================================================================================
                       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 For the fiscal year ended October 31, 2008

                                       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           (I.R.S. Employer Identification No.)
    of 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:
                                      None
           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value


Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes [_] No [x]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [_] No [x]

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. [ ]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definitions of "large accelerated  filer,"  "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

   Large  accelerated  filer [__]                    Accelerated  filer [x]

 Non-accelerated filer  [__]  (Do not  check if a  smaller  reporting  company)

                         Smaller Reporting Company [__]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange  Act).  Yes [_] No [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 April 30, 2008 (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  ($1.01 ):
$128,998,453

On January 9, 2009, the registrant had outstanding  134,476,651 shares of Common
Stock, par value $.01 per share,  which is the registrant's only class of common
stock.
================================================================================
                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE


<PAGE>

                                     PART I
                                     ------

Item 1.           Business.
                  ---------

         Forward-Looking Statements

         Information  included  in this  Annual  Report on Form 10-K may contain
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation Reform Act of 1995.  Forward-looking statements are not statements of
historical facts, but rather reflect our current expectations  concerning future
events and results. We generally use the words "believes," "expects," "intends,"
"plans,"  "anticipates,"  "likely,"  "will" and similar  expressions to identify
forward-looking  statements.  Such forward-looking  statements,  including those
concerning our  expectations,  involve risks,  uncertainties  and other factors,
some of which are  beyond  our  control,  which may  cause our  actual  results,
performance or achievements,  or industry  results,  to be materially  different
from any future  results,  performance or  achievements  expressed or implied by
such forward-looking statements. These risks, uncertainties and factors include,
but are not limited to,  those  factors set forth in this Annual  Report on Form
10-K under "Item 1A. - Risk  Factors"  below.  We  undertake  no  obligation  to
publicly update or revise any forward-looking statements, whether as a result of
new  information,  future events or  otherwise.  You are cautioned not to unduly
rely  on  such  forward-looking   statements  when  evaluating  the  information
presented in this Annual Report on Form 10-K.

Overview
--------

         Our principal operations are the development,  production and marketing
of thin,  flat,  low-voltage  phosphor  display  technology and the development,
production and marketing of  multi-functional  encryption  products that provide
information  security for domestic and international  users over virtually every
communications media.

         Display Technology
         ------------------

         We have  pioneered the basic  development  of an innovative new type of
flat panel  display  technology,  which is  brighter,  has higher  contrast  and
consumes  less power than our prior  display  technology.  This new  proprietary
display is a color phosphor based display having a unique lower voltage electron
emission  system  to  excite  the color  phosphors.  As with our  prior  display
technology,  the new  technology  emits light to display color  images,  such as
movies from DVD players. In addition,  we are also developing another version of
our new type low  voltage  and low  power  display  having  a  different  matrix
configuration  and phosphor  excitation  system.  These new type of displays are
expected to be lower in cost than our prior displays.

         In November  2007, we entered into a Technology  License  Agreement (as
amended,  the "License  Agreement") with Videocon  Industries Limited, an Indian
company  ("Videocon").  Under the License Agreement,  we provide Videocon with a
non-transferable,  worldwide  license  of our  technology  for thin,  flat,  low
voltage  phosphor  displays  (the  "Licensed  Technology"),  for  Videocon (or a
Videocon  Group  company)  to  produce  and  market  products,   including  TVs,
incorporating  displays  utilizing  the Licensed  Technology.  Under the License
Agreement,  we will receive a license fee of $11 million from Videocon,  payable
in installments  over a 27 month period and an agreed upon royalty from Videocon
based on  display  sales by  Videocon.  In April  2008,  the  Indian  Government
approved  the  License  Agreement  and  in  May  2008,  we  received  the  first
installment of the license fee of $2 million.


                                       1
<PAGE>

         Videocon  Industries  Limited is the  flagship  company of the Videocon
Group,  one of  India's  leading  business  houses.  Videocon  Group  is a fully
integrated  consumer  electronics and home  appliances  enterprise with backward
integration  in plasma  panel,  CRT  glass,  color  picture  tubes and other key
components  for  the  consumer  electronics,   home  appliances  and  components
industries.  The company  also  operates in the oil & gas sector.  The  Videocon
Group has sales and service networks throughout India and operates facilities in
Europe and elsewhere in the world.

         CopyTele and Videocon are working  together to implement our technology
into production display modules.  The display modules consist of our low voltage
phosphor  displays,  the attached  associated  driver  circuits,  and controller
circuits. Under the License Agreement,  Videocon, with assistance from CopyTele,
is to provide  the design  and  process  engineering  required  to produce  such
display  modules,  and also is to provide all tooling and fixtures  required for
the  production  process.  Videocon  has a group of  qualified  and  experienced
personnel  assigned to this  program.  As part of our  assistance to Videocon to
produce such display  modules,  we have been  exchanging  information  with this
group of personnel so that they may understand the CopyTele  technology.  We are
currently cooperating with Videocon to jointly implement the CopyTele technology
to  produce  prototypes  of the  modules.  Videocon  is  utilizing  its  display
processing  technology and facilities to produce our display matrix.  The matrix
is the main  component  of our  display,  since it  contains  the  structure  to
accommodate  our electron  emission  technology and the color phosphors that are
used to illuminate our display.  CopyTele and Videocon are also working together
to  incorporate  advancements  to our display  technology.  Improvements  to the
technology are to be jointly owned by CopyTele and Videocon.

         Under the  License  Agreement  we continue to have the right to produce
and market products utilizing the Licensed Technology.  We also continue to have
the right to utilize  Volga Svet Ltd.,  a Russian  display  company that we have
been  working with for more than eleven years  ("Volga"),  and an Asian  company
that  CopyTele has been  working  with for more than five years,  to produce and
market,  products utilizing the Licensed Technology.  Additional licenses of the
Licensed Technology to third parties require the joint agreement of CopyTele and
Videocon.

         In connection  with the License  Agreement,  Videocon and CopyTele have
each  appointed  one senior  advisor to the other's board of directors to advise
with respect to strategic planning and technology in the display field.


                                       2
<PAGE>

         At the same time as we entered into the License  Agreement,  we entered
into a  Share  Subscription  Agreement  with an  affiliate  of  Videocon  ("Mars
Overseas") for Mars Overseas to purchase  20,000,000 shares of our common stock,
and   a   subsidiary   of   ours,   CopyTele   International   Ltd.   ("CopyTele
International"),  entered  into a GDR Purchase  Agreement to purchase  1,495,845
global  depository  receipts  ("GDRs")  of  Videocon.   Both  transactions  were
completed  in our  first  fiscal  quarter  of  fiscal  2008.  See  Note 1 to the
Consolidated Financial Statements.

         Our  new  technology   improves  on  our  prior  carbon   nanotube  and
proprietary  low voltage color phosphor  display  technology.  We have developed
various  engineering models using such prior technology,  which demonstrated the
display's  ability to show movies from DVD players by controlling the brightness
of selected individual pixels. The carbon nanotubes, which are supplied to us by
a U.S.  company,  require a low voltage for electron  emission and are extremely
small -  approximately  10,000 times thinner than the width of a human hair. The
5.5 inch (diagonal) display we developed has 960 x 234 pixels and utilizes a new
memory-based  active  matrix  thin  film  technology  with each  pixel  phosphor
activated by electrons emitted by a proprietary  carbon nanotube network located
approximately 10 microns (1/10th of a human hair) from the pixels.  As a result,
each pixel phosphor  brightness is controlled  using a maximum of only 40 volts.
The carbon  nanotubes and proprietary  color phosphors are precisely  placed and
separated utilizing our proprietary nanotube and phosphor deposition technology.
We have developed a process of maintaining  uniform carbon  nanotube  deposition
independent of phosphor deposition. We have also developed a method of enhancing
nanotube electron emission to increase the brightness of this type of display.

         Some other characteristics of our display technology are as follows:

         o    We have developed a proprietary system which allows us to evacuate
              our display;  to rapidly  vacuum seal it at a low  temperature  to
              accommodate the matrix; and to create lithographic type spacers to
              assemble our display  utilizing only 0.7mm glass. We thus obtain a
              display thickness of approximately 1/16th of an inch, thinner than
              LCD (liquid crystal) and PDP (plasma) displays.
         o    The display matrix,  phosphor  excitation  system, and drivers are
              all on one substrate.
         o    Our  display is able to select and change the  brightness  of each
              individual  pixel,  requiring only 40 volts on each pixel phosphor
              to change the  brightness  from black to white.  This  compares to
              thousands  of  volts  required  for  other  video  phosphor  based
              displays, which leads to inherent breakdowns and short life.
         o    Our display has no backlight.  Because power is only consumed when
              a pixel is turned  on, low power is needed to  activate  the whole
              display.  The display  requires less power than an LCD. This lower
              power  consumption  could  potentially  allow use of  rechargeable
              batteries  to operate TV products for  wireless  applications  and
              extend the battery operation time for portable devices.


                                       3
<PAGE>

         o    The same basic display technology could potentially be utilized in
              various size applications, from hand-held to TV size displays.
         o    Our proprietary matrix structures can be produced by existing mass
              production TFT (thin film technology) LCD facilities,  or portions
              of these facilities.
         o    Our display eliminates display flicker.
         o    Our display has an approximately 1,000 times faster video response
              time than an LCD, and matches the  response  time of a cathode ray
              tube (CRT).
         o    Our display can be viewed with high contrast over  approximately a
              180 degree  viewing  angle,  in both the  horizontal  and vertical
              directions, which exceeds the viewing angle of LCDs.
         o    Also like  CRTs,  our  display  is  capable  of  operating  over a
              temperature range  (-40(degree)C to 85(degree)C) which exceeds the
              range  over  which  LCDs  can  operate,   especially   under  cold
              temperature conditions.

         We believe our displays could  potentially have a cost similar to a CRT
and thus less than current LCD or PDP  displays  (our display does not contain a
backlight,  or color filter or polarizer,  which represent a substantial portion
of the cost of an LCD).

         Encryption Products and Technology
         ----------------------------------

         During the past year we have also  continued  to pursue our  encryption
business.  We have sought  encryption  opportunities  in both the commercial and
government security markets.

         Our government  market has been primarily handled by The Boeing Company
("Boeing")  and its large  distributors  of the Thuraya  satellite  phones.  The
Thuraya  Satellite  Network has grown as a  communications  provider  due to its
geographic  coverage,  quality of service and cost  effective  usage.  The third
Thuraya Geo-mobile satellite was successfully launched in January 2008, allowing
Thuraya to embark on expansion plans to provide its mobile satellite services in
the Asia-Pacific region.

         Our three year  agreement  with Boeing  continued  during  fiscal 2008.
Boeing  distributes  13 of our products,  including our DCS-1400D  (docker voice
encryption  device),  USS-900T  (satellite  fax  encryption  device),  USS-900TL
(landline to satellite fax encryption device), USS-900WF (satellite and cellular
fax  encryption  device),  USS-900WFL  (landline to  satellite  and cellular fax
encryption  device)  and  USS-900TC   (satellite  fax  encryption  to  computer)
products, which were specifically designed for the Thuraya network. Boeing sells
these products under the brand name of Thuraya.

         We are continuing to promote our Thuraya  encryption  solutions through
other Thuraya  developers and resellers  beside Boeing.  We offer a full line of
voice, fax and data encryption  products that secure these  communications,  and
our  products  are  being  used by  government  agencies,  military,  as well as
domestic and international  non-governmental  organizations (NGOs) in the Middle
East, Europe, Far East and Africa.


                                       4
<PAGE>

         Asia Pacific Satellite Industries ("APSI") has manufactured new Thuraya
handsets and docking units that allow satellite and GSM cellular  communications
both  outdoors  and  indoors.  CopyTele  has  developed  connecting  cables  and
compatibility  arrangements  that  customers  can easily  set up and  utilize to
secure their  communications  over the Thuraya  network and which are compatible
with  landline  telephone  systems.  APSI's new  FDU-3500  docking  unit for its
SO-2510 phone is now  available in the market.  This unit allows for outdoor and
indoor operation of the satellite phone on the Thuraya network.  Our new PA-3500
and PA-3500T  products allow  compatibility  between our DCS-1200,  DCS-1400 and
USS-900T  encryption  devices  and the APSI  FDU-3500  docking  unit and SO-2510
phone.

         Our  products  provide  secure   communications   with  many  different
satellite  phones,  including the Thuraya  7100/7101/SO-2510  handheld  terminal
("HHT"),   Globalstar   GSP-1600  HHT,   Telit   SAT-550/600   HHT,   Globalstar
GSP-2800/2900 fixed phone, Iridium 9500/9505/9505A HHT, Inmarsat M4 and Mini "M"
HHT units  from  Thrane & Thrane  and  Nera.  Through  the use of our  products,
encrypted satellite communications are available for many Thuraya docking units,
including  Teknobil's  Next Thuraya  Docker,  Thuraya's  Fixed Docking  Adapter,
APSI's  FDU-2500 and FDU-3500  Fixed Docking Units,  and  Sattrans's  SAT-OFFICE
Fixed Docking Unit and SAT-VDA Hands-Free Car Kit.

         We have added Voice over  Internet  Protocol  (VoIP)  functions  to the
DCS-1200 for corporate utilization over popular new telephone systems.

         In the past year,  we have  uncovered new  opportunities  to market our
products for securing  landline and wireless voice and fax  communications.  Our
USS-900AF,  USS-900WF and USS-900WFL products are being evaluated for use by two
Middle  Eastern  governments  for  encrypting  fax  communications.  Also, a Far
Eastern  government  is in the process of  determining  the system  requirements
necessary to encrypt  voice  communications  utilizing our DCS-1200 and DCS-1400
products.

         In the commercial  field,  we have licensed our  encryption  system for
e-mail to Digital  Info  Security  Co Inc.  ("DISC"),  located  in  Westminster,
Colorado.  The system, our DCS-2200,  integrates into DISC's e-mail services and
allows companies to encrypt all e-mail  transactions in a manner  transparent to
the individual user.

         General
         -------

         We were incorporated on November 5, 1982 under the laws of the State of
Delaware.  Our principal executive offices are located at 900 Walt Whitman Road,
Melville, New York 11747, our telephone number is 631-549-5900, and our Internet
website  address is  www.copytele.com.  We make  available  free of charge on or
through our Internet website our annual report on Form 10-K,  quarterly  reports
on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A, and
amendments to those reports filed or furnished  pursuant to Section 13(a) of the
Securities  Exchange  Act of 1934 as soon as  reasonably  practicable  after  we
electronically  file such materials with, or furnish them to, the Securities and
Exchange Commission.


                                       5
<PAGE>

New Technologies Under Development
----------------------------------

         Display Technology
         ------------------

         We are continuing to pursue our efforts to develop new technologies for
our color displays. We are continuing to develop another version of our new type
low voltage and low power display having a different  matrix  configuration  and
phosphor  excitation  system.  This new type of  display  is  covered  under the
license provided to Videocon and is expected to be lower in cost to produce than
our prior displays.

         Encryption Technology
         ---------------------

         We  are   continually   engaged  in  the   development   of  additional
capabilities  for our current  product lines as well as the  development  of new
products to meet current and anticipated customer  applications.  We are further
developing  encryption products and pursuing  commercial security  opportunities
created by the Health Insurance  Portability and  Accountability  Act ("HIPAA"),
the  Sarbanes-Oxley  Act,  the   Gramm-Leach-Bliley   Act  and  other  corporate
governance requirements.

         Other products under development include the following:

         o    A voice  encryption  device for integration  into the APSI SO-2510
              handset that takes  advantage of the Thuraya voice  network.  This
              application simplifies the customer's security configuration while
              reducing the utilization costs.

         o    Advancing  our  compatibility  with  Universal  Serial  Bus  (USB)
              connected cellular and satellite phones and our DCS-1200, DCS-1400
              and USS-900T  products.  The  additional  services will expand our
              wireless compatibility domestically and abroad.

Production
----------

         Flat Panel Video Display Products
         ---------------------------------

         Under our License  Agreement  with  Videocon,  Videocon  (or a Videocon
Group  company) is to produce  products  incorporating  displays  utilizing  our
technology. We are working with Videocon to implement our display technology for
Videocon to produce the displays. We are also producing color displays, with the
assistance of Volga and the Asian  company,  which  incorporate  the new type of
matrix and phosphor excitation system described above.

         Encryption Products
         -------------------

         Our hardware  encryption  products  consist of a printed  circuit board
populated with electronic  components and connectors enclosed in a plastic case.
We design all the hardware,  software,  packaging and operating  manuals for our
products.  The four main electronic  components - the Citadel(TM) CCX encryption
chip or hardware key generator chip; a digital signal processor;  a vocoder; and
modems - are  contained  on a printed  circuit  board.  We are  currently  using
several  U.S.-based  electronics-production  contractors  to procure the printed
circuit  boards and mount the associated  electronics  components on the circuit
board.  We currently use  approximately  a dozen  primary  component and printed
circuit-board  suppliers and one production  assembly  contractor.  Given normal
lead times, we anticipate  having a readily  available  supply of all electronic
components that we require for assembling our encryption products.


                                       6
<PAGE>

         Our production  contractors  produce and visually inspect the completed
circuit  boards.  We  perform  final  assembly,  including  installation  of the
software, by enclosing the completed printed circuit boards into the product and
performing  functionality testing of all units at our premises at Melville,  New
York prior to shipment to our  customers.  We test our finished  products  using
internally developed product assurance testing procedures.  We currently produce
our line of products in quantities to meet marketing requirements.

Marketing and Sales
-------------------

         Flat Panel Video Display Products
         ---------------------------------

         Under our License  Agreement  with  Videocon,  Videocon  (or a Videocon
Group company) is to market the products it produces that  incorporate  displays
utilizing  our  technology.  We are  cooperating  with Videocon to implement our
display technology for Videocon to produce such products, including TV's.

         Encryption Products
         -------------------

         During the past year we have continued to direct our marketing  efforts
to participate in the security  opportunities  created by the U.S. Department of
Homeland  Security,  the Defense  Department,  and the enactment of laws such as
HIPAA, the Sarbanes-Oxley  Act, and  Gramm-Leach-Bliley  Act, which mandate that
government and private sector firms provide higher levels of information privacy
and security. For example, HIPAA requires certain privacy protection for medical
records and other health care  information  for  individuals.  We are working on
applications   involving   our   encryption   technology   that  offer   simple,
straight-forward compliance measures for these laws. We have licensed to DISC an
encryption  system that integrates our encryption  technology into DISC's secure
e-mail services.

         We have  extended  our  long  term  agreement  with  Boeing,  which  is
distributing our line of encryption products.  These include voice, fax and data
products on a  non-exclusive  basis.  We also have entered into  agreements with
Thuraya service  providers to distribute our encryption  equipment  abroad.  The
launch of the third Thuraya Geo-mobile satellite in January 2008 allowed Thuraya
to embark on major expansion plans to provide their mobile satellite services in
the Asia-Pacific  region,  potentially opening new markets for CopyTele security
solutions that are designed for the Thuraya network.


                                       7
<PAGE>

         In addition, we presently use a network of distributors in the security
field and original equipment  manufacturers which market our encryption products
on a non-exclusive basis. These distributors,  along with our internal marketing
group,  have  sold  and  marketed  our  encryption   products  to  multinational
corporations, U.S. and foreign governments and local and federal law enforcement
agencies.

         We continue to provide training and technical  support to our customers
and to our distributors and dealers.

Customers
---------

         During fiscal 2008, we recognized  $1,686,668 in revenue in our Display
Technology  Segment  from  Videocon  (constituting  all of the  revenue  in such
segment),  approximately  82% of our total net revenue.  During  fiscal 2007, we
recognized $240,000 in net revenue from DISC, approximately 49% of our total net
revenue,  and  approximately  $143,000 in net revenue  from Delta  Bridge,  Inc,
approximately  29% of total net  revenue.  During  fiscal  2006,  we  recognized
approximately $204,000 in net revenue from GloCall Middle East FZE, a subsidiary
of  France  Telecom  Mobile  Satellite  Communications  and  a  Thuraya  service
provider, approximately 40% of our total net revenue. Such revenue during fiscal
2007 and 2006 was in our Encryption Products and Services Segment.

Competition
-----------

         The market for encryption products and flat panel displays worldwide is
highly  competitive and subject to technological  changes.  Although  successful
product and systems  development  is not  necessarily  dependent on  substantial
financial  resources,  most of our  competitors  are larger  than us and possess
financial,  research,  service  support,  marketing,   manufacturing  and  other
resources significantly greater than ours.

         There are several other  companies that sell hardware  and/or  software
encryption  products  and there are many  large  companies  that sell flat panel
displays.  We believe,  however, that the technology contained in our encryption
products and our flat panel  displays have features that  distinguish  them from
the products being sold by our  competitors.  The  encryption  security and flat
panel  display  markets  are likely to be  characterized  by rapid  advances  in
technology and the continuing introduction of new products that could render our
products obsolete or  non-competitive.  We cannot give you any assurance that we
will be able to compete  successfully in the market for our encryption  products
and our flat panel displays.

Patents
-------

         We have  received  patents from the United  States and certain  foreign
patent  offices,  expiring at various  dates between 2009 and 2025. We have also
filed or are planning to file patent  applications for our display  technologies
and for our encryption technologies.


                                       8
<PAGE>

         We have  received  from  the  U.S.  patent  office  patents  for  seven
variations  of our  video  display  technology.  We have also  received  patents
related to the design,  structure and method of  construction of the E-Paper(TM)
flat panel  display,  methods of  operating  the display,  particle  generation,
applications  using the E-Paper(TM) flat panel display,  and for our solid state
and thin film video color display. In addition, seven of our patent applications
describing our display technology have been published. We have received from the
U.S. patent office eight patents related to our encryption technology.

         We cannot assure you that patents will be issued for any of our pending
applications.  In  addition,  we  cannot  assure  you that any  patents  held or
obtained will sufficiently protect us against our competitors.  We are not aware
that any of our encryption  products are infringing  upon the patents of others.
We cannot assure you, however, that other products developed by us, if any, will
not  infringe  upon the  patents of  others,  or that we will not have to obtain
licenses  under the  patents  of others,  although  we are not aware of any such
infringement at this time.

         We believe that the  foregoing  patents are  significant  to our future
operations.

Research and Development
------------------------

         Research  and  development  expenses  were  approximately   $4,127,000,
$3,404,000, and $4,614,000 for the fiscal years ended October 31, 2008, 2007 and
2006,  respectively.  See  "Management's  Discussion  and  Analysis of Financial
Condition  and  Results  of  Operations"  below and our  Consolidated  Financial
Statements.

Employees and Consultants
-------------------------

         We had 20 employees and 12 consultants as of October 31, 2008. Eighteen
of these  individuals,  including our Chairman of the Board and Chief  Executive
Officer,  are engaged in research and  development.  Their  backgrounds  include
expertise in physics,  chemistry,  optics and  electronics.  Six individuals are
engaged in marketing and the remaining individuals are engaged in administrative
and financial  functions for us. None of our employees is represented by a labor
organization or union.

Financial Information About Segments and Geographical Areas
-----------------------------------------------------------

         See our Financial Statements

Item 1A. Risk Factors.
         -------------

         Our business involves a high degree of risk and uncertainty,  including
the following risks and uncertainties:


                                       9
<PAGE>

o        We have experienced significant net losses and negative cash flows from
         operations and they may continue.

         We have had net losses and negative cash flows from  operations in each
year since our inception,  and we may continue to incur  substantial  losses and
experience  substantial  negative cash flows from  operations.  We have incurred
substantial  costs and  expenses in  developing  our  encryption  and flat panel
display  technologies  and in our  efforts  to produce  commercially  marketable
products incorporating our technology.  We have had limited sales of products to
support our  operations  from  inception  through  October 31, 2008. We have set
forth below our net losses,  research and development expenses and net cash used
in operations for the three fiscal years ended October 31, 2008:

<TABLE>
<CAPTION>

                                                     Fiscal Years Ended October 31,
                                                     ------------------------------
                                                2008              2007               2006
                                                ----              ----               ----
<S>                                         <C>                <C>                <C>
Net loss................................... $5,821,604         $5,458,218         $7,600,901
Research and development expenses..........  4,127,393          3,403,943          4,614,300
Net cash used in operations................    901,868          2,396,859          1,847,108

</TABLE>

o        We may need additional funding in the future which may not be available
         on acceptable  terms and, if  available,  may result in dilution to our
         stockholders.

         We anticipate  that, if cash generated from  operations is insufficient
to satisfy our requirements,  we will require additional funding to continue our
research and development activities and market our products. We believe that our
existing  cash,  cash  equivalents,  investments  in  certificates  of  deposit,
investments in U.S. government securities and accounts receivable, together with
cash flows from expected sales of our encryption  products and revenue  relating
to our thin, flat,  low-voltage  phosphor display technology,  including license
fees and royalties from  Videocon,  and other  potential  sources of cash flows,
will be  sufficient  to enable us to continue  our  marketing,  production,  and
research and  development  activities.  However,  our projections of future cash
needs and cash flows may differ from actual  results.  If current  cash and cash
that may be generated from operations are  insufficient to satisfy our liquidity
requirements,  we may seek to sell debt or equity securities or to obtain a line
of credit.  The sale of additional  equity  securities or convertible debt could
result in dilution to our  stockholders.  It is also  management's  intention to
continue to compensate employees by issuing stock or stock options. We currently
have no  arrangements  with  respect to  additional  financing.  There can be no
assurance  that we will  generate  sufficient  revenues  in the future  (through
sales,  license  fees and  royalties,  or  otherwise)  to satisfy our  liquidity
requirements or sustain future operations, that our production capabilities will
be adequate,  that other  products will not be produced by other  companies that
will render our products  obsolete,  or that other  sources of funding  would be
available,  if needed,  on favorable  terms or at all. If we cannot  obtain such
funds  if  needed,  we  would  need  to  curtail  or  cease  some  or all of our
operations.


                                       10
<PAGE>

o        We may not generate sufficient revenue to support our operations in the
         future or to generate profits.

         Our principal operations are the development,  production and marketing
of thin,  flat,  low-voltage  phosphor  display  technology and the development,
production and marketing of  multi-functional  encryption  products that provide
information  security for domestic and international  users over virtually every
communications  media. In May 2008, we commenced  receiving license fees related
to our display technology from Videocon pursuant to the License  Agreement.  The
License Agreement  provides for payment of additional license fees over the next
two fiscal years as well as the payment of certain  royalties  based on sales of
products containing our display technology.  However,  there can be no assurance
that  thereafter  we will  receive any license or similar  fees  relating to our
display technology, nor that we will receive any royalty payments from Videocon.
In addition,  our  arrangements  with Videocon  involve  counterparty  risk. Our
encryption  products are only in their initial stages of commercial  production.
Our  investments in research and development  are  considerable.  Our ability to
generate  sufficient  revenues  to support  our  operations  in the future or to
generate profits will depend upon numerous factors, many of which are beyond our
control, including:

     o   Our and Videocon's  ability to implement our technology for Videocon to
         produce and market products containing our displays.
     o   The capability of Volga Svet Ltd. ("Volga"),  a Russian display company
         that we have been working with for eleven  years,  to produce color and
         monochrome displays and supply them to us.
     o   Our ability to successfully market our line of encryption products.
     o   Our production  capabilities and those of our suppliers as required for
         the production of our encryption products.
     o   Long-term performance of our products.
     o   The capability of our dealers and  distributors  to adequately  service
         our  encryption  products.
     o   Our ability to maintain an  acceptable  pricing  level to end-users for
         both our encryption and display products.
     o   The ability of suppliers to meet our and  Videocon's  requirements  and
         schedule.
     o   Our  ability  to   successfully   develop  other  new  products   under
         development.
     o   Rapidly changing consumer preferences.
     o   The possible  development of competitive products that could render our
         products obsolete or unmarketable.
     o   Our future  negotiations  with Volga with respect to payments and other
         arrangements with Volga.

         Because  our  revenue is subject  to  fluctuation,  we may be unable to
reduce  operating  expenses  quickly  enough to offset  any  unexpected  revenue
shortfall.  If we have a  shortfall  in revenue in  relation  to  expenses,  our
operating results would suffer.  Our operating results for any particular fiscal
year may not be indicative of future operating  results.  You should not rely on
year-to-year comparisons of results of operations as an indication of our future
performance.


                                       11
<PAGE>

o        Our arrangements with Videocon involve market risks.

         At the same time as we entered into the License  Agreement,  we entered
into a  Share  Subscription  Agreement  with  an  affiliate  of  Videocon,  Mars
Overseas,  for Mars Overseas to purchase  20,000,000  shares of our common stock
(the  "CopyTele  Shares"),  and a subsidiary  of ours,  CopyTele  International,
entered into a GDR Purchase  Agreement  to purchase  1,495,845  GDRs of Videocon
(the  "Videocon  GDRs").  The Videocon GDRs are listed on the  Luxembourg  Stock
Exchange.  The value of the Videocon GDRs owned by us depends upon,  among other
things, the value of Videocon's  securities in its home market of India, as well
as exchange  rates  between the U.S.  dollar and Indian  rupee (the  currency in
which  Videocon's  securities  are traded in its home market).  The value of the
Videocon  GDRs  declined  substantially  in  fiscal  2008,  and  there can be no
assurance  that the value of the Videocon  GDRs will not further  decline in the
future.

         In  addition,  for the purpose of  effecting a lock up of the  Videocon
GDRs and CopyTele Shares (collectively,  the "Securities") for a period of seven
years,  and therefore  restricting both parties from selling or transferring the
Securities  during such period,  CopyTele  International  and Mars Overseas have
entered into two Loan and Pledge Agreements. The Videocon GDRs are to be held as
security  for a loan in principal  amount of  $5,000,000  from Mars  Overseas to
CopyTele  International,  and the CopyTele Shares are similarly held as security
for a loan in principal amount of $5,000,000 from CopyTele International to Mars
Overseas.  The loans are for a term of seven years and do not bear interest. The
loan agreements also provide for customary events of default which may result in
forfeiture of the Securities by the defaulting party.  There can be no assurance
that the respective parties receiving such loans will not default on such loan.

o        We are  dependent  upon a few  key  employees  and the  loss  of  their
         services could adversely affect us.

         Our future  success is  dependent  on our  ability to hire,  retain and
motivate highly qualified personnel.  In particular,  our success depends on the
continued  efforts  of our Chief  Executive  Officer,  Denis A.  Krusos,  who is
engaged in the management and operations of our business,  including all aspects
of the development, production and marketing of our encryption products and flat
panel display technology.  In addition, Mr. Krusos, as well as our other skilled
management  and technical  personnel,  are important to our future  business and
financial  arrangements.  We do not have an employment agreement with, nor do we
maintain "key person" life insurance on, Mr. Krusos. The loss of the services of
any such  persons  could  have a material  adverse  effect on our  business  and
operating results.


                                       12
<PAGE>

o        The very competitive markets for our encryption products and flat panel
         display  technology  could have a harmful  effect on our  business  and
         operating results.

         The  markets  for  our  encryption  products  and  flat  panel  display
technology  worldwide are highly competitive and subject to rapid  technological
changes.  Most of our  competitors  are larger  than us and  possess  financial,
research,  service  support,   marketing,   manufacturing  and  other  resources
significantly greater than ours. Competitive pressures may have a harmful effect
on our business and operating results.

o        Our common  stock is subject to the SEC's  penny  stock rules which may
         make our shares more difficult to sell.

         Our stock fits the definition of a penny stock. The SEC rules regarding
penny  stocks may have the effect of  reducing  trading  activity  in our common
stock and making it more difficult for investors to sell their shares. The rules
require a broker to deliver a risk disclosure document that provides information
about penny stocks and the nature and level of risks in the penny stock  market.
The broker must also give bid and offer  quotations  and broker and  salesperson
compensation information to the customer orally or in writing prior to effecting
a transaction and in writing with the confirmation. The SEC rules also require a
broker  to make a  special  written  determination  that  the  penny  stock is a
suitable  investment  for the  purchaser  and  receive the  purchaser's  written
agreement  to  the  transaction  before  completion  of the  transaction.  These
requirements  may result in a lower trading volume of our common stock and lower
trading prices.

Item 1B. Unresolved Staff Comments.
         --------------------------

                  None.

Item 2.           Properties.
                  -----------

                  We  lease  approximately  12,000  square  feet of  office  and
laboratory research facilities at 900 Walt Whitman Road, Melville, New York (our
principal  offices)  from an  unrelated  party  pursuant to a lease that expires
November 30, 2011. Our base rent is  approximately  $279,000 per annum with a 3%
annual  increase and an  escalation  clause for  increases in certain  operating
costs. See Note 9 to our Consolidated Financial Statements.

                  We believe that the  facilities  described  above are adequate
for our current requirements.

Item 3.           Legal Proceedings.
                  ------------------

         We are not a party to any material  pending legal  proceedings.  We are
party to claims,  and complaints  that arise in the ordinary course of business.
We believe that any liability that may ultimately  result from the resolution of
these  matters  will not,  individually  or in the  aggregate,  have a  material
adverse effect on our financial position or results of operations.


                                       13
<PAGE>

Item 4.           Submission of Matters to a Vote of Security Holders.
                  ----------------------------------------------------

                  At our  Annual  Meeting  of  Stockholders,  held on August 28,
2008,  three  directors  were elected and the  selection of Grant  Thornton LLP,
independent  registered public accountants,  as our independent auditors for the
fiscal year ending October 31, 2008 was ratified.  The following is a tabulation
of the voting with respect to the foregoing matters:

         (a)  Election of Directors:

                  Nominee                     For                    Withheld
                  -------                     ---                    --------

              Denis A. Krusos             101,363,923               10,823,382
              Henry P. Herms              103,147,867                9,039,438
              George P.  Larounis         104,256,196                8,715,605

         (b)  Ratification  of  selection of Grant  Thornton LLP as  independent
auditors for the fiscal year ending October 31, 2008:

                    For                     Against                   Abstain
                    ---                     -------                   -------

                112,528,140                 171,869                   271,793


                                       14
<PAGE>

                                     PART II
                                     -------

Item 5.           Market for the Registrant's Common Equity, Related Stockholder
                  --------------------------------------------------------------
                  Matters and Issuer Purchases of Equity Securities.
                  --------------------------------------------------

         Our  common  stock is traded on the  Over-the-Counter  Bulletin  Board,
under the  symbol  "COPY".  The high and low sales  prices  as  reported  by the
Over-the-Counter  Bulletin  Board for each  quarterly  fiscal  period during our
fiscal years ended October 31, 2007 and 2008 have been as follows:

--------------------------------------------------------------------------------
         Fiscal Period                  High                    Low
--------------------------------------------------------------------------------
        1st quarter 2007                $1.01                  $0.50
        2nd quarter 2007                 0.94                   0.56
        3rd quarter 2007                 0.75                   0.46
        4th quarter 2007                 0.96                   0.51
--------------------------------------------------------------------------------
        1st quarter 2008                $1.94                  $0.80
        2nd quarter 2008                 1.39                   0.69
        3rd quarter 2008                 1.15                   0.65
        4th quarter 2008                 0.98                   0.34
--------------------------------------------------------------------------------

         As of January 9, 2009, the approximate  number of record holders of our
common  stock was 1,256 and the closing  price of our common stock was $0.40 per
share.

         No  cash  dividends  have  been  paid on our  common  stock  since  our
inception.  We have  no  present  intention  to pay any  cash  dividends  in the
foreseeable future.


                                       15
<PAGE>

Item 6.           Selected Financial Data.
                  ------------------------

         The following selected financial data has been derived from our audited
Financial  Statements and should be read in conjunction  with those  statements,
and the notes related thereto, which are included in this report.

<TABLE>
<CAPTION>

                                                          -----------------------------------------------------------------------
                                                                           As of and for the years ended October 31,
                                                          -----------------------------------------------------------------------
                                                              2008           2007          2006            2005          2004
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>            <C>            <C>
Net Revenue                                               $ 2,063,123    $   486,852    $   508,651    $   439,785    $   494,462
---------------------------------------------------------------------------------------------------------------------------------
Cost of encryption products sold                               95,594         73,953        104,672        112,321        176,112
---------------------------------------------------------------------------------------------------------------------------------
Provision for excess inventory                                  --             --             --           586,662          --
---------------------------------------------------------------------------------------------------------------------------------
Cost of encryption services                                     --            86,407         51,774         20,645          --
---------------------------------------------------------------------------------------------------------------------------------
Research and Development Expenses                           4,127,393      3,403,943      4,614,300      2,266,911      2,164,427
---------------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative Expenses                3,829,654      2,414,916      3,365,521      1,919,010      1,518,911
---------------------------------------------------------------------------------------------------------------------------------
Dividend Income                                               130,886          --             --             --             --
---------------------------------------------------------------------------------------------------------------------------------
Interest Income                                                37,028         34,149         26,715         14,507          4,333
---------------------------------------------------------------------------------------------------------------------------------
Net Loss                                                   (5,821,604)    (5,458,218)    (7,600,901)    (4,451,257)    (3,360,655)
---------------------------------------------------------------------------------------------------------------------------------
Net Loss Per Share of  Common Stock - Basic and Diluted       ($.05)         ($.05)         ($.08)         ($.05)        ($.04)
---------------------------------------------------------------------------------------------------------------------------------
Total Assets                                                7,497,869      1,870,159      1,863,629      1,466,253      2,316,050
---------------------------------------------------------------------------------------------------------------------------------
Long Term Obligations                                           --             --             --             --             --
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity                                        1,730,277      1,191,350      1,281,841      1,118,023      1,872,930
---------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Per Share of Common Stock                        --             --             --             --             --
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

Item 7.           Management's Discussion and Analysis of Financial
                  -------------------------------------------------
                  Condition and Results of Operations.
                  ------------------------------------

Forward-Looking Statements
--------------------------

                  Information  included in this  Annual  Report on Form 10-K may
contain forward-looking  statements within the meaning of the Private Securities
Litigation Reform Act of 1995.  Forward-looking statements are not statements of
historical facts, but rather reflect our current expectations  concerning future
events and results. We generally use the words "believes," "expects," "intends,"
"plans,"  "anticipates,"  "likely," "will," and similar  expressions to identify
forward-looking  statements.  Such forward-looking  statements,  including those
concerning our  expectations,  involve risks,  uncertainties  and other factors,
some of which are  beyond  our  control,  which may  cause our  actual  results,
performance or achievements,  or industry  results,  to be materially  different
from any future results,  performance,  or achievements  expressed or implied by
such forward-looking statements. These risks, uncertainties and factors include,
but are not limited to,  those  factors set forth in this Annual  Report on Form
10-K under the heading  "Item 1A. Risk  Factors." We undertake no  obligation to
publicly update or revise any forward-looking statements, whether as a result of
new  information,  future events or  otherwise.  You are cautioned not to unduly
rely  on  such  forward-looking   statements  when  evaluating  the  information
presented in this Annual Report on Form 10-K.


                                       16
<PAGE>

General
-------

         Our principal operations are the development,  production and marketing
of thin,  flat,  low-voltage  phosphor  display  technology and the development,
production and marketing of  multi-functional  encryption  products that provide
information  security for domestic and international  users over virtually every
communications media.

         We have  pioneered the basic  development  of an innovative new type of
flat panel  display  technology,  which is  brighter,  has higher  contrast  and
consumes  less power than our prior  display  technology.  This new  proprietary
display is a color phosphor based display having a unique lower voltage electron
emission  system  to  excite  the color  phosphors.  As with our  prior  display
technology,  the new  technology  emits light to display color  images,  such as
movies from DVD players. In addition,  we are also developing another version of
our new type low  voltage  and low  power  display  having  a  different  matrix
configuration  and phosphor  excitation  system.  These new type of displays are
expected to be lower in cost than our prior displays.

         In November  2007, we entered into a Technology  License  Agreement (as
amended,  the "License  Agreement") with Videocon  Industries Limited, an Indian
company  ("Videocon").  Under the License Agreement,  we provide Videocon with a
non-transferable,  worldwide  license  of our  technology  for thin,  flat,  low
voltage  phosphor  displays  (the  "Licensed  Technology"),  for  Videocon (or a
Videocon  Group  company)  to  produce  and  market  products,   including  TVs,
incorporating  displays  utilizing  the Licensed  Technology.  Under the License
Agreement,  we will receive a license fee of $11 million from Videocon,  payable
in installments  over a 27 month period and an agreed upon royalty from Videocon
based on  display  sales by  Videocon.  In April  2008,  the  Indian  Government
approved  the  License  Agreement  and  in  May  2008,  we  received  the  first
installment of the license fee of $2 million.

         Videocon  Industries  Limited is the  flagship  company of the Videocon
Group,  one of  India's  leading  business  houses.  Videocon  Group  is a fully
integrated  consumer  electronics and home  appliances  enterprise with backward
integration  in plasma  panel,  CRT  glass,  color  picture  tubes and other key
components  for  the  consumer  electronics,   home  appliances  and  components
industries.  The company  also  operates in the oil & gas sector.  The  Videocon
Group has sales and service networks throughout India and operates facilities in
Europe and elsewhere in the world.

         CopyTele and Videocon are working  together to implement our technology
into production display modules.  The display modules consist of our low voltage
phosphor  displays,  the attached  associated  driver  circuits,  and controller
circuits. Under the License Agreement,  Videocon, with assistance from CopyTele,
is to provide  the design  and  process  engineering  required  to produce  such
display  modules,  and also is to provide all tooling and fixtures  required for
the  production  process.  Videocon  has a group of  qualified  and  experienced
personnel  assigned to this  program.  As part of our  assistance to Videocon to
produce such display  modules,  we have been  exchanging  information  with this
group of personnel so that they may understand the CopyTele  technology.  We are
currently cooperating with Videocon to jointly implement the CopyTele technology
to  produce  prototypes  of the  modules.  Videocon  is  utilizing  its  display
processing  technology and facilities to produce our display matrix.  The matrix
is the main  component  of our  display,  since it  contains  the  structure  to
accommodate  our electron  emission  technology and the color phosphors that are
used to illuminate our display.  CopyTele and Videocon are also working together
to  incorporate  advancements  to our display  technology.  Improvements  to the
technology are to be jointly owned by CopyTele and Videocon.


                                       17
<PAGE>

         Under the  License  Agreement  we continue to have the right to produce
and market products utilizing the Licensed Technology.  We also continue to have
the right to utilize  Volga Svet Ltd.,  a Russian  display  company that we have
been  working with for more than eleven years  ("Volga"),  and an Asian  company
that  CopyTele has been  working  with for more than five years,  to produce and
market,  products utilizing the Licensed Technology.  Additional licenses of the
Licensed Technology to third parties require the joint agreement of CopyTele and
Videocon.

         In connection  with the License  Agreement,  Videocon and CopyTele have
each  appointed  one senior  advisor to the other's board of directors to advise
with respect to strategic planning and technology in the display field.

         At the same time as we entered into the License  Agreement,  we entered
into a  Share  Subscription  Agreement  with an  affiliate  of  Videocon  ("Mars
Overseas") for Mars Overseas to purchase  20,000,000 shares of our common stock,
and   a   subsidiary   of   ours,   CopyTele   International   Ltd.   ("CopyTele
International"),  entered  into a GDR Purchase  Agreement to purchase  1,495,845
global  depository  receipts  ("GDRs")  of  Videocon.   Both  transactions  were
completed  in our  first  fiscal  quarter  of  fiscal  2008.  See  Note 1 to the
Condensed Consolidated Financial Statements.

         Our  new  technology   improves  on  our  prior  carbon   nanotube  and
proprietary  low voltage color phosphor  display  technology.  We have developed
various  engineering models using such prior technology,  which demonstrated the
display's  ability to show movies from DVD players by controlling the brightness
of selected individual pixels. The carbon nanotubes, which are supplied to us by
a U.S.  company,  require a low voltage for electron  emission and are extremely
small -  approximately  10,000 times thinner than the width of a human hair. The
5.5 inch (diagonal) display we developed has 960 x 234 pixels and utilizes a new
memory-based  active  matrix  thin  film  technology  with each  pixel  phosphor
activated by electrons emitted by a proprietary  carbon nanotube network located
approximately 10 microns (1/10th of a human hair) from the pixels.  As a result,
each pixel phosphor  brightness is controlled  using a maximum of only 40 volts.
The carbon  nanotubes and proprietary  color phosphors are precisely  placed and
separated utilizing our proprietary nanotube and phosphor deposition technology.
We have developed a process of maintaining  uniform carbon  nanotube  deposition
independent of phosphor deposition. We have also developed a method of enhancing
nanotube electron emission to increase the brightness of this type of display.


                                       18
<PAGE>

         Some other characteristics of our display technology are as follows:

         o    We have developed a proprietary system which allows us to evacuate
              our display;  to rapidly  vacuum seal it at a low  temperature  to
              accommodate the matrix; and to create lithographic type spacers to
              assemble our display  utilizing only 0.7mm glass. We thus obtain a
              display thickness of approximately 1/16th of an inch, thinner than
              LCD (liquid crystal) and PDP (plasma) displays.
         o    The display matrix,  phosphor  excitation  system, and drivers are
              all on one  substrate.
         o    Our  display is able to select and change the  brightness  of each
              individual  pixel,  requiring only 40 volts on each pixel phosphor
              to change the  brightness  from black to white.  This  compares to
              thousands  of  volts  required  for  other  video  phosphor  based
              displays, which leads to inherent breakdowns and short life.
         o    Our display has no backlight.  Because power is only consumed when
              a pixel is turned  on, low power is needed to  activate  the whole
              display.  The display  requires less power than an LCD. This lower
              power  consumption  could  potentially  allow use of  rechargeable
              batteries  to operate TV products for  wireless  applications  and
              extend the battery operation time for portable devices.
         o    The same basic display technology could potentially be utilized in
              various size applications, from hand-held to TV size displays.
         o    Our proprietary matrix structures can be produced by existing mass
              production TFT (thin film technology) LCD facilities,  or portions
              of these facilities.
         o    Our display eliminates display flicker.
         o    Our display has an approximately 1,000 times faster video response
              time than an LCD, and matches the  response  time of a cathode ray
              tube (CRT).
         o    Our display can be viewed with high contrast over  approximately a
              180 degree  viewing  angle,  in both the  horizontal  and vertical
              directions, which exceeds the viewing angle of LCDs.
         o    Also like  CRTs,  our  display  is  capable  of  operating  over a
              temperature range  (-40(degree)C to 85(degree)C) which exceeds the
              range  over  which  LCDs  can  operate,   especially   under  cold
              temperature conditions.

         We believe our displays could  potentially have a cost similar to a CRT
and thus less than current LCD or PDP  displays  (our display does not contain a
backlight,  or color filter or polarizer,  which represent a substantial portion
of the cost of an LCD).

         During the past year we have also  continued  to pursue our  encryption
business.  We have sought  encryption  opportunities  in both the commercial and
government security markets.


                                       19
<PAGE>

         Our government  market has been primarily handled by The Boeing Company
("Boeing")  and its large  distributors  of the Thuraya  satellite  phones.  The
Thuraya  Satellite  Network has grown as a  communications  provider  due to its
geographic  coverage,  quality of service and cost  effective  usage.  The third
Thuraya Geo-mobile satellite was successfully launched in January 2008, allowing
Thuraya to embark on expansion plans to provide its mobile satellite services in
the Asia-Pacific region.

         Our three year  agreement  with Boeing  continued  during  fiscal 2008.
Boeing  distributes  13 of our products,  including our DCS-1400D  (docker voice
encryption  device),  USS-900T  (satellite  fax  encryption  device),  USS-900TL
(landline to satellite fax encryption device), USS-900WF (satellite and cellular
fax  encryption  device),  USS-900WFL  (landline to  satellite  and cellular fax
encryption  device)  and  USS-900TC   (satellite  fax  encryption  to  computer)
products, which were specifically designed for the Thuraya network. Boeing sells
these products under the brand name of Thuraya.

         We are continuing to promote our Thuraya  encryption  solutions through
other Thuraya  developers and resellers  beside Boeing.  We offer a full line of
voice, fax and data encryption  products that secure these  communications,  and
our  products  are  being  used by  government  agencies,  military,  as well as
domestic and international  non-governmental  organizations (NGOs) in the Middle
East, Europe, Far East and Africa.

         Asia Pacific Satellite Industries ("APSI") has manufactured new Thuraya
handsets and docking units that allow satellite communications both outdoors and
indoors. CopyTele has developed connecting cables and compatibility arrangements
that customers can easily set up and utilize to secure their communications over
the Thuraya  network and which are compatible with landline  telephone  systems.
APSI's new FDU-3500  docking unit for its SO-2510  phone is now available in the
market. This unit allows for outdoor and indoor operation of the satellite phone
on  the  Thuraya   network.   Our  new  PA-3500  and  PA-3500T   products  allow
compatibility between our DCS-1200, DCS-1400 and USS-900T encryption devices and
the APSI FDU-3500 docking unit and SO-2510 phone.

         Our  products  provide  secure   communications   with  many  different
satellite  phones,  including the Thuraya  7100/7101/SO-2510  handheld  terminal
("HHT"),   Globalstar   GSP-1600  HHT,   Telit   SAT-550/600   HHT,   Globalstar
GSP-2800/2900 fixed phone, Iridium 9500/9505/9505A HHT, Inmarsat M4 and Mini "M"
HHT units  from  Thrane & Thrane  and  Nera.  Through  the use of our  products,
encrypted satellite communications are available for many Thuraya docking units,
including  Teknobil's  Next Thuraya  Docker,  Thuraya's  Fixed Docking  Adapter,
APSI's  FDU-2500 and FDU-3500  Fixed Docking Units,  and  Sattrans's  SAT-OFFICE
Fixed Docking Unit and SAT-VDA Hands-Free Car Kit.

         We have added Voice over  Internet  Protocol  (VoIP)  functions  to the
DCS-1200 for corporate utilization over popular new telephone systems.


                                       20
<PAGE>

         In the past year,  we have  uncovered new  opportunities  to market our
products for securing  landline and wireless voice and fax  communications.  Our
USS-900AF,  USS-900WF and USS-900WFL products are being evaluated for use by two
Middle  Eastern  governments  for  encrypting  fax  communications.  Also, a Far
Eastern  government  is in the process of  determining  the system  requirements
necessary to encrypt  voice  communications  utilizing our DCS-1200 and DCS-1400
products.

         In the commercial  field,  we have licensed our  encryption  system for
e-mail to Digital  Info  Security  Co Inc.  ("DISC"),  located  in  Westminster,
Colorado.  The system, our DCS-2200,  integrates into DISC's e-mail services and
allows companies to encrypt all e-mail  transactions in a manner  transparent to
the individual user.

         Our  operations  and the  achievement  of our  objectives in marketing,
production,  and research and  development  are dependent  upon an adequate cash
flow.  Accordingly,   in  monitoring  our  financial  position  and  results  of
operations,  particular  attention  is  given to cash  and  accounts  receivable
balances and cash flows from operations.  Since our initial public offering, our
cash flows have been  primarily  generated  through the sales of common stock in
private  placements and upon exercise of stock options.  Since 1999 we have also
generated cash flows from sales of our encryption products and services.  We are
continuing to direct our encryption  marketing  efforts to opportunities in both
the commercial and government  security markets and have recently  uncovered new
opportunities  to market products to Middle Eastern and Far Eastern  governments
to secure voice and fax communications.  In addition, in fiscal 2008, we entered
into the License Agreement with Videocon and in May 2008, we commenced receiving
from Videocon license fees related to our display technology.

         In  reviewing   Management's   Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations,  you should  refer to our  Consolidated
Financial Statements and the notes thereto.

Critical Accounting Policies
----------------------------

         Our financial  statements  are prepared in conformity  with  accounting
principles  generally accepted in the United States of America.  As such, we are
required to make certain  estimates,  judgments and assumptions  that management
believes are reasonable  based upon the information  available.  These estimates
and  assumptions  affect the reported  amounts of assets and liabilities and the
disclosure of contingent  assets and  liabilities  at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods.

         We believe the following  critical  accounting  polices affect the more
significant  judgments and estimates  used in the  preparation  of our financial
statements.

         Revenue Recognition
         -------------------

         Revenues  from  sales  are  recorded  when  all  four of the  following
criteria  are met:  (i)  persuasive  evidence  of an  arrangement  exists;  (ii)
delivery has occurred and title has  transferred or services have been rendered;
(iii) our price to the buyer is fixed or determinable;  and (iv)  collectibility
is reasonably assured.


                                       21
<PAGE>

         We have  assessed the guidance of Emerging  Issues Task Force No. 00-21
"Revenue  Arrangements with Multiple  Deliverables"  ("EITF 00-21") to determine
whether  multiple  deliverables  in  our  arrangement  with  Videocon  represent
separate units of accounting. Under the License Agreement,  CopyTele is required
to: (a)  disclose to Videocon  the Licensed  Technology  and provide  reasonable
training of Videocon  personnel;  (b) jointly cooperate with Videocon to produce
prototypes  prior to  production;  and (c)  assist  Videocon  in  preparing  for
production.  CopyTele has determined that these  performance  obligations do not
have value to  Videocon on a  standalone  basis,  as defined in EITF 00-21,  and
accordingly they do not represent separate units of accounting.

         We have established objective and reasonable evidence of fair value for
the royalty to be earned during the  production  period based on analysis of the
pricing for similar agreements. Accordingly, we have determined that the license
fee of $11 million to be paid during the pre-production  period and royalties on
product sales reflects the  established  fair value for these  deliverables.  We
will  recognize the $11 million  license fee over the  estimated  period that we
expect to provide  cooperation and assistance during the pre-production  period,
limiting the revenue  recognized on a cumulative basis to the aggregate  license
fee payments received from Videocon. We will assess at each reporting period the
progress and assistance provided and will continue to evaluate the period during
which this fee will be recognized. On this basis, we have recognized license fee
revenue  during the year ended  October  31, 2008 of  approximately  $1,687,000.
License fee payments  received from Videocon  which are in excess of the amounts
recognized  as  revenue  (approximately  $313,000  as of October  31,  2008) are
recorded as  non-refundable  deferred revenue on the  accompanying  consolidated
balance sheet.

         Investment Securities
         ---------------------

         We  classify  our  investment  securities  in one  of  two  categories:
available-for-sale  or  held-to-maturity.   Available-for-sale   securities  are
recorded at fair  value.  Unrealized  gains and  losses,  net of the related tax
effect,  on  available-for-sale  securities  are excluded  from earnings and are
reported as a component of accumulated other  comprehensive  income (loss) until
realized.  Realized  gains  and  losses  from  the  sale  of  available-for-sale
securities are determined on a specific  identification basis.  Held-to-maturity
securities,  which are Investment securities that the company has the intent and
ability to hold to maturity,  are carried at amortized cost. The amortization of
premiums and accretion of discounts  are recorded on the level yield  (interest)
method,  over the period from the date of purchase  to  maturity.  When sales do
occur, gains and losses are recognized at the time of sale and the determination
of cost of  securities  sold is based upon the specific  identification  method.
Dividend and interest income are recognized when earned.

         We monitor the value of our  investments  for indicators of impairment,
including  changes  in  market  conditions  and  the  operating  results  of the
underlying  investment  that may result in the inability to recover the carrying
value of the  investment.  We will  record an  impairment  charge if and when we
believe  any such  investment  has  experienced  a  decline  that is other  than
temporary.


                                       22
<PAGE>

         Accounts Receivable
         -------------------

         Accounts  receivable are stated at amounts due from customers net of an
allowance for doubtful accounts.  Management reviews our accounts receivable for
potential   doubtful   accounts  and   maintains  an  allowance   for  estimated
uncollectible  amounts.  Accounts  receivable  are written off when we determine
that they become uncollectible.

         Inventories
         -----------

         Inventories are stated at the lower of cost, including material,  labor
and  overhead,  determined  on a first-in,  first-out  basis,  or market,  which
represents  our best estimate of market  value.  We regularly  review  inventory
quantities  on hand,  particularly  finished  goods,  and record a provision for
excess and obsolete  inventory  based  primarily on forecasts of future  product
demand.  Our net loss is  directly  affected  by  management's  estimate  of the
realizability of inventories.  To date, sales of our products have been limited.
Accordingly,  there can be no  assurance  that we will not be required to reduce
the  selling  price of our  inventory  below our current  carrying  value in the
future.

         Stock-Based Compensation
         ------------------------

         We account  for stock  options  granted  to  employees,  directors  and
consultants  using Financial  Accounting  Standards Board ("FASB")  Statement of
Financial  Accounting  Standards  ("SFAS") No. 123 (revised 2004),  "Share-Based
Payment" (SFAS  No.123R").  We recognize  compensation  expense for stock option
awards on a straight-line  basis over the requisite service period of the grant.
We recorded stock-based  compensation expense,  related to stock options granted
to employees and non-employee directors, of approximately $2,614,000, $1,081,000
and  $2,973,000  during  the  years  ended  October  31,  2008,  2007 and  2006,
respectively,  in accordance with SFAS No. 123R. See Note 2 to the  Consolidated
Financial Statements for additional information.

         Determining the  appropriate  fair value model and calculating the fair
value of stock-based awards requires judgment,  including estimating stock price
volatility,  forfeiture rates and expected life. If factors change and we employ
different assumptions in the application of SFAS No. 123R in future periods, the
compensation expense that we record under SFAS No. 123R may differ significantly
from what we have recorded in the current period.


                                       23
<PAGE>

Results of Operations
---------------------

         Fiscal  Year Ended  October  31,  2008  Compared  to Fiscal  Year Ended
         -----------------------------------------------------------------------
         October 31, 2007
         ----------------

         Net Revenue

         Net revenue  increased by  approximately  $1,576,000 in fiscal 2008, to
approximately  $2,063,000, as compared to approximately $487,000 in fiscal 2007.
Revenue  recognized during fiscal 2008 included display  technology license fees
related to the  License  Agreement  with  Videocon of  approximately  $1,687,000
compared  to none in fiscal  2007.  Revenue  from sales of  encryption  products
increased by approximately  $129,000 in fiscal 2008, to approximately  $376,000,
as compared to  approximately  $247,000 in fiscal 2007.  The increase in revenue
from  encryption  products  sold  was  primarily  due  to an  increase  in  unit
shipments.  Revenue from  encryption  services  decreased  from  $240,000 in the
fiscal 2007 to none in fiscal 2008. The revenue from encryption  services in the
prior  year  period  resulted  from  engineering  services  billed to DISC.  Our
encryption  revenue  has been  limited  and is  sensitive  to  individual  large
transactions.  We believe  that  changes in revenue  between  periods  generally
represent  the  nature  of the early  stage of our  product  and  sales  channel
development.

         Cost of Encryption Products Sold

         The cost of encryption products sold increased by approximately $22,000
in fiscal 2008, to approximately  $96,000, as compared to approximately  $74,000
in fiscal 2007.  The increase in cost of encryption  products sold was primarily
due to an  increase  in  unit  shipments  of  encryption  products  as well as a
reduction  of cost of  products  sold in fiscal  2008 of  approximately  $19,000
resulting  from the sale during  fiscal 2008 of inventory  for which a provision
for excess inventory of that amount was recorded in prior periods.

         Cost of Encryption Services

         The cost of encryption  services  decreased from $86,000 in fiscal 2007
to none in fiscal 2008 as there was no revenue from encryption services.

         Research and Development Expenses

         Research and development  expenses increased by approximately  $723,000
in fiscal 2008, to approximately  $4,127,000,  from approximately  $3,404,000 in
fiscal 2007. The increase in research and  development  expenses was principally
due  to  an  increase  in  employee   stock  option   compensation   expense  of
approximately  $878,000,  offset by a decrease  outside research and development
expense of  approximately  $55,000,  a decrease  in  patent-related  expenses of
approximately  $41,000,  a decrease in employee  compensation and related costs,
other than stock option expense,  of  approximately  $34,000,  and a decrease in
outside engineering services of approximately $32,000.


                                       24
<PAGE>

         Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased by approximately
$1,415,000  to  approximately  $3,830,000  in fiscal  2008,  from  approximately
$2,415,000 in fiscal 2007. The increase in selling,  general and  administrative
expenses  was   principally   due  to  an  increase  in  employee  stock  option
compensation expense of approximately  $655,000, an increase in consultant stock
option  compensation  expense of  approximately  $172,000,  an  increase  in the
provision  for  doubtful  accounts of $223,000 of which  $120,000  related to an
accounts   receivable  in  that  amount  from  DISC,  an  increase  in  employee
compensation   and  related  costs,   other  than  stock  option   expense,   of
approximately  $90,000,  an  increase  in  professional  fees  of  approximately
$86,000, an increase in shareholder relations expense of approximately  $72,000,
an  increase  in travel  expense of  approximately  $49,000,  and an increase in
consulting expense,  other than consultant stock option compensation expense, of
approximately $41,000.

         Dividend Income

         Dividend  income,  which was received in  connection  with the Videocon
GDRs we acquired in December 2007, was approximately $131,000 in fiscal 2008. We
received no dividend income in fiscal 2007.

         Interest Income

         Interest income was approximately  $37,000 in fiscal 2008,  compared to
approximately  $34,000  in  fiscal  2007.  The  interest  income  earned  on the
additional  funds available for investment on the current period was offset by a
reduction in prevailing interest rates.

         Fiscal Year  Ended  October  31,  2007  Compared  to Fiscal  Year Ended
         -----------------------------------------------------------------------
         October 31, 2006
         ----------------

         Net Sales and Gross Profit

         Net Sales. Net sales decreased by approximately $22,000 in fiscal 2007,
to approximately $487,000, as compared to approximately $509,000 in fiscal 2006.
All sales during both periods were from  encryption  products and services.  The
decrease in net sales resulted from a reduction in sales of encryption  products
of  approximately   $131,000,   to  approximately   $247,000,   as  compared  to
approximately  $378,000 in fiscal  2006,  offset by an increase in revenue  from
encryption services of $109,000,  to $240,000, as compared to $131,000 in fiscal
2006.  The revenue  from  encryption  services  in both  periods  resulted  from
engineering  services billed to DISC. Our encryption sales have been limited and
are sensitive to individual large transactions. We believe that changes in sales
of our encryption products between periods generally represent the nature of the
early stage of our product and sales channel development.  Revenue from sales of
encryption  services  is  generally  non-recurring  due  to  the  nature  of the
individual transactions.


                                       25
<PAGE>

         Cost of Encryption Products Sold

         The cost of encryption products sold decreased by approximately $31,000
in fiscal 2007, to approximately  $74,000, as compared to approximately $105,000
in fiscal 2006.  The decrease in cost of encryption  products sold was primarily
due to a decrease in unit shipments of encryption products.

         Cost of Encryption Services

         The cost of encryption  services increased by approximately  $34,000 in
the fiscal 2007, to approximately  $86,000, as compared to approximately $52,000
in fiscal 2006.  The increase in the cost of  encryption  services was primarily
due to an increase in billable services.

         Research and Development Expenses

         Research and development expenses decreased by approximately $1,210,000
in fiscal 2007, to approximately  $3,404,000,  from approximately  $4,614,000 in
fiscal 2006. The decrease in research and  development  expenses was principally
due to a decrease in employee stock option compensation expense of approximately
$1,421,000,  to approximately  $607,000 in fiscal 2007 compared to approximately
$2,028,000 in fiscal 2006,  offset by an increase of  approximately  $153,000 in
outside research and development  expense  primarily  relating to development of
our display  technology  and an increase  in employee  compensation,  other than
stock option expense, and related costs of approximately $77,000.

         Selling, General and Administrative Expenses

         Selling, general and administrative expenses decreased by approximately
$951,000  to  approximately   $2,415,000  in  fiscal  2007  from   approximately
$3,366,000 in fiscal 2006. The decrease in selling,  general and  administrative
expenses was principally due to a decrease in employee stock option compensation
expense of  approximately  $471,000,  to  approximately  $474,000 in fiscal 2007
compared to  approximately  $945,000 in fiscal 2006, a decrease in  professional
fees  of  approximately   $312,000,   a  decrease  in  consulting   services  of
approximately  $118,000  and a  decrease  in  shareholder  relations  expense of
approximately  $64,000,  offset by an increase in employee  compensation,  other
than stock option expense, and related costs of approximately $59,000.

         Interest Income

         Interest income was approximately  $34,000 in fiscal 2007,  compared to
approximately  $27,000 in the  comparable  prior-year  period.  The  increase in
interest income was principally due to an increase in prevailing interest rates.


                                       26
<PAGE>

Liquidity and Capital Resources
-------------------------------

         From our inception,  we have met our liquidity and capital  expenditure
needs  primarily  through the proceeds from sales of common stock in our initial
public  offering,  in private  placements,  upon exercise of warrants  issued in
connection  with  the  private  placements  and  public  offering,  and upon the
exercise of stock  options.  In addition,  commencing  in the fourth  quarter of
fiscal 1999, we have generated cash flows from sales of our encryption  products
and  in May  2008  commenced  receiving  license  fees  related  to our  display
technology from Videocon pursuant to the License Agreement.

         During  fiscal  2008,  our  cash  used  in  operating   activities  was
approximately $902,000. This resulted from payments to suppliers,  employees and
consultants  of   approximately   $3,236,000,   which  was  offset  by  cash  of
approximately  $170,000 received from collections of accounts receivable related
to sales of encryption products, cash received from display technology licensing
fee of  $2,000,000,  approximately  $131,000 of  dividend  income  received  and
approximately  $33,000 of interest income  received.  Our cash used by investing
activities during fiscal 2008 was approximately $18,001,000, which resulted from
a disbursement  of $16,200,000  for the purchase of Videocon GDRs, a purchase of
short-term investments consisting of certificates of deposit and U.S. government
securities  of  approximately  $2,880,000,  purchases of  long-term  investments
consisting U.S. government securities of approximately $999,000 and purchases of
approximately $14,000 of equipment,  offset by approximately $1,841,000 received
upon maturities of short-term  investments consisting of certificates of deposit
and U.S. government securities and approximately $252,000 received upon the sale
of long-term  investments  consisting of U.S.  government  securities.  Our cash
provided  by  financing   activities   during  fiscal  2008  was   approximately
$18,712,000,  which  resulted  from the sale of our common stock to Videocon for
$16,200,000,   and  cash   received  upon  the  exercise  of  stock  options  of
approximately  $2,512,000.  Accordingly,  during  fiscal  2008 our cash and cash
equivalents   decreased  by  approximately   $191,000  and  our  investments  in
certificates   of  deposit  and  U.S.   government   securities   increased   by
approximately  $1,793,000.  As  a  result,  our  cash,  cash  equivalents,   and
investments in certificates of deposit and U.S. government securities at October
31, 2008 increased to approximately  $2,671,000 from approximately $1,069,000 at
the end of fiscal 2007. Our operating cash accounts are maintain at FDIC-insured
banks. Our bank accounts and certificates of deposit are maintained  within FDIC
coverage limits.

         Net accounts receivable decreased by $17,000,  from $120,000 at the end
of fiscal 2007 to $103,000 at October 31, 2008.  The  decrease is primarily  the
result of an account  receivable from one customer of $206,000  related to sales
in fiscal 2008,  offset by a provision  for doubtful  accounts in fiscal 2008 of
$223,000 of which $103,000 related to the account  receivable from such customer
and $120,000 related to accounts receivable from DISC.  Inventories decreased by
approximately  $14,000  from  approximately  $192,000  at  October  31,  2007 to
approximately  $178,000 at October 31, 2008, primarily as a result of the timing
of shipments  and  production  schedules.  Investment in Videocon is recorded at
fair value and  increased to  approximately  $3,620,000 at October 31, 2008 from
zero at the end of fiscal 2007,  as a result of our purchase of Videocon  global
depository  receipts for  $16,200,000  in December  2007 and the recording of an
unrealized loss of approximately  $12,580,000 as of October 31, 2008. Investment
in DISC  increased by $425,000 as a result of recording  the  investment at fair
value of $842,000 as of October 31, 2008 compared to recording the investment at
cost  of  $417,000  the  end  of  fiscal  2007.  Accounts  payable  and  accrued
liabilities decreased by approximately  $225,000 from approximately  $679,000 at
the end of fiscal  2007 to  approximately  $454,000 at October  31,  2008,  as a
result the timing of  payments.  Deferred  revenue  increased  by  approximately
$313,000 at October 31, 2008 from zero at the end of fiscal 2007, as a result of
the receipt of the display  technology  license  fee of  $2,000,000  in May 2008
reduced by the license fee revenue  recognized  during fiscal 2008. Loan payable
increased to $5,000,000 at October 31, 2008 from zero at the end of fiscal 2007,
as a  result  obtaining  a loan  from  Mars  Overseas  in  December  2007.  Loan
receivable,   which  is  classified  as  a  contra-equity  in  the  accompanying
consolidated  balance  sheet,  increased to  $5,000,000 at October 31, 2008 from
zero at the end of fiscal 2007,  as a result of issuing a loan in that amount to
Mars Overseas in December 2007.


                                       27
<PAGE>

         As a result of these  changes,  working  capital  at October  31,  2008
increased to approximately  $1,489,000 from approximately $748,000 at the end of
fiscal 2007.

         Our working capital includes  inventory of  approximately  $178,000 and
$192,000 at October 31, 2008 and 2007, respectively. Management has recorded our
inventory  at the lower of cost or our current best  estimate of net  realizable
value. To date, sales of our products have been limited. Accordingly,  there can
be no assurance  that we will not be required to reduce the selling price of our
inventory below our current carrying value.

         Total employee  compensation  expense during fiscal 2008, 2007 and 2006
was approximately $5,164,000,  $3,661,000 and $5,416,000,  respectively.  During
fiscal  2008,  2007 and 2006,  a  significant  portion of employee  compensation
consisted  of the  issuance of stock and stock  options to  employees in lieu of
cash compensation.  We recorded  compensation expense for the fiscal years ended
October 31, 2008,  2007 and 2006 of  approximately  $1,877,000,  $1,735,000  and
$1,897,000,  respectively,  for shares of common stock issued to  employees.  We
recorded  approximately  $2,614,000,  $1,081,000  and  $2,973,000 of stock-based
compensation  expense,  related  to  stock  options  granted  to  employees  and
directors, during the years ended October 31, 2008, 2007 and 2006, respectively.
It is  managements'  intention  to continue to  compensate  employees by issuing
stock or stock options.

         In addition,  during  fiscal 2008,  2007 and 2006,  we issued shares of
common  stock to  consultants  for  services  rendered.  We recorded  consulting
expense  for  the  fiscal  years  ended  October  31,  2008,  2007  and  2006 of
approximately $95,000, $182,000 and $287,000, respectively, for shares of common
stock issued to consultants.  In addition, during fiscal 2008, 2007 and 2006, we
recorded approximately $217,000, $-0- and $131,000,  respectively, of consulting
expense for stock options granted to consultants.  It is managements'  intention
to continue to compensate consultants by issuing stock or stock options also.


                                       28
<PAGE>

         During fiscal 2008, we issued  20,000,000 shares of our common stock to
an affiliate of Videocon for an aggregate  purchase price of $16,200,000  and we
purchased   1,495,845   Videocon  GDRs  for  an  aggregate   purchase  price  of
$16,200,000.  In April 2008, we received a dividend of approximately $131,000 on
the Videocon GDRs we hold.  While the Videocon GDRs are held as security for the
loan payable to Mars Overseas,  the agreement  governing such loan provides that
any dividends, distributions, rights or other proceeds or benefits in respect of
the  Videocon  GDRs shall be  promptly  transferred  to us free and clear of any
encumbrances under the agreements.

         We believe that our existing  cash,  cash  equivalents,  investments in
certificates of deposit,  investments in U.S. government securities and accounts
receivable,  together  with cash flows  from  expected  sales of our  encryption
products and revenue  relating to our thin, flat,  low-voltage  phosphor display
technology,  including  license  fees and  royalties  from  Videocon,  and other
potential sources of cash flows, will be sufficient to enable us to continue our
marketing,  production,  and research and development  activities.  However, our
projections of future cash needs and cash flows may differ from actual  results.
If current cash and cash that may be generated from operations are  insufficient
to  satisfy  our  liquidity  requirements,  we may seek to sell  debt or  equity
securities  or to  obtain  a line  of  credit.  The  sale of  additional  equity
securities or convertible debt could result in dilution to our stockholders.  It
is also  management's  intention to continue to compensate  employees by issuing
stock or stock  options.  We  currently  have no  arrangements  with  respect to
additional financing. There can be no assurance that we will generate sufficient
revenues in the future (through sales, license fees and royalties, or otherwise)
to satisfy our liquidity  requirements  or sustain future  operations,  that our
production  capabilities  will be  adequate,  that  other  products  will not be
produced by other  companies  that will render our  products  obsolete,  or that
other sources of funding would be available, if needed, on favorable terms or at
all. If we cannot obtain such funds if needed, we would need to curtail or cease
some or all of our operations.

         We are  seeking to improve our  liquidity  through  increased  sales or
license of products  and  technology.  In an effort to generate  sales,  we have
marketed  our   encryption   products   directly  to  U.S.   and   international
distributors,  dealers  and  original  equipment  manufacturers  that market our
encryption  products  and to  end-users.  In fiscal  2008,  we entered  into the
License Agreement with Videocon.  Under the License Agreement, we will receive a
license fee of $11 million  from  Videocon,  payable in  installments  over a 27
month period and an agreed upon royalty from Videocon  based on display sales by
Videocon.  During  fiscal  2008,  we  have  recognized  revenue  from  sales  of
encryption  products  of  approximately  $376,000  and  we  received  the  first
installment of the license fee from Videocon of $2,000,000.


                                       29
<PAGE>

         The  following  table  presents  our  expected  cash  requirements  for
contractual obligations outstanding as of October 31, 2008:

<TABLE>
<CAPTION>

                                                     Payments Due by Period
                                                     ----------------------
                                     Less
                                     than         1-3          4-5         After
Contractual Obligations             1 year       years        years       5 years        Total
------------------------          ----------   ----------   ----------   ----------   ----------

<S>                               <C>          <C>          <C>          <C>          <C>
Consulting
Agreement                         $  170,000           --           --           --   $  170,000

Noncancelable  Operating
Leases                            $  286,000   $  623,000           --           --   $  909,000
                                  ----------   ----------   ----------   ----------   ----------

Total Contractual
Cash Obligations                  $  456,000   $  623,000           --           --   $1,079,000
                                  ==========   ==========   ==========   ==========   ==========

</TABLE>

         We have no  variable  interest  entities  or  other  off-balance  sheet
obligation arrangements.

Effect of Recent Accounting Pronouncements
------------------------------------------

         In June 2006, the FASB issued FASB  Interpretation  No. 48, "Accounting
for  Uncertainty in Income Taxes," an  interpretation  of FASB Statement No. 109
("FIN 48"). FIN 48 clarifies the accounting  for  uncertainties  in income taxes
recognized in an enterprise's financial statements.  The interpretation requires
that  the  Company  determine  whether  it is more  likely  than  not that a tax
position will be sustained upon examination by the appropriate taxing authority.
If a tax position meets the more likely than not  recognition  criteria,  FIN 48
requires the tax position be measured at the largest  amount of benefit  greater
than 50  percent  likely  of  being  realized  upon  ultimate  settlement.  This
accounting  standard is effective for fiscal years  beginning after December 15,
2006.  We adopted  FIN 48 on November 1, 2007.  There were no  unrecognized  tax
benefits as of the date of our  adoption  of FIN 48 and as of October 31,  2008.
The  adoption  of FIN 48 did not  have a  material  effect  on our  consolidated
financial statements.

         In  September   2006,  the  FASB  issued  SFAS  No.  157,  "Fair  Value
Measurements"  ("SFAS No. 157"). SFAS No. 157 defines fair value,  establishes a
framework  for  measuring  fair  value  under  generally   accepted   accounting
principles, and expands disclosures about fair value measurements.  SFAS No. 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and states that a fair value measurement should be determined based
on the assumptions  that market  participants  would use in pricing the asset or
liability. In February 2008, the FASB issued FASB Staff Position ("FSP") No. FAS
157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting  Pronouncements  That Address Fair Value Measurements for Purposes of
Lease  Classification or Measurement under Statement 13," and FSP No. FAS 157-2,
"Effective Date of FASB Statement No. 157." Collectively,  these Staff Positions
allow a one-year  deferral of adoption of SFAS No. 157 for  nonfinancial  assets
and liabilities  that are recognized or disclosed at fair value in the financial
statements  on a  non-recurring  basis and amend SFAS No.  157 to  exclude  FASB
Statement No. 13 and its related  interpretive  accounting  pronouncements  that
address  leasing  transactions.  We adopted  SFAS No. 157 on  November  1, 2008,
except for non  financial  assets and  liabilities  measured  at fair value on a
non-recurring  basis,  which will be  effective  for us  November  1, 2009.  The
adoption of SFAS No. 157 on  November 1, 2008 did not have a material  effect on
our consolidated  financial statements.  The adoption of the deferred portion of
SFAS No.  157 is not  expected  to have a  material  effect on our  consolidated
financial statements.


                                       30
<PAGE>

         In February  2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial  Liabilities"  ("SFAS No. 159"). SFAS No. 159
expands  opportunities to use fair value measurement in financial  reporting and
permits  entities to choose to measure many  financial  instruments  and certain
other items at fair value.  SFAS No. 159 is effective for fiscal years beginning
after  November  15,  2007.  We adopted  SFAS No. 159 on November  1, 2008.  The
adoption  of SFAS No.  159 did not have a  material  effect on our  consolidated
financial statements.

         In  December  2007,  the FASB  issued  SFAS  No.  141  (revised  2007),
"Business  Combinations" ("SFAS No. 141R"), which changes how an entity accounts
for the acquisition of a business.  When  effective,  SFAS No. 141R will replace
existing  SFAS  No.  141,  "Business  Combinations"  ("SFAS  No.  141"),  in its
entirety. SFAS No. 141R carries forward the existing requirements to account for
all business  combinations  using the acquisition  method  (formerly  called the
purchase method). In general,  SFAS No. 141R will require  acquisition-date fair
value  measurement of identifiable  assets acquired,  liabilities  assumed,  and
noncontrolling interest in the acquired entity. SFAS No. 141R will eliminate the
current  cost-based  purchase  method  under  SFAS No.  141.  SFAS  No.  141R is
effective  for fiscal  years and  interim  periods  within  those  fiscal  years
beginning on or after  December  15, 2008.  The adoption of SFAS No. 141R is not
expected to have a material effect on our consolidated financial statements.

         In  December  2007,  the  FASB  issued  SFAS No.  160,  "Noncontrolling
Interests  in  Consolidated  Financial  Statements,  an amendment of ARB No. 51"
("SFAS No. 160").  SFAS No. 160 establishes  accounting and reporting  standards
for the noncontrolling  interests in a subsidiary and for the deconsolidation of
a  subsidiary.  SFAS No. 160 is effective  for fiscal years and interim  periods
within those fiscal years  beginning on or after December 15, 2008. The adoption
of SFAS No. 160 is not  expected to have a material  effect on our  consolidated
financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
         -----------------------------------------------------------

         As of October 31,  2008,  we had invested a portion of our cash on hand
in short-term,  fixed rate and highly liquid  instruments that have historically
been  reinvested  when they mature  throughout  the year.  Although our existing
short-term  instruments  are not  considered  at risk with respect to changes in
interest  rates or markets  for these  instruments,  our rate of return on these
securities could be affected at the time of reinvestment, if any.


                                       31
<PAGE>

         We also had  investments  in U.S.  government  securities  recorded  at
amortized cost of approximately $750,000, having a length of time until maturity
of fifteen  months.  We do not consider  this  investment  to have a significant
market risk since our  existing  cash on hand and expected  cash flows  indicate
that this can be held until maturity.

         At October 31, 2008,  our  investment  in Videocon  GDRs is recorded at
fair  value  of  approximately   $3,620,000  including  an  unrealized  loss  of
approximately  $12,580,000 and has exposure to price risk. The fair value of the
Videocon GDRs is based on the underlying price of Videocon's equity shares which
are  traded  on  stock   exchanges  in  India  with  prices  quoted  in  rupees.
Accordingly,  the fair value of the  Videocon  GDRs is subject to price risk and
foreign  exchange  risk.  The  potential  loss in fair  value  resulting  from a
hypothetical  10% adverse  change in prices of Videocon  equity shares quoted by
Indian stock exchanges and in foreign currency exchange rates, as of October 31,
2008 amounts to approximately $362,000.

         Our  investment in DISC common stock at October 31, 2008 is recorded at
fair value of  approximately  $842,000  including an unrealized gain of $425,000
and has exposure to price risk.  DISC's common stock is not registered under the
Securities Exchange Act of 1934, but is quoted on the Pink Sheets.  Accordingly,
the fair value of DISC's  common stock is subject to price risk.  The  potential
loss in fair value resulting from a hypothetical  10% adverse change in price of
this investment, as of October 31, 2008 amounts to approximately $84,000.

Item 8.           Financial Statements and Supplementary Data.
                  --------------------------------------------

         See accompanying "Index to Financial Statements."

Item 9.           Changes in  and  Disagreements With  Accountants on Accounting
                  --------------------------------------------------------------
                  and Financial Disclosure.
                  -------------------------

         None.

Item 9A.          Controls and Procedures
                  -----------------------

Disclosure Controls and Procedures
----------------------------------

         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 our disclosure  controls and procedures  were effective as of the
end of fiscal 2008.


                                       32
<PAGE>

Management's Report on Internal Control Over Financial Reporting
----------------------------------------------------------------

         Our management is responsible for establishing and maintaining adequate
internal  control  over  financial  reporting  as such  term is  defined  in the
Securities  and Exchange Act Rules  13a-15(f)  and  15d-15(f).  Our  management,
including the principal executive officer and principal financial officer,  does
not expect that our internal controls over financial  reporting will prevent all
errors  and all  fraud.  A control  system,  no  matter  how well  designed  and
operated,  cannot  provide full  assurance  that the  objectives  of the control
system are met, and no  evaluation  of controls can provide  absolute  assurance
that all control  issues and instances of fraud,  if any,  within a company have
been  detected.  Our internal  control over  financial  reporting is designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles.

         Our management has assessed the  effectiveness  of our internal control
over financial reporting as of October 31, 2008. This assessment of our internal
control  over  financial  reporting  used the criteria  for  effective  internal
control  established in Internal  Control -- Integrated  Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.  Based on this
assessment,  our management  concluded that our internal  control over financial
reporting was effective as of October 31, 2008.

         The  effectiveness of our internal control over financial  reporting as
of October 31, 2008,  has been  audited by Grant  Thornton  LLP, an  independent
registered public accounting firm, as stated in their report below.

Change in Internal Control Over Financial Reporting
---------------------------------------------------

         There was no change in our internal  control over  financial  reporting
during the fourth  quarter of fiscal 2008 that has  materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.


                                       33
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
CopyTele, Inc. and Subsidiaries

         We have  audited  CopyTele,  Inc.  and  Subsidiaries'  (the  "Company")
internal  control over  financial  reporting  as of October 31,  2008,  based on
criteria  established in Internal Control -- Integrated  Framework issued by the
Committee of Sponsoring  Organizations of the Treadway  Commission  (COSO).  The
Company's  management is responsible for maintaining  effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over  financial  reporting,  included in the  accompanying  Management's
Report on Internal Control Over Financial  Reporting.  Our  responsibility is to
express an opinion on the Company's  internal  control over financial  reporting
based on our audit.

         We conducted our audit in  accordance  with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and  perform  the audit to obtain  reasonable  assurance  about  whether
effective  internal  control over  financial  reporting  was  maintained  in all
material  respects.  Our audit included  obtaining an  understanding of internal
control over financial  reporting,  assessing the risk that a material  weakness
exists,  testing  and  evaluating  the design  and  operating  effectiveness  of
internal  control  based  on  the  assessed  risk,  and  performing  such  other
procedures as we considered necessary in the circumstances.  We believe that our
audit provides a reasonable basis for our opinion.

         A company's  internal  control  over  financial  reporting is a process
designed to provide reasonable  assurance regarding the reliability of financial
reporting and the preparation of financial  statements for external  purposes in
accordance with generally accepted accounting  principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the  transactions  and dispositions of the assets of the company;
(2) provide reasonable  assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

         Because of its inherent  limitations,  internal  control over financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.


                                       34
<PAGE>

         In our opinion,  CopyTele,  Inc. and  Subsidiaries  maintained,  in all
material  respects,  effective  internal control over financial  reporting as of
October  31,  2008,  based  on  criteria  established  in  Internal  Control  --
Integrated Framework issued by COSO.

         We also have audited,  in  accordance  with the standards of the Public
Company  Accounting  Oversight Board (United States),  the consolidated  balance
sheets  of the  Company  as of  October  31,  2008  and  2007,  and the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the three  years in the period  ended  October  31,  2008 and our report
dated  January 14, 2009  expressed  an  unqualified  opinion on those  financial
statements.


/s/ GRANT THORNTON LLP

Melville, New York
January 14, 2009

Item 9B.          Other Information.
                  ------------------

         None.


                                       35
<PAGE>

                                    PART III
                                    --------

Item 10.          Directors, Executive Officers and Corporate Governance.
                  -------------------------------------------------------


         The following table sets forth certain  information with respect to all
of our directors and executive officers:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------
                                                                                         Director and/or
      Name                      Position with the Company and                   Age     Executive Officer
                                     Principal Occupation                                    Since
-----------------------------------------------------------------------------------------------------------
<S>                       <C>                                                    <C>          <C>
Denis A. Krusos           Director, Chairman of the Board and Chief              81           1982
                          Executive Officer
-----------------------------------------------------------------------------------------------------------
Henry P. Herms            Director, Chief Financial Officer and Vice             63           2000
                          President - Finance
-----------------------------------------------------------------------------------------------------------
George P. Larounis        Director                                               80           1997
-----------------------------------------------------------------------------------------------------------

</TABLE>

         Mr.  Krusos has served as one of our  Directors  and as our Chairman of
the Board and Chief Executive  Officer 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 J.D. degree from St. John's University.

         Mr. Herms has served as our Chief Financial  Officer and Vice President
- Finance since November 2000 and as one of our Directors since August 2001. Mr.
Herms  was also our Chief  Financial  Officer  from  1982 to 1987.  He is also a
former audit  manager and CPA with the firm of Arthur  Andersen  LLP. He holds a
B.B.A. degree from Adelphi University.

         Mr.  Larounis has served as one of our Directors  since September 1997,
prior to which he  served as a  consultant  to us.  Mr.  Larounis  is  currently
retired. From 1960 to 1993, he held numerous positions as a senior international
executive of The Bendix  Corporation and Allied Signal Inc.,  which is now known
as Honeywell  International,  Inc. He has also served on the Boards of Directors
of numerous affiliates of Allied Signal in Europe, Asia and Australia.  He holds
a B.E.E.  degree from the University of Michigan and a J.D. degree from New York
University.

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

                  Section  16(a) of the  Securities  Exchange  Act of  1934,  as
amended (the "Exchange Act"), requires our directors, executive officers and ten
percent stockholders to file initial reports of ownership and reports of changes
in  ownership of our common stock with the  Securities  and Exchange  Commission
("SEC"). Directors, executive officers and ten percent stockholders are required
to furnish us with copies of all Section 16(a) forms that they file.  Based upon
a review of these  filings,  we believe that all required  Section 16(a) reports
were made on a timely  basis  during  fiscal  year 2008,  except that our former
President,  Frank J.  DiSanto,  failed to timely file reports with respect to at
least two transactions during fiscal 2008.


                                       36
<PAGE>

Code of Ethics
--------------

         In July 2005,  our Board of  Directors  adopted a formal code of ethics
that applies to our principal  executive officer,  principal  financial officer,
principal  accounting  officer  or  controller  or  persons  performing  similar
functions. We will provide to any person without charge, upon request, a copy of
such code of ethics. Requests may be made in writing at CopyTele, Inc., 900 Walt
Whitman Road,  Melville,  New York 11747,  Attn:  Secretary,  or by telephone at
631-549-5900.

Nomination Procedures
---------------------

         There were no changes to the procedures by which  security  holders may
recommend nominations to our Board of Directors during our fiscal year 2008.

Audit Committee Financial Expert
--------------------------------

         The Securities and Exchange  Commission has adopted rules  implementing
Section 407 of the  Sarbanes-Oxley  Act of 2002  requiring  public  companies to
disclose information about "audit committee financial experts." We do not have a
standing Audit Committee. The functions of the Audit Committee have been assumed
by our full Board of Directors.  Our Board of Directors  has not concluded  that
Mr. Larounis, the sole non-management  director,  meets the definition of "audit
committee  financial expert." The Securities and Exchange  Commission's rules do
not require us to have an audit  committee  financial  expert,  and our Board of
Directors has determined  that it possesses  sufficient  financial  expertise to
effectively discharge its obligations.

Item 11.          Executive Compensation.
                  -----------------------

Compensation Discussion and Analysis
------------------------------------

         The  following  provides an  overview  and  analysis  of our  executive
compensation programs and policies:

         Compensation Program Philosophy and Objectives
         ----------------------------------------------

                  Our vision is to develop,  produce and market our thin,  flat,
low-voltage  phosphor display and the  development,  production and marketing of
our  multi-functional  encryption products that provide information security for
domestic and  international  users over  virtually  every  communication  media.
Competition  for talented  executives in the display and encryption  industry is
intense.  Our ability to attract and retain executives with the requisite skills
and  experience  to grow our  business and achieve our  business  strategies  is
crucial to our ability to realize this vision. Accordingly, we have designed our
executive compensation program to meet the following objectives:


                                       37
<PAGE>

     o   Attract, motivate and retain highly qualified executives;
     o   Align management interests with those of shareholders; and
     o   Reward and encourage superior performance.

         To attain these objectives, our executive compensation program contains
both  short-term  and long term  incentives  rewarding  individual  and  company
performance that generates returns for our shareholders.

         Role of the Board of Directors
         ------------------------------

         The Board of Directors  is primarily  responsible  for  overseeing  our
compensation  and employee  benefit  plans and  practices.  In  determining  the
compensation  of our senior  management,  the Board of Directors  decisions  are
influenced by each  individual's  experience level and scope of  responsibility,
and the overall performance of the Company and the individual.

         The Board of Directors takes into account each person's  performance in
helping  the  Company  achieve  certain  goals,  including  the  following:  (i)
development of its flat panel technology,  (ii) making business arrangements for
licensing its technology,  (iii)  development of encryption  products,  (iv) and
making business arrangements to license and market its encryption products.  The
Board of Directors evaluates the performance of our Chief executive Officer, Mr.
Denis A.  Krusos,  directly.  Mr.  Krusos  is not  present  during  the Board of
Directors  deliberations  as  to  his  compensation.   With  respect  to  senior
management  other  than Mr.  Krusos,  the  Board of  Directors  relies  upon the
recommendation  of Mr.  Krusos,  as the person in the best position to judge the
respective performances of such individuals.

         Because the market for talented  executives  is extremely  competitive,
the Board of Directors also considers, from time to time, the form and amount of
compensation  paid to  executives  of other  companies,  compiled  from publicly
available  information.  While the Board of  Directors  can engage  compensation
consultants to assist with this task, it did not engage any such  consultants in
fiscal 2008.  The Board of Directors  does not target a specific  benchmark  for
compensation from the other companies whose compensation it reviews,  but rather
uses the information in light of the other factors.

         Elements of Executive Compensation
         ----------------------------------

         Our executive  compensation  consists  primarily of two elements:  base
salary and stock options under our stock equity incentive plans,  which provides
long-term equity incentives.

         Base Salary-
         ------------

         We determine  base  salaries for our  executives  based on, among other
things, job responsibilities,  their tenure with and individual  contribution to
the Company,  and their prior relevant  background and experience.  We also take
account competitive market data, but do not target base salary at any particular
level in comparison to the market.  Our Board of Directors reviews base salaries
annually.  To  maintain  flexibility,  we do  not  target  base  salary  at  any
particular percent of total compensation.


                                       38
<PAGE>

         Stock Options-
         --------------

         The Board of  Directors  believes it is important to provide our senior
management with stock-based  incentive  compensation  that increases in value in
direct correlation with improvement in the performance of our common stock. This
aligns  management's  interests with those of our  stockholders and supports the
creation of long-term  shareholder value. The fundamental  philosophy is to link
the amount of  compensation  for an executive to his or her  contribution to the
Company's success in achieving  financial and other objectives.  In general,  we
grant stock options under stock equity  incentive plans to directors,  officers,
and  other  employees  upon   commencement  of  their  employment  with  us  and
periodically thereafter. We generally grant stock options at regularly scheduled
Board meetings.

         As  with  other  elements  of  compensation,  the  Board  of  Directors
considers a  combination  of  factors,  such as job  responsibility,  individual
contribution and market competition,  in establishing the amount of compensation
provided by options to each individual executive.  Equity incentives are not set
at any particular percentage of total compensation.

         The option awards are granted at an exercise price equal to the closing
price of  common  stock on the grant  date  (the  date the  grant is  approved.)
Options for directors and officers  generally vest on the date of grant or after
a 6 or 12 month period  following the grant date,  provided the grantee  remains
employed on the vesting date, so that such compensation is at risk of forfeiture
based on the executive's  continued  service with us. The stock equity incentive
plans also provide for the award of restricted stock,  although such awards have
not been used in any material  respect.  No restricted  stock was awarded during
fiscal 2008.

         Other Benefits-
         ---------------

         We provide our executives with customary, board-based benefits that are
provided to all employees,  including  medical  insurance,  life, and disability
insurance. We also provide our executives with certain perquisites which are not
a significant element of executive compensation.

         Policy on Ownership of Stock and Options
         ----------------------------------------

         We do not have any policy  regarding  levels of equity ownership (stock
or options) by our executive officers or directors.


                                       39
<PAGE>

         Policy on Deductibility of Compensation
         ---------------------------------------

         Section 162(m) of the Internal Revenue Code limits the deductibility of
compensation in excess of $1 million paid to certain executive officers named in
the  proxy  statement,   unless  certain   requirements  are  met.  To  maintain
flexibility in  compensating  executive  officers in a manner designed to aid in
retention and promote varying  corporate  performance  objectives,  the Board of
Directors has not adopted a policy of meeting the section 162(m) requirements.

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

         As disclosed above, the Board of Directors is primarily responsible for
overseeing our compensation and employee benefit plans and practices.  We do not
have a compensation  committee or other Board committee that performs equivalent
functions.

Board of Directors Report on Executive Compensation
---------------------------------------------------

         We have reviewed and discussed the above  "Compensation  Discussion and
Analysis"  with  management.  Based  upon this  review and  discussion,  we have
recommended that the "Compensation  Discussion and Analysis" be included in this
Annual Report on Form 10-K.

                                                   Denis A Krusos
                                                   Henry P. Herms
                                                   George P. Larounis

Executive Compensation
----------------------

         The following table sets forth certain  information for our fiscal year
ended October 31, 2008, or fiscal 2008, with respect to compensation awarded to,
earned by or paid to our Chief Executive  Officer,  our former President and our
Chief Financial  Officer (the "Named  Executives").  No other executive  officer
received total compensation in excess of $100,000 during fiscal 2008.

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------

                                        SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------
                                                                 Option       All Other         Total
                Name and                            Salary       Awards     Compensation    Compensation
           Principal Position             Year        ($)        ($) (1)       ($) (2)           ($)
-----------------------------------------------------------------------------------------------------------
<S>                                       <C>      <C>          <C>            <C>             <C>
Denis A. Krusos,
Chairman of the Board,                    2008     $250,000     $967,000       $33,929       $1,250,929
Chief Executive Officer and Director      2007     $250,000     $422,170       $28,532         $700,702
-----------------------------------------------------------------------------------------------------------
Frank J. DiSanto (3)                      2008     $42,000      $117,178       $9,969          $169,147
Former President and former Director
-----------------------------------------------------------------------------------------------------------
Henry P. Herms
Chief Financial Officer, Vice             2008     $125,000      $72,525       $21,777         $219,302
President- Finance and Director           2007     $100,000      $30,155       $14,300         $144,455
-----------------------------------------------------------------------------------------------------------

</TABLE>


                                       40
<PAGE>

         (1)  Amounts in the Option Awards column  represent the dollar  amounts
              recognized for financial  statement  reporting purposes for fiscal
              2007 and fiscal 2008 for each Named  Executive in accordance  with
              Statement  of  Financial  Accounting  Standards  No. 123  (revised
              2004).  A discussion  of  assumptions  used in valuation of option
              awards  may be  found  in  Note 2 to  our  Consolidated  Financial
              Statements for the year ended October 31, 2008, included elsewhere
              in this Annual Report on Form 10-K.

         (2)  Amounts in the All Other  Compensation  column  reflect,  for each
              Named  Executive,  the  sum of the  incremental  cost to us of all
              perquisites and personal benefits,  which consisted solely of auto
              allowance and related  expenses for each of fiscal 2007 and fiscal
              2008.

         (3)  Frank  J.  DiSanto's   employment  with  us  terminated  effective
              November 30, 2008.

         The  following  table sets forth  certain  information  with respect to
grants of stock options to the Named Executives during fiscal 2008:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                       GRANTS OF PLAN BASED AWARDS
-----------------------------------------------------------------------------------------------------------
                                           All Other Option
                                          Awards: Number of
                                         ecurities Underlying   Exercise price of         Grant Date
                                               Options            Options Award           Fair Value
       Name             Grant Date               (#)                  ($/Sh)                 ($)
-----------------------------------------------------------------------------------------------------------
<S>                      <C>                  <C>                     <C>                  <C>
Denis A. Krusos          11/12/07             1,000,000               $1.17                $967,000
-----------------------------------------------------------------------------------------------------------
Frank J. DiSanto         11/12/07              300,000                $1.17                $290,100
-----------------------------------------------------------------------------------------------------------
Henry P. Herms           11/12/07               75,000                $1.17                 $72,525
-----------------------------------------------------------------------------------------------------------

</TABLE>


                                       41
<PAGE>

         The  following  table sets forth  certain  information  with respect to
unexercised  stock options held by the Named  Executives  outstanding on October
31, 2008:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------
                               OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
-----------------------------------------------------------------------------------------------------------
                                            Option Awards (1)
-----------------------------------------------------------------------------------------------------------
                      Number of Securities    Number of Securities
                           Underlying       Underlying Unexercised    Option Exercise
                      Unexercised Options          Options (#)             Price         Option Expiration
        Name            (#) Exercisable          Un-Exercisable             ($)                Date
-----------------------------------------------------------------------------------------------------------
<S>                          <C>                                           <C>               <C>
Denis A. Krusos              50,000                                        $1.313            4/8/2009
                            250,000                                        $1.063           10/26/2010
                            250,000                                        $0.688            1/1/2011
                            250,000                                        $0.400            9/19/2011
                            500,000                                        $0.250            5/5/2013
                            500,000                                        $0.430            2/22/2014
                            250,000                                        $0.810            5/10/2014
                          1,000,000                                        $1.040           10/25/2014
                          1,500,000                                        $0.650            2/17/2015
                          1,000,000                                        $0.520           10/30/2015
                          1,000,000                                        $0.830            5/31/2016
                            700,000                                        $0.700            11/20/16
                          1,000,000                                        $1.170            11/11/17
-----------------------------------------------------------------------------------------------------------
Frank J. DiSanto (1)         43,000                                        $1.313            4/8/2009
                            400,000                                        $1.040           10/25/2014
                            500,000                                        $0.650            2/17/2015
                                                  300,000 (2)              $1.170           11/11/2017
-----------------------------------------------------------------------------------------------------------
Henry P. Herms              100,000                                        $0.938           11/19/2010
                             50,000                                        $0.688            1/1/2011
                            100,000                                        $0.400            9/19/2011
                             50,000                                        $0.810            5/10/2014
                             70,000                                        $1.040           10/25/2014
                            100,000                                        $0.650            2/17/2015
                            100,000                                        $0.520           10/30/2015
                             50,000                                        $0.830            5/31/2016
                             50,000                                        $0.700           11/20/2016
                             75,000                                        $1.170            11/11/17
-----------------------------------------------------------------------------------------------------------

</TABLE>


                                       42
<PAGE>

         (1)  Frank J. DiSanto's  stock options  expired upon his termination of
              employment with us on November 30, 2008.

         (2)  Stock  options  held by Frank J.  DiSanto for  150,000  shares and
              150,000, shares were exercisable on November 11, 2009 and November
              11, 2010, respectively.

         The following  table  summarizes  the exercise of stock options  during
fiscal 2008 by Named Executives:

<TABLE>
<CAPTION>

 ----------------------------------------------------------------------------------------------------
                            OPTION EXERCISES AND STOCK VESTED TABLE
 ----------------------------------------------------------------------------------------------------
                                                                 Option Awards
                                           ----------------------------------------------------------
                                            Number of Shares Acquired         Value Realized
                                                   on Exercise                  on Exercise
                 Name                                  (#)                        ($) (1)
 ----------------------------------------------------------------------------------------------------
<S>                                                  <C>                         <C>
           Frank J. DiSanto                          455,000                     $310,185
 ----------------------------------------------------------------------------------------------------

</TABLE>

         (1)  The  value  realized  on  exercise  is  calculated  based  on  the
              difference  between  the  exercise  price of the  options  and the
              market price of the stock at the time of exercise.

Director's Compensation
-----------------------

         There is no present  arrangement for cash compensation of directors for
services  in  that  capacity.   Under  the  2003  Share   Incentive  Plan,  each
non-employee  director  is  entitled to receive  nonqualified  stock  options to
purchase  60,000  shares of common stock each year that such director is elected
to the Board of Directors. Mr. Larounis received such an award upon his election
to our Board of  Directors  at our 2008 Annual  Meeting of  Shareholders  and in
November 2007, he received an additional award of stock options for his services
as a director.

         Our  employee  directors,  Denis A. Krusos and Henry P. Herms,  and our
former  employee  director,  Frank J.  DiSanto,  did not receive any  additional
compensation  for  services  provided  as a director  during  fiscal  2008.  The
following  table  sets  forth  compensation  of  George  P.  Larounis,  our sole
non-employee director for fiscal 2008:

<TABLE>
<CAPTION>

 -------------------------------------------------------------------------------------------------
                                      DIRECTORS COMPENSATION
 -------------------------------------------------------------------------------------------------
                                                                              All Other
                                               Option Awards                Compensation
              Name                                ($) (1)                        ($)
 -------------------------------------------------------------------------------------------------
<S>                                               <C>                       <C>
       George P. Larounis                         $50,866                         -
 -------------------------------------------------------------------------------------------------

</TABLE>

        (1)   Amounts in the Option Awards column  represent the dollar  amounts
              recognized for financial  statement  reporting purposes for fiscal
              2008 for Mr.  Larounis in accordance  with  Statement of Financial
              Accounting  Standards No. 123 (revised 2004) ("SFAS No. 123R").  A
              discussion of  assumptions  used in valuation of option awards may
              be found in Note 2 to our  Consolidated  Financial  Statements for
              the year ended October 31, 2008, included elsewhere in this Annual
              Report on Form 10-K.  At  October  31,  2008,  Mr.  Larounis  held
              unexercised stock options to purchase 720,000 shares of our common
              stock.  The grant  date fair  value of awards to Mr.  Larounis  in
              fiscal 2008, calculated in accordance SFAS No. 123R was $74,977.

Item 12.          Security Security Ownership  of Certain  Beneficial Owners and
                  --------------------------------------------------------------
                  Management and Related Stockholder Matters.
                  -------------------------------------------

         The following table sets forth certain  information with respect to our
common stock  beneficially owned as of January 9, 2009 by (a) each person who is
known by us to be the beneficial owner of more than 5% of our outstanding common
stock, (b) each of our directors and executive  officers,  and (c) all directors
and executive officers as a group:


                                       43
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                             Amount and Nature of
                                                                  Beneficial
  Name and Address of Beneficial Owner                          Ownership(1)(2)         Percent of Class
===========================================================================================================
<S>                                                                <C>                        <C>
Mars Overseas Limited (3)                                          20,000,000                 14.87%
P.O. Box 309, GI Ugland House
South Church Street, George Town
Grand Cayman, Cayman Islands
-----------------------------------------------------------------------------------------------------------
Denis A. Krusos                                                    10,089,880                 7.07%
900 Walt Whitman Road
Melville, NY  11747
-----------------------------------------------------------------------------------------------------------
Henry P. Herms                                                        956,575                   *
900 Walt Whitman Road
Melville, NY  11747
-----------------------------------------------------------------------------------------------------------
George P. Larounis                                                    680,000                   *
900 Walt Whitman Road
Melville, NY 11747
-----------------------------------------------------------------------------------------------------------
All Directors and Executive Officers as a Group (3                 11,726,455                 8.14%
persons)
-----------------------------------------------------------------------------------------------------------

</TABLE>

         * Less than 1%.

         (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 our common  stock  beneficially  owned by
              such person.

         (1)  Includes  8,250,000  shares,  745,000  shares,  660,000 shares and
              9,655,000 shares which Denis A. Krusos,  Henry P. Herms, George P.
              Larounis,  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 1993 Stock  Option
              Plan, 2000 Share Incentive Plan and the 2003 Share Incentive Plan.

         (2)  Based  on the  information  provided  in a  Schedule  13G for such
              entity  filed  with the  Securities  and  Exchange  Commission  on
              November 9, 2007.

Equity Compensation Plan Information
------------------------------------

         The following is information as of October 31, 2008 about shares of our
common  stock that may be issued  upon the  exercise of  options,  warrants  and
rights under all equity compensation plans in effect as of that date,  including
our 1993 Stock Option  Plan,  our 2000 Share  Incentive  Plan and our 2003 Share
Incentive  Plan.  See  Note 8 to  Consolidated  Financial  Statements  for  more
information on these plans.


                                       44
<PAGE>

<TABLE>
<CAPTION>

                                                                                     Number of securities
                                                                                    remaining available for
                              Number of securities                                   future issuance under
                                to be issued upon          Weighted average           equity compensation
                                   exercise of            exercise price of            plans (excluding
                              outstanding options,       outstanding options,       securities reflected in
      Plan category            warrants and rights       warrants and rights              column (a))
--------------------------    ----------------------    -----------------------    --------------------------
                                       (a)                       (b)                           (c)
<S>                                <C>                        <C>                            <C>
Equity compensation
plans approved by
security holders                   2,551,466                  $0.88                          21,508

Equity compensation
plans not approved by
security holders                  17,217,045                  $0.79                      2,432,721

Total                             19,768,511                  $0.80                      2,454,229

</TABLE>

Item 13.          Certain  Relationships  and Related Transactions, and Director
                  --------------------------------------------------------------
                  Independence.
                  -------------

Related Person Transaction Approval Policy


         Our Board of Directors review and approve all  transactions  between us
and  a  related  person,   to  the  extent  required  by  applicable  rules  and
regulations.  Generally,  management would present to the Board of Directors for
approval at the next  regularly  scheduled  Board  meeting  any  related  person
transactions proposed to be entered into by us.

Director Independence

         Our Board of Directors oversees the activities of our management in the
handling of the business and affairs of our company.  None of our  directors are
"independent" under the rules applicable to the Nasdaq Stock Market.

Item 14.          Principal Accountant Audit Fees and Services.
                  ---------------------------------------------

         The  following  table  describes fees for  professional  audit services
rendered by Grant  Thornton  LLP,  our  present  independent  registered  public
accounting firm and principal accountant,  for the audit of our annual financial
statements  and for other  services for the years ended  October 31,  2008,  and
2007.


                                       45
<PAGE>

                       Type of Fee                    2008              2007
                       -----------                    ----              ----

       Audit Fees                                $ 432,151          $ 272,620
       Audit Related Fees (1)                       11,644                 --
       Tax Fees (2)                                  1,000              6,098
       All Other Fees                                   --                 --
                                                 ---------         ----------
       Total                                     $ 444,795         $  278,718
                                                 =========         ==========

(1) Audit related fees consist of fees related to an SEC comment letter.

(2) Tax fees consist of tax consulting services.


Procedures  For  Board  of  Directors  Pre-Approval  of  Audit  and  Permissible
--------------------------------------------------------------------------------
Non-Audit Services of Independent Auditor
-----------------------------------------

         Our Board of Directors is responsible  for reviewing and approving,  in
advance,  any audit and any  permissible  non-audit  engagement or  relationship
between us and our independent registered public accounting firm. Grant Thornton
LLP's  engagement to conduct our audit was approved by the Board of Directors on
July 18, 2008.  We did not enter into any non-audit  engagement or  relationship
with Grant Thornton LLP during fiscal 2008.


                                       46
<PAGE>

                                     PART IV


Item 15.          Exhibits and Financial Statement Schedules
                  ------------------------------------------

         (a)(1)(2) Financial Statement Schedules
                   -----------------------------
                  See accompanying "Index to Financial Statements."

         (a)(3)   Executive Compensation Plans and Arrangements
                  ---------------------------------------------
                  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,
                  2004).

                  Amendment  No. 2 to the CopyTele,  Inc.  2003 Share  Incentive
                  Plan (filed as Exhibit  10.1 to our  Quarterly  Report on Form
                  10-Q for the fiscal quarter ended January 31, 2006).

                  Amendment  No. 3 to the CopyTele,  Inc.  2003 Share  Incentive
                  Plan (filed as Exhibit  10.2 to our  Quarterly  Report on Form
                  10-Q for the fiscal quarter ended January 31, 2006).


                                       47
<PAGE>

                  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).

         (b)      Exhibits
                  --------

                  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      Amended  and  Restated   By-laws.   (Incorporated  by
                           reference to Exhibit 3.2 to our Form 8-K dated August
                           4, 2008.)

                  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     Agreement dated July 28, 1999, among CopyTele,  Inc.,
                           Harris    Corporation    and    RF    Communications.
                           (Incorporated by reference to Form 8-K dated July 28,
                           1999.)

                  10.6     CopyTele,    Inc.   2000   Share    Incentive   Plan.
                           (Incorporated  by  reference  to Annex A of our Proxy
                           Statement dated June 12, 2000.)

                  10.7     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.)


                                       48
<PAGE>

                  10.8     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.)

                  10.9     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.)

                  10.10    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.)

                  10.11    CopyTele,    Inc.   2003   Share    Incentive   Plan.
                           (Incorporated  by  reference to Exhibit 4 to our Form
                           S-8 dated May 5, 2003).

                  10.12    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, 2004.)

                  10.13    Amendment  No. 2 to the  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 January 31, 2005).

                  10.14    Amendment  No. 3 to the  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 January 31, 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 May 23, 2007,  between The
                           Boeing Company and CopyTele,  Inc.  (Incorporated  by
                           reference  to Exhibit  10.1 to our Form 8-K dated May
                           23, 2007.)


                                       49
<PAGE>

                  10.18    Amended and Restated  Technology  License  Agreement,
                           dated  May  16,  2008,  between  CopyTele,  Inc.  and
                           Videocon   Industries   Limited.   (Incorporated   by
                           reference to Exhibit 10.1 to our Quarterly  Report on
                           Form  10-Q  for the  fiscal  quarter  ended  July 31,
                           2008.)

                  10.19    Loan and Pledge  Agreement,  dated  November 2, 2007,
                           Between   Mars   Overseas    Limited   and   CopyTele
                           International  Ltd.  (Incorporated  by  reference  to
                           Exhibit 10.5 to our Quarterly Report on Form 10-Q for
                           the fiscal quarter ended January 31, 2008.)

                  10.20    Loan and Pledge  Agreement,  dated  November 2, 2007,
                           Between CopyTele International Ltd. and Mars Overseas
                           Limited.  (Incorporated  by reference to Exhibit 10.6
                           to our  Quarterly  Report on Form 10-Q for the fiscal
                           quarter ended January 31, 2008.)

                  21       Subsidiaries of CopyTele, Inc.  (Filed herewith.)

                  23.1     Consent of Grant Thornton LLP.  (Filed herewith.)

                  31.1     Certification of Chief Executive Officer, pursuant to
                           Section 302 of the  Sarbanes-Oxley Act of 2002, dated
                           January 14, 2009. (Filed herewith.)

                  31.2     Certification of Chief Financial Officer, pursuant to
                           Section 302 of the  Sarbanes-Oxley Act of 2002, dated
                           January 14, 2009. (Filed herewith.)

                  32.1     Statement  of Chief  Executive  Officer,  pursuant to
                           Section  1350 of Title 18 of the United  States Code,
                           dated January 14, 2009. (Filed herewith.)

                  31.2     Statement  of Chief  Financial  Officer,  pursuant to
                           Section  1350 of Title 18 of the United  States Code,
                           dated January 14, 2009. (Filed herewith.)


                                       50
<PAGE>

                                   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 14, 2009                               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 14, 2009                               Officer)

                                         By:  /s/ Henry P. Herms
                                                  -------------------
                                               Henry P. Herms
                                               Vice President - Finance,
                                               Chief Financial Officer and
                                               Director (Principal Financial
January 14, 2009                               and Accounting Officer)

                                         By:  /s/ George P. Larounis
                                                  -------------------
                                               George P. Larounis
January 14, 2009                               Director


                                       51


<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2008


<TABLE>
<CAPTION>
                                                                                                                       Page
                                                                                                                       ----

<S>                                                                                                                       <C>
Report of Independent Registered Public Accounting Firm                                                                 F-1

Consolidated Balance Sheets as of October 31, 2008 and 2007                                                             F-2

Consolidated Statements of Operations for the years ended October 31, 2008, 2007 and 2006                               F-3

Consolidated Statement of Shareholders' Equity for the years ended October 31, 2008, 2007 and 2006                   F-4 - F-5

Consolidated Statements of Cash Flows for the years ended October 31, 2008, 2007 and 2006                               F-6

Notes to Consolidated Financial Statements                                                                           F-7 - F-27

Schedule of Valuation and Qualifying Accounts                                                                           S-1

</TABLE>

Additional  information required by schedules called for under Regulation S-X is
either not  applicable  or is  included  in the  financial  statements  or notes
thereto.


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
CopyTele, Inc. and Subsidiaries


We have audited the accompanying  consolidated balance sheets of CopyTele,  Inc.
and  Subsidiaries  (the  "Company")  as of October  31,  2008 and 2007,  and the
related consolidated  statements of operations,  shareholders'  equity, and cash
flows for each of the three  years in the period  ended  October 31,  2008.  Our
audits  of the basic  financial  statements  included  the  financial  statement
schedule  listed in the index  appearing  under Item 15 (a)(2).  These financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  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 consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of CopyTele,  Inc. and
Subsidiaries  as of  October  31,  2008  and  2007,  and the  results  of  their
operations  and their cash flows for each of the three years in the period ended
October 31, 2008, in conformity with accounting principles generally accepted in
the  United  States of  America.  Also in our  opinion,  the  related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information set forth therein.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the effectiveness of the Company's
internal  control over  financial  reporting  as of October 31,  2008,  based on
criteria  established in Internal Control -- Integrated  Framework issued by the
Committee of Sponsoring  Organizations of the Treadway Commission (COSO) and our
report dated January 14, 2009 expressed an unqualified opinion thereon.


/s/ GRANT THORNTON LLP

Melville, New York
January 14, 2009


                                      F-1
<PAGE>

COPYTELE, INC. AND SUBSIDIARES


CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                        October 31,      October 31,
                                      ASSETS                                                2008            2007
                               --------------------                                    -------------    -------------

CURRENT ASSETS:
<S>                                                                                    <C>              <C>
    Cash and cash equivalents                                                          $     478,599    $     669,141
    Short-term investments in certificates of deposit and U.S. government securities       1,442,484          400,000
    Accounts receivable, net of allowance for doubtful accounts of  $223,000 and
       $-0-, respectively                                                                    103,000          120,000
    Inventories                                                                              178,144          191,923
    Prepaid expenses and other current assets                                                 54,348           45,442
                                                                                       -------------    -------------

                           Total current assets                                            2,256,575        1,426,506

INVESTMENT in U.S. government securities, noncurrent, at amortized cost                      749,711               --

INVESTMENT in Videocon Industries Limited global depository receipts,
  at fair value                                                                            3,619,945               --

INVESTMENT in Digital Info Security Co. Inc. common stock, at fair value and
  cost, respectively                                                                         841,800          417,000

PROPERTY AND EQUIPMENT, net of accumulated depreciation and
  amortization of $2,151,344  and $2,140,675, respectively                                    29,838           26,653
                                                                                       -------------    -------------

                                                                                       $   7,497,869    $   1,870,159
                                                                                       =============    =============

                       LIABILITIES AND SHAREHOLDERS' EQUITY
                       ------------------------------------

CURRENT LIABILITIES:
    Accounts payable                                                                   $     384,896    $     347,141
    Accrued liabilities                                                                       69,364          331,668
    Deferred revenue, non-refundable license fee                                             313,332               --
                                                                                       -------------    -------------
                           Total current liabilities                                         767,592          678,809

LOAN PAYABLE TO RELATED PARTY                                                              5,000,000               --

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Preferred stock, par value $100 per share; 500,000 shares authorized;
       no shares issued or outstanding                                                            --               --
    Common stock, par value $.01 per share; 240,000,000 shares authorized;
     132,497,881 and 106,911,315 shares issued and outstanding, respectively               1,324,979        1,069,113
    Additional paid-in capital                                                           109,348,894       86,088,974
    Loan receivable from related party                                                    (5,000,000)              --
    Accumulated deficit                                                                  (91,788,341)     (85,966,737)
    Accumulated other comprehensive loss                                                 (12,155,255)              --
                                                                                       -------------    -------------
                                                                                           1,730,277        1,191,350
                                                                                       -------------    -------------

                                                                                       $   7,497,869    $   1,870,159
                                                                                       =============    =============


The accompanying notes are an integral part of these statements.

</TABLE>


                                                           F-2
<PAGE>

      COPYTELE, INC. AND SUBSIDIARIES


      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                                     For the years ended October 31,
                                                             2008                  2007                  2006
                                                      ------------------    ------------------    ------------------

NET REVENUE
<S>                                                   <C>                   <C>                   <C>
     Revenue from sales of encryption products, net   $          376,455    $          246,852    $          377,651
     Revenue from encryption services, net                            --               240,000               131,000
     Display technology license fee                            1,686,668                    --                    --
                                                      ------------------    ------------------    ------------------
         Total net revenue                                     2,063,123               486,852               508,651
                                                      ------------------    ------------------    ------------------

COST AND OPERATING EXPENSES
     Cost of encryption products sold                             95,594                73,953               104,672
     Cost of encryption services                                      --                86,407                51,774
     Research and development expenses                         4,127,393             3,403,943             4,614,300
     Selling, general and administrative expenses              3,829,654             2,414,916             3,365,521
                                                      ------------------    ------------------    ------------------
         Total costs and operating expenses                    8,052,641             5,979,219             8,136,267
                                                      ------------------    ------------------    ------------------

LOSS FROM OPERATIONS                                          (5,989,518)           (5,492,367)           (7,627,616)

DIVIDEND INCOME                                                  130,886                    --                    --

INTEREST INCOME                                                   37,028                34,149                26,715
                                                      ------------------    ------------------    ------------------

NET LOSS                                              $       (5,821,604)   $       (5,458,218)   $       (7,600,901)
                                                      ==================    ==================    ==================


PER SHARE INFORMATION:
Net loss per share:
     Basic and Diluted                                $             (.05)   $             (.05)   $             (.08)
                                                      ==================    ==================    ==================

Shares used in computing net loss per share:
     Basic and Diluted                                       129,490,238           103,487,032            95,291,780
                                                      ==================    ==================    ==================


The accompanying notes are an integral part of these statements.

</TABLE>


                                                             F-3
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2008, 2007 AND 2006

<TABLE>
<CAPTION>

                                                                                           Loan                        Accumulated
                                                                                         Receivable                       Other
                                                  Common Stock            Additional       From                          Compre-
                                           ---------------------------     Paid-in        Related      Accumulated       hensive
                                              Shares       Par Value       Capital         Party         Deficit          Loss
                                           ------------   ------------   ------------   ------------   ------------    ------------
<S>                                          <C>          <C>            <C>            <C>            <C>             <C>
BALANCE, October 31, 2005                    91,975,538   $    919,755   $ 73,105,886   $         --   $(72,907,618)   $         --

 Stock option compensation to employees              --             --      2,972,793             --             --              --
 Stock option compensation to consultants            --             --        130,724             --             --              --
 Common stock issued upon exercise of
   stock options under stock option plans     4,147,725         41,478      2,339,021             --             --              --

 Common stock issued to employees pursuant
   to stock incentive plans                   2,670,010         26,700       1,869,879            --             --              --
 Common stock issued to consultants
   pursuant to stock incentive
    plans                                       367,122          3,671        283,453             --             --              --
 Unregistered common stock issued to
   Digital Info Security Co., Inc.              100,000          1,000         96,000             --             --              --
 Net loss                                            --             --             --             --     (7,600,901)             --
                                           ------------   ------------   ------------   ------------   ------------    ------------

BALANCE, October 31, 2006                    99,260,395        992,604     80,797,756             --    (80,508,519)             --

 Stock option compensation to employees              --             --      1,080,882             --             --              --
 Common stock issued upon exercise of
   stock options under stock option plans     4,582,230         45,822      2,113,977             --             --              --
 Common stock issued to employees pursuant
   to stock incentive plans                   2,528,365         25,284      1,709,657             --             --              --
 Common stock issued to consultants
   pursuant to stock incentive plans            240,325          2,403        179,702             --             --              --
 Unregistered common stock issued to
   Digital Info Security Co., Inc.              300,000          3,000        207,000             --             --              --
 Net loss                                            --             --             --             --     (5,458,218)             --
                                           ------------   ------------   ------------   ------------   ------------    ------------

BALANCE, October 31, 2007                   106,911,315   $  1,069,113   $ 86,088,974   $         --   $(85,966,737)   $         --


                                                                                                                          Continued


The accompanying notes are an integral part of this statement.

</TABLE>

                                                                      F-4

<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2008, 2007 AND 2006

<TABLE>
<CAPTION>

                                                   Continued

                                                                                         Loan                          Accumulated
                                                                                       Receivable                         Other
                                                  Common Stock          Additional       From                            Compre-
                                           --------------------------    Paid-in        Related        Accumulated       hensive
                                              Shares      Par Value      Capital         Party          Deficit           Loss
                                           ------------  ------------  ------------   ------------    ------------    ------------

<S>                                         <C>          <C>           <C>            <C>             <C>             <C>
BALANCE, October 31, 2007                   106,911,315  $  1,069,113  $ 86,088,974   $         --    $(85,966,737)   $         --

 Stock option compensation to employees              --            --     2,613,731             --              --              --
 Stock option compensation to consultants            --            --       216,896             --              --              --
 Common stock issued upon exercise of
   stock options under stock option plans     3,354,200        33,542     2,478,763             --              --              --
 Common stock issued to employees pursuant
   to stock incentive plans                   2,142,400        21,424     1,856,067             --              --              --
 Common stock issued to consultants
   pursuant to stock incentive plans             89,966           900        94,463             --              --              --
 Unregistered common stock issued to
   Videocon Industries Limited               20,000,000       200,000    16,000,000     (5,000,000)             --              --
 Unrealized loss on investment in Videocon
   Industries Limited global depository
    receipts                                         --            --            --             --              --     (12,580,055)
 Unrealized gain on investment in Digital
   Info Security Co., Inc.                           --            --            --             --              --         424,800
 Net loss                                            --            --            --             --      (5,821,604)             --
                                           ------------  ------------  ------------   ------------    ------------    ------------

BALANCE, October 31, 2008                   132,497,881  $  1,324,979  $109,348,894   $ (5,000,000)   $(91,788,341)   $(12,155,255)
                                           ============  ============  ============   ============    ============    ============

</TABLE>

The accompanying notes are an integral part of this statement.


                                                                      F-5
<PAGE>

<TABLE>
<CAPTION>

COPYTELE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                          For the years ended October 31,
                                                                                 -----------------------------------------------
                                                                                     2008             2007              2006
                                                                                 -------------    -------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                              <C>              <C>              <C>
    Payments to suppliers, employees and consultants                             $  (3,236,351)   $  (2,808,025)   $  (2,398,142)
    Cash received from encryption products and services                                170,445          377,017          524,319
    Cash received from display technology license fees                               2,000,000               --               --
    Dividend received                                                                  130,886               --               --
    Interest received                                                                   33,152           34,149           26,715
                                                                                 -------------    -------------    -------------
               Net cash used in operating activities                                  (901,868)      (2,396,859)      (1,847,108)
                                                                                 -------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Disbursements to acquire Videocon Industries Limited global depository
       receipts                                                                    (16,200,000)              --               --
   Disbursements to acquire short-term investments (certificates of deposit
       and U.S. government securities)                                              (2,880,166)        (825,000)        (398,000)
   Proceeds from maturities of short-term investments (certificates of deposit
       and U.S. government securities)                                               1,841,000          463,000          760,776
   Disbursements to acquire long-term investments (U.S. government securities)        (999,525)              --               --
   Proceeds from sales  of long-term investments (U.S. government securities)          251,565               --               --
   Disbursements to acquire Digital Info Security Co., Inc. common stock                    --               --         (110,000)
   Payments for purchases of property and equipment                                    (13,853)         (13,459)         (11,024)
                                                                                 -------------    -------------    -------------
               Net cash (used in) provided by investing activities                 (18,000,979)        (375,459)         241,752
                                                                                 -------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from sale of common stock to Videocon Industries Limited               16,200,000               --               --
    Issuance of loan receivable from related party                                  (5,000,000)              --               --
    Proceeds from issuance of loan payable to related party                          5,000,000               --               --
    Proceeds from exercise of stock options                                          2,512,305        2,159,799        2,380,499
                                                                                 -------------    -------------    -------------
               Net cash provided by financing activities                            18,712,305        2,159,799        2,380,499
                                                                                 -------------    -------------    -------------

NET  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                 (190,542)        (612,519)         775,143

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                         669,141        1,281,660          506,517
                                                                                 -------------    -------------    -------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                         $     478,599    $     669,141    $   1,281,660
                                                                                 =============    =============    =============

RECONCILIATION OF NET LOSS TO NET CASH USED IN
    OPERATING ACTIVITIES:
    Net loss                                                                     $  (5,821,604)   $  (5,458,218)   $  (7,600,901)
    Stock option compensation to employees                                           2,613,731        1,080,882        2,972,793
    Stock option compensation to consultants                                           216,896               --          130,724
    Stock awards granted to employees pursuant to stock incentive plans              1,877,491        1,734,941        1,896,579
    Stock awards granted to consultants pursuant to stock incentive plans               95,363          182,105          287,124
    Provision for doubtful accounts and other receivables                              223,000               --           30,287
    Provision for (recovery of) slow-moving inventory reserve                          (19,379)              --               --
    Depreciation and amortization                                                       10,669            9,889           15,072
    Amortized discount on investments (U.S. government securities)                      (3,403)              --               --
    Gain on sale of investments (U.S. government securities)                            (1,667)              --               --
    Change in operating assets and liabilities:
        Accounts receivable                                                           (206,000)        (109,835)          21,952
        Inventories                                                                     33,158           68,900          124,173
        Prepaid expenses and other current assets                                       (8,906)          (2,544)          41,531
        Accounts payable and accrued liabilities                                      (224,549)          97,021          233,558
        Deferred revenue                                                               313,332               --               --
                                                                                 -------------    -------------    -------------
               Net cash used in operating activities                             $    (901,868)   $  (2,396,859)   $  (1,847,108)
                                                                                 =============    =============    =============


SUPPLEMENTAL DISCLOSURE  OF NON-CASH FINANCING
    ACTIVITIES:
    Unregistered common stock issued in connection with investment in
        Digital Info Security Co., Inc.                                          $          --    $     210,000    $      97,000
                                                                                 =============    =============    =============

The accompanying notes are an integral part of these statements.

</TABLE>

                                                                      F-6
<PAGE>


COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.             BUSINESS AND FUNDING
               --------------------

Description of Business
-----------------------

               Our principal  operations  are the  development,  production  and
marketing  of  thin,  flat,  low-voltage  phosphor  display  technology  and the
development,  production and marketing of  multi-functional  encryption products
that provide  information  security for  domestic and  international  users over
virtually every communications media.

Funding and Management's Plans
------------------------------

               From  our  inception,  we have  met  our  liquidity  and  capital
expenditure  needs primarily  through the proceeds from sales of common stock in
our initial public offering,  in private  placements,  upon exercise of warrants
issued in connection with the private  placements and public offering,  and upon
the exercise of stock options. In addition,  commencing in the fourth quarter of
fiscal 1999, we have generated cash flows from sales of our encryption  products
and  in May  2008  commenced  receiving  license  fees  related  to our  display
technology  from Videocon  Industries  Limited,  an Indian company  ("Videocon")
pursuant to the License Agreement (as defined below).

               During  fiscal 2008,  our cash used in operating  activities  was
approximately $902,000. This resulted from payments to suppliers,  employees and
consultants  of   approximately   $3,236,000,   which  was  offset  by  cash  of
approximately  $170,000 received from collections of accounts receivable related
to sales of encryption products, cash received from display technology licensing
fee of  $2,000,000,  approximately  $131,000 of  dividend  income  received  and
approximately  $33,000 of interest income  received.  Our cash used by investing
activities during fiscal 2008 was approximately $18,001,000, which resulted from
a disbursement  of $16,200,000 for the purchase of 1,495,845  global  depository
receipts of Videocon (the "Videocon GDRs"), a purchase of short-term investments
consisting  of  certificates  of  deposit  and  U.S.  government  securities  of
approximately  $2,880,000,  purchases of long-term  investments  consisting U.S.
government  securities of approximately  $999,000 and purchases of approximately
$14,000  of  equipment,   offset  by  approximately   $1,841,000  received  upon
maturities of short-term  investments  consisting of certificates of deposit and
U.S. government securities and approximately  $252,000 received upon the sale of
long-term  investments  consisting  of  U.S.  government  securities.  Our  cash
provided  by  financing   activities   during  fiscal  2008  was   approximately
$18,712,000,  which  resulted  from the sale of our common stock to Videocon for
$16,200,000,   and  cash   received  upon  the  exercise  of  stock  options  of
approximately  $2,512,000.  Accordingly,  during  fiscal  2008 our cash and cash
equivalents   decreased  by  approximately   $191,000  and  our  investments  in
certificates   of  deposit  and  U.S.   government   securities   increased   by
approximately  $1,793,000.  As  a  result,  our  cash,  cash  equivalents,   and
investments in certificates of deposit and U.S. government securities at October
31, 2008 increased to approximately  $2,671,000 from approximately $1,069,000 at
the end of fiscal 2007. Our operating cash accounts are maintain at FDIC-insured
banks. Our bank accounts and certificates of deposit are maintained  within FDIC
coverage limits.

               Total employee  compensation expense during fiscal 2008, 2007 and
2006 was  approximately  $5,164,000,  $3,661,000 and  $5,416,000,  respectively.
During  fiscal  2008,   2007  and  2006,  a  significant   portion  of  employee
compensation  consisted of the issuance of stock and stock  options to employees
in lieu of cash compensation.  We recorded  compensation  expense for the fiscal
years  ended  October  31,  2008,  2007  and 2006 of  approximately  $1,877,000,
$1,735,000 and  $1,897,000,  respectively,  for shares of common stock issued to
employees.  We recorded approximately  $2,614,000,  $1,081,000 and $2,973,000 of
stock-based  compensation expense, related to stock options granted to employees
and  directors,  during  the  years  ended  October  31,  2008,  2007 and  2006,
respectively.  It is managements'  intention to continue to compensate employees
by issuing stock or stock options.


                                      F-7
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               We believe that our existing cash, cash equivalents,  investments
in  certificates  of deposit,  investments  in U.S.  government  securities  and
accounts  receivable,  together  with  cash  flows  from  expected  sales of our
encryption products and revenue relating to our thin, flat, low-voltage phosphor
display  technology,  including  license fees and royalties from  Videocon,  and
other  potential  sources  of cash  flows,  will be  sufficient  to enable us to
continue our marketing,  production,  and research and  development  activities.
However,  our  projections  of future  cash needs and cash flows may differ from
actual  results.  If current cash and cash that may be generated from operations
are insufficient to satisfy our liquidity requirements, we may seek to sell debt
or equity  securities  or to  obtain a line of  credit.  The sale of  additional
equity   securities  or  convertible  debt  could  result  in  dilution  to  our
stockholders.  It is also  management's  intention  to  continue  to  compensate
employees by issuing stock or stock options.  We currently have no  arrangements
with respect to  additional  financing.  There can be no assurance  that we will
generate  sufficient  revenues in the future  (through  sales,  license fees and
royalties, or otherwise) to satisfy our liquidity requirements or sustain future
operations,  that our  production  capabilities  will be  adequate,  that  other
products will not be produced by other  companies  that will render our products
obsolete,  or that other sources of funding would be  available,  if needed,  on
favorable  terms or at all. If we cannot  obtain such funds if needed,  we would
need to curtail or cease some or all of our operations.

Investment in and Related Party Transactions with Videocon Industries Limited
-----------------------------------------------------------------------------

               In November 2007, we entered into a Technology  License Agreement
(as amended in May 2008,  the  "License  Agreement")  with  Videocon  Industries
Limited, an Indian company ("Videocon"). Under the License Agreement, we provide
Videocon with a non-transferable,  worldwide license of our technology for thin,
flat, low voltage phosphor  displays (the "Licensed  Technology"),  for Videocon
(or a Videocon  Group  company) to produce and market  products,  including TVs,
incorporating  displays  utilizing  the Licensed  Technology.  Under the License
Agreement,  we will receive a license fee of $11 million from Videocon,  payable
in  installments  over a 27 month period  commencing in May 2008,  and an agreed
upon royalty from Videocon  based on display  sales by Videocon.  In April 2008,
the  Indian  Government  approved  the  License  Agreement  and in May 2008,  we
received the first installment of the license fee of $2 million.

               Under the License Agreement, Videocon, with our assistance, is to
provide the design and process  engineering  required  to produce  such  display
modules,  and also is to provide  all  tooling  and  fixtures  required  for the
production  process.  As part of our  assistance  to  Videocon  to produce  such
display modules, we have been exchanging  information with Videocon employees so
that they may understand the CopyTele technology.  We are currently  cooperating
with Videocon to jointly implement the CopyTele  technology prior to production,
to produce  prototypes  of the  modules.  CopyTele and Videocon are also working
together to incorporate advancements to our display technology.  Improvements to
the technology,  when and if available,  are to be jointly owned by CopyTele and
Videocon.  Significant  improvements,  as defined in the License Agreement,  may
result in additional compensation to CopyTele.  CopyTele has determined that any
improvements which are not significant in nature are inconsequential.

               The  arrangement  with  Videocon  also  provides  for each of the
parties to designate an advisor to the other  party's  Board of  Directors.  The
purpose of the advisor to the Board of Directors is to provide  knowledge to the
Board of the  display  market and to apprise the Board of  developments  in this
market.  CopyTele  believes this to be  inconsequential  to the operation of the
License Agreement.


                                      F-8
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               Under the  License  Agreement  we  continue  to have the right to
produce and market products  utilizing our technology.  We also continue to have
the right to utilize  Volga Svet Ltd.,  a Russian  display  company that we have
been  working with for more than eleven years  ("Volga"),  and an Asian  company
that  CopyTele has been  working  with for more than five years,  to produce and
market,  products utilizing the Licensed Technology.  Additional licenses of the
Licensed Technology to third parties require the joint agreement of CopyTele and
Videocon.

               In  November  2007,  we also  entered  into a Share  Subscription
Agreement  (the  "Subscription   Agreement")  with  Mars  Overseas  Limited,  an
affiliate of Videocon ("Mars Overseas").  Under the Subscription Agreement, Mars
Overseas purchased 20,000,000 shares of our common stock (the "CopyTele Shares")
from us for an aggregate purchase price of $16,200,000,  which was determined by
management to approximate fair market value. The purchase of the CopyTele Shares
pursuant to the Subscription Agreement closed in November 2007.

               Also in November  2007, our  wholly-owned  British Virgin Islands
subsidiary, CopyTele International Ltd. ("CopyTele International"), entered into
a GDR Purchase  Agreement  (the "Purchase  Agreement")  with Global EPC Ventures
Limited  ("Global"),  for CopyTele  International  to purchase the Videocon GDRs
from  Global,  acquired by Global on the open market for an  aggregate  purchase
price of  $16,200,000,  which was determined by management to  approximate  fair
market value. Videocon's global depository receipts are listed on the Luxembourg
Stock  Exchange.  The  purchase of the  Videocon  GDRs  pursuant to the Purchase
Agreement closed in December 2007.

               For the purpose of effecting a lock up of the  Videocon  GDRs and
CopyTele Shares  (collectively,  the  "Securities") for a period of seven years,
and  therefore  restricting  both  parties  from  selling  or  transferring  the
Securities during such period,  CopyTele International and Mars Overseas entered
into two Loan and Pledge  Agreements in November  2007. The Videocon GDRs are to
be held as  security  for a loan in  principal  amount of  $5,000,000  from Mars
Overseas to CopyTele  International,  and the CopyTele Shares are similarly held
as  security  for a  loan  in  principal  amount  of  $5,000,000  from  CopyTele
International  to Mars Overseas.  The loans are for a term of seven years and do
not bear interest.  Prepayment of each loan requires payment of a premium by the
borrower and, in any event, the lien on the Securities securing the prepaid loan
will not be released  until the seventh  anniversary of the closing of the loans
and the  prepaid  amount  would be held in  escrow  until  such  date.  The loan
agreements  required the parties to enter into an escrow  agreement  under which
the parties  deposited the  Securities  with an escrow agent for the term of the
loans.  The loan agreements  also provide for customary  events of default which
may result in forfeiture of the Securities by the defaulting party. The loan and
escrow agreements also provide for the transfer to the respective parties,  free
and  clear  of  any   encumbrances   under  the   agreements,   any   dividends,
distributions, rights or other proceeds or benefits received by the escrow agent
in respect of the  Securities.  The  closing of the loans took place in December
2007. The loan  receivable  from Mars Overseas is classified as a  contra-equity
under  Shareholders'  Equity in the  accompanying  consolidated  balance  sheet,
because  the  loan  receivable  is  secured  by  the  CopyTele  Shares  and  the
Subscription   Agreement  and  Loan  and  Pledge  Agreement  were  entered  into
concurrently.


                                      F-9
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               Investment in Videocon
               ----------------------

               Our    investment    in    Videocon   is    classified    as   an
"available-for-sale  security" and reported at fair value, with unrealized gains
and losses  excluded from  operations and reported as a component of accumulated
other  comprehensive  income,  net of the related tax effects,  in shareholders'
equity.  Cost is determined using the specific  identification  method. The fair
value  of the  Videocon  GDRs is  based on the  price  on the  Luxembourg  Stock
Exchange,  which price is based on the  underlying  price of  Videocon's  equity
shares  which are  traded on stock  exchanges  in India  with  prices  quoted in
rupees.  The cost,  unrealized loss and fair value of our investment in Videocon
as of October 31, 2008 are as follows:

                                            October 31, 2008
                                            ----------------
                  Cost                      $ 16,200,000
                  Unrealized loss            (12,580,055)
                                            ----------------
                  Fair Value                $  3,619,945
                                            ================

               Statement of  Financial  Accounting  Standards  ("SFAS") No. 115,
"Accounting for Certain Investments in Debt or Equity  Securities",  requires an
evaluation  to determine if the decline in fair value of an investment is either
temporary  or  other  than  temporary.  Unless  evidence  exists  to  support  a
realizable  value  equal  to or  greater  than  the  cost of the  investment,  a
write-down  accounted  for as a realized  loss should be recorded.  We assess at
each reporting  period our investment in Videocon to determine if a decline that
is other than temporary has occurred.  In evaluating the realizable value of the
investment in Videocon, consideration was given to the Loan and Pledge Agreement
with Mars Overseas,  which requires CopyTele to hold the Videocon GDRs in escrow
for seven years from the purchase  closing date of December 2007 as security for
the loan from Mars  Overseas to  CopyTele  International.  Videocon's  financial
condition  and its future  potential  in both its  Consumer  Electronics  & Home
Appliances  segment and its Crude Oil & Natural Gas segment are also  evaluated.
On this basis,  we have determined that a write-down for a realized loss was not
required as of October 31, 2008.

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
               ------------------------------------------

Basis of Presentation
---------------------

               The  consolidated  financial  statements  include the accounts of
CopyTele,  Inc. and its wholly owned  subsidiaries,  CopyTele  International and
CopyTele  Marketing Inc.  ("CopyTele  Marketing").  CopyTele  International  and
CopyTele  Marketing were  incorporated in the British Virgin Islands on July 12,
2007 and September 5, 2007, respectively.  CopyTele International was formed for
the purpose of holding an investment in global depository  receipts of Videocon.
As of October 31,  2008,  CopyTele  Marketing  was  inactive.  All  intercompany
transactions have been eliminated in consolidation.

Revenue Recognition
-------------------

               Revenues  from sales are recorded  when all four of the following
criteria  are met:  (i)  persuasive  evidence  of an  arrangement  exists;  (ii)
delivery has occurred and title has  transferred or services have been rendered;
(iii) our price to the buyer is fixed or determinable;  and (iv)  collectibility
is reasonably assured.

               We have  assessed the guidance of Emerging  Issues Task Force No.
00-21  "Revenue  Arrangements  with  Multiple  Deliverables"  ("EITF  00-21") to
determine  whether  multiple  deliverables  in  our  arrangement  with  Videocon
represent separate units of accounting. Under the License Agreement, CopyTele is
required  to: (a)  disclose  to Videocon  the  Licensed  Technology  and provide
reasonable training of Videocon  personnel;  (b) jointly cooperate with Videocon
to produce prototypes prior to production;  and (c) assist Videocon in preparing
for production.  CopyTele has determined that these  performance  obligations do
not have value to Videocon on a standalone  basis, as defined in EITF 00-21, and
accordingly they do not represent separate units of accounting.


                                      F-10
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               We have  established  objective and  reasonable  evidence of fair
value for the  royalty  to be  earned  during  the  production  period  based on
analysis of the pricing for similar agreements.  Accordingly, we have determined
that the license fee of $11 million to be paid during the pre-production  period
and royalties on product  sales  reflects the  established  fair value for these
deliverables.  We will recognize the $11 million  license fee over the estimated
period  that  we  expect  to  provide  cooperation  and  assistance  during  the
pre-production period,  limiting the revenue recognized on a cumulative basis to
the aggregate  license fee payments  received from  Videocon.  We will assess at
each reporting period the progress and assistance  provided and will continue to
evaluate the period during which this fee will be recognized.  On this basis, we
have  recognized  license fee revenue  during the year ended October 31, 2008 of
approximately $1,687,000.  License fee payments received from Videocon which are
in excess of the amounts  recognized  as revenue  (approximately  $313,000 as of
October  31,  2008) are  recorded  as  non-refundable  deferred  revenue  on the
accompanying consolidated balance sheet.

Warranty Policy
---------------

               We warrant  that our  products  are free from defects in material
and workmanship for a period of one year from the date of initial purchase.  The
warranty  does not cover any losses or damage that occur as a result of improper
installation,  misuse or neglect.  Management  has recorded a nominal  amount of
warranty  liability  as of October  31,  2008 and 2007,  based  upon  historical
experience and management's best estimate of future warranty claims.

Statements of Cash Flows
------------------------

               Cash and cash  equivalents  consist of highly liquid  instruments
that are readily convertible into cash and have original maturities of less than
one year. During the years ended October 31, 2008, 2007 and 2006, we did not pay
any interest on U.S. Federal or state income taxes.

Short-term investments and investments in U.S. government securities
--------------------------------------------------------------------

               Short-term investments represent certificates of deposit and U.S.
government  securities  with  maturities of less than twelve months.  Noncurrent
investments in U.S. government  securities  represent securities with maturities
of more than twelve  months.  Each of the  investments  are carried at amortized
cost as management has the intention and ability to hold these to maturity.

Fair Value of Financial Instruments
-----------------------------------

               In the opinion of management, the carrying value of all financial
instruments,  consisting  primarily  of cash  and cash  equivalents,  short-term
investments,  accounts and other receivables and accounts payable,  reflected in
the accompanying balance sheets,  approximates fair value as of October 31, 2008
and  2007,  due to their  short  term  nature.  Noncurrent  investments  in U.S.
Government  securities  approximates fair value as of October 31, 2008, based on
current market prices.


                                      F-11
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Accounts Receivable
-------------------

               Accounts  receivable are stated at amounts due from customers net
of  an  allowance  for  doubtful  accounts.   Management  reviews  our  accounts
receivable  for  potential  doubtful  accounts and  maintains  an allowance  for
estimated  uncollectible  amounts.  Accounts  receivable are written off when we
determine that they become uncollectible.

Inventories
-----------

               Inventories are stated at the lower of cost,  including material,
labor and overhead,  determined on a first-in, first-out basis, or market, which
represents  our best estimate of market  value.  We regularly  review  inventory
quantities  on hand,  particularly  finished  goods,  and record a provision for
excess and obsolete  inventory  based  primarily on forecasts of future  product
demand. To date, sales of our products have been limited. Accordingly, there can
be no assurance  that we will not be required to reduce the selling price of our
inventory below our current carrying value.

Property and Equipment
----------------------

               Property  and  equipment,  consisting  primarily  of  engineering
equipment,  is stated at cost less  accumulated  depreciation.  Depreciation  is
calculated  on a  straight-line  basis over the  estimated  useful  lives of the
related  assets,  primarily five years.  We capitalize  items in excess of $500.
Minor  replacements  and  maintenance and repair items are charged to expense as
incurred.   Upon  disposal  or  retirement  of  assets,  the  cost  and  related
accumulated depreciation are removed from our balance sheet.

Investment Securities
---------------------

               We classify our investment  securities in one of two  categories:
available-for-sale  or  held-to-maturity.   Available-for-sale   securities  are
recorded at fair  value.  Unrealized  gains and  losses,  net of the related tax
effect,  on  available-for-sale  securities  are excluded  from earnings and are
reported as a component of accumulated other  comprehensive  income (loss) until
realized.  Realized  gains  and  losses  from  the  sale  of  available-for-sale
securities are determined on a specific  identification basis.  Held-to-maturity
securities,  which are Investment securities that the company has the intent and
ability to hold to maturity,  are carried at amortized cost. The amortization of
premiums and accretion of discounts  are recorded on the level yield  (interest)
method,  over the period from the date of purchase  to  maturity.  When sales do
occur, gains and losses are recognized at the time of sale and the determination
of cost of  securities  sold is based upon the specific  identification  method.
Dividend and interest income are recognized when earned.

               We  monitor  the  value  of our  investments  for  indicators  of
impairment,  including changes in market conditions and the operating results of
the  underlying  investment  that may result in the  inability  to  recover  the
carrying  value of the  investment.  We will record an impairment  charge if and
when we believe any such investment has experienced a decline that is other than
temporary.

Research and Development Expenses
---------------------------------

               Research  and  development  expenses  are  expensed  in the  year
incurred.

Advertising Expense
-------------------

               Advertising expense is included in the accompanying statements of
operations in selling, general and administrative expenses in the year incurred.
Advertising  expense for the years ended  October 31, 2008,  2007 and 2006,  was
approximately $3,000, $2,000, and $27,000, respectively.


                                      F-12
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes
------------

               We  recognize   deferred  tax  assets  and  liabilities  for  the
estimated  future  tax  effects  of  events  that have  been  recognized  in our
financial statements or tax returns. Under this method,  deferred tax assets and
liabilities  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.  A
valuation  allowance is  established,  when  necessary,  to reduce  deferred tax
assets to the amount expected to be realized.

Stock-Based Compensation
------------------------

               We maintain stock equity incentive plans under which we may grant
non-qualified stock options, incentive stock options, stock appreciation rights,
stock  awards,  performance  and  performance-based  awards,  or stock  units to
employees, non-employee directors and consultants.

Stock Option Compensation Expense
---------------------------------

               We account for stock  options  granted to employees and directors
using SFAS No. 123 (revised 2004),  "Share-Based  Payment" ("SFAS No.123R").  We
recognize  compensation expense for stock option awards on a straight-line basis
over  the  requisite  service  period  of the  grant.  We  recorded  stock-based
compensation  expense,  related  to  stock  options  granted  to  employees  and
non-employee directors, of approximately  $2,614,000,  $1,081,000 and $2,973,000
during  the years  ended  October  31,  2008,  2007 and 2006,  respectively,  in
accordance  with SFAS No.  123R.  Such  compensation  expense is included in the
accompanying  statements  of  operations  in  either  research  and  development
expenses or selling, general and administrative expenses, as applicable based on
the  functions  performed by such  employees  and  directors.  Such  stock-based
compensation expense increased both basic and diluted net loss per share for the
years  ended  October  31,  2008,  2007  and 2006 by  $0.02,  $0.01  and  $0.03,
respectively.

               Included in the  stock-based  compensation  cost related to stock
options  granted to  employees  and  directors  recorded  during the years ended
October 31, 2008,  2007 and 2006 was  approximately  $-0-,  $26,000 and $19,000,
respectively,  of expense related to the  amortization of compensation  cost for
stock  options  granted in prior  periods but not yet vested.  As of October 31,
2008, there was approximately $197,000 of unrecognized compensation cost related
to non-vested share-based compensation arrangements for stock options granted to
employees and  directors.  Due to  discontinuation  of the  optionee's  service,
non-vested   stock   options   representing   approximately   $163,000  of  this
unrecognized  compensation  cost were cancelled in November 2008.  Approximately
$34,000 of the remaining  unrecognized  cost is expected to be amortized  during
fiscal 2009.

               We also account for stock options  granted to  consultants  using
SFAS  No.  123R.  We  recognized  consulting  expense  for  options  granted  to
non-employee  consultants,  during the years ended  October 31,  2008,  2007 and
2006,  of  approximately  $217,000,  $-0-  and  $131,000,   respectively.   Such
consulting  expense is included in the accompanying  consolidated  statements of
operations in either research and development  expenses or selling,  general and
administrative  expenses, as applicable based on the functions performed by such
consultants.  As of  October  31,  2008,  there  was  approximately  $13,000  of
unrecognized  consulting expense related to non-vested share-based  compensation
arrangements  for stock options  granted to consultants  which is expected to be
amortized during fiscal 2009.


                                      F-13
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               Fair Value Determination
               ------------------------

               In  accordance  with SFAS No. 123R, we estimate the fair value of
stock options  granted to employees,  non-employee  directors and consultants on
the date of grant  using  the  Black-Scholes  pricing  model.  We  separate  the
individuals we grant stock options to into three relatively  homogenous  groups,
based  on  exercise  and  post-vesting   employment  termination  behaviors.  To
determine the weighted average fair value of stock options on the date of grant,
we take a weighted  average of the  assumptions  used for each of these  groups.
Stock  options we granted  during the year ended  October 31, 2008  consisted of
awards of options with 10-year  terms which vested  either  immediately  or over
future periods of from three months to three years.  All of the stock options we
granted  during the years ended October 31, 2007 and 2006 consisted of awards of
options with either 5-year terms,  which vested over one year, or 10-year terms,
which vested immediately.

               We  estimated  the fair value of stock  option  awards  using the
following assumptions:

                                                For the Year Ended October 31,
                                             ----------------------------------
                                               2008         2007        2006
                                             --------     --------     --------
Expected term (in years)                        3.4          3.0         2.9
Volatility                                      90%           92%        98%
Risk-free interest rate                        3.07%        4.64%       4.38%
Dividend yield                                   0            0           0
Weighted average fair value at grant date      $0.53        $0.37       $0.43

               The  expected  term of  stock  options  represents  the  weighted
average period the stock options are expected to remain outstanding.  Because we
consider our options to be "plain vanilla", we estimated the expected term using
a modified  version of the simplified  method of  calculation,  as prescribed by
Staff  Accounting  Bulletin No. 107,  "Share-Based  Payment"  ("SAB 107").  This
modified  calculation  uses the actual life for options that have been  settled,
and a uniform distribution  assumption for the options still outstanding.  Under
SAB 107, options are considered to be "plain vanilla" if they have the following
basic  characteristics:  granted  "at-the-money";  exercisability is conditioned
upon service  through the vesting date;  termination of service prior to vesting
results in forfeiture; limited exercise period following termination of service;
and options are  non-transferable  and  non-hedgeable.  In  December  2007,  the
Securities  and  Exchange  Commission  ("SEC")  staff  issued  Staff  Accounting
Bulletin No. 110,  "Share-Based Payment" ("SAB 110"). SAB 110 permits the use of
the simplified  method in SAB 107 for employee  option grants after December 31,
2007 for  companies  whose  historical  data  about  their  employees'  exercise
behavior does not provide a reasonable basis for estimating the expected term of
the options.  We have adopted SAB 110 and continued to use the simplified method
to estimate  the expected  term for options  granted  after  December  2007,  as
adequate  historical  experience  is  not  available  to  provide  a  reasonable
estimate.  We intend to continue  applying  the  simplified  method until enough
historical  experience is readily available to provide a reasonable  estimate of
the expected term for employee option grants.

               We  estimated  the  expected  volatility  of our shares of common
stock based upon the  historical  volatility of our share price over a period of
time equal to the expected life of the options.


                                      F-14
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               We estimated  the  risk-free  interest  rate based on the implied
yield available on the applicable grant date of a U.S. Treasury note with a term
equal to the expected term of the underlying grants.

               We made the dividend yield assumption based on our history of not
paying dividends and our expectation not to pay dividends in the future.

               Under  SFAS No.  123R,  the  amount of  stock-based  compensation
expense  recognized  is based on the portion of the awards  that are  ultimately
expected  to vest.  Accordingly,  we reduce the fair  value of the stock  option
awards for expected  forfeitures,  which are forfeitures of the unvested portion
of  surrendered   options.  We  estimated  expected  forfeitures  based  on  our
historical experience.

               We will  reconsider  use of the  Black-Scholes  pricing  model if
additional  information  becomes  available in the future that indicates another
model would be more  appropriate,  or if grants  issued in future  periods  have
characteristics that cannot be reasonably estimated using this model.

Net Loss Per Share of Common Stock
----------------------------------

               In accordance with SFAS No. 128,  "Earnings Per Share" ("SFAS No.
128"), basic net loss per common share ("Basic EPS") is computed by dividing net
loss by the weighted  average number of common shares  outstanding.  Diluted net
loss per common  share  ("Diluted  EPS") is computed by dividing net loss by the
weighted  average number of common shares and dilutive common share  equivalents
and convertible securities then outstanding. Diluted EPS for all years presented
is the same as Basic  EPS,  as the  inclusion  of the  effect  of  common  share
equivalents then outstanding would be anti-dilutive.  For this reason,  excluded
from the  calculation of Diluted EPS for the years ended October 31, 2008,  2007
and 2006,  were options to purchase  19,768,511  shares,  19,272,711  shares and
22,527,941 shares, respectively.

Use of Estimates
----------------

               The  preparation  of  financial  statements  in  conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting period. Estimates and assumptions are
used for, but not limited to,  determining the allowance for doubtful  accounts,
inventory obsolescence,  depreciation lives, asset impairment  evaluations,  tax
assets and liabilities,  license fee revenue, stock-based compensation and other
contingencies. Actual results could differ from those estimates.

Reclassifications
-----------------

               Certain prior year amounts have been reclassified to conform with
current year presentation.

Effect of Recently Issued Pronouncements
----------------------------------------

               In June  2006,  the  FASB  issued  FASB  Interpretation  No.  48,
"Accounting  for  Uncertainty  in  Income  Taxes,"  an  interpretation  of  FASB
Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for  uncertainties
in  income  taxes  recognized  in  an  enterprise's  financial  statements.  The
interpretation  requires  that the Company  determine  whether it is more likely
than  not  that  a tax  position  will  be  sustained  upon  examination  by the
appropriate  taxing authority.  If a tax position meets the more likely than not
recognition  criteria,  FIN 48  requires  the tax  position  be  measured at the
largest amount of benefit  greater than 50 percent likely of being realized upon
ultimate  settlement.  This  accounting  standard is effective  for fiscal years
beginning after December 15, 2006. We adopted FIN 48 on November 1, 2007.  There
were no  unrecognized  tax benefits as of the date of our adoption of FIN 48 and
as of October 31, 2008. The adoption of FIN 48 did not have a material effect on
our consolidated financial statements.


                                      F-15
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               In  September  2006,  the FASB issued  SFAS No. 157,  "Fair Value
Measurements"  ("SFAS No. 157"). SFAS No. 157 defines fair value,  establishes a
framework  for  measuring  fair  value  under  generally   accepted   accounting
principles, and expands disclosures about fair value measurements.  SFAS No. 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and states that a fair value measurement should be determined based
on the assumptions  that market  participants  would use in pricing the asset or
liability. In February 2008, the FASB issued FASB Staff Position ("FSP") No. FAS
157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting  Pronouncements  That Address Fair Value Measurements for Purposes of
Lease  Classification or Measurement under Statement 13," and FSP No. FAS 157-2,
"Effective Date of FASB Statement No. 157." Collectively,  these Staff Positions
allow a one-year  deferral of adoption of SFAS No. 157 for  nonfinancial  assets
and liabilities  that are recognized or disclosed at fair value in the financial
statements  on a  non-recurring  basis and amend SFAS No.  157 to  exclude  FASB
Statement No. 13 and its related  interpretive  accounting  pronouncements  that
address  leasing  transactions.  We adopted  SFAS No. 157 on  November  1, 2008,
except for non  financial  assets and  liabilities  measured  at fair value on a
non-recurring  basis,  which will be  effective  for us  November  1, 2009.  The
adoption of SFAS No. 157 on  November 1, 2008 did not have a material  effect on
our consolidated  financial statements.  The adoption of the deferred portion of
SFAS No.  157 is not  expected  to have a  material  effect on our  consolidated
financial statements.

               In February  2007,  the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial  Liabilities"  ("SFAS No. 159").  SFAS
No.  159  expands  opportunities  to use fair  value  measurement  in  financial
reporting and permits  entities to choose to measure many financial  instruments
and  certain  other items at fair value.  SFAS No. 159 is  effective  for fiscal
years  beginning after November 15, 2007. We adopted SFAS No. 159 on November 1,
2008.  The  adoption  of SFAS No.  159 did not  have a  material  effect  on our
consolidated financial statements.

               In December  2007,  the FASB issued SFAS No. 141 (revised  2007),
"Business  Combinations" ("SFAS No. 141R"), which changes how an entity accounts
for the acquisition of a business.  When  effective,  SFAS No. 141R will replace
existing  SFAS  No.  141,  "Business  Combinations"  ("SFAS  No.  141"),  in its
entirety. SFAS No. 141R carries forward the existing requirements to account for
all business  combinations  using the acquisition  method  (formerly  called the
purchase method). In general,  SFAS No. 141R will require  acquisition-date fair
value  measurement of identifiable  assets acquired,  liabilities  assumed,  and
noncontrolling interest in the acquired entity. SFAS No. 141R will eliminate the
current  cost-based  purchase  method  under  SFAS No.  141.  SFAS  No.  141R is
effective  for fiscal  years and  interim  periods  within  those  fiscal  years
beginning on or after  December  15, 2008.  The adoption of SFAS No. 141R is not
expected to have a material effect on our consolidated financial statements.


                                      F-16
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               In December 2007,  the FASB issued SFAS No. 160,  "Noncontrolling
Interests  in  Consolidated  Financial  Statements,  an amendment of ARB No. 51"
("SFAS No. 160").  SFAS No. 160 establishes  accounting and reporting  standards
for the noncontrolling  interests in a subsidiary and for the deconsolidation of
a  subsidiary.  SFAS No. 160 is effective  for fiscal years and interim  periods
within those fiscal years  beginning on or after December 15, 2008. The adoption
of SFAS No. 160 is not  expected to have a material  effect on our  consolidated
financial statements.

3.             CONCENTRATION OF CREDIT RISK
               ----------------------------

               Financial    instruments   that   potentially   subject   us   to
concentrations  of credit risk consist  principally of accounts  receivable from
sales in the  ordinary  course of  business.  Management  reviews  our  accounts
receivable and other  receivables for potential  doubtful accounts and maintains
an allowance for estimated  uncollectible amounts.  Generally,  no collateral is
received from  customers for our accounts  receivable.  During fiscal 2008,  one
customer in the Display Technology Segment represented 82% of total net revenue.
During  fiscal  2007,  two  customers  in the  Encryption  Products and Services
Segment  represented  49% and 29%,  respectively,  of total net revenue.  During
fiscal 2006,  two  customers  in the  Encryption  Products and Services  Segment
represented 40% and 26% of total net revenue.  At October 31, 2008 and 2007, one
customer in the Encryption Products and Services Segment represented 100% of net
accounts receivable.

4.             SHORT-TERM INVESTMENTS AND INVESTMENT IN U.S. GOVERNMENT
               -----------------------------------------------------------------
               SECURITIES
               ----------

               At October 31, 2008 and 2007, we had marketable  securities  that
were classified as  "held-to-maturity  securities" and were carried at amortized
costs. Held-to-maturity securities consist of the following:

                                                      October 31,    October 31,
                                                         2008           2007
                                                      ----------     ----------
     Current:
       U.S. Government securities                     $  999,484     $       --
       Certificates of deposit                           443,000        400,000
                                                      ----------     ----------
     Total current held-to-maturity securities        $1,442,484     $  400,000
                                                      ==========     ==========

     Noncurrent:
       U.S. Government securities                     $  749,711     $       --
                                                      ----------     ----------
     Total noncurrent held-to-maturity securities     $  749,711     $       --
                                                      ==========     ==========

     Total held-to-maturity securities                $2,192,195     $  400,000
                                                      ==========     ==========

               At October 31, 2008, the length of time until maturity of current
held-to-maturity  securities  was less than twelve months and the length of time
until maturity of noncurrent  held-to-maturity securities was fifteen months. At
October 31,  2008,  and  October  31,  2007,  the  estimated  fair value of each
investment  approximated  its  amortized  cost,  and,  therefore,  there were no
significant unrecognized holding gains or losses.

5.             INVESTMENT IN AND RELATED  PARTY  TRANSACTIONS  WITH DIGITAL INFO
               -----------------------------------------------------------------
               SECURITY CO., INC.
               ------------------

               In  February  2006,  we  entered  into  a  Software  License  and
Distribution Agreement (the "DISC License Agreement") to license to Digital Info
Security Co. Inc. ("DISC"),  an encryption system that integrates our encryption
technology into DISC's e-mail  services.  The system allows companies to encrypt
all  e-mail  transactions  in a  manner  transparent  to  the  individual  user.
Concurrently  with  entering  into the DISC  License  Agreement  with  DISC,  we
acquired a minority interest in DISC by exchanging 100,000  unregistered  shares
of our common stock for 5,000,000 shares of DISC's common stock. In May and July
2006,  we  purchased  an  additional  1,000,000  shares  and  1,200,000  shares,
respectively,   of  DISC's  common  stock  for  $50,000  and  $60,000  in  cash,
respectively.  In November 2006, we acquired an additional  5,000,000  shares of
DISC's  common stock in exchange for 300,000  unregistered  shares of our common
stock. Accordingly,  as of October 31, 2008, we held 12,200,000 shares of DISC's
common stock,  all of which were restricted  securities.  DISC's common stock is
not registered  under the Securities  Exchange Act of 1934, but is quoted on the
Pink  Sheets.  Based on the number of DISC  shares  outstanding  as set forth in
DISC's June 30, 2008 public financial report,  the most recent available,  as of
October 31, 2008 we held  approximately  11% of the outstanding  common stock of
DISC.


                                      F-17
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               The DISC stock held by CopyTele is restricted stock and cannot be
sold or otherwise disposed of in the absence of either a registration  statement
under the  Securities  Act of 1933  ("Securities  Act") or an exemption from the
registration  provisions of the Securities  Act. For CopyTele to sell or dispose
of the DISC stock under the exemption  provided by Rule 144 under the Securities
Act, all of the requirements of Rule 144 must be satisfied.

               As of October 31, 2007, all of the  requirements of Rule 144 were
not  satisfied  for  CopyTele  to sell or  dispose of the DISC stock held by us.
Accordingly,  as of October 31, 2007, our investment in DISC was recorded in the
accompanying  consolidated  balance  sheet  at cost of  $417,000,  based  on the
closing  price of our common stock on the dates we acquired DISC common stock in
exchange for our common stock,  and the price paid for the shares  purchased for
cash.  Because  CopyTele  now  believes it may sell or dispose of the DISC stock
pursuant  to Rule  144,  as of  October  31,  2008,  our  investment  in DISC is
classified as an  "available-for-sale  security" in the  accompanying  condensed
consolidated  financial  statements and reported at fair value,  with unrealized
gains and losses  excluded  from  operations  and  reported  as a  component  of
accumulated  other  comprehensive  income,  net of the related tax  effects,  in
shareholders' equity. The cost, unrealized gain and fair value of our investment
in DISC as of October 31, 2008 are as follows:

                                                  October 31, 2008
                                             --------------------------
               Cost                              $       417,000
               Unrealized gain                           424,800
                                             --------------------------
               Fair Value                        $       841,800
                                             ==========================

               Net  revenue  for the  years  ended  October  31,  2007  and 2006
included  billings to DISC for  engineering  services of $240,000 and  $131,000,
respectively.  We had no net revenue relating to DISC for the year ended October
31,  2008.  Net  accounts  receivable  at October  31, 2008 and October 31, 2007
include $-0- and $120,000, respectively, from DISC.

6.             INVENTORIES
               -----------

               Inventories consist of the following as of:
                                                      October 31,
                                              ---------------------------
                                                2008               2007
                                              --------           --------
               Component parts                $ 67,853           $113,458
               Work-in-process                   5,079             26,597
               Finished products               105,212             51,868
                                              --------           --------
                                              $178,144           $191,923
                                              ========           ========


                                      F-18
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.             ACCRUED LIABILITIES
               -------------------

               Accrued liabilities consist of the following as of:
                                                          October 31,
                                                      -------------------
                                                        2008       2007
                                                      --------   --------

               Accrued professional fees              $ 18,451   $ 24,600
               Accrued payroll and related expenses     35,545    289,564
               Accrued other                            15,368     17,504
                                                      --------   --------
                                                      $ 69,364   $331,668
                                                      ========   ========

8.             SHAREHOLDERS' EQUITY
               --------------------

Common Stock Issuances
----------------------

               We account for stock grants to employees and consultants based on
their grant date fair value.  During the years ended October 31, 2008,  2007 and
2006,  we issued  2,142,400  shares,  2,528,365  shares  and  2,670,010  shares,
respectively,  of common  stock to  certain  employees  for  services  rendered,
principally in lieu of cash  compensation,  pursuant to the CopyTele,  Inc. 2000
Share  Incentive Plan (the "2000 Share Plan") and the CopyTele,  Inc. 2003 Share
Incentive Plan (the "2003 Share Plan"). We recorded compensation expense for the
years  ended  October  31,  2008,  2007  and 2006 of  approximately  $1,877,000,
$1,735,000 and  $1,897,000,  respectively,  for shares of common stock issued to
employees.  In addition  during  fiscal 2008,  2007 and 2006,  we issued  89,966
shares,  240,325  shares and 367,122  shares,  respectively,  of common stock to
consultants for services  rendered  pursuant to the 2003 Share Plan. We recorded
consulting  expense  for the years  ended  October  31,  2008,  2007 and 2006 of
approximately $95,000, $182,000 and $287,000, respectively, for shares of common
stock issued to consultants.

               During the year ended  October  31,  2008,  we issued  20,000,000
shares of  unregistered  common  stock to Mars  Overseas in  exchange  for cash.
During the years ended October 31, 2007 and 2006, we issued  300,000  shares and
100,000 shares,  respectively,  of unregistered  common stock to acquire Digital
Info Security Co., Inc. common stock.

               Preferred Stock
               ---------------

               On May 29, 1986, our  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 of Directors. As of October 31, 2008 and 2007, there was
no preferred stock issued and outstanding.

Stock Option Plans
------------------

               As of October 31,  2008,  we have three stock option  plans:  the
CopyTele, Inc. 1993 Stock Option Plan (the "1993 Plan"), the 2000 Share Plan and
the 2003 Share Plan,  which were  adopted by our Board of Directors on April 28,
1993, May 8, 2000 and April 21, 2003, respectively.

               On July 14, 1993,  our  shareholders  approved the 1993 Plan. The
1993 Plan was amended as of May 3, 1995 and May 10, 1996 to, among other things,
increase the number of shares  available for issuance  thereunder from 6,000,000
shares to 20,000,000  shares,  after giving  consideration to stock splits.  The
1993 Plan  provided  for the  granting  of  incentive  stock  options  and stock
appreciation rights to key employees,  and non-qualified stock options and stock
appreciation rights to key employees and consultants of the Company.


                                      F-19
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               The 1993 Plan was  administered  by the Stock  Option  Committee,
which determined the option price, term and provisions of each option.  However,
the purchase  price of shares  issuable  upon the  exercise of  incentive  stock
options  could not be less than the fair market value of such shares at the date
of grant and incentive stock options are not exercisable for more than 10 years.
Upon approval of the 2000 Share Plan by our  shareholders in July 2000, the 1993
Plan was  terminated  with  respect to the grant of future  options.  Since June
2004, the 1993 Plan has been administered by the Board of Directors.

               Information  regarding  the 1993 Plan for the three  years  ended
October 31, 2008 is as follows:

<TABLE>
<CAPTION>

                                                            Current Weighted
                                                             Average Exercise        Aggregate
                                              Shares         Price Per Share      Intrinsic Value
                                           ------------     -----------------     ---------------
<S>                                        <C>              <C>                   <C>
Shares Under Option at October 31, 2005      6,718,580            $3.86
  Expired                                   (2,551,580)           $5.05
                                           ------------
Shares Under Option at October 31, 2006      4,167,000            $3.13
  Expired                                   (1,553,000)           $4.46
                                           ------------
Shares Under Option at October 31, 2007      2,614,000            $2.33
  Expired                                   (1,830,000)           $2.86
  Exercised                                     (5,000)           $1.31
                                           ============
Shares Under Option and Exercisable at
October 31, 2008                               779,000            $1.10                $-0-
                                           ============

</TABLE>

               The following table  summarizes  information  about stock options
outstanding under the 1993 Plan as of October 31, 2008:

<TABLE>
<CAPTION>

                                   Options Outstanding and Exercisable
                                   -----------------------------------
                                                                Weighted
                                                                Average                Weighted
           Range of                      Number                Remaining                Average
        Exercise Prices               Outstanding           Contractual Life        Exercise Price
 ------------------------------  -----------------------  ---------------------  ----------------------

<S>                                     <C>                       <C>                    <C>
        $0.84 to $1.00                  575,000                   1.04                   $0.99
        $1.13 to $1.56                  204,000                   1.04                   $1.41

</TABLE>

               The  exercise  price with  respect to all of the options  granted
under the 1993 Plan, since its inception,  was equal to the fair market value of
the underlying common stock at the grant date.

               On July 25, 2000, our shareholders  approved the 2000 Share Plan.
The maximum  number of shares of common stock that may be granted was  5,000,000
shares.  On July 6, 2001 and July 16,  2002,  the 2000 Share Plan was amended by
our Board of Directors to increase the maximum  number of shares of common stock
that may be granted to 10,000,000  shares and 15,000,000  shares,  respectively.
These  amendments  were  approved  by our  shareholders  on August 16,  2001 and
September 12, 2002, respectively.  The 2000 Share Plan provides for the grant of
incentive stock options,  nonqualified stock options, stock appreciation rights,
stock  awards,   performance  awards  and  stock  units  to  key  employees  and
consultants of the Company.


                                      F-20
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               The  2000  Share  Plan  was  administered  by  the  Stock  Option
Committee  through  June 2004 and since that date has been  administered  by the
Board of Directors,  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 at the date of grant and incentive  stock options will not be exercisable
for more than 10 years.

               Information  regarding  the 2000 Share  Plan for the three  years
ended October 31, 2008 is as follows:

<TABLE>
<CAPTION>

                                                            Current Weighted
                                                            Average Exercise        Aggregate
                                              Shares        Price Per Share       Intrinsic Value
                                           ------------     ----------------      ---------------
<S>                                        <C>              <C>                   <C>
Shares Under Option at October 31, 2005     2,788,466            $0.73
  Expired                                     (20,000)           $0.74
  Exercised                                  (500,000)           $0.42
                                           ------------
Shares Under Option at October 31, 2006     2,268,466            $0.80
  Exercised                                   (86,000)           $0.39
                                           ------------
Shares Under Option at October 31, 2007     2,182,466            $0.82
  Exercised                                 ( 410,000)           $0.95
Shares Under Option and Exercisable at
October 31, 2008                             1,772,466           $0.79               $35,600
                                           ============

</TABLE>

               The following table  summarizes  information  about stock options
outstanding under the 2000 Share Plan as of October 31, 2008:

<TABLE>
<CAPTION>

                                   Options Outstanding and Exercisable
                                   -----------------------------------
                                                                Weighted
                                                                Average                Weighted
           Range of                      Number                Remaining                Average
        Exercise Prices               Outstanding           Contractual Life        Exercise Price
 ------------------------------  -----------------------  ---------------------  ----------------------

<S>                                     <C>                       <C>                   <C>
             $0.40                      445,000                   2.88                  $0.40
             $0.69                      505,466                   2.17                  $0.69
         $0.94 - $1.09                  822,000                   1.92                  $1.06

</TABLE>

               The  exercise  price with  respect to all of the options  granted
under the 2000  Share  Plan since its  inception,  was equal to the fair  market
value of the underlying  common stock at the grant date. As of October 31, 2008,
21,508 shares were available for future grants under the 2000 Share Plan.

               The 2003 Share Plan provides for the grant of nonqualified  stock
options,  stock appreciation rights, stock awards,  performance awards and stock
units to key employees and  consultants  of the Company.  The maximum  number of
shares of  common  stock  available  for  issuance  under  the 2003  Share  Plan
initially was 15,000,000 shares. On October 8, 2004, February 9, 2006 and August
22,  2007,  the 2003 Plan was amended by our Board of  Directors to increase the
maximum  number of shares of common  stock  that may be  granted  to  30,000,000
shares,  45,000,000  shares and  55,000,000  shares,  respectively.  Current and
future  non-employee  directors are  automatically  granted  nonqualified  stock
options to purchase 60,000 shares of common stock upon their initial election to
the Board of Directors and at the time of each subsequent  annual meeting of our
shareholders at which they are elected to the Board of Directors. The 2003 Share
Plan was administered by the Stock Option Committee  through June 2004 and since
that date has been administered by the Board of Directors,  which determines the
option price, term and provisions of each option.


                                      F-21
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               Information  regarding  the 2003 Share  Plan for the three  years
ended October 31, 2008 is as follows:

<TABLE>
<CAPTION>

                                                            Current Weighted
                                                            Average Exercise        Aggregate
                                              Shares        Price Per Share       Intrinsic Value
                                           ------------     ----------------      ---------------

<S>                                           <C>                <C>              <C>
Shares Under Option at October 31, 2005      12,505,200          $0.61
  Granted                                     7,235,000          $0.76
  Exercised                                  (3,647,725)         $0.59
                                           ------------
Shares Under Option at October 31, 2006      16,092,475          $0.68
  Granted                                     2,880,000          $0.66
  Exercised                                  (4,496,230)         $0.47
                                           ------------
Shares Under Option at October 31, 2007      14,476,245          $0.74
  Expired                                       (60,000)         $0.84
  Granted                                     5,740,000          $0.88
  Exercised                                  (2,939,200)         $0.72
Shares Under Option at October 31, 2008
                                             17,217,045          $0.79               $173,100
                                           ------------
Options Exercisable at October 31, 2008      16,807,045          $0.79               $173,100
                                           ============

</TABLE>

               The following table  summarizes  information  about stock options
outstanding under the 2003 Share Plan as of October 31, 2008:

<TABLE>
<CAPTION>

                                        Options Outstanding                                   Options Exercisable
                                    ---------------------------                            -------------------------
                                              Weighted                                              Weighted
                                              Average             Weighted                          Average            Weighted
      Range of              Number           Remaining             Average          Number         Remaining           Average
   Exercise Prices       Outstanding      Contractual Life     Exercise Price    Exercisable    Contractual Life    Exercise Price
--------------------  -----------------  -------------------  ----------------  -------------  ------------------  ----------------

<S>                       <C>                   <C>                 <C>           <C>                 <C>               <C>
    $0.25 - $0.43         1,170,000             4.95                $0.33         1,170,000           4.95              $0.33
    $0.52 - $0.77         5,920,970             6.94                $0.63         5,920,970           6.94              $0.63
    $0.80 - $1.46        10,126,075             7.41                $0.94         9,716,075           7.40              $0.93

</TABLE>

               The  exercise  price with  respect to all of the options  granted
under the 2003  Share  Plan since its  inception,  was equal to the fair  market
value of the underlying  common stock at the grant date. As of October 31, 2008,
2,432,721 shares were available for future grants under the 2003 Share Plan.

9.             COMMITMENTS AND CONTINGENCIES
               -----------------------------

Leases
------

               We  lease  space  at  our  principal   location  for  office  and
laboratory research  facilities.  The current lease is for approximately  12,000
square feet and expires on November 30, 2011. The lease contains base rentals of
approximately  $279,000 per annum with a 3% annual  increase  and an  escalation
clause for increases in certain  operating  costs.  As of October 31, 2008,  our
noncancelable operating lease commitments are approximately $909,000.


                                      F-22
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               Rent expense for the years ended October 31, 2008, 2007 and 2006,
was approximately $278,000, $269,000 and $261,000, respectively.

Litigation Matters
------------------

               We are not a party to any material pending legal proceedings.  We
are  party to  claims,  and  complaints  that  arise in the  ordinary  course of
business.  We believe that any  liability  that may  ultimately  result from the
resolution of these matters will not,  individually or in the aggregate,  have a
material adverse effect on our financial position or results of operations.

Consulting Agreement
--------------------

               In addition,  as of October 31, 2008 we had  commitments  under a
consulting  agreement of $170,000,  payable  during the first  quarter of fiscal
2009.

10.            EMPLOYEE PENSION PLAN
               ---------------------

               We  adopted  a  qualified  noncontributory  defined  contribution
pension plan, effective November 1, 1983, covering all of our present employees.
Contributions,  which  are made to a trust  and have  been  funded  on a current
basis, are based upon specified  percentages of compensation,  as defined in the
plan.  During fiscal 2001, we amended the plan to suspend benefit accruals as of
November  1, 2000.  Accordingly,  we did not incur any  pension  expense for the
fiscal years ended October 31, 2008, 2007 and 2006.

11.            INCOME TAXES
               ------------

               Income tax provision (benefit) consists of the following:

<TABLE>
<CAPTION>

                                                      Year Ended October 31,
                                            -----------------------------------------
                                               2008            2007           2006
                                            -----------    -----------    -----------
Federal:
<S>                                         <C>            <C>            <C>
    Current                                 $        --    $        --    $        --
    Deferred                                  1,953,000     (1,505,000)    (2,309,000)

State:
    Current                                          --             --
    Deferred                                  1,392,000      4,393,000       (340,000)
Adjustment to valuation allowance related
    to net deferred tax assets               (3,345,000)    (2,888,000)     2,649,000
                                            -----------    -----------    -----------
                                            $        --    $        --    $        --
                                            ===========    ===========    ===========

</TABLE>


                                      F-23
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


               The tax  effects  of  temporary  differences  that  give  rise to
significant  portions of the  deferred  tax asset,  net, at October 31, 2008 and
2007, are as follows:

<TABLE>
<CAPTION>
                                                            2008             2007
                                                        ------------    ------------
Long-term deferred tax assets:
<S>                                                     <C>             <C>
   Barter Credits                                       $         --    $    999,000
   Federal and state NOL and tax credit carryforwards     32,734,000      35,435,000
   Unrealized loss on available for sale securities        4,140,000              --
   Deferred Compensation                                   1,710,000       1,357,000
   Other                                                     252,000         250,000
                                                        ------------    ------------
      Subtotal                                            38,836,000      38,041,000

Less: valuation allowance                                (38,836,000)    (38,041,000)
                                                        ------------    ------------
      Deferred tax asset, net                           $         --    $         --
                                                        ============    ============
</TABLE>

               As of October 31,  2008,  we had tax net  operating  loss and tax
credit carryforwards of approximately $90,387,000 and $1,838,000,  respectively,
available,  within  statutory limits (expiring at various dates between 2009 and
2028), to offset any future regular Federal  corporate  taxable income and taxes
payable.  If the tax benefits  relating to deductions of option  holders' income
are ultimately realized,  those benefits will be credited directly to additional
paid-in  capital.  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.

               We had tax net  operating  loss and tax credit  carryforwards  of
approximately  $90,251,000 and $111,000,  respectively,  as of October 31, 2008,
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
2008 and 2027 and the tax credit carryforwards expire between 2009 and 2023.

               We have provided a valuation  allowance  against our deferred tax
asset due to our  current  and  historical  pre-tax  losses and the  uncertainty
regarding  their  realizability.   The  primary  differences  from  the  Federal
statutory  rate of 34% and the effective rate of 0% is  attributable  to certain
permanent  differences and a change in the valuation allowance.  The tax benefit
related to the initial  recognition of the deferred tax asset for the unrealized
loss on available for sale securities is reduced to zero with an increase to the
valuation  allowance.  During the year ended  October 31, 2008,  the  $4,140,000
deferred tax asset  unrealized  loss on available for sale securities is reduced
by a full valuation  allowance as a component of accumulated other comprehensive
income.

<TABLE>
<CAPTION>

               The following is a reconciliation  of income taxes at the Federal
statutory tax rate to income tax expense (benefit):

                                                                   Year Ended October 31,
                                     ----------------------------------------------------------------------------------
                                              2008                          2007                          2006
                                     ----------------------        ----------------------        ----------------------
Income tax benefit at U.S.
<S>                                  <C>                <C>        <C>                <C>        <C>                <C>
   Federal statutory income          $(2,012,000)       34%        $(1,854,000)       34%        $(2,584,000)       34%
   tax rate
State income taxes                        (4,000)      .07%            (88,000)     1.62%           (464,000)     6.10%
Permanent differences                    304,000     (5.14%)          (228,000)     4.19%            (49,000)     (.64%)
Credits                                 (119,000)     2.02%           (117,000)     2.15%           (100,000)     1.31%
Expiring net operating
   losses  and credits                 3,798,000    (64.19%)           728,000    (13.35%)           548,000     (7.21%)
Change in New York State
   tax rate                            1,378,000    (23.29%)         4,447,000    (81.56%)                 -         0%
Change in valuation
   allowance                          (3,345,000)    56.53%         (2,888,000)    52.95%          2,649,000    (34.84%)
                                     ------------                   -----------                    ---------
Income tax provision                     $     -         0%            $     -         0%           $     -          0%
                                         =======                       =======                      =======

</TABLE>

               During the three years ended  October  31,  2008,  we incurred no
Federal and no State income taxes. We account for interest and penalties related
to income tax matters in selling, general and administrative expenses.

               On November 1, 2007,  we adopted  FASB 48. FIN 48  clarifies  the
accounting  for  uncertainties  in income taxes  recognized  in an  enterprise's
financial statements.  There were no unrecognized tax benefits as of the date of
our  adoption of FIN 48 and as of October 31,  2008.  The adoption of FIN 48 did
not have a material effect on our consolidated financial statements.


                                      F-24
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               12.           SEGMENT INFORMATION
                             -------------------

               We  follow  the  provisions  of SFAS No.  131,"Disclosures  about
Segments of an Enterprise and Related Information" ("SFAS No. 131").  Reportable
operating segments are determined based on management's approach. The management
approach,  as  defined  by SFAS No.  131,  is  based  on the way that the  chief
operating  decision-maker organizes the segments within an enterprise for making
operating decisions and assessing  performance.  While our results of operations
are  primarily   reviewed  on  a  consolidated   basis,   the  chief   operating
decision-maker  also  manages  the  enterprise  in  two  segments:  (i)  Display
Technology and (ii) Encryption Products and Services.  The following  represents
selected financial  information for our segments for the years ended October 31,
2008, 2007 and 2006:


                                                     Encryption
                                                      Products
                                       Display          and
        Segment Data                  Technology      Services         Total
-----------------------------         -----------    -----------    -----------

Year Ended October 31, 2008:
Net revenue                           $ 1,686,668    $   376,455    $ 2,063,123
Net loss                               (2,424,638)    (3,396,966)    (5,821,604)
Stock option compensation to
    employees and consultants           1,479,494      1,351,133      2,830,627
Stock awards granted to
    employees and consultants
    pursuant to stock incentive
    plans                                 891,013      1,081,841      1,972,854
Total assets                            4,926,222      2,571,647      7,497,869
Investment in Videocon                  3,619,945             --      3,619,945
Investment in DISC                             --        841,800        841,800
Additions to property and
   equipment                                6,568          7,285         13,853


                                      F-25
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                     Encryption
                                                      Products
                                       Display           and
      Segment Data                    Technology      Services         Total
-----------------------------         -----------    -----------    -----------

Year Ended October 31, 2007:
Net revenue                           $        --    $   486,852    $   486,852
Net loss                               (2,932,179)    (2,526,039)    (5,458,218)
Stock option compensation to
    employees and consultants             499,688        581,194      1,080,882
Stock awards granted to
    employees and consultants
    pursuant to stock incentive
    plans                                 800,119      1,116,927      1,917,046
Total assets                              547,409      1,322,750      1,870,159
Investment in DISC                             --        417,000        417,000
Additions to property and
   equipment                                6,456          7,003         13,459


Year Ended October 31, 2006:
Net revenue                            $       --    $   508,651    $   508,651
Net loss                               (3,570,993)    (4,029,908)    (7,600,901)
Stock option compensation to
    employees and consultants           1,336,373      1,767,144      3,103,517
Stock awards granted to
    employees and consultants
    pursuant to stock incentive
    plans                                 885,893      1,297,810      2,183,703
Total assets                              619,590      1,244,039      1,863,629
Investment in DISC                             --        207,000        207,000
Additions to property and
   equipment                                4,951          6,073         11,024


                                      F-26
<PAGE>

COPYTELE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Geographic Information
----------------------

               We  generate  revenue  both  domestically   (United  States)  and
internationally.  International  revenue  is based on the  country  in which our
customer  (distributor)  is located.  For the years ended October 31, 2008, 2007
and 2006, and as of each respective year-end, revenue and accounts receivable by
geographic area are as follows:

       Geographic Data                   2008            2007            2006
-----------------------------         ----------      ----------      ----------

Net revenue:
     United States                    $  121,030      $  447,940      $  269,221
     United Arab Emirates                  4,655              --         204,325
     Other International                 250,770          38,912          35,105
     India                             1,686,668              --              --
                                      ----------      ----------      ----------
                                      $2,063,123      $  486,852      $  508,651
                                      ==========      ==========      ==========

Accounts receivable, net:
        United States                 $       --      $  120,000      $    9,040
        International                    103,000              --           1,125
                                      ----------      ----------      ----------
                                      $  103,000      $  120,000      $   10,165
                                      ==========      ==========      ==========


13.            QUARTERLY RESULTS AND SEASONALITY (UNAUDITED)
               ---------------------------------------------

               The following table sets forth unaudited  financial data for each
of our last eight fiscal quarters:

<TABLE>
<CAPTION>

                                               First         Second         Third          Fourth
                                              Quarter        Quarter        Quarter        Quarter
                                            -----------    -----------    -----------    -----------

Year Ended October 31, 2008:
   Income Statement Data:
<S>                                         <C>            <C>            <C>            <C>
      Net revenue                           $    52,225    $   165,355    $   882,130    $   963,413
      Cost and operating expenses             2,744,757      2,143,467      1,623,512      1,540,905
      Net loss                               (2,685,325)    (1,841,351)      (729,166)      (565,762)
      Net loss per share of common stock-
            basic and diluted               $     (0.02)   $     (0.01)   $     (0.01)   $     (0.00)

Year Ended October 31, 2007:
   Income Statement Data:
      Net revenue                           $   130,750    $    96,427    $   114,000    $   145,675
      Cost and operating expenses             1,913,838      1,536,538      1,176,773      1,352,070
      Net loss                               (1,773,434)    (1,431,896)    (1,055,521)    (1,197,367)
      Net loss per share of common stock-
            basic and diluted               $     (0.02)   $     (0.01)   $     (0.01)   $     (0.01)

</TABLE>


                                      F-27
<PAGE>

COPYTELE, INC. AND SUSIDIARIES
SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2008, 2007 AND 2006

<TABLE>
<CAPTION>

------------------------------------- ------------- -------------------- ----------------- -----------------
             Column A                    Column B         Column C           Column D          Column E
------------------------------------- ------------- -------------------- ----------------- -----------------
                                        Balance at       Additions
                                        beginning     Charged to costs                        Balance at
            Description                 of period       and expenses       Deductions (1)    end of period
------------------------------------- ------------- -------------------- ----------------- -----------------

------------------------------------- ------------- -------------------- ----------------- -----------------
               2008

<S>                                    <C>               <C>                <C>               <C>
Allowance for doubtful accounts        $       -         $ 223,000          $         -       $ 223,000

Reserve against other receivables      $ 171,798         $   6,000          $ ( 177,798)      $       -

------------------------------------- ------------- -------------------- ----------------- -----------------

------------------------------------- ------------- -------------------- ----------------- -----------------
               2007

Allowance for doubtful accounts        $       -         $       -          $         -       $       -

Reserve against other receivables      $ 171,798         $       -          $         -       $ 171,798

------------------------------------- ------------- -------------------- ----------------- -----------------

------------------------------------- ------------- -------------------- ----------------- -----------------
               2006

Allowance for doubtful accounts        $       -         $       -          $         -       $       -

Reserve against other receivables      $ 141,511         $  30,287          $         -       $ 171,798

------------------------------------- ------------- -------------------- ----------------- -----------------

(1)            Represents write-offs to reserved balances or reductions in allowances previously provided.

This schedule  should be read in  conjunction  with the  accompanying  financial statements and notes thereto.

</TABLE>


                                                    S-1

                                  EXHIBIT INDEX
                                  -------------

                  No.                          Exhibit
                  ---                          -------

                  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      Amended  and  Restated   By-laws.   (Incorporated  by
                           reference to Exhibit 3.2 to our Form 8-K dated August
                           4, 2008.)

                  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     Agreement dated July 28, 1999, among CopyTele,  Inc.,
                           Harris    Corporation    and    RF    Communications.
                           (Incorporated by reference to Form 8-K dated July 28,
                           1999.)

                  10.6     CopyTele,    Inc.   2000   Share    Incentive   Plan.
                           (Incorporated  by  reference  to Annex A of our Proxy
                           Statement dated June 12, 2000.)

                  10.7     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.)

                  10.8     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.)


<PAGE>

                  10.9     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.)

                  10.10    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.)

                  10.11    CopyTele,    Inc.   2003   Share    Incentive   Plan.
                           (Incorporated  by  reference to Exhibit 4 to our Form
                           S-8 dated May 5, 2003).

                  10.12    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, 2004).

                  10.13    Amendment  No. 2 to the  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 January 31, 2005).

                  10.14    Amendment  No. 3 to the  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 January 31, 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 May 23, 2007,  between The
                           Boeing Company and CopyTele,  Inc.  (Incorporated  by
                           reference  to Exhibit  10.1 to our Form 8-K dated May
                           23, 2007.)

                  10.18    Amended and Restated  Technology  License  Agreement,
                           dated  May  16,  2008,  between  CopyTele,  Inc.  and
                           Videocon   Industries   Limited.   (Incorporated   by
                           reference to Exhibit 10.1 to our Quarterly  Report on
                           Form  10-Q  for the  fiscal  quarter  ended  July 31,
                           2008.)


<PAGE>

                  10.19    Loan and Pledge  Agreement,  dated  November 2, 2007,
                           Between   Mars   Overseas    Limited   and   CopyTele
                           International  Ltd.  (Incorporated  by  reference  to
                           Exhibit 10.5 to our Quarterly Report on Form 10-Q for
                           the fiscal quarter ended January 31, 2008.)

                  10.20    Loan and Pledge  Agreement,  dated  November 2, 2007,
                           Between CopyTele International Ltd. and Mars Overseas
                           Limited.  (Incorporated  by reference to Exhibit 10.6
                           to our  Quarterly  Report on Form 10-Q for the fiscal
                           quarter ended January 31, 2008.)

                  21       Subsidiaries of CopyTele, Inc.  (Filed herewith.)

                  23.1     Consent of Grant Thornton LLP.  (Filed herewith.)

                  31.1     Certification of Chief Executive Officer, pursuant to
                           Section 302 of the  Sarbanes-Oxley Act of 2002, dated
                           January 14, 2009. (Filed herewith.)

                  31.2     Certification of Chief Financial Officer, pursuant to
                           Section 302 of the  Sarbanes-Oxley Act of 2002, dated
                           January 14, 2009. (Filed herewith.)

                  32.1     Statement  of Chief  Executive  Officer,  pursuant to
                           Section  1350 of Title 18 of the United  States Code,
                           January 14, 2009. (Filed herewith.)

                  31.2     Statement  of Chief  Financial  Officer,  pursuant to
                           Section  1350 of Title 18 of the United  States Code,
                           January 14, 2009. (Filed herewith.)