SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
-----------------------------------------------
Commission file number 0-11254
-------------------------------------------------------
COPYTELE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2622630
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
900 Walt Whitman Road
Huntington Station, NY 11746
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 549-5900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing reqirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of common stock, par value
$.01 per share, outstanding as of
June 3, 1996: 28,255,183 shares
-----------------
TABLE OF CONTENTS
-----------------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Balance Sheets (Unaudited) as of April 30,
1996 and October 31, 1995
Condensed Statements of Operations (Unaudited) for the six months
ended April 30, 1996 and April 30, 1995, and for the period from
November 5, 1982 (Inception) through April 30, 1996
Condensed Statements of Operations (Unaudited) for the three months
ended April 30, 1996 and April 30, 1995
Condensed Statement of Shareholders' Equity (Unaudited) for the
period from November 5, 1982 (Inception) through April 30, 1996
Condensed Statements of Cash Flows (Unaudited) for the six months
ended April 30, 1996 and April 30, 1995, and for the period from
November 5, 1982 (Inception) through April 30, 1996
Condensed Statements of Cash Flows (Unaudited) for the three months
ended April 30, 1996 and April 30, 1995
Notes to Condensed Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Signatures.
Part I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
- ------- ---------------------
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED BALANCE SHEETS (UNAUDITED)
------------------------------------
April 30, October 31,
1996 1995
----------- ----------
ASSETS
------
CURRENT ASSETS:
Cash (including cash equivalents and interest bearing
accounts of $13,877,155 and $8,786,210, respectively) $ 13,908,581 $ 8,864,293
Accrued interest receivable 9,493 36,206
Prepaid expenses and other current assets 50,180 52,451
------------- ------------
13,968,254 8,952,950
PROPERTY AND EQUIPMENT (net of accumulated depreciation
and amortization of $736,791 and $690,420, respectively) 540,146 235,201
INVESTMENT IN JOINT VENTURE COMPANY (Note 2) 811,291 349,687
OTHER ASSETS 121,181 157,560
DEFERRED TAX BENEFITS (net of valuation allowance of
$19,135,000 and $15,983,000, respectively) - -
------------- ------------
$ 15,440,872 $ 9,695,398
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 498,496 $ 218,954
Accrued liabilities 69,622 39,736
------------- ------------
568,118 258,690
------------- ------------
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 27,225,053 and
25,955,103 shares, respectively 272,251 259,551
Additional paid-in capital 39,882,098 32,492,127
Accumulated (deficit) during development stage ( 25,281,595 ) ( 23,314,970)
------------- ------------
14,872,754 9,436,708
------------- ------------
$ 15,440,872 $ 9,695,398
============= ============
The accompanying notes to condensed financial statements are an integral part of
these balance sheets.
1
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------
For the six months For the period from
ended April 30, November 5, 1982
------------------------------------ (inception) through
1996 1995 April 30, 1996
--------------- --------------- ---------------------
SALES $ - $ - $ -
--------------- --------------- ---------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES,
including research and development
expenses of approximately $1,461,000, $960,000
and $18,346,000, respectively 2,203,541 1,479,329 28,183,983
--------------- --------------- ---------------
INTEREST INCOME 236,916 148,742 2,902,388
--------------- --------------- ---------------
NET (LOSS) ($ 1,966,625) ($ 1,330,587) ($ 25,281,595)
=============== =============== ===============
NET (LOSS) PER SHARE OF COMMON STOCK ($0.07) ($0.05) ($1.13)
=============== =============== ===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 26,439,525 24,916,707 22,349,836
=============== =============== ===============
The accompanying notes to condensed financial statements are an integral part of
these statements.
2
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------
For the three months
ended April 30,
----------------------------------------
1996 1995
---------------- ---------------
SALES $ - $ -
---------------- ---------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES,
including research and development expenses
of approximately $694,000 and $481,000, respectively 1,115,273 738,778
---------------- ---------------
INTEREST INCOME 119,967 79,477
---------------- ---------------
NET (LOSS) ($ 995,306) ($ 659,301)
================ ===============
NET (LOSS) PER SHARE OF COMMON STOCK ($.04) ($.03)
================ ===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 26,717,364 24,998,685
================ ===============
The accompanying notes to condensed financial statements are an integral part of
these statements.
3
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
-------------------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION) THROUGH APRIL 30, 1996 (UNAUDITED)
-----------------------------------------------------------------------------------
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 under-
writers, at $.001 each, in conjunction with public
offering - - 60 -
Costs incurred in conjunction with private
and public offerings - - ( 362,030 ) -
Common stock issued, at $12 per share, upon
exercise of 57,200 warrants from February 5, 1985
to October 16, 1985, net of registration costs 57,200 572 630,845 -
Proceeds from sales of common stock by individuals
from January 29, 1985 to October 4, 1985 under
agreements with the Company, net of costs incurred
by the Company - - 298,745 -
Restatement as of October 31, 1985 for three-for-one
stock split 5,714,400 57,144 ( 57,144 ) -
Common stock issued, at $4 per share, upon exercise
of 2,800 warrants in December 1985 8,400 84 33,516 -
Sale of common stock, at market, to officers on
January 9, 1987 and April 22, 1987 and to members
of their immediate families on July 28, 1987 67,350 674 861,726 -
Restatement as of July 31, 1987 for five-for-four stock
split 2,161,735 21,617 ( 21,617 ) -
Fractional share payments in conjunction with
five-for-four stock split - - ( 1,345 ) -
Sale of common stock, at market, to members of
officers' immediate families from September 10,
1987 to December 4, 1990 and to officers on
October 29, 1987 and February 26, 1989 628,040 6,280 6,124,031 -
Sale of common stock, at market, to senior level
personnel on February 26, 1989 29,850 299 499,689 -
Continued
4
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
-------------------------------------------
FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION) THROUGH APRIL 30, 1996 (UNAUDITED)
-----------------------------------------------------------------------------------
Continued
---------
Accumulated
(Deficit)
Common Stock Additional During
------------------------------ Paid-in Development
Shares Par Value Capital Stage
------------- ------------- ------------- ---------------
Sale of common stock, at market, to unrelated party on
February 26, 1989 amended on March 10, 1989 35,820 358 599,627 -
Restatement as of January 31, 1991 for two-for-one
stock split 11,502,795 115,028 ( 115,028 ) -
Sale of common stock, at market, to members of
officers' immediate families from April 26, 1991
to October 27, 1992 261,453 2,614 2,788,311 -
Common stock issued upon exercise of warrants by
members of officers' immediate families on
various dates from September 1993 through
March 1996 579,800 5,799 2,651,463 -
Common stock issued upon exercise of stock options
from December 16, 1992 to April 30, 1996
under stock option plans, net of registration costs 3,378,210 33,782 19,215,549 -
Accumulated (deficit) during development stage - - - ( 25,281,595 )
------------- --------------- --------------- -----------------
BALANCE, April 30, 1996 27,225,053 $ 272,251 $ 39,882,098 ($ 25,281,595 )
============= =============== =============== =================
The accompanying notes to condensed financial statements are an integral part of
this statement.
5
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
----------------------------------------------
For the six For the
months ended period from
April 30, November 5, 1982
------------------------------------- (inception) through
1996 1995 April 30, 1996
-------------- -------------- -------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Payments to suppliers, employees and
consultants ( $ 1,979,627 ) ( $ 1,340,607 ) ( $ 27,198,517 )
Interest received 263,629 148,510 2,892,896
-------------- -------------- --------------
Net cash (used in) operating activities ( 1,715,998 ) ( 1,192,097 ) ( 24,305,621 )
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equip-
ment ( 152,385 ) ( 15,196 ) ( 1,082,647 )
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 ( 490,000 ) - ( 857,500 )
-------------- -------------- --------------
Net cash (used in) investing activities ( 642,385 ) ( 15,196 ) ( 1,940,147 )
-------------- -------------- --------------
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 7,402,671 1,838,110 22,571,610
Proceeds from sales of common stock by
individuals under agreements with the
Company, net of disbursements made by
the Company - - 298,745
Disbursements made in conjunction with
sales of stock - - ( 362,030 )
Fractional share payments in conjunction
with stock split - - ( 1,345 )
-------------- -------------- --------------
Net cash provided by financing activities 7,402,671 1,838,110 40,154,349
-------------- -------------- --------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 5,044,288 630,817 13,908,581
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 8,864,293 6,244,801 -
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 13,908,581 $ 6,875,618 $ 13,908,581
============== ============== ==============
Continued
6
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
----------------------------------------------
Continued
For the six For the
months ended Period from
April 30, November 5, 1982
------------------------------------- (inception) through
1996 1995 April 30, 1996
-------------- -------------- -------------------------
RECONCILIATION OF NET (LOSS) TO NET CASH
(USED IN) OPERATING ACTIVITIES:
Net (loss) ( $ 1,966,625 ) ( $ 1,330,587 ) ( $ 25,281,595 )
Pro-rata share of Joint Venture Company
losses 28,396 - 46,209
Depreciation and amortization 46,371 30,128 741,432
(Increase) Decrease in accrued interest
receivable 26,713 ( 232 ) ( 9,493 )
(Increase) Decrease in prepaid expenses
and other current assets 2,271 9,956 ( 50,180 )
Decrease (Increase) in other assets 36,379 ( 4,973 ) ( 121,181 )
Increase in accounts payable and accrued
liabilities related to operating activities 110,497 103,611 369,187
-------------- -------------- --------------
Net cash (used in) operating activities ( $ 1,715,998 ) ( $ 1,192,097 ) ( $ 24,305,621 )
============== ============== ==============
The accompanying notes to condensed financial statements are an integral part of
these statements.
7
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
----------------------------------------------
For the three
months ended
April 30,
---------------------------------
1996 1995
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Payments to suppliers, employees and consultants ($ 1,100,515 ) ($ 713,014 )
Interest received 134,133 84,388
------------ -----------
Net cash (used in) operating activities ( 966,382 ) ( 628,626 )
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equipment ( 147,932 ) ( 3,117 )
------------ -----------
Net cash (used in) investing activities ( 147,932 ) ( 3,117 )
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants,
net of registration disbursements 4,844,957 1,838,110
------------ -----------
Net cash provided by financing activities 4,844,957 1,838,110
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,730,643 1,206,367
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,177,938 5,669,251
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,908,581 $6,875,618
============ ===========
RECONCILIATION OF NET (LOSS) TO NET CASH (USED IN)
OPERATING ACTIVITIES:
Net (loss) ($ 995,306 ) ($ 659,301 )
Pro-rata share of Joint Venture Company losses 15,524 -
Depreciation and amortization 27,647 15,407
Decrease in accrued interest receivable 14,166 4,911
(Increase) Decrease in prepaid expenses 4,587 ( 2,421 )
Decrease in other assets 36,465 482
(Decrease) Increase in accounts payable and accrued
liabilities related to operating activities ( 69,465 ) 12,296
------------ -----------
Net cash (used in) operating activities ($ 966,382 ) ($ 628,626 )
============ ===========
The accompanying notes to condensed financial statements
are an integral part of these statements.
8
COPYTELE, INC.
--------------
(Development Stage Enterprise)
------------------------------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
APRIL 30, 1996 (UNAUDITED)
--------------------------
(1) Summary of significant accounting policies and
other disclosures:
------------------
During 1995, the Company signed a joint venture contract (the "Joint Venture
Contract") with Shanghai Electronic Components Corp. ("SECC") to form a joint
venture in Shanghai, China with a 20 year duration. With this contract, a joint
venture company, Shanghai CopyTele Electronics Co., Ltd. ("Shanghai CopyTele" or
"Joint Venture") was formed with the Company owning a 55% interest in capital
and profits. The remaining 45% is owned by SECC, 35%, and Shanghai International
Trade and Investment Developing Corp. ("SIT"), 10% (See Note 2, Investment in
Joint Venture). The Company, pursuant to a Technology License Agreement entered
into on the same date as the Joint Venture Contract, has licensed its flat panel
application technology to the Joint Venture for exclusive use in China. It is
contemplated that the Joint Venture, in conjunction with the Company and SECC,
will develop, manufacture and market products worldwide in the
telecommunications field. Reference is made to "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further
discussion involving the Joint Venture Contract. On April 17, 1996, the Company
and SECC signed a Letter of Intent with respect to a second joint venture which
will manufacture and sell electronic components and parts used in Shanghai
CopyTele's products and in products of other manufacturers (the "Second Joint
Venture", and together with the Joint Venture, the "Joint Ventures").
The Company has produced a pre-production multi-functional telecommunications
prototype, trademarked 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
proprietary 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.
Reference is made to the October 31, 1995 audited financial statements and notes
thereto included in the Company's Annual
9
Report on Form 10-K for the fiscal year ended October 31, 1995, for more
extensive disclosures than contained in these condensed financial statements.
The Company has reflected its investment in the Joint Venture under the equity
method of accounting in the accompanying condensed financial statements. Under
the Joint Venture Contract, the Company controls four of the seven votes of
Shanghai CopyTele's board of directors. Under certain circumstances, decisions
involving the Joint Venture require either a unanimous or two-thirds vote of
Shanghai CopyTele's board of directors.
The information contained herein for the six and three month periods ended April
30, 1996 and 1995 and for the period from November 5, 1982 (inception) through
April 30, 1996 is unaudited, but in the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation of the results of operations for such periods have been
included. The results of operations for interim periods may not necessarily
reflect the annual operations of the Company.
The Company invests principally in short term highly liquid financial
instruments with maturities of less than three months, which have been
classified as cash equivalents in the accompanying condensed balance sheets. The
cost of these investments approximates market value.
The Company has not yet determined how Statement of Financial Accounting
Standard ("SFAS") No. 123, Accounting for Stock Based Compensation will be
---------------------------------------
implemented and, accordingly, has not yet determined what impact it 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 other recently
issued accounting standards which have a material impact on its condensed
financial statements.
(2) Investment in Joint Venture:
----------------------------
Pursuant to the terms of the Joint Venture Contract, 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 does not reflect
the $700,000 in technology as an asset or equity investment in the condensed
financial statements presented below. The Company will recognize losses on the
Joint Venture to the extent of its cash investment. SECC and SIT are required to
contribute cash aggregating $1,575,000. As of June 3, 1996, the Company has
contributed $857,500 in cash and SECC and SIT have contributed $1,102,500 in
cash. The balance of the required contributions will be made at such time as the
10
Company, SECC and SIT mutually agree. The Company has reflected its investment
in the Joint Venture under the equity method of accounting (See Note 1, Summary
of significant accounting policies and other disclosures).
Condensed financial information for Shanghai CopyTele Electronics Co., Ltd. at
April 30, 1996 and for the six month period ended April 30, 1996:
Condensed Balance Sheet
-----------------------
(Unaudited)
Cash $1,154,721
Other Current Assets 25,430
Land occupancy rights 308,165
Fixed assets, net, and
construction in
progress 387,669
----------
Total Assets $1,875,985
==========
Capital 1,875,985
----------
Total Liabilities
and Capital $1,875,985
==========
Condensed Statement of Operations
---------------------------------
(Unaudited)
Net sales $ -
Operating (loss) ( 61,449)
Interest Income 9,820
---------
Net (Loss) ($ 51,629)
=========
(3) Stock option plans:
-------------------
Information regarding the Company's stock option plan, adopted by the Board of
Directors on April 1, 1987 (the "1987 Plan"), from October 31, 1995 to April 30,
1996, after adjustments for applicable stock splits, is as follows:
Range of Option
Shares Price Per Share
------ ---------------
Shares under option at
October 31, 1995 884,060 $4.19 - $13.88
Exercised ( 302,200) $4.19 - $ 8.50
---------
Shares under option at
April 30, 1996 581,860 $4.94 - $13.88
========= ===============
11
The exercise price with respect to each option granted under the 1987 Plan from
its inception was equal to at least the fair market value of the underlying
common stock of the Company (the "Common Stock") on the date of grant. As of
April 30, 1996, all of the options to purchase shares of Common Stock granted
and outstanding under the 1987 Plan were exercisable. Upon the approval of the
CopyTele, Inc. 1993 Stock Option Plan (the "1993 Plan") by the Company's
shareholders in July 1993, which had been adopted by the Company's Board of
Directors on April 28, 1993, the 1987 Plan was terminated with respect to the
grant of future options. The 1993 Plan was amended as of 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 million to 7
million.
From May 1, 1996 through June 3, 1996, the Company received proceeds aggregating
approximately $1,619,000 relating to the exercise of options to purchase 174,680
shares of Common Stock pursuant to the 1987 Plan.
Information regarding the 1993 Plan from October 31, 1995 to April 30, 1996 is
as follows:
Range of Option
Shares Price Per Share
------ ---------------
Shares under option
at October 31, 1995 4,446,600 $ 4.88 - $17.00
Granted 1,750,000 $ 9.50 - $10.59
Exercised ( 829,470) $ 4.88 - $ 7.88
---------
Shares under option
at April 30, 1996 5,367,130 $ 5.63 - $17.00
========= ===============
The exercise price with respect to each option granted under the 1993 Plan from
its inception was equal to at least the fair market value of the underlying
Common Stock on the date of grant. As of April 30, 1996, 2,717,130 of the
options to purchase shares of Common Stock granted and outstanding under the
1993 Plan were exercisable. At that date, 454,000 options were available for
future grants under the 1993 Plan.
12
From May 1, 1996 through June 3, 1996, the Company received proceeds aggregating
approximately $6,253,000 relating to the exercise of options to purchase 855,450
shares of Common Stock pursuant to the 1993 Plan.
As of June 3, 1996, 3,046,680 of the 4,511,680 options to purchase shares of
Common Stock granted and outstanding under the 1993 Plan were exercisable.
(4) Warrants to purchase common stock:
----------------------------------
Information from October 31, 1995 to April 30, 1996 regarding warrants
previously issued by the Company, primarily to members of the immediate families
of its Chairman of the Board and its President in conjunction with the sale of
its Common Stock, after adjustments for anti-dilutive provisions, is as follows:
Current Weighted
Average Exercise
Shares Price Per Share
------ ---------------
Shares covered by
warrants at
October 31, 1995 426,333 $ 7.79
Warrants exercised (138,280) $ 3.83
Warrants expired ( 26,600) $ 3.75
-------
Shares covered by
warrants at
April 30, 1996 261,453 $10.25
======= ======
The exercise price of each warrant was equal to at least the fair market value
of the underlying Common Stock on the date of issuance of such warrant. As of
April 30, 1996, all of the warrants to purchase shares of Common Stock issued
and outstanding were exercisable.
(5) Subsequent Event
----------------
On May 24, 1996, the Company declared a two-for-one stock split, effected in the
form of a 100% stock dividend, payable on June 17, 1996 to shareholders of
record as of June 4, 1996. The accompanying financial statements have not been
restated to reflect this stock split.
13
Item 2. 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 enhancements of its flat panel and its interest in Shanghai CopyTele
Electronics Co., Ltd., the Company's 55% owned joint venture in Shanghai, China,
which is accounted for under the equity method of accounting. See Notes 1 and 2
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 Condensed Financial
Statements and the notes
thereto.
Except for the historical information contained herein, the matters discussed in
this Quarterly Report on Form 10-Q are forward- looking statements relating to
future events which involve certain risks and uncertainties, including those
identified herein and in the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1995 (the "1995 10-K"). See "Business" and Note 1 to the
Company's Financial Statements contained in the 1995 10-K for discussions
regarding uncertainties that may significantly affect the results of operations,
future liquidity and capital resources.
Results of Operations
- ---------------------
Selling, general and administrative expenses for the six and three month periods
ended April 30, 1996 and 1995 and for the period from November 5, 1982
(inception) through April 30, 1996 were $2,203,541, $1,479,329, $1,115,273,
$738,778 and $28,183,983, respectively. These amounts include research,
development and tooling costs of approximately $1,461,000, $960,000, $694,000,
$481,000 and $18,346,000, respectively, as well as normal operating expenses.
The increase in selling, general and administrative expenses during the six and
three months ended April 30, 1996 as compared to the same periods ended in 1995
resulted primarily from increases in
14
expenditures for engineering supplies and services necessitated by the present
phase of the Company's development program and related activities and initial
marketing costs. Professional fees increased during the fiscal 1996 periods,
especially patent application preparation and filing fees, offset somewhat by a
decrease in other legal fees. Initial marketing costs were incurred with the
opening and staffing of a marketing office and with the retention of public
relations and advertising firms. Other expense catagories, to a lesser extent,
also increased for the fiscal 1996 period as a result of the Company's present
phase of development and related activities. The six and three month periods
ended April 30, 1996 also includes the Company's portion of the Joint Venture
loss for its same periods.
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. One additional senior level employee also is currently waiving
such salary and benefit rights for an undetermined period of time.
The increase in interest income during both the six and three months ended April
30, 1996 as compared to the same periods ended in 1995 primarily resulted from
an increase in funds available for investment offset, to a lesser extent, by
slightly lower interest rates. Funds available for investment during the six and
three month periods ended April 30, 1996 and 1995, on a monthly weighted average
basis, were approximately $10,690,000, $6,100,000, $12,000,000 and $6,300,000,
respectively. The investment instruments selected by the Company are principally
money market accounts, treasury bills and commercial paper.
The Company has not yet determined how Statement of Financial Accounting
Standard ("SFAS") No. 123, Accounting for Stock Based Compensation will be
---------------------------------------
implemented and, accordingly has not yet determined what impact it 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 other recently
issued accounting standards which have a material impact on its condensed
financial statements.
15
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 Common Stock in its initial
public offering, in private placements, upon exercise of warrants issued in
connection with the private placements and public offering, and upon exercise of
stock options pursuant to the 1987 Plan and the 1993 Plan.
From November 1, 1995 to April 30, 1996, the Company received proceeds
aggregating approximately $6,873,000 relating to the exercise of options to
purchase 1,131,670 shares of Common Stock under the 1987 and 1993 Plans. In
addition, from May 1, 1996 to June 3, 1996, the Company received proceeds
aggregating approximately $7,872,000 relating to the exercise of options to
purchase 1,030,130 shares of Common Stock under the 1987 and 1993 Plans.
The Joint Venture Contract contemplates an initial investment of $7,000,000, of
which half is expected to be borrowed from banks, and a registered capital of
$3,500,000. 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.
As stipulated in the letter of intent signed with SECC, the Second Joint Venture
is expected to have an initial capitalization of approximately $2,000,000, of
which half would consist of bank borrowings. The Company would invest cash of up
to $550,000 and SECC would contribute cash, equipment and technology
collectively valued at $450,000. The Second Joint Venture may require an
ultimate capitalization of up to $10,000,000 depending on the nature and extent
of its business activities, which if necessary, is expected to be financed
through a combination of bank borrowings and equity investments contributed by
the parties in proportion to their equity interests and on terms to be agreed
upon. It is anticipated that a joint venture agreement and receipt of all
necessary governmental approvals can be completed by the end of 1996.
The Company believes that even without sales it will have sufficient funds
through fiscal 1999 to maintain its present level of development efforts and to
make its $375,000 contribution to the Joint Venture (which constitutes the
balance of its initial capital contribution of $1,225,000) and to make its
anticipated capital contribution of $550,000 to the Second Joint Venture. 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
16
personnel will continue. The Company anticipates that it may require additional
funds in order to participate in the Joint Ventures following its initial
capital contributions and to continue its research and development activities.
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
NASDAQ - NMS listing. The Company anticipates that it will seek additional
sources of funding, when necessary, in order to satisfy the NASD requirements.
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 Ventures, including any future capital contribution, if any (beyond its
inital capital contributions of $1,225,000 to the Joint Venture and the
anticipated capital contribution of $550,000 to the Second Joint Venture) and
its NASD funding requirements, or that, if available, the Company or the Joint
Ventures will be able to obtain such funds on favorable terms and conditions.
17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
--------
10.32 - Amendment, dated May 10, 1996, to the CopyTele, Inc. 1993
Stock Option Plan, subject to shareholder approval.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
The Company filed a Report on Form 8-K, dated April 17, 1996, which
included a copy of a Press Release issued by the Company on the same
date.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CopyTele, Inc.
DENIS A. KRUSOS
---------------
Denis A. Krusos
Chairman of the Board,
Chief Executive Officer
and Director (Principal
June 13, 1996 Executive Officer)
FRANK J. DISANTO
----------------
Frank J. DiSanto
June 13, 1996 President and Director
GERALD J. BENTIVEGNA
--------------------
Gerald J. Bentivegna
Vice President - Finance and
Chief Financial Officer and
Director (Principal Financial
June 13, 1996 and Accounting Officer)
19
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.32 - Amendment, dated May 10, 1996, to the CopyTele, Inc. 1993
Stock Option Plan, subject to shareholder approval.
27 - Financial Data Schedule