National
Market System ("NASDAQ - NMS"), the automated quotation system of the
National Association of Securities Dealers, Inc. ("NASD") under the
symbol "COPY", since October 6, 1983, the date public trading of the
Company's common stock commenced. The high and low sales prices, as
reported by NASDAQ, for each quarterly fiscal period during the
Company's fiscal years ended October 31, 1994 and 1995 have been as
follows:
Fiscal Period High Low
1st quarter 1994 $14.13 $10.88
2nd quarter 1994 12.38 8.13
3rd quarter 1994 12.00 7.63
4th quarter 1994 9.13 3.75
1st quarter 1995 8.88 4.75
2nd quarter 1995 8.25 5.63
3rd quarter 1995 11.00 6.38
4th quarter 1995 10.50 6.88
As of January 19, 1996 the approximate number of record holders of
common stock of the Company was 1,075.
No cash dividends have been paid on the common stock of the Company
since its inception and the Company has no present intention to pay
any cash dividends in the foreseeable future.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for
information with respect to certain minimum listing requirements for
the NASDAQ - NMS.
Item 6. Selected Financial Data.
------------------------
The following data has been derived from the Financial Statements of
the Company and should be read in conjunction with those statements,
and the notes related thereto, which are included in this report.
For the period from November
As of and for the year ended October 31, 5, 1982 (inception) through
October 31, 1995
1995 1994 1993 1992 1991
Sales $ - $ - $ - $ - $ - $ -
Selling General and
Administrative Expenses 3,350,125 3,651,334 2,925,627 1,978,444 1,547,331 25,980,442
Interest Income 356,226 223,817 162,778 151,088 247,339 2,665,472
Net (Loss) (2,993,899) (3,427,517) (2,762,849) (1,827,356) (1,299,992) ($23,314,970)
Net (Loss) Per Share of
Common Stock (a) ($0.12) ($0.14) ($0.12) ($0.08) ($0.06) ($1.05)
Total Assets 9,695,398 6,614,332 8,686,241 4,358,874 4,338,545
Long Term Obligations $ - $ - $ - $ - $ -
Shareholders' Equity 9,436,708 6,415,233 8,244,925 4,083,800 4,188,488
Cash Dividends Per Share $ - $ - $ - $ - $ - $ -
of Common Stock
____________________
(a) Adjusted for three-for-one stock split declared in October 1985,
five-for-four stock split declared in August 1987 and two-for-one
stock split declared in February 1991.
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
------------------------------------
The Company, which is a development stage enterprise, was incorporated
on November 5, 1982 and has had no revenues to support its operations
since its inception. The Company's principal activities are the
development of products, further enhancement of its flat panel and its
interest in Shanghai CopyTele, the Company's 55% owned joint venture
in Shanghai, China, which is accounted for under the equity method of
accounting. See "Business - New Developments" and Notes 2 and 3 to the
Company's Financial Statements. There is no assurance, and the
Company is not able to predict, if and when marketable
telecommunications products incorporating the Company's flat panel
technology will be produced or sold in commercial quantities. Even if
the Company were to produce marketable products, directly or through
the Joint Venture, there is no assurance that the Company will
generate 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 the Joint
Venture obsolete.
In reviewing Management's Discussion and Analysis of Financial
Condition and Results of Operations, reference is made to the
Company's Financial Statements and the notes thereto.
Results of Operations
---------------------
Selling, general and administrative expenses for the fiscal years
ended October 31, 1995, 1994 and 1993 and for the period from November
5, 1982 (inception) through October 31, 1995 were approximately
$3,350,000, $3,651,000, $2,926,000 and $25,980,000, respectively.
These amounts include research, development and tooling costs of
approximately $2,353,000, $2,677,000, $1,780,000 and $16,885,000,
respectively, as well as normal operating expenses. Selling, general
and administrative expenses decreased during fiscal 1995 as compared
to 1994 as a result of the requirements of the present phase of the
Company's development program and related activities. Engineering
supplies purchases and patent application preparation and filing fees
decreased substantially during 1995, while professional fees
(excluding patent related fees) and business trip expenses increased.
Consulting and outside engineering services expenses increased during
fiscal 1995 as compared to 1994 as a result of costs incurred in
connection with the development of products for the Joint Venture.
The increase in selling, general and administrative expenses during
fiscal 1994 as compared to 1993 resulted from increases in
expenditures necessitated by requirements of the Company's development
program and related activities. Engineering supplies purchases and
patent application preparation and filing fees increased substantially
in 1994 while other professional fees and business trip expenses
declined. Consulting expenses decreased during fiscal 1994 as compared
to 1993 as a result of two former consultants to the Company
becoming employees in February 1993, one of whom has since resigned,
and waiving salary and related pension benefits for an undetermined
period of time.
Since November 1985, the Company's Chairman of the Board and its
President have waived salary and related pension benefits for an
undetermined period of time. Four other individuals, including a
former officer and senior level personnel, waived salary and related
pension benefits from January 1987 through December 1990. Commencing
in January 1991, these four 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 (exclusive
of the former officer) continued to waive such rights commencing in
January 1993 for an undetermined period of time. As previously
indicated, one additional employee is also currently waiving such
salary and benefit rights for an undetermined period of time. See
"Executive Compensation" and Note 12 to the Company's Financial
Statements for a more complete discussion regarding salary and related
pension benefit waivers.
The increase in interest income during fiscal 1995 as compared to 1994
primarily resulted from a small increase in average funds available
for investment, and an increase in interest rates. The increase in
interest income during fiscal 1994 as compared to 1993 resulted from
an increase in funds available for investment and an increase in
interest rates. Funds available for investment during 1995, 1994 and
1993, on a monthly weighted average basis, were approximately
$7,175,000, $7,050,000 and $6,265,000, respectively. The investment
instruments selected by the Company are principally money market
accounts, treasury bills and commercial paper.
During October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 123,
Accounting for Stock Based Compensation. This statement establishes
---------------------------------------
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 encourages entities to adopt a fair
value based method of accounting for stock compensation plans.
However, SFAS No. 123 also permits the Company to continue to measure
compensation costs under preexisting accounting pronouncements. If
the fair value based method of accounting is not adopted, SFAS No. 123
requires pro forma disclosures of net income and earnings per share.
This statement will be adopted by the Company no later than fiscal
1997. The Company is currently evaluating the implications of SFAS
No. 123 and, as a result, has not yet determined how it will be
applied in its Financial Statements. The Company has adopted all
other recently issued accounting standards which have an impact on its
financial statements.
See "Business" and Note 1 to the Company's Financial Statements for
discussions regarding uncertainties that may significantly affect
results of future operations.
Liquidity and Capital Resources
-------------------------------
Since its inception, the Company has met its liquidity and capital
expenditure needs primarily from the proceeds of the sales of its
common stock in the initial public offering, in private placements,
upon exercise of warrants issued in connection with the private
placements and public offering and upon exercise of stock options
pursuant to the Company's 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 and amended on May 3, 1995 (the "1993 Plan").
During the fiscal year ended October 31, 1995, the Company received
proceeds aggregating approximately $5,289,000 from the exercise of
options to purchase 980,400 shares of its common stock pursuant to the
1987 Plan and the 1993 Plan. In addition, during fiscal 1995 the
Company received proceeds aggregating approximately $757,000 from the
exercise of warrants by members of the immediate families of its
Chairman of the Board and its President to purchase 137,300 shares of
common stock. From the period November 1, 1995 through January 19,
1996 the Company received proceeds aggregating approximately
$1,557,000 from the exercise of stock options for 281,850 shares of
the Company's common stock and $200,000 from the exercise of warrants
for 53,200 shares of the Company's common stock. See "Certain
Relationships and Related Transactions" and the Company's Financial
Statements for a more complete discussion regarding sales of common
stock.
The Company believes that even without sales it has sufficient funds
to maintain its present level of development efforts and to continue
making its initial capital contributions to the Joint Venture into the
first quarter of fiscal 1998 (see "Business - New Developments"). The
Company anticipates that it may require additional funds in order to
participate in the Joint Venture following its initial capital
contributions and to continue its research and development activities.
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's material commitments for
capital expenditures as of October 31, 1995 were approximately
$981,000, inclusive of $857,500 for the balance of its required total
cash capital contribution to the Joint Venture of $1,225,000. As of
January 19, 1996, the Company had contributed $490,000 of its
remaining capital contribution to the Joint Venture. The balance of
$367,500 is expected to be paid when it is required by the Joint
Venture during 1996.
The NASD requires that the Company maintain a minimum of $4 million of
net tangible assets to maintain its NASDAQ - NMS listing. See "Market
for the Registrant's Common Equity and Related Stockholder Matters".
The Company anticipates that it will seek additional sources of
funding, when necessary, in order to satisfy the NASD requirements.
The Joint Venture Agreement contemplates an initial investment of $7
million, of which half may be borrowed from banks, and a registered
capital of $3.5 million. The Company is required to contribute
$1,225,000 in cash and SECC and SIT are required to contribute
$1,575,000 in cash to the Joint Venture. The Company currently has no
plans with respect to additional financing. There can be no assurance
that adequate funds will be available to the Company or the Joint
Venture, including the Company's required capital contributions
(beyond its initial capital contributions of $1,225,000) and its NASD
funding requirements, or that, if available, the Company or the Joint
Venture will be able to obtain such funds on favorable terms and
conditions.
See "Business" and Note 1 to the Company's Financial Statements for
discussions regarding uncertainties that may significantly affect
future liquidity and capital resources.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
See accompanying "Index to Financial Statements".
Item 9. Disagreements on Accounting and Financial Disclosure.
-----------------------------------------------------
Not applicable.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The following table sets forth certain information with respect
to all of the directors and executive officers of the Company:
Director
Position with the Company and/or
Name and Principal Occupation Age Executive
Officer Since
-----------------------------------------------------------------
Denis A. Krusos Director, Chairman of the 68 1982
Board and Chief Executive
Officer
Frank J. DiSanto Director and President 71 1982
Gerald J. Director, Vice President - 46 1994
Bentivegna Finance and Chief Financial
Officer
John E. Gillies Director; Partner of Gillies 69 1992
and Meares, Attorneys-at-Law
John R. Shonnard Director 80 1988
Mr. Krusos has been a Director, Chairman of the Board and Chief
Executive Officer of the Company since November 1982. He holds an
M.S.E.E. degree from Newark College of Engineering, a B.E.E. degree
from City College of New York and a Juris Doctor from St. John's
University and is a member of the New York bar.
Mr. DiSanto has been a Director and President of the Company since
November 1982. He holds a B.E.E. degree from Polytechnic Institute of
Brooklyn and an M.E.E. degree from New York University.
Mr. Bentivegna has been Vice President - Finance and Chief Financial
Officer since September 1994 and was elected a Director in July 1995.
Prior to joining the Company, Mr. Bentivegna was employed at Marino
Industries Corp. for approximately 10 years, where he served as
Controller, Treasurer and Chief Financial Officer. He holds an MBA
degree from Long Island University and a B.B.A. from Dowling College.
Mr. Gillies has been a Director of the Company since January 1992. He
has been an attorney for over forty years and formerly served as a
Village Justice and as a Village Attorney of the Incorporated Village
of Farmingdale. He is also Honorary President of St. Mary's Children
and Family Services, a not-for-profit child care agency for which he
has served in various capacities for over twenty years.
Mr. Shonnard has been a Director of the Company since January 1988.
He had been a research consultant to the Company from August 1983
until his retirement in May 1988. Mr. Shonnard was engaged in
development engineering in the communications field for over fifty
years. Mr. Shonnard has held numerous patents in the communications
field.
Item 11. Executive Compensation.
-----------------------
Messrs. Denis A. Krusos, Chairman of the Board, Chief Executive
Officer and Director, Frank J. DiSanto, President and Director, and
Gerald J. Bentivegna, Vice President - Finance, Chief Financial
Officer and Director, are the executive officers of the Company.
While there are no formal agreements, Denis A. Krusos and Frank J.
DiSanto waived any and all rights to receive salary and related
pension benefits for an undetermined period of time commencing
November 1, 1985. As a result, Mr. Krusos received no salary or bonus
during the last three fiscal years and no other executive officer
received a salary or bonus in excess of $100,000 during the fiscal
year ended October 31, 1995. The following is compensation information
regarding Mr. Krusos for the fiscal years ended October 31, 1995, 1994
and 1993:
SUMMARY COMPENSATION TABLE
Long-Term
Fiscal Compensation Awards
Name and Year -------------------
Principal Position Ended
Securities Underlying
Options (#)
----------------------------------------------------------------
Denis A. Krusos, 10/31/95 450,000
Chairman of the Board, 10/31/94 100,000
Chief Executive Officer and 10/31/93 500,000
Director
The following is information regarding stock options granted to Mr.
Krusos pursuant to the "1993 Plan" during the fiscal year ended
October 31, 1995:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable Value at
-------------------------------------------------------------------- Assumed Annual Rates of Stock Price
Appreciation for Option Term
Number of ------------------------------------
Securities Percent of Total
Underlying Options Options Granted to
Granted (#) (1) Employees in Exercise Price Expiration
Name Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- --------------------------------------------------------------------------------------------------------------------------------
Denis A. Krusos 760 .03% $6.738(2) 1/3/00 $ 820 $ 2,376
14,080 .54% $6.738(2) 1/3/00 $ 15,195 $ 44,019
185,160 7.05% $6.125(3) 1/3/05 $ 713,233 $ 1,807,471
250,000 9.52% $6.625(3) 5/2/05 $1,041,607 $62,639,636
____________________
(1) The options are exercisable in whole or in part commencing one
year following the date of grant unless otherwise accelerated.
The options are not issued in tandem with stock appreciation or
similar rights and are not transferable other than by will or the
laws of descent and distribution. The options terminate upon
termination of employment, except that in the case of death,
disability or termination for reasons other than cause, options
may be exercised for certain periods of time thereafter as set
forth in the 1993 Plan.
(2) The exercise price of these options was equal to 110% of the fair
market value of the underlying common stock on the date of grant
(fair market value being defined in the 1993 Plan as the last
sales price of the Company's common stock on NASDAQ-NMS on the
date of grant). These options were granted as incentive stock
options within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended. Of these options, 14,080 were converted
to nonqualified options as a result of an acceleration of their
exercise date from 1996 into 1995.
(3) The exercise price of these options was equal to the fair market
value of the underlying common stock on the date of grant. These
options are nonqualified options.
The following is information regarding stock option exercises during
fiscal 1995 by Mr. Krusos and values of his options as of October 31,
1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/VALUES
Number of Value of
Securities Unexercised In-
Underlying the-Money Options
Shares Unexercised at Fiscal Year End
Acquired Value Options at Fiscal ($)
Name on Realized Year End (#)
------------------ ----------------------
Exercise ($) Exercis- Unexercis Exercis- Unexercis
(#) able -able able -able
---------------------------------------------------------------------------
Denis A. 220,000 $690,000(1) 1,148,500 - $1,161,591(2) $ - (2)
Krusos
____________________
(1) Such value was determined by applying the net difference between
the selling price of the stock sold on day of exercise, and the
exercise price for Mr. Krusos' options to the number of options
exercised. The exercise price of these options was equal to the
fair market value of the underlying common stock on the date of
grant (fair market value being defined in the "1987 Plan" as the
last sales price of the Company's common stock on NASDAQ-NMS on
the day preceding the date of grant).
(2) Such value was determined by applying the net difference between
the last sales price of the Company's common stock on October 31,
1995 and the exercise price for Mr. Krusos' options to the number
of unexercised in-the-money options that he held. The exercise
price of these options was at least equal to the fair market
value of the underlying common stock as defined in the applicable
Plan.
There is no present arrangement for the compensation of directors for
services in that capacity. Upon the approval of the amendment of the
1993 Plan by the Company's shareholders on July 19, 1995, each
nonemployee director elected at the 1995 Annual Meeting of
Shareholders received nonqualified stock options to purchase 20,000
shares of common stock and such nonemployee directors will receive
nonqualified stock options to purchase 20,000 shares of common stock
each subsequent year that such director is elected to the Board of
Directors. In addition, any future nonemployee director elected to the
Board of Directors will receive nonqualified stock options to purchase
10,000 shares of common stock upon his initial election to the Board
of Directors and 20,000 each subsequent year that such director is
elected to the Board of Directors.
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management.
---------------
The following table sets forth certain information with respect to the
Company's common stock beneficially owned as of January 19, 1996 by
(a) each person who is known by the management of the Company to be
the beneficial owner of more than 5% of the Company's common stock,
(b) each director or executive officer of the Company and (c) all
directors and executive officers as a group:
Amount and
Nature of Percent of
Name and Address of Beneficial Owner Beneficial Class
Ownership (1)
---------------------------------------------------------------
Denis A. Krusos 3,468,630(2) 12.68%
900 Walt Whitman Road
Huntington Station, NY 11746
Frank J. DiSanto 3,462,890(2) 12.67%
900 Walt Whitman Road
Huntington Station, NY 11746
Gerald J. Bentivegna 15,000 .06%
900 Walt Whitman Road
Huntington Station, NY 11746
John E. Gillies 25,500(2) .10%
320 Conklin Street
Farmingdale, NY 11735
John R. Shonnard 112,800(2)(3) .43%
12521 Rios Road
San Diego, CA 92128
All Directors and Executive Officers 7,084,820(2)(3) 24.87%
as a Group
(5 persons)
____________________
(1) A beneficial owner of a security includes any person who directly
or indirectly has or shares voting power and/or investment power
with respect to such security or has the right to obtain such
voting power and/or investment power within sixty (60) days.
Except as otherwise noted, each designated beneficial owner in
this report has sole voting power and investment power with
respect to the shares of the Company's common stock beneficially
owned by such person.
(2) Includes 1,062,500 shares, 1,040,000 shares, 15,000 shares,
25,000 shares, 58,600 shares and 2,201,100 shares as to which
Denis A. Krusos, Frank J.DiSanto, Gerald J.
Bentivegna, John E. Gillies, John R. Shonnard and all directors
and executive officers as a group, respectively, have the right
to acquire within 60 days upon exercise of options granted
pursuant to the 1987 Plan and/or the 1993 Plan.
(3) Includes 54,200 shares of the Company's common stock, all of
which are held in a revokable trust by the First Interstate Bank,
as trustee of such trust. Mr. Shonnard and his wife, Janet L.
Shonnard, are the beneficiaries of such trust and, under certain
circumstances, may exercise the voting power and investment power
of the trust jointly.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
In fiscal 1995, Peri D. Krusos, Denis Z. Krusos and Daniel A. DiSanto
exercised warrants to purchase 51,950, 51,950 and 33,400 shares of
common stock, respectively at the weighted average exercise price of
$5.51 per share of the Company's common stock. On January 11, 1996,
Peri D. Krusos and Denis Z. Krusos each exercised warrants to purchase
26,600 shares of the Company's common stock at an exercise price of
$3.75 per share. Each exercise price represented the fair market
value of such stock on the date of issuance of these warrants,
subsequently adjusted for the two-for-one stock split declared by the
Company in February 1991 and the anti-dilution provisions of the
warrants. The warrants were issued in fiscal 1990 in conjunction with
sales of common stock by the Company to the foregoing individuals.
Peri D. Krusos and Denis Z. Krusos are the daughter and son,
respectively, of Denis A. Krusos and Daniel A. DiSanto is the son of
Frank J. DiSanto.
As of January 19, 1996, after adjustments for the two-for-one stock
split declared in February 1991, Peri D. Krusos, Denis Z. Krusos and
Daniel A. DiSanto each held warrants to purchase 115,511 shares of
common stock, all of which are exercisable.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and
--------------------------------------------
Reports on Form 8-K.
--------------------
(a)(1)(2) Financial Statement Schedules
-----------------------------
See accompanying "Index to Financial Statements".
(a)(3) Executive Compensation Plans and Arrangements
---------------------------------------------
Stock Option Plan (1987) (filed as Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1987).
Amendment to Stock Option Plan (1987) (filed as Exhibit
10.69 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990).
CopyTele, Inc. 1993 Stock Option Plan (filed as Annex A to
the Company's Proxy Statement dated June 10, 1993).
Amendment to CopyTele, Inc. 1993 Stock Option Plan (filed as
Exhibit 4(d) to the Company's Form S-8 dated September 6,
1995).
(b) Reports on Form 8-K
-------------------
No current report on Form 8-K was filed for the Company
during the fourth quarter of its fiscal year ended October
31, 1995.
(c) Exhibits
--------
(a) 3.1 Certificate of Incorporation, as amended.
(b) 3.2 By-laws, as amended and restated.
(c) 10.1 Stock Option Plan, adopted on April 1, 1987
and approved by shareholders on May 27, 1987.
(d) 10.2 Amendment to Stock Option Plan, adopted on
March 12, 1990 and approved by shareholders
on May 24, 1990.
(d) 10.3 Stock Purchase Warrant, dated December 4,
1990, between the Registrant and Denis Z.
Krusos.
(d) 10.4 Stock Purchase Warrant, dated December 4,
1990, between the Registrant and Daniel A.
DiSanto.
(d) 10.5 Stock Purchase Warrant, dated December 4,
1990, between the Registrant and Peri D.
Krusos.
(e) 10.6 Stock Purchase Warrant, dated April 26, 1991,
between the Registrant and Denis Z. Krusos.
(e) 10.7 Stock Purchase Warrant, dated April 26, 1991,
between the Registrant and Daniel A. DiSanto.
(e) 10.8 Stock Purchase Warrant, dated April 26, 1991,
between the Registrant and Peri D. Krusos.
(f) 10.9 Stock Purchase Warrant, dated July 15, 1991,
between the Registrant and Denis Z. Krusos.
(f) 10.10 Stock Purchase Warrant, dated July 15, 1991,
between the Registrant and Daniel A. DiSanto.
(f) 10.11 Stock Purchase Warrant, dated July 15, 1991,
between the Registrant and Peri D. Krusos.
(g) 10.12 Stock Purchase Warrant, dated September 16,
1991, between the Registrant and Denis Z.
Krusos.
(g) 10.13 Stock Purchase Warrant, dated September 16,
1991, between the Registrant and Daniel A.
DiSanto.
(g) 10.14 Stock Purchase Warrant, dated September 16,
1991, between the Registrant and Peri D.
Krusos.
(g) 10.15 Stock Purchase Warrant, dated December 16,
1991, between the Registrant and Denis Z.
Krusos.
(g) 10.16 Stock Purchase Warrant, dated December 16,
1991, between the Registrant and Daniel A.
DiSanto.
(g) 10.17 Stock Purchase Warrant, dated December 16,
1991, between the Registrant and Peri D.
Krusos.
(h) 10.18 Stock Purchase Warrant, dated March 12, 1992,
between the Registrant and Denis Z. Krusos.
(h) 10.19 Stock Purchase Warrant, dated March 12, 1992,
between the Registrant and Daniel A. DiSanto.
(h) 10.20 Stock Purchase Warrant, dated March 12, 1992,
between the Registrant and Peri D. Krusos.
(a) 10.21 Stock Purchase Warrant, dated July 24, 1992,
between the Registrant and Denis Z. Krusos.
(a) 10.22 Stock Purchase Warrant, dated July 24, 1992,
between the Registrant and Daniel A. DiSanto.
(a) 10.23 Stock Purchase Warrant, dated July 24, 1992,
between the Registrant and Peri D. Krusos.
(i) 10.24 Stock Purchase Warrant, dated October 27,
1992, between the Registrant and Denis Z.
Krusos.
(i) 10.25 Stock Purchase Warrant, dated October 27,
1992, between the Registrant and Daniel A.
DiSanto.
(i) 10.26 Stock Purchase Warrant, dated October 27,
1992, between the Registrant and Peri D.
Krusos.
(j) 10.27 CopyTele, Inc. 1993 Stock Option Plan,
adopted on April 28, 1993 and approved by
shareholders on July 14, 1993.
(k) 10.28 Joint Venture Contract, dated as of March 28,
1995, by and between Shanghai Electronic
Components Corp. and CopyTele, Inc.
(k) 10.29 Technology License Agreement, dated as of
March 28, 1995, by and between Shanghai
CopyTele Electronics Co., Ltd. and CopyTele,
Inc.
(l) 10.30 Amendment No. 1 to the CopyTele, Inc. 1993
Stock Option Plan, adopted on May 3, 1995 and
approved by shareholders on July 19, 1995.
10.31 Assignment Agreement, dated as of July 10,
1995, by and among Shanghai Electronic
Components Corp., Shanghai International
Trade and Investment Developing Corp. and
CopyTele, Inc.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule
------------------
(a) Incorporated by reference to Form 10-Q for the fiscal
quarter ended July 31, 1992.
(b) Incorporated by reference to Post-Effective Amendment
No. 1 to Form S-8 (Registration No. 33-49402) dated
December 8, 1993.
(c) Incorporated by reference to Form 10-Q for the fiscal
quarter ended April 30, 1987.
(d) Incorporated by reference to Form 10-K for the fiscal
year ended October 31, 1990.
(e) Incorporated by reference to Form 10-Q for the fiscal
quarter ended April 30, 1991.
(f) Incorporated by reference to Form 10-Q for the fiscal
quarter ended July 31, 1991.
(g) Incorporated by reference to Form 10-K for the fiscal
year ended October 31, 1991.
(h) Incorporated by reference to Form 10-Q for the fiscal
quarter ended April 30, 1992.
(i) Incorporated by reference to Form 10-K for the fiscal
year ended October 31, 1992.
(j) Incorporated by reference to Proxy Statement dated June
10, 1993.
(k) Incorporated by reference to Form 8-K dated March 28,
1995.
(l) Incorporated by reference to Form S-8 (Registration No.
33-62381) dated September 6, 1995.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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 and
January 26, 1996 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
By:/s/ Denis A. Krusos
-------------------------------------
Denis A. Krusos
Chairman of the Board,
Chief Executive Officer
and Director (Principal Executive
January 26, 1996 Officer)
By:/s/ Frank J. DiSanto
-------------------------------------
Frank J. DiSanto
January 26, 1996 President and Director
By:/s/ Gerald J. Bentivegna
-------------------------------------
Gerald J. Bentivegna
Vice President - Finance,
Chief Financial Officer and
Director (Principal Financial
January 26, 1996 and Accounting Officer)
By:/s/ John R. Shonnard
-------------------------------------
John R. Shonnard
January 26, 1996 Director
By:/s/ John E. Gillies
-------------------------------------
John E. Gillies
January 26, 1996 Director
COPYTELE, INC.
--------------
(Development Stage Enterprise)
----------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
OCTOBER 31, 1995
----------------
Page
----
Report of Independent Public Accountants F-1
Balance Sheets as of October 31, 1995 and 1994 F-2
Statements of Operations for the three years
ended October 31, 1995
and for the period from November 5, 1982
(inception) through October 31, 1995 F-3
Statements of Shareholders' Equity for the
period from November 5, 1982
(inception) through October 31, 1983
and for the twelve years ended
October 31, 1995 F-4 - F-7
Statements of Cash Flows for the
three years ended October 31, 1995
and for the period from November 5, 1982
(inception) through October 31, 1995 F-8
Notes to Financial Statements F-9 - F-16
Information required by schedules called for under Regulation S-X is
either not applicable or is included in the financial statements or
notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To CopyTele, Inc.:
We have audited the accompanying balance sheets of CopyTele,
Inc. (a Delaware corporation in the development stage -- Note 1) as of
October 31, 1995 and 1994, and the related statements of operations
and cash flows for each of the three years in the period ended October
31, 1995 and for the period from November 5, 1982 (inception) to
October 31, 1995 and the statements of shareholders' equity for the
period from November 5, 1982 (inception) through October 31, 1983 and
for each of the twelve years in the period ended October 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
CopyTele, Inc. as of October 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the
period ended October 31, 1995 and for the period from November 5, 1982
(inception) to October 31, 1995, and the changes in its shareholders'
equity for the period from November 5, 1982 (inception) through
October 31, 1983 and for each of the twelve years in the period ended
October 31, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
January 22, 1996
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
BALANCE SHEETS
--------------
October 31, October 31,
1995 1994
------------ ------------
ASSETS
-------
CURRENT ASSETS:
Cash (including cash equivalents and interest bearing accounts of
$8,786,210 and $6,163,435, respectively) $ 8,864,293 $ 6,244,801
Accrued interest receivable 36,206 17,041
Prepaid expenses 52,451 45,994
----------- -----------
8,952,950 6,307,836
PROPERTY AND EQUIPMENT (net of accumulated depreciation
of $690,420 and $628,668, respectively) 235,201 207,778
INVESTMENT IN JOINT VENTURE COMPANY (Notes 1, 2 and 3) 349,687 -
OTHER ASSETS 157,560 98,718
DEFERRED TAX BENEFITS (net of valuation allowance of
$15,983,000 and $13,458,000, respectively) - -
----------- -----------
$ 9,695,398 $ 6,614,332
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 218,954 $ 163,402
Accrued liabilities 39,736 35,697
----------- -----------
258,690 199,099
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock, par value $100 per share; authorized 500,000
shares; no shares outstanding - -
Common stock, par value $.01 per share; authorized 120,000,000
shares; outstanding 25,955,103 and 24,837,403 shares, respectively 259,551 248,374
Additional paid-in capital 32,492,127 26,487,930
Accumulated (deficit) during development stage (23,314,970) (20,321,071)
------------ ------------
9,436,708 6,415,233
------------ ------------
$ 9,695,398 $ 6,614,332
============ ============
The accompanying notes are an integral part of these balance sheets.
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
STATEMENTS OF OPERATIONS
------------------------
For the Period From
For the Years Ended October 31, November 5, 1982
--------------------------------------------------- (inception) through
1995 1994 1993 October 31, 1995
-------- -------- --------- ------------------
$ - $ - $ - $ -
SALES --------- --------- --------- ---------
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES, including
research and
development expenses
of approximately
$2,353,000,
$2,677,000,
$1,780,000 and
$16,885,000,
respectively 3,350,125 3,651,334 2,925,627 25,980,442
--------- --------- --------- ----------
INTEREST INCOME 356,226 223,817 162,778 2,665,472
--------- --------- --------- ----------
NET (LOSS) ($2,993,899) ($3,427,517) ($2,762,849) ($23,314,970)
========= ========= ========= ==========
NET (LOSS) PER SHARE
OF COMMON STOCK ($.12) ($.14) ($.12) ($1.05)
==== ==== ==== ====
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 25,257,284 24,688,696 23,886,225 22,154,108
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION)
------------------------------------------------
THROUGH OCTOBER 31, 1983 AND
----------------------------
FOR THE TWELVE YEARS ENDED OCTOBER 31, 1995
-------------------------------------------
Accumulated
(Deficit)
Common Stock Additional During
----------------------------- Paid-in Development
Shares Par Value Capital Stage
---------- --------- ---------- -------------
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 - - (350,376) -
Net (loss) for the period - - - (976,919)
----------------------------------- -----------
BALANCE, October 31, 1983 2,800,000 28,000 6,385,384 (976,919)
Additional costs incurred in conjunction with public
offering - - (11,654) -
Net (loss) for the period - - - (1,542,384)
----------------------------------- -----------
BALANCE, October 31, 1984 2,800,000 28,000 6,373,730 (2,519,303)
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 - - 362,365 -
Three-for-one stock split (A) 5,714,400 57,144 (57,144) -
Net (loss) for the period - - - (1,745,389)
----------------------------------- ----------
BALANCE, October 31, 1985 8,571,600 85,716 7,309,796 (4,264,692)
Common stock issued, at $4 per share, upon exercise
of 2,800 warrants in December 1985 8,400 84 33,516 -
Additional costs incurred by the Company in
conjunction with sales of common stock by
individuals from January 29, 1985 to
October 4, 1985 under agreements
with the Company - - (62,146) -
Net (loss) for the period - - - (1,806,696)
----------------------------------- ----------
BALANCE, October 31, 1986 8,580,000 85,800 7,281,166 (6,071,388)
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION)
------------------------------------------------
THROUGH OCTOBER 31, 1983 AND
----------------------------
FOR THE TWELVE YEARS ENDED OCTOBER 31, 1995
-------------------------------------------
Continued
---------
Accumulated
(Deficit)
Common Stock Additional During
----------------------------- Paid-in Development
Shares Par Value Capital Stage
---------- --------- ---------- -------------
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 -
Additional costs incurred by the Company in
conjunction with sales of common stock by
individuals from January 29, 1985 to October
4, 1985
under agreements with the Company - - (1,474) -
Five-for-four stock split (A) 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 on September 10, 1987 and to
officers on October 29, 1987 64,740 647 309,601 -
Net (loss) for the period - - - ( 1,401,736)
------------------------------------ ---------------
BALANCE, October 31, 1987 10,873,825 108,738 8,428,057 ( 7,473,124)
Sale of common stock, at market, to members of
officers' immediate families from
November 24, 1987 to June 29, 1988 and
additional contributions by officers in
January 1988 and March 1988 related to
adjustments to sales price of common stock on
October 29, 1987 260,210 2,602 2,250,594 -
Net (loss) for the period - - - ( 1,317,305)
------------------------------------ ---------------
BALANCE, October 31, 1988 11,134,035 111,340 10,678,651 ( 8,790,429)
Sale of common stock, at market, to an officer on
February 26, 1989 and to members of officers'
immediate families from February 26, 1989
(amended
on March 10, 1989) to September 27, 1989 142,725 1,427 2,093,851 -
Sale of common stock, at market, to senior level
personnel on February 26, 1989 29,850 299 499,689 -
Sale of common stock, at market, to unrelated
party on February 26, 1989 amended on
March 10, 1989 35,820 358 599,627 -
Net (loss) for the period - - - ( 1,101,515)
------------------------------------ ---------------
BALANCE, October 31, 1989 11,342,430 113,424 13,871,818 ( 9,891,944)
Sale of common stock, at market, to members of
officers' immediate families from November
14, 1989 to October 15, 1990 117,825 1,179 1,140,725 -
Net (loss) for the period - - - ( 1,111,413)
------------------------------------ ---------------
BALANCE, October 31, 1990 11,460,255 114,603 15,012,543 (11,003,357)
Continued
COPYTELE, INC.
- ---------------
(Development Stage Enterprise)
- -------------------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION)
- -------------------------------------------------
THROUGH OCTOBER 31, 1983 AND
- -----------------------------
FOR THE TWELVE YEARS ENDED OCTOBER 31, 1995
- --------------------------------------------
Continued
---------
Accumulated
(Deficit)
Common Stock Additional During
-------------------------- Paid-in Development
Shares Par Value Capital Stage
---------- --------- ----------- --------------
Sale of common stock, at market, to members of officers'
immediate families on December 4, 1990 42,540 425 329,260 -
Two-for-one stock split (A) 11,502,795 115,028 ( 115,028) -
Sale of common stock, at market, to members of officers'
immediate families from April 26, 1991 to September 16, 1991 102,543 1,025 1,033,981 -
Net (loss) for the period - - - ( 1,299,992)
----------- --------- ----------- ------------
BALANCE, October 31, 1991 23,108,133 231,081 16,260,756 (12,303,349)
Sale of common stock, at market, to members of officers'
immediate families from December 16, 1991 to October
27, 1992 158,910 1,589 1,754,330 -
Costs incurred in conjunction with registration of stock
option plan - - ( 33,251) -
Net (loss) for the period - - - ( 1,827,356)
----------- ---------- ----------- -----------
BALANCE, October 31, 1992 23,267,043 232,670 17,981,835 (14,130,705)
Common stock issued upon exercise of stock options from
December 16, 1992 to October 22, 1993 under stock option
plan 1,032,940 10,330 5,914,480 -
Common stock issued upon exercise of warrants by members
of officers' immediate families in September 1993 239,000 2,390 996,774 -
Net (loss) for the period - - - ( 2,762,849)
----------- ---------- ------------ -------------
BALANCE, October 31, 1993 24,538,983 245,390 24,893,089 (16,893,554)
Cost incurred in connection with registration of stock
option plan - - (50,324) -
Common stock issued upon exercise of stock options from
December 22, 1993 to June 14, 1994 under stock option plan 233,200 2,332 1,273,411 -
Common stock issued upon exercise of warrants by members
of officers' immediate families in July 1994 65,220 652 371,754 -
Net (loss) for the period - - - ( 3,427,517)
----------- ---------- ------------ -------------
BALANCE, October 31, 1994 24,837,403 248,374 26,487,930 (20,321,071)
Continued
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION)
------------------------------------------------
THROUGH OCTOBER 31, 1983 AND
----------------------------
FOR THE TWELVE YEARS ENDED OCTOBER 31, 1995
-------------------------------------------
Continued
---------
Accumulated
(Deficit)
Common Stock Additional During
-------------------------- Paid-in Development
Shares Par Value Capital Stage
---------- --------- ----------- --------------
Cost incurred in connection with registration of stock
option plan - - ( 29,759) -
Common stock issued upon exercise of stock options from
February 17, 1995 to October 30, 1995 under stock option plans 980,400 9,804 5,278,824 -
Common stock issued upon exercise of warrants by members
of officers' immediate families in February, July and
September 1995 137,300 1,373 755,132 -
Net (loss) for the period - - - ( 2,993,899)
---------- --------- ------------ -------------
BALANCE, October 31, 1995 25,955,103 $ 259,551 $ 32,492,127 ($23,314,970)
========== ========= ============ ============
(A) Reflects cumulative effect on all share data prior to splits described in Note 5.
The accompanying notes are an integral part of these statements.
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
STATEMENTS OF CASH FLOWS
------------------------
For the Period from
For the Years Ended October 31, November 5, 1982
------------------------------------------- (inception) through
1995 1994 1993 October 31, 1995
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Payments to suppliers, employees and consultants ($ 3,274,894) ($ 3,837,859) ($ 2,724,185) ($25,218,890)
Interest received 337,061 219,727 155,459 2,629,267
Interest paid - - - -
-------------- ------------- ------------- --------------
Net cash (used in) operating activities ( 2,937,833) ( 3,618,132) ( 2,568,726) ( 22,589,623)
-------------- ------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equipment ( 90,549) ( 51,902) ( 146,726) ( 930,262)
Disbursements to acquire certificates of deposit
and corporate notes and bonds - - - ( 12,075,191)
Proceeds from maturities of investments - - - 12,075,191
Investment made in Joint Venture Company ( 367,500) - - ( 367,500)
-------------- -------------- -------------- ---------------
Net cash (used in) investing activities ( 458,049) ( 51,902) ( 146,726) ( 1,297,762)
-------------- -------------- -------------- ---------------
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 6,015,374 1,597,825 6,913,974 15,168,939
Proceeds from sales of common stock by individuals
under agreements with the Company, net of dis-
bursements 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 6,015,374 1,597,825 6,913,974 32,751,678
------------- -------------- -------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,619,492 ( 2,072,209) 4,198,522 8,864,293
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 6,244,801 8,317,010 4,118,488 -
-------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,864,293 $ 6,244,801 $ 8,317,010 $ 8,864,293
============== ============== ============== ==============
RECONCILIATION OF NET (LOSS) TO NET CASH
(USED IN) OPERATING ACTIVITIES:
Net (loss) ($ 2,993,899) ($ 3,427,517) ($ 2,762,849) ($23,314,970)
Pro-rata share of Joint Venture Company losses 17,813 - - 17,813
Depreciation 62,518 56,002 27,903 695,061
(Increase) in accrued interest receivable ( 19,165) ( 4,091) ( 7,319) ( 36,206)
(Increase) decrease in prepaid expenses ( 6,457) 1,950 ( 3,780) ( 52,451)
(Increase) decrease in other assets ( 58,842) ( 1,951) 1,377 ( 157,560)
Increase (decrease) in accounts payable and
accrued liabilities related to operating
activities 60,199 ( 242,525) 175,942 258,690
-------------- -------------- ------------- ---------------
Net cash (used in) operating activities ($ 2,937,833) ($ 3,618,132) ($ 2,568,726) ($22,589,623)
============== ============== ============= ===============
The accompanying notes are an integral part of these statements.
COPYTELE, INC.
---------------
(Development Stage Enterprise)
-------------------------------
NOTES TO FINANCIAL STATEMENTS
------------------------------
OCTOBER 31, 1995
-----------------
(1) Nature of business and funding:
-------------------------------
CopyTele, Inc. (the "Company"), which was incorporated on
November 5, 1982, is a development stage enterprise, engaged in
the design and development of telecommunications products
incorporating its ultra high resolution charged particle
(electrophoretic) flat panel display screen for the receipt,
transmission and printing of text, facsimile, graphics and
pictures as well as voice transmission.
The Company's principle activities are the development of
products, further enhancement of its flat panel technology, and
its interest in Shanghai CopyTele Electronics Co., Ltd. (the
"Joint Venture Company"), the Company's 55% owned joint venture
in Shanghai, China, with Shanghai Electronic Components Corp.
("SECC") and Shanghai International Trade and Investment Developing
Corp. ("SIT"). Since its inception, the Company has had no revenues
and there is no assurance that its product, or those of the
Joint Venture Company, will be accepted by the market. The
success of future operations will be dependent primarily upon
the sale of products incorporating the Company's flat panel
technology. Furthermore, if marketable products were produced,
directly or through the Joint Venture Company , there is no
assurance that the Company will generate revenues in the
future, will have sufficient revenues to generate a profit or
that other products will not be developed by other companies
that will render the products of the Company and of the Joint
Venture Company obsolete. The Chairman of the Board and the
President are engaged in the management and operations of the
Company and the Joint Venture Company, including the technical
aspects of the development of the Company's products, and are
important to the future business and financial
arrangements of the Company and the Joint Venture Company.
The Company has received fifty-two patents from the United States
Patent and Trademark Office and certain foreign patent offices,
expiring at various dates between 2005 and 2014, related to the
design, structure and methods of construction of the flat panel
methods of operating the flat panel with certain characteristics,
method of producing colored particles, applications using the flat
panel, and particle generation. At the present time, additional
patent applications with respect to the flat panel and particle
generation are pending with the United States and certain foreign
patent offices. There is no assurance that patents will be
obtained for any of the pending applications. In addition,
there is no assurance that any patents held or obtained will
protect the Company against competitors either with or without
litigation. There is also no assurance that, if the Company
or the Joint Venture Company successfully develops marketable
products, such products will not infringe the patents of others,
or that the Company and the Joint Venture Company will
not have to obtain licenses under patents of others. The
Company believes that the aforementioned patents are
significant to the future operations of the Company.
During 1995, the Company signed a joint venture contract (the Joint
Venture Contract) with SECC to form a joint venture in
Shanghai, China with a 20 year duration. With this agreement,
the Joint Venture Company, was formed with the Company owning a
55% share in capital, profits and losses. The remaining 45% is
owned by two Chinese companies, SECC which owns 35% of the
Joint Venture Company and SIT which owns 10% as a result of an
Assignment Agreement entered into by the Company, SECC and SIT.
Reference is made to Note 3 for a further discussion regarding
the Joint Venture Company. Pursuant to a Technology License
Agreement entered into on the same date as the Joint Venture
Contract, the Company has licensed its flat panel application
technology to the Joint Venture Company for exclusive use in
China. The Company is solely authorized to market Joint
Venture Company products outside of China. The Joint Venture
Company may require capitalization of up to $25 million,
depending upon the nature and extent of business activities.
It is contemplated that this capitalization, if necessary, will
be financed through a combination of borrowings and equity
investments contributed by the Company, SECC and SIT in
proportion to their respective equity interests and on terms to
be agreed upon. The Company may require additional financing
in order to participate in the Joint Venture Company following
its initial capital contributions. No assurance can be given
that the Company will be able to raise its share of the $25
million capitalization, if necessary, or that adequate
financing will be available at terms and conditions favorable
to the Company.
The Company has produced a pre-production multi-functional
telecommunications prototype, called Magicom , that is
directed toward the higher end of its potential market. This
prototype is a unique telephone based multi-functional
telecommunications product incorporating the Company s flat
panel and associated propriety hardware and software
technology. The Company believes that the features of the
prototype will position the product for the needs of the
developing digital information field and various on-line
services. The product would enable users to have a personal
information center in a single compact unit which integrates
voice communication, digital messaging, fax (transmission and
paperless reception), copier, electronic handwriting, touch
sensitive screen, data storage and transmission,
and computer interfacing. There is no assurance, and the
Company is not able to predict, if and when marketable
telecommunications products incorporating the Company s flat
panel technology will be produced and sold in commercial
quantities.
The Company believes that it has sufficient funds to maintain the
present level of development efforts and to continue making its
initial capital contributions to the Joint Venture Company into
the first quarter of fiscal 1998. The National Association of
Securities Dealers, Inc. (NASD) requires that the Company
maintain a minimum of $4,000,000 of net tangible assets to
maintain its National Association of Securities Dealers, Inc.
Automated Quotation National Market System ("NASDAQ-NMS")
listing. The Company anticipates that it will seek additional
sources of funding, when necessary, to satisfy such
requirements or for other purposes. There is no assurance that
such funding, if required, will be obtained. 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. See Note 12 for a more complete
discussion regarding such waivers.
(2) Summary of significant accounting policies:
-------------------------------------------
Cash equivalents-
-----------------
The Company classifies highly liquid investments with remaining
maturities of three months or less at their date of purchase
by the Company as cash equivalents. These cash equivalents
are recorded at cost, which approximates fair market value at
October 31, 1995 and 1994, respectively.
Property and equipment-
-----------------------
Property and equipment, consisting primarily of engineering
equipment, is stated at cost. Depreciation is calculated on a
straight-line basis over five years.
Investment in the Joint Venture Company-
----------------------------------------
The Company controls four of seven votes of the Joint Venture
Company s board of directors. However, decisions involving
the Joint Venture Company require either a unanimous or two-
thirds vote of the Joint Venture Company s board of directors.
Since the Company has significant influence over the Joint
Venture Company s operations but does not have control, the
Company has reflected its investment in the Joint Venture
Company under the equity method of accounting.
Research, development and tooling costs-
----------------------------------------
Research, development and tooling costs incurred by the Company
are included in selling, general and administrative expenses
in the year incurred.
Net (loss) per share of common stock-
-------------------------------------
Net (loss) per share of common stock has been computed based on
the weighted average number of shares outstanding during the
periods. Such amounts and shares have been restated for stock
splits declared since inception, as more fully described in
Note 5. There are no common stock equivalents which have a
dilutive effect.
Recently issued accounting standards-
-------------------------------------
During October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard ( SFAS ) No.
123, Accounting for Stock Based Compensation. This statement
---------------------------------------
establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123
encourages entities to adopt a fair value based method of
accounting for stock compensation plans. However, SFAS No.
123 also permits the Company to continue to measure
compensation costs under preexisting accounting
pronouncements. If the fair value based method of accounting
is not adopted, SFAS No. 123 requires pro forma disclosures of
net income and earnings per share in the notes to financial
statements. The Company has not yet determined how this
pronouncement will be implemented and, accordingly, has not
determined what impact this pronouncement will have on the
Company's financial statements. This statement will be
adopted by the Company no later than fiscal 1997.
The Company has adopted all recently issued accounting standards
which are applicable, none of which were material to the
financial position or results of operations of the Company's
financial statements.
(3) Investment in Joint Venture:
----------------------------
On March 28, 1995, the Company entered into the Joint Venture
Contract with SECC providing for the formation of Shanghai
CopyTele Electronics Co., Ltd. in China for the development,
manufacture and marketing of multi-functional
telecommunications products utilizing the Company s flat panel
and associated technology (See Note 1, Nature of business and
funding). The Company has a 55% interest in the capital,
profits and losses of the Joint Venture Company. The Company
is required to contribute $1,225,000 in cash and technology
which has been valued for purposes of the Joint Venture
Contract at $700,000. The Joint Venture Company has not
reflected the $700,000 in technology as an asset or equity
investment in the condensed financial statements presented
below. SECC and SIT will contribute cash aggregating
$1,575,000. In June 1995, the Company made an initial capital
contribution of $367,500 to the Joint Venture Company. At
that time, SECC and SIT contributed a total of $472,500 as
their initial capital contribution in the Joint Venture Company.
The Company has reflected its investment in the Joint Venture
Company under the equity method of accounting (See Note 2,
Summary of significant accounting policies).
Condensed financial information for Shanghai CopyTele Electronics
Co., Ltd. at October 31, 1995 and for the period from May 18,
1995 (inception) through October 31, 1995, is as follows:
Condensed Balance Sheet
Cash $ 722,170
Land occupancy rights and other assets 325,942
----------
Total Assets $1,048,112
==========
Accrued expenses $ 240,499
Capital 807,613
----------
Total Liabilities and Capital $1,048,112
==========
Condensed Statement of Operations
Net sales $ -
Operating (loss) (35,234)
Interest income 2,847
----------
Net (loss) $ (32,387)
===========
As of October 31, 1995, the Joint Venture Company has recorded
$240,499 in liabilities relating to the acquisition of land
rights and infrastructure fees for the new facility, which were
paid subsequent to October 31, 1995.
Subsequent to fiscal 1995, the Company contributed an additional
$490,000 to the Joint Venture Company and SECC and SIT, in
total contributed an additional $630,000. The Company is
required to make an additional investment of $367,500 and SECC
and SIT are required to make an additional contribution
aggregating $472,500. These additional investments will be
made upon mutual agreement of the Company, SECC and SIT.
(4) Issuance of warrants:
---------------------
In conjunction with the sale of its common stock to members of
the immediate families of its Chairman of the Board and its
President, the Company issued warrants to these individuals.
In addition, the Company also issued warrants to an unrelated
party (which expired in May, 1994) who purchased shares of the
Company's common stock and to its former Vice President -
Finance. Information regarding these warrants for the three
years ended October 31, 1995, after adjustments for anti-
dilutive provisions, is as follows:
Current Weighted
Average Exercise
Shares Price per Share
------ ---------------
Shares covered by warrants at October 31, 1992 1,277,973 $ 6.58
Warrants exercised (239,000) $ 4.18
Warrants expired (47,500) $ 4.18
------------
Shares covered by warrants at October 31, 1993 991,473 $ 7.27
Warrants exercised (65,220) $ 5.71
Warrants expired (256,920) $ 7.90
------------
Shares covered by warrants at October 31, 1994 669,333 $ 7.15
Warrants exercised (137,300) $ 5.51
Warrants expired (105,700) $ 5.82
------------
Shares covered by warrants at October 31, 1995 426,333 $ 7.79
============ =======
The exercise price of all of the aforementioned warrants
represented the fair market value of the underlying common
stock on the day preceding issuance of such warrants. These
warrants are exercisable for five years commencing ninety days
from the date of issuance. As of October 31, 1995, all of the
warrants to purchase shares of common stock issued and
outstanding were exercisable.
On January 11, 1996, warrants to purchase 53,200 of the Company s
stock were exercised at an exercise price of $3.75 per share.
(5) Stock splits:
-------------
On October 4, 1985, the Company declared a three-for-one stock
split, effected in the form of a 200% stock dividend, payable
on November 8, 1985 to shareholders of record as of October 15,
1985. On August 13, 1987, the Company declared a five-for-four
stock split, effected in the form of a 25% stock dividend,
payable on September 15, 1987 to shareholders of record as of
August 31, 1987. On February 12, 1991, the Company declared a
two-for-one stock split, effected in the form of a 100% stock
dividend, payable on March 18, 1991 to shareholders of record
as of February 25, 1991. The weighted average number of shares
outstanding and net loss per share amounts in the accompanying
financial statements have been restated to reflect these stock
splits.
(6) Preferred stock:
----------------
On May 29, 1986, the Company's shareholders authorized 500,000
shares of preferred stock with a par value of $100 per share.
The shares of preferred stock may be issued in series at the
direction of the Board of Directors, and the relative rights,
preferences and limitations of such shares will all be
determined by the Board. Management of the Company currently
has no definitive plan or agreements for issuance of any of the
preferred stock.
(7) Stock option plans:
-------------------
In May 1987 the Company's shareholders approved a stock option
plan (the "1987 Plan") which, after giving consideration to the
five-for-four and two-for-one stock splits described in Note 5
as well as an amendment approved by shareholders in May 1990 to
increase the number of shares issuable under the 1987 Plan,
provided for the purchase of 4,500,000 shares of common stock.
The 1987 Plan provided for the granting of incentive stock
options to key employees and nonqualified options to key
employees, consultants and directors of the Company. The
option price was determined by the Board of Directors, but with
respect to incentive stock options the option price could not
be less than the fair market value at the date of grant. The
stock options are exercisable over a period not to exceed 10
years, also as determined by the Board of Directors. In July
1992, the Company registered the shares of common stock covered
by the 1987 Plan. Upon the approval of the CopyTele, Inc. 1993
Stock Option Plan (the "1993 Plan") by the Company's
shareholders in July 1993, the 1987 Plan was terminated with
respect to the grant of future options.
Information regarding the 1987 Plan for the three years ended
October 31, 1995 is as follows:
Range of Option
Shares Price per Share
------ ---------------
Shares under option at October 31, 1992 2,491,500 $ 3.88 - $13.88
Granted 462,500 $ 9.75 - $11.25
Exercised (1,032,940) $ 3.88 - $11.25
----------
Shares under option at October 31, 1993 1,921,060 $ 3.88 - $13.88
Exercised (233,200) $ 4.94 - $ 5.50
----------
Shares under option at October 31, 1994 1,687,860 $ 3.88 - $13.88
Exercised (631,000) $ 3.88 - $ 5.50
Cancelled (172,800) $ 5.50 - $11.25
----------
Shares under option at October 31, 1995 884,060 $ 4.19 - $13.88
========== ================
The exercise price with respect to all of the options granted
under the 1987 Plan from its inception was at least equal to
the fair market value of the underlying common stock on the
date of grant. As of October 31, 1995, all of the options to
purchase shares of common stock granted and outstanding under
the 1987 Plan were exercisable. From November 1, 1995 through
January 22, 1996 options to purchase 197,700 shares of the
Company stock were exercised at a price range of $4.19 to $5.50
per share.
On July 14, 1993, the Company's shareholders approved the 1993
Plan which had been adopted by the Company's Board of Directors
on April 28, 1993. The 1993 Plan was amended on May 3, 1995
to, among other things, increase the number of shares of the
Company s common stock available for issuance pursuant to
grants thereunder from 3,000,000 to 7,000,000. The 1993 Plan
provides for the granting of stock options to purchase shares
of common stock of the Company or stock appreciation rights up
to the aggregate of 7,000,000 shares. Incentive options and
rights may be granted to key employees and nonqualified options
and rights may be granted to key employees and consultants of
the Company. As amended, nonqualified options to purchase
20,000 shares of common stock will be granted annually to each
re-elected nonemployee director of the Company and 10,000
shares to each newly elected non-employee director. The 1993
Plan is administered by the Stock Option Committee, which
determines the option price, term and provisions of each
option; however, the purchase price of shares issuable upon the
exercise of incentive stock options will not be less than the
fair market value of such shares and incentive stock options
will not be exercisable for more than 10 years.
Information regarding the 1993 Plan from April 28, 1993 (plan's
inception) through October 31, 1995 is as follows:
Range of Option
Shares Price per Share
------ ---------------
Shares under option at April 27, 1993 - -
Granted 1,215,000 $13.75 - $17.00
---------
Shares under option at October 31, 1993 1,215,000 $13.75 - $17.00
Granted 1,221,000 $ 4.88 - $17.00
Cancelled (205,000) $11.50 - $13.75
---------
Shares under option at October 31, 1994 2,231,000 $ 4.88 - $17.00
Granted 2,625,000 $ 4.88 - $ 9.00
Exercised (349,400) $ 4.88 - $ 6.31
Cancelled (60,000) $ 5.63 - $11.50
---------
Shares under option at October 31, 1995 4,446,600 $ 4.88 - $17.00
========= ===============
The exercise price with respect to all of the options granted
under the 1993 Plan from its inception was at least equal to
the fair market value of the underlying common stock on the
grant date. As of October 31, 1995, 2,796,600 of the options
to purchase shares of common stock granted and outstanding
under the 1993 Plan are exercisable. At October 31, 1995,
2,204,000 options were available for future grants under the
1993 Plan.
From November 1, 1995 through January 22, 1996, options to
purchase 84,150 shares of the Company stock were exercised at a
price range of $4.88 to $7.88 per share. In November 1995, the
Company granted 160,000 options to purchase the Company s
common stock pursuant to the 1993 Plan.
(8) Commitments and contingencies:
------------------------------
Leases-
-------
In June 1995, the Company modified and extended its current
lease for office and laboratory research facilities with its
landlord, an unrelated party. The current lease, which had an
original expiration of November 30, 1996 for approximately
6,900 square feet, was extended to November 30, 1998 and
modified to increase the rented space to approximately 9,050
square feet. The lease now contains base rentals of
approximately $145,000 per annum as well as escalation clauses
for increases in certain operating costs, for a total cost
aggregating approximately $151,000 per annum. The Company has
the right to cancel the lease as of November 30, 1996 and
November 30, 1997. Such cancellation would not result in any
material liabilities.
Rent expense for the years ended October 31, 1995, 1994, 1993
and for the period from November 5, 1982 (inception) through
October 31, 1995 was approximately $130,000, $120,000,
$120,000 and $1,340,000, respectively.
Key man life insurance-
-----------------------
The Company maintains key man life insurance, aggregating
$1,500,000 insuring the lives of its Chairman of the Board and
its President. The Company is the beneficiary under these
policies. Annual expenses relating to the maintenance of
this insurance aggregated approximately $27,000.
Purchases-
----------
At October 31, 1995, the Company has a commitment to purchase
$124,000 of lab equipment.
(9) Employees' pension plan:
------------------------
The Company adopted a noncontributory defined contribution
pension plan, effective November 1, 1983, covering all of its
present employees. Contributions, which are made to a trust,
are based upon specified percentages of compensation, as
defined in the plan. Pension cost, which approximated $50,000,
$43,000, $30,000 and $373,000 for the years ended October 31,
1995, 1994 and 1993 and in the period from the inception of the
plan through October 31, 1995, respectively, has been accrued
and funded on a current basis.
(10) Accrued liabilities:
--------------------
Accrued liabilities at October 31, 1995 and 1994 consisted of
the following:
1995 1994
-------- --------
Payroll and related taxes $ 30,376 $30,237
Other taxes 9,360 5,460
--------------------
$ 39,736 $ 35,697
====== ======
(11) Income taxes:
-------------
The Company adopted the provisions of SFAS No. 109, Accounting
----------
for Income Taxes, retroactively effective to November 1, 1992.
----------------
The implementation of SFAS No. 109 did not have a material
impact on the Company's financial statements. SFAS No. 109
requires recognition of deferred tax liabilities and assets for
the estimated future tax effects of events that have been
recognized in the Company's financial statements or tax
returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Deferred tax benefits at October 31, 1995 and 1994, which are
fully offset by valuation allowances, primarily represent the
estimated future tax effects of Federal net operating loss and
tax credit carryforwards aggregating approximately $13,018,000
and $10,969,000, respectively, and the estimated future tax
effects of New York State net operating loss and tax credit
carryforwards aggregating approximately $2,965,000 and
$2,489,000, respectively.
At October 31, 1995, the Company had tax net operating loss and
tax credit carryforwards of approximately $34,230,000 and
$1,045,000, respectively, available, within statutory limits,
to offset future regular Federal corporate taxable income and
taxes payable, if any, respectively. The tax net operating
loss and tax credit carryforwards expire at various dates
between 1998 and 2010. Certain changes in stock ownership can
result in a limitation on the amount of net operating loss and
tax credit carryovers that can be utilized each year.
The principal differences between the net loss for financial
statement purposes and the tax net operating loss attributable
to the year ended October 31, 1995 were deductions for tax
purposes of option holders' income related to stock option
exercises aggregating approximately $2,490,000. If the tax
benefits are ultimately realized relating to deductions of
option holders' income, those benefits will be credited
directly to additional paid-in capital.
At October 31, 1995, the Company had adjusted tax net operating
loss and tax credit carryforwards of approximately $30,029,000
and $24,000, respectively, available to offset future Federal
corporate alternative minimum taxable income and taxes payable,
within statutory limits, if the Company is subject to such
taxes. These tax net operating loss and tax credit
carryforwards expire at various dates between 1998 and 2010.
If alternative minimum taxes are paid, the Company may receive an
additional tax credit, available to reduce future regular
taxes, in the amount of alternative minimum taxes paid in
excess of regular taxes.
The Company had tax net operating loss and tax credit
carryforwards of approximately $32,616,000 and $30,000,
respectively, at October 31, 1995, available, within statutory
limits, to offset future New York State corporate taxable
income and taxes payable, if any, under certain computations of
such taxes. The tax net operating loss carryforwards expire at
various dates between 1998 and 2010 and the tax credit
carryforwards expire between 1999 and 2005.
During the years ended October 31, 1995, 1994, 1993 and the
period from November 5, 1982 (inception) through October 31,
1995, the Company incurred no Federal and no material State
income taxes.
(12) Selling, general and administrative expenses:
---------------------------------------------
While there is no formal agreement, the Company's Chairman of the
Board and its President have waived any and all rights to
receive salary and related pension benefits for an undetermined
period of time commencing November 1985. The aggregate annual
expenses for these individuals at the time of such waivers was
approximately $325,000.
Four other individuals, including an officer and senior level
personnel, then employed at the Company, waived any and all
rights to receive salary and related pension benefits for the
period 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 three senior level
personnel continued to waive such rights commencing in January
1993 for an undetermined period of time. Additionally, in
February 1993, two former consultants to the Company became
employees, one of whom has since resigned, and also waived such
salary and benefit rights for an undetermined period of time.
The aggregate annual expense for these five individuals, then
employed at the Company, at the time of their respective
initial waivers was approximately $440,000.
The Company does not contemplate the retroactive reinstatement of
any of the salary or related pension benefit waivers indicated
above.
EXHIBIT INDEX
Exhibit
Ref. Number Description
---- ------- -----------
(a) 3.1 Certificate of Incorporation, as amended.
(b) 3.2 By-laws, as amended and restated.
(c) 10.1 Stock Option Plan, adopted on April 1, 1987 and
approved by shareholders on May 27, 1987.
(d) 10.2 Amendment to Stock Option Plan, adopted on March 12,
1990 and approved by shareholders on May 24, 1990.
(d) 10.3 Stock Purchase Warrant, dated December 4, 1990, between
the Registrant and Denis Z. Krusos.
(d) 10.4 Stock Purchase Warrant, dated December 4, 1990, between
the Registrant and Daniel A. DiSanto.
(d) 10.5 Stock Purchase Warrant, dated December 4, 1990, between
the Registrant and Peri D. Krusos.
(e) 10.6 Stock Purchase Warrant, dated April 26, 1991, between
the Registrant and Denis Z. Krusos.
(e) 10.7 Stock Purchase Warrant, dated April 26, 1991, between
the Registrant and Daniel A. DiSanto.
(e) 10.8 Stock Purchase Warrant, dated April 26, 1991, between
the Registrant and Peri D. Krusos.
(f) 10.9 Stock Purchase Warrant, dated July 15, 1991, between
the Registrant and Denis Z. Krusos.
(f) 10.10 Stock Purchase Warrant, dated July 15, 1991,
between the Registrant and Daniel A. DiSanto.
(f) 10.11 Stock Purchase Warrant, dated July 15, 1991,
between the Registrant and Peri D. Krusos.
(g) 10.12 Stock Purchase Warrant, dated September 16, 1991,
between the Registrant and Denis Z. Krusos.
(g) 10.13 Stock Purchase Warrant, dated September 16, 1991,
between the Registrant and Daniel A. DiSanto.
(g) 10.14 Stock Purchase Warrant, dated September 16, 1991,
between the Registrant and Peri D. Krusos.
(g) 10.15 Stock Purchase Warrant, dated December 16, 1991,
between the Registrant and Denis Z. Krusos.
(g) 10.16 Stock Purchase Warrant, dated December 16, 1991,
between the Registrant and Daniel A. DiSanto.
(g) 10.17 Stock Purchase Warrant, dated December 16, 1991,
between the Registrant and Peri D. Krusos.
(h) 10.18 Stock Purchase Warrant, dated March 12, 1992,
between the Registrant and Denis Z. Krusos.
(h) 10.19 Stock Purchase Warrant, dated March 12, 1992,
between the Registrant and Daniel A. DiSanto.
(h) 10.20 Stock Purchase Warrant, dated March 12, 1992,
between the Registrant and Peri D. Krusos.
(a) 10.21 Stock Purchase Warrant, dated July 24, 1992,
between the Registrant and Denis Z. Krusos.
(a) 10.22 Stock Purchase Warrant, dated July 24, 1992,
between the Registrant and Daniel A. DiSanto.
(a) 10.23 Stock Purchase Warrant, dated July 24, 1992,
between the Registrant and Peri D. Krusos.
(i) 10.24 Stock Purchase Warrant, dated October 27, 1992,
between the Registrant and Denis Z. Krusos.
(i) 10.25 Stock Purchase Warrant, dated October 27, 1992,
between the Registrant and Daniel A. DiSanto.
(i) 10.26 Stock Purchase Warrant, dated October 27, 1992,
between the Registrant and Peri D. Krusos.
(j) 10.27 CopyTele, Inc. 1993 Stock Option Plan, adopted on
April 28, 1993 and approved by shareholders on
July 14, 1993.
(k) 10.28 Joint Venture Contract, dated as of March 28,
1995, by and between Shanghai Electronic
Components Corp. and CopyTele, Inc.
(k) 10.29 Technology License Agreement, dated as of March
28, 1995, by and between Shanghai CopyTele
Electronics Co., Ltd. and CopyTele, Inc.
(l) 10.30 Amendment No. 1 to the CopyTele, Inc. 1993 Stock
Option Plan, adopted on May 3, 1995 and approved
by shareholders on July 19, 1995.
10.31 Assignment Agreement, dated as of July 10, 1995,
by and among Shanghai Electronic Components
Corp., Shanghai International Trade and Investment
Developing Corp. and CopyTele, Inc.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule
------------------
(a) Incorporated by reference to Form 10-Q for the fiscal quarter
ended July 31, 1992.
(b) Incorporated by reference to Post-Effective Amendment No. 1 to
Form S-8 (Registration No. 33-49402) dated December 8, 1993.
(c) Incorporated by reference to Form 10-Q for the fiscal quarter
ended April 30, 1987.
(d) Incorporated by reference to Form 10-K for the fiscal year ended
October 31, 1990.
(e) Incorporated by reference to Form 10-Q for the fiscal quarter
ended April 30, 1991.
(f) Incorporated by reference to Form 10-Q for the fiscal quarter
ended July 31, 1991.
(g) Incorporated by reference to Form 10-K for the fiscal year ended
October 31, 1991.
(h) Incorporated by reference to Form 10-Q for the fiscal quarter
ended April 30, 1992.
(i) Incorporated by reference to Form 10-K for the fiscal year ended
October 31, 1992.
(j) Incorporated by reference to Proxy Statement dated June 10, 1993.
(k) Incorporated by reference to Form 8-K dated March 28, 1995.
(l) Incorporated by reference to Form S-8 (Registration No. 33-62381)
dated September 6, 1995.