SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 2
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended
October 31, 2004
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
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COPYTELE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2622630
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
900 Walt Whitman Road
Melville, NY 11747
(631) 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:
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Title of Each Class Name of Each Exchange
on Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
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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].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [x] No [_]
Aggregate market value of the voting stock (which consists solely of shares of
Common Stock) held by non-affiliates of the registrant as of April 30, 2004 (the
last business day of the registrant's most recently completed second fiscal
quarter), computed by reference to the closing sale price of the registrant's
Common Stock on the Over-the-Counter Bulletin Board on such date ($1.08):
$87,364,065.
On January 10, 2005, the registrant had outstanding 86,794,198 shares of Common
Stock, par value $.01 per share, which is the registrant's only class of common
stock.
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DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Item 9A. Controls and Procedures
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We carried out an evaluation, under the supervision and with the
participation of our management, including our Chairman of the Board and Chief
Executive Officer and our Chief Financial Officer and Vice President - Finance,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13-15(b) of the Securities Exchange Act of 1934, as
amended. Based upon that evaluation, the Chairman of the Board and Chief
Executive Officer and the Chief Financial Officer and Vice President - Finance
concluded that, in light of the matters described below, our disclosure controls
and procedures were not effective as of the end of fiscal 2004.
There was no change in our internal control over financial reporting
during the fourth quarter of fiscal 2004 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Subsequent to the end of fiscal 2004, however, in connection with our
audit of our financial statements for the fiscal year ended October 31, 2004, we
determined that a former accounting employee embezzled funds from us. We
immediately conducted an internal investigation and, on December 17, 2004, we
filed with the SEC a Current Report on Form 8-K disclosing this determination.
In addition to our internal investigation, we discussed the matter with our
independent registered public accounting firm, Grant Thornton LLP, and also
engaged another independent accounting firm to conduct an independent
investigation of this matter. The independent accounting firm undertook to (i)
gain an understanding of the facts and circumstances surrounding the known
fraudulent activity related to the former employee's embezzlement of funds, (ii)
determine if the former employee engaged in fraudulent activities other than
what had already been identified by our internal investigation, (iii) identify
other employees or third parties, if any, that may have been associated with the
known fraudulent activity, (iv) with respect to fiscal 2004 and the first month
of fiscal 2005, gain an understanding of our internal controls as they relate to
the areas in which the employee was involved (such as cash receipts and
disbursements) and the responsibilities assigned to the former employee, test
these areas for fraud, identify any weaknesses in our internal controls relating
to these areas, make recommendations as to improvements in such internal
controls, and quantify potential misstatements to our financial statements, and
(v) for fiscal 2001 through fiscal 2003, review areas in which the employee was
involved for fraud.
Through our internal investigation and the independent accounting
firm's investigation, we have determined the following:
o Our internal investigation concluded that the former accounting
employee was the sole employee participating in the embezzlement. The
independent accounting firm agreed with this conclusion.
1
o The independent accounting firm was unable to determine whether any
non-employee third party aided or abetted the employee in his
fraudulent activity. We have no evidence, however, that any third
party aided or abetted him.
o Our internal investigation determined that, in fiscal 2004 and the
first month of fiscal 2005, the former employee wrote checks out to
himself using fraudulent authorized signatures, failed to deposit
several of his own checks which were paid to us, and concealed such
activities through the alteration of bank statements. We determined
that the amount embezzled by the employee during these periods was
approximately $189,000. We also discovered approximately $4,000 in
deposits to our account during these periods that we believe were made
by the employee in an effort to conceal his fraudulent activity, for a
net loss to us during this period of approximately $185,000. The
independent accounting firm agreed with these conclusions.
o The independent accounting firm determined that the employee had
committed additional fraudulent activity during fiscal 2003, resulting
a loss of approximately $4,500. We subsequently conducted a further
internal review of activity by the employee since his hiring in 2001
and determined that the employee had committed additional fraudulent
activity in fiscal 2002 and fiscal 2001, resulting in losses during
those periods of approximately $20,000 and $3,500, respectively. The
independent accounting firm agreed with these conclusions.
o The independent accounting firm concluded that, except for the
activity our internal investigation had revealed and the activity
between 2001 and 2003 described above, the former employee, in all
likelihood did not engage in any other fraudulent activity.
o Our internal investigation concluded, and the independent accounting
firm agreed, that the employee's responsibilities in other areas
(accounts receivable, sales, inventory and payroll) was very limited
and, therefore, the possibility of fraudulent activity in these areas,
by this employee, was remote.
We have terminated the employee and filed a criminal complaint against
him, and will seek to recover funds from him. We have recovered approximately
$110,000 of the losses through insurance proceeds. We have applied $100,000 of
such recovery to fiscal 2004, and have recorded a charge to expense of
approximately $75,000 in fiscal 2004, representing the remainder of the fiscal
2004 loss. We have applied $10,000 of the recovery to the first quarter of
fiscal 2005, representing the entire loss identified in such period. The losses
in fiscal 2001 through fiscal 2003 were the result of false expenses for which
no corresponding asset was received. Accordingly, such amounts were previously
expensed in the years such funds were embezzled. We will seek additional
recoveries from other parties which, if we are successful in recovering
additional amounts, will be recorded as recoveries in future periods when they
are received. Based on the amount and nature of the embezzlement and the
expected recoveries, we do not believe that the fraudulent activity had a
material effect on any of our previously issued financial statements.
2
We have incurred a total of approximately $45,000 of accounting and
other professional fees related to this matter through January 14, 2005.
In connection with the audit of the Company's financial statements for
the year ended October 31, 2004, Grant Thornton advised us that there was a
weakness in our internal control over financial reporting that did not allow us
to prevent or detect earlier such fraudulent activities. Specifically, Grant
Thornton found that there was a lack of procedures in place to effect an
adequate segregation of duties over cash and related cash processing. This
weakness caused the following deficiencies:
o inadequate control of processing of cash receipts,
o inadequate control over bank transfers,
o inadequate control over original bank statements and the
reconciliation process, and
o inadequate control over unused checks.
Grant Thornton advised us that these deficiencies constitute a
"material weakness" under standards established by the Public Company Accounting
Oversight Board.
As a result, and in response also to recommendations made by the
independent accounting firm that conducted the investigation, to help ensure
against such fraudulent activity in the future, we have implemented changes in
certain of our internal controls over financial reporting, as follows:
o an individual from management, rather than someone in the accounting
department, will open the bank statements as they are received from
the bank and review them for any unusual checks or other transactions
before providing the statements to the accounting department to
perform reconciliations;
o this individual will compare all of the cancelled checks returned with
the bank statement with our disbursement records to ensure that the
records reflect the information on the check and will review the
checks for unusual or unexpected endorsements; and
o mail will be opened by personnel outside the accounting department and
any checks will be immediately restrictively endorsed prior to being
given to the accounting department.
3
The independent accounting firm also recommended we adopt a "zero-base
balance" or a "sweep" account in our operating bank account to enable the bank
to transfer funds to the operating account only when checks are presented for
payment. We are in the process of implementing this recommendation. We are also
in the process of hiring a replacement for the former accounting employee. We
have also reviewed the segregation of duties in our accounting department and
will further segregate duties once such person is hired, taking into account our
staffing size and composition. Finally, the independent accounting firm also
recommended that, as our business grows, we consider using a lockbox system for
processing cash receipts, under which customers will be requested, via notations
on invoices or monthly statements or the use of preaddressed envelopes, to send
their payments to a post office box, which will be accessible only by (and will
be collected daily by) our bank. We will continue to evaluate the effectiveness
of our disclosure controls and procedures and our internal controls over
financial reporting on an ongoing basis, and will take further action as
appropriate. However, there can be no assurance that our controls and procedures
will prevent all errors or fraud.
4
PART IV
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Item 15. Exhibits and Financial Statement Schedules
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(a)(1)(2) Financial Statement Schedules
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See accompanying "Index to Financial Statements."
(a)(3) Executive Compensation Plans and Arrangements
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CopyTele, Inc. 1993 Stock Option Plan (filed as Annex A to
our Proxy Statement dated June 10, 1993).
Amendment No. 1 to CopyTele, Inc. 1993 Stock Option Plan
(filed as Exhibit 4(d) to our Form S-8 dated September 6,
1995).
Amendment No. 2 to CopyTele, Inc. 1993 Stock Option Plan
(filed as Exhibit 10.32 to our Quarterly Report on Form
10-Q for the fiscal quarter ended April 30, 1996).
CopyTele, Inc. 2000 Share Incentive Plan (filed as Annex A of
our Proxy Statement dated June 12, 2000).
Amendment No. 1 to CopyTele, Inc. 2000 Share Incentive Plan
(filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended July 31, 2001).
Amendment No. 2 to CopyTele, Inc. 2000 Share Incentive Plan
(filed as Exhibit 4(e) to our Form S-8 dated September
18, 2002).
CopyTele, Inc. 2003 Share Incentive Plan (filed as Exhibit 4
to our Form S-8 dated May 5, 2003).
Amendment No. 1 to the CopyTele, Inc. 2003 Share Incentive
Plan (filed as Exhibit 4(e) to our Form S-8 dated
November 9, 2005).
Form of Stock Option Agreement under CopyTele, Inc. 2003 Share
Incentive Plan (filed as Exhibit 10.1 to our Quarterly Report
on Form 10-Q for the fiscal quarter ended July 31, 2004).
Form of Stock Award Agreement under CopyTele, Inc. 2003 Share
Incentive Plan (filed as Exhibit 10.2 to our Quarterly Report
on Form 10-Q for the fiscal quarter ended July 31, 2004).
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(b) Exhibits
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3.1 Certificate of Incorporation, as amended.
(Incorporated by reference to Form 10-Q for the
fiscal quarter ended July 31, 1992 and to Form 10-Q
for the fiscal quarter ended July 31, 1997.)
3.2 By-laws, as amended and restated. (Incorporated by
reference to Post-Effective Amendment No. 1 to Form
S-8 (Registration No. 33-49402) dated December 8,
1993.)
3.3 Amendment to By-laws. (Incorporated by reference to
Form 10-Q for the fiscal quarter ended January 31,
2003.)
10.1 CopyTele, Inc. 1993 Stock Option Plan, adopted on
April 28, 1993 and approved by shareholders on July
14, 1993. (Incorporated by reference to Proxy
Statement dated June 10, 1993.)
10.2 Amendment No. 1 to the CopyTele, Inc. 1993 Stock
Option Plan, adopted on May 3, 1995 and approved by
shareholders on July 19, 1995. (Incorporated by
reference to Form S-8 (Registration No. 33-62381)
dated September 6, 1995.)
10.3 Amendment No. 2 to the CopyTele, Inc. 1993 Stock
Option Plan, adopted on May 10, 1996 and approved by
shareholders on July 24, 1996. (Incorporated by
reference to Form 10-Q for the fiscal quarter ended
April 30, 1996.)
10.4 Agreement dated March 3, 1999 between Harris
Corporation and CopyTele, Inc. (Incorporated by
reference to Form 10-Q for the fiscal quarter ended
January 31, 1999.)
10.5 Stock Subscription Agreement dated April 27, 1999,
including form of Warrant, between CopyTele, Inc. and
Lewis H. Titterton. (Incorporated by reference to
Form 10-Q for the fiscal quarter ended April 30,
1999.)
10.6 Agreement dated July 28, 1999, among CopyTele, Inc.,
Harris Corporation and RF Communications.
(Incorporated by reference to Form 8-K dated July
28, 1999.)
10.7 Stock Subscription Agreement dated August 30, 1999,
including form of Warrant, between CopyTele, Inc. and
Lewis H. Titterton. (Incorporated by reference to
Form 10-K for the fiscal year ended October 31,
1999.)
10.8 CopyTele, Inc. 2000 Share Incentive Plan.
(Incorporated by reference to Annex A of our Proxy
Statement dated June 12, 2000.)
6
10.9 Amendment No. 1 to the CopyTele, Inc. 2000 Share
Incentive Plan, adopted on July 6, 2001 and approved
by shareholders on August 16, 2001. (Incorporated by
reference to Form 10-Q for the fiscal quarter ended
July 31, 2001.)
10.10 Amendment No. 2 to the CopyTele, Inc. 2000 Share
Incentive Plan, adopted on July 16, 2002 and approved
by shareholders on September 12, 2002. (Incorporated
by reference to Exhibit 4(e) to our Form S-8
(Registration No. 333-99717) dated September 18,
2002.)
10.11 Amendment, dated May 10, 2001, to the Joint
Cooperation Agreement between CopyTele, Inc. and
Volga Svet Ltd. (Incorporated by reference to
Exhibit 10.14 to our Form 10-K for the fiscal year
ended October 31, 2001.)
10.12 Letter Agreement between CopyTele, Inc. and Volga
Svet Ltd., dated as of February 1, 2002.
(Incorporated by reference to Exhibit 10.15 to our
Form 10-K for the fiscal year ended October 31,
2001.)
10.13 CopyTele, Inc. 2003 Share Incentive Plan
(Incorporated by reference to Exhibit 4 to our
Form S-8 dated May 5, 2003).
10.14 Amendment No. 1 to the CopyTele, Inc. 2003 Share
Incentive Plan (Incorporated by reference to Exhibit
4(e) to our Form S-8 dated November 9, 2005).
10.15 Form of Stock Option Agreement under CopyTele, Inc.
2003 Share Incentive Plan (Incorporated by reference
to Exhibit 10.1 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended July 31, 2004).
10.16 Form of Stock Award Agreement under CopyTele, Inc.
2003 Share Incentive Plan (Incorporated by reference
to Exhibit 10.2 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended July 31, 2004).
10.17 Long Term Agreement dated April 2, 2004 between
CopyTele, Inc. and Boeing Satellite Systems
International, Inc., as modified September 16, 2004.
(Previously filed.)
23.1 Consent of Grant Thornton LLP. (Previously filed.)
31.1 Certification of Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, dated
April 21, 2005. (Filed herewith.)
7
31.2 Certification of Chief Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, dated
April 21, 2005. (Filed herewith.)
32.1 Statement of Chief Executive Officer, pursuant to
Section 1350 of Title 18 of the United States Code,
dated January 18, 2005. (Previously filed.)
31.2 Statement of Chief Financial Officer, pursuant to
Section 1350 of Title 18 of the United States Code,
dated January 18, 2005. (Previously filed.)
8
SIGNATURES
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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
April 22, 2005 Chief Executive Officer
9
EXHIBIT INDEX
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3.1 Certificate of Incorporation, as amended. (Incorporated by
reference to Form 10-Q for the fiscal quarter ended July 31,
1992 and to Form 10-Q for the fiscal quarter ended July 31,
1997.)
3.2 By-laws, as amended and restated. (Incorporated by reference
to Post-Effective Amendment No. 1 to Form S-8 (Registration
No. 33-49402) dated December 8, 1993.)
3.3 Amendment to By-laws. (Incorporated by reference to Form
10-Q for the fiscal quarter ended January 31, 2003.)
10.1 CopyTele, Inc. 1993 Stock Option Plan, adopted on April 28,
1993 and approved by shareholders on July 14, 1993.
(Incorporated by reference to Proxy Statement dated June 10,
1993.)
10.2 Amendment No. 1 to the CopyTele, Inc. 1993 Stock Option
Plan, adopted on May 3, 1995 and approved by shareholders on
July 19, 1995. (Incorporated by reference to Form S-8
(Registration No. 33-62381) dated September 6, 1995.)
10.3 Amendment No. 2 to the CopyTele, Inc. 1993 Stock Option
Plan, adopted on May 10, 1996 and approved by shareholders
on July 24, 1996. (Incorporated by reference to Form 10-Q
for the fiscal quarter ended April 30, 1996.)
10.4 Agreement dated March 3, 1999 between Harris Corporation and
CopyTele, Inc. (Incorporated by reference to Form 10-Q for
the fiscal quarter ended January 31, 1999.)
10.5 Stock Subscription Agreement dated April 27, 1999, including
form of Warrant, between CopyTele, Inc. and Lewis H.
Titterton. (Incorporated by reference to Form 10-Q for the
fiscal quarter ended April 30, 1999.)
10.6 Agreement dated July 28, 1999, among CopyTele, Inc., Harris
Corporation and RF Communications. (Incorporated by
reference to Form 8-K dated July 28, 1999.)
10.7 Stock Subscription Agreement dated August 30, 1999,
including form of Warrant, between CopyTele, Inc. and Lewis
H. Titterton. (Incorporated by reference to Form 10-K for
the fiscal year ended October 31, 1999.)
10.8 CopyTele, Inc. 2000 Share Incentive Plan. (Incorporated by
reference to Annex A of our Proxy Statement dated June 12,
2000.)
10.9 Amendment No. 1 to the CopyTele, Inc. 2000 Share Incentive
Plan, adopted on July 6, 2001 and approved by shareholders
on August 16, 2001. (Incorporated by reference to Form 10-Q
for the fiscal quarter ended July 31, 2001.)
10.10 Amendment No. 2 to the CopyTele, Inc. 2000 Share Incentive
Plan, adopted on July 16, 2002 and approved by shareholders
on September 12, 2002. (Incorporated by reference to Exhibit
4(e) to our Form S-8 (Registration No. 333-99717) dated
September 18, 2002.)
10.11 Amendment, dated May 10, 2001, to the Joint Cooperation
Agreement between CopyTele, Inc. and Volga Svet Ltd.
(Incorporated by reference to Exhibit 10.14 to our Form 10-K
for the fiscal year ended October 31, 2001.)
10.12 Letter Agreement between CopyTele, Inc. and Volga Svet
Ltd., dated as of February 1, 2002. (Incorporated by
reference to Exhibit 10.15 to our Form 10-K for the fiscal
year ended October 31, 2001.)
10.13 CopyTele, Inc. 2003 Share Incentive Plan (Incorporated by
reference to Exhibit 4 to our Form S-8 dated May 5, 2003).
10.14 Amendment No. 1 to the CopyTele, Inc. 2003 Share Incentive
Plan (Incorporated by reference to Exhibit 4(e) to our Form
S-8 dated November 9, 2005).
10.15 Form of Stock Option Agreement under CopyTele, Inc. 2003
Share Incentive Plan (Incorporated by reference to Exhibit
10.1 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 2004).
10.16 Form of Stock Award Agreement under CopyTele, Inc. 2003
Share Incentive Plan (Incorporated by reference to Exhibit
10.2 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 2004).
10.17 Long Term Agreement dated April 2, 2004 between CopyTele,
Inc. and Boeing Satellite Systems International, Inc., as
modified September 16, 2004. (Previously filed.)
23.1 Consent of Grant Thornton LLP. (Previously filed.)
31.1 Certification of Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, dated April
21, 2005. (Filed herewith.)
31.2 Certification of Chief Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, dated April
21, 2005. (Filed herewith.)
32.1 Statement of Chief Executive Officer, pursuant to Section
1350 of Title 18 of the United States Code, dated January
18, 2005. (Previously filed.)
31.2 Statement of Chief Financial Officer, pursuant to Section
1350 of Title 18 of the United States Code, dated January
18, 2005. (Previously filed.)