================================================================================
                       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, 2005

                                       or

[_]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE  ACT OF 1934 (No Fee  Required)  For the  transition  period  from
     ___________ to ___________

                         Commission file number: 0-11254
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                                 COPYTELE, INC.
             (Exact Name of Registrant as Specified in its Charter)

                  Delaware                                    11-2622630
-----------------------------------------------  ------------------------------
(State or Other Jurisdiction of Incorporation            (I.R.S. Employer
              or Organization)                           Identification No.)
-------------------------------------------------------------------------------

                              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. [x]

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

Large accelerated filer [__]   Accelerated filer [x]  Non-accelerated filer [__]

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 29, 2005 (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  ($0.50):
$42,947,807

On January 25, 2006, the registrant had outstanding  93,759,406 shares of Common
Stock, par value $.01 per share,  which is the registrant's only class of common
stock.

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                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE



<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 THE HEADING "GENERAL RISKS AND UNCERTAINTIES"  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  multi-functional  encryption  products  that  provide  information
security  for   domestic   and   international   users  over   virtually   every
communications  media,  and the  development,  production and marketing of thin,
high-brightness, flat panel CRT displays.

         FLAT PANEL CRT DISPLAY

                  After more than eight years of developing our high-brightness,
thin, flat panel CRT display technology,  we have achieved our goal of producing
a flat panel  display  ("Flat  Panel CRT") that not only  preserves  many of the
beneficial  characteristics  of a  cathode  ray  tube  ("CRT")  but is thin  and
consumes  less  power.  We  achieved  this goal by  creating  a TFT  (thin  film
technology)  based pixel  matrix  electron  control  system  ("PMECS")  that can
operate with virtually any electron emission system. We have begun to market our
Flat Panel CRT by  demonstrating  it at flat panel  display  exhibitions  and to
potential  customers and licensees.  We have produced  models of full color thin
Flat Panel CRT  displays  that can be connected to a DVD player to show color or
black and white movies.

                  Our Flat Panel CRT displays incorporating PMECS consist of two
thin  glass  substrates  which are  vacuumed  and  sealed  using our  unique low
temperature  technology.  Our Flat Panel CRT displays can operate with virtually
any type of electron  emission  system,  have gray scale and color or monochrome
capability,  operate  at low  voltages,  have no  pixel  cross-talk  (i.e.,  the
operation  of a pixel does not  interfere  with other  pixels),  and consume low
power.  In  addition,   PMECS,  in  conjunction   with  our  electron   emission
technologies,  is applicable to any size display from small hand-held devices to
large HDTV  products.  We believe that Flat Panel CRT displays  with PMECS could
potentially  have a cost similar to a CRT and thus cost less than current LCD or
plasma displays.

                                       1
<PAGE>

                  The PMECS, which is located on one of the substrates, is being
exclusively  produced for us by an Asian company  utilizing its mass  production
TFT liquid crystal display ("LCD") facilities. Our supplier has incorporated the
PMECS  into 5.5 inch  (diagonal)  TFT  color  matrix  structures  with 960 x 234
pixels. We are now producing,  with the assistance of Volga Svet Ltd. ("Volga"),
a Russian  display  company  that we have been  working with for more than eight
years,  our  CTVD-201   monochrome  and  CTVD-202  color  displays  using  these
structures in combination with our proprietary  electron emission  technologies.
These emission technologies, which include carbon nanotubes, both reflective and
non-reflective  planar edge, and thin  filaments,  are suitable for a variety of
display  applications.  In particular,  we are incorporating our low voltage and
low power carbon  nanotube  electron  emission  system into our displays.  These
carbon nanotubes are extremely small carbon elements, approximately 10,000 times
thinner than the width of a human hair, that emit electrons  under  controllable
conditions. We are working with one of our sources of nanotubes, a U.S. company,
to  incorporate  its  carbon  nanotubes  into our 5.5 inch  diagonal  color  and
monochrome displays.

                  We have successfully  tested our Flat Panel CRT displays under
various  environmental  conditions.  This  included  subjecting  our displays to
shock,  vibration,  and operating temperatures from -40(degree)C to 85(degree)C.
Our  displays  are  capable of  operating  under  both  sunlight  and  nighttime
conditions.  As a result,  we believe  that our  displays  can meet  performance
requirements for both outdoor and indoor applications.  We have also reduced the
operating   voltage   requirements  of  our  displays  to  further  improve  the
reliability and extend the life of our displays.

                  Currently, LCDs are the most commonly used flat panel displays
in  commercial  products.  We believe that our Flat Panel CRT display  utilizing
PMECS has a number of advantages over LCD displays:

                  o        Potentially lower cost, since our Flat Panel CRT does
                           not  contain  a   backlight,   or  color   filter  or
                           polarizer,  which represent a substantial  portion of
                           the cost of an LCD.

                  o        Lower  power,   since  our  Flat  Panel  CRT  has  no
                           backlight.

                  o        Approximately 1,000 times faster response time.

                  o        Up to 10 times brighter.


                                       2
<PAGE>

                  o        Up to 20 times higher contrast.

                  o        Capable of  operating  over a wider  range of ambient
                           light  conditions  than  LCDs,  especially  in bright
                           light conditions.

                  o        Capable  of  operating  over a  temperature  range of
                           -40(degree)C to 85(degree)C,  which exceeds the range
                           over which LCDs can  operate,  especially  under cold
                           temperature conditions.

                  o        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
                           with high contrast of LCDs.

                  Also, our Flat Panel CRT operates at low voltages,  similar to
an LCD, as  compared  to field  emission  displays  which use  voltages of up to
10,000  volts.  A  detailed   summary  of  our  color  and  monochrome   display
specifications can be seen on our website, www.copytele.com.

         ENCRYPTION PRODUCTS AND TECHNOLOGY

                  We  produce  and  market a line of  high-grade,  hardware  and
software based  encryption  products that provide  security for voice,  fax, and
data   transmissions   utilizing   cellular,   satellite,   digital  and  analog
communication  media.  Our encryption  technology  products  encode  information
through a  complex  mathematical  formula  called an  algorithm.  The  algorithm
requires a secret "key" to both encrypt and decrypt information. Only the secret
key  that  is used to  encrypt  the  information  can be  used  to  decrypt  the
information.  Our products automatically generate new secret keys electronically
with each call. When communicating  encrypted  information over a communications
media,  all of our  products  generally  are  required  at both the  sending and
receiving end.

                  Our  line  of  encryption  products  consists  mainly  of  our
multi-functional,   hardware-based   digital  encryption  systems  that  provide
high-grade  voice,  fax and data  encryption  using either the  Citadel(TM)  CCX
encryption  cryptographic chip (which is manufactured by the Harris Corporation)
or the Triple DES or AES  algorithm  (algorithms  available in the public domain
which are used by many U.S. government agencies). In addition, we have developed
two  software-based  security  products - one that uses either the Triple DES or
the AES algorithm to encrypt data files and e-mail  attachments  in both desktop
and laptop computers  utilizing  Microsoft Windows operating systems and another
that is able  to  encrypt  voice  and  data  transmitted  between  cellular  and
satellite  phones  and  among  servers,  scanners,  and  printers.  We sell  our
encryption products directly to end-users and through dealers and distributors.

                  The features common to our hardware communication products are
as follows:


                                       3
<PAGE>

                  o        Simple user operation.

                  o        Every  session  uses a new secret  encryption  key to
                           both encrypt and decrypt information.

                  o        Use of a hardware or software random number generator
                           as part of the secret key system.

                  o        Encryption for point-to-point communication using one
                           of our products at each end.

                  o        Export approval received from the U.S.  Department of
                           Commerce  using  the   Citadel(TM)  CCX  from  Harris
                           Corporation  or Triple  DES or AES  algorithms  and a
                           minimum 128-bit encryption key length.

                  o        Small, lightweight and enclosed in a plastic case.

                  o        Low power consumption.

                  Over the past year,  we have expanded our  encryption  product
line and  currently  have 18  different  products in our product  line.  We have
continued to direct our marketing  efforts toward  participation in the security
opportunities  created by the U.S.  Department  of Homeland  Security,  the U.S.
Defense  Department,  the Health Insurance  Portability and  Accountability  Act
("HIPAA"),  the  Sarbanes-Oxley  Act,  and the  Gramm-Leach-Bliley  Act. We have
entered into agreements with three major U.S.  companies to supply them with our
encryption  equipment,  which  is  capable  of  securing  fax,  voice,  and data
information over satellite,  digital, and analog communication  networks. We are
working  with a company  to  develop  an  encryption  product  to secure  e-mail
transactions,  transparent  to the  individual  user.  If  this  product  can be
successfully developed, we will seek to license our technology, non-exclusively,
to the company.  We are also working  with two  companies to secure  information
between  corporate  servers  and  printers,  and  between  users and high  speed
networks.

                  We  have  developed  a line  of  products  for  use  over  the
satellite  communications  network of the Thuraya  Satellite  Telecommunications
Company  ("Thuraya"),  located  in Dubai,  United  Arab  Emirates.  The  Thuraya
network,  developed  by  the  Boeing  Company  ("Boeing"),   provides  satellite
communications in Europe, Africa, Russia, the Middle East and Asia. Our products
enable the Thuraya network to provide encrypted communications between satellite
phones,  from  satellite  phones to  desk-based  phones,  or between  desk-based
phones. Our products can encrypt both data and, with our DCS-1400-D,  which uses
a compact encryption module attached to the Thuraya handset, voice communication
over the Thuraya network.  End-users  benefiting from our encryption  technology
include Thuraya  customers served by Boeing in Iraq, U.S. military forces in the
Middle East, and other U.S. government personnel.

                  Several  companies are  distributing and marketing our line of
products  for use with the Thuraya  network.  We have an  agreement  with Boeing
under which Boeing is a  distributor  of such  products.  In  addition,  a major
Thuraya  service  provider has also become a distributor  of, and has purchased,
certain of such  products.  Thuraya  itself has  included  13 of our  encryption
products   sold  by   Boeing  on  the   Boeing   page  of   Thuraya's   website,
http://www.thuraya.com/country/int_sp/boeing/products.htm. Our products are also
being marketed by another of Thuraya's  international  service  providers,  Fort
Info Technology FZC, located in Dubai, and are listed on Fort Info  Technology's
website, www.forttel.com, under Secure Communications.


                                       4
<PAGE>

                  Under our  agreement  with  Boeing,  Boeing  is the  exclusive
distributor  of  our  DCS-1400-D  (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.  We have expanded our
line of products distributed by Boeing, which now consists of 13 products. These
products  contain  the brand  name of Thuraya  and have  operating  controls  in
Arabic.  In  addition,  with  funding  provided  by Boeing we have  developed  a
prototype of a docking unit  containing the DCS-1400  system to encrypt the next
generation  voice and data handset to operate over the Thuraya  network.  We are
also developing for Boeing,  a voice product to operate over the Thuraya network
having a higher level of security.  We are also developing additional encryption
products required for applications over the Thuraya network.

                  In connection with Boeing  becoming the exclusive  distributor
of certain of our products, Boeing authorized us to use its name on our website.
Accordingly,  customers desiring to purchase these encryption  products can find
authorized  Boeing sales  information on the  "Encryption  Products" page of our
website. In January 2005, Boeing introduced,  demonstrated (with our assistance)
and began marketing our encryption  products to more than 100 world-wide Thuraya
service providers.

                  Our  encryption  products can also be used to further  encrypt
data over the Globalstar network. Globalstar provides a satellite voice and data
service  throughout  a  world-wide  coverage  area.  Our  DCS-1200  and DCS-1400
encryption    devices    are    included    on    the    Globalstar     webpage,
http://www.globalstarusa.com/en/products/encryption.php.

                  We are  continuing  to  develop a  hardware  device to encrypt
Short  Message  Service  ("SMS"),  an  inexpensive  text  message  communication
protocol  that is used in many cellular and  satellite  phones and networks.  We
currently  plan to utilize  this  encryption  solution in  conjunction  with the
Thuraya  handsets,  but it can be used  for  data  communications  across  other
platforms as well.

                  Our products provide secure communications with many different
satellite  phones,  including the Thuraya  7100/7101  handheld terminal ("HHT"),
Globalstar GPS-1600 HHT, Telit SAT-550/600 HHT,  Globalstar  GPS-2800/2900 fixed
phone,  Iridium  9500/9505 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
Fixed Docking Unit,  and  Sattrans's  SAT-OFFICE  Fixed Docking Unit and SAT-VDA
Hands-Free Car Kit.

                                       5
<PAGE>

                  We have also developed modifications of our standard equipment
for other  applications.  We have  provided  modifications  of our  hardware and
software   encryption   solutions  to  several  large  organizations  which  are
evaluating our products in connection with their security  requirements.  We are
supplying our USS-900AF automatic fax encryption product to a major U.S. defense
contractor to secure its worldwide  fax  communication.  We have entered into an
agreement  with  another  major U.S.  company and  supplied an initial  proof of
concept  encryption  solution  utilizing  another of our products  that has been
configured to interface with that company's  satellite global positioning system
("GPS") and data communication fleet management network.

                  We are supplying another major U.S. company with our USS-900AF
to secure fax  communication of personal medical records.  We are also providing
our DCS-1700 to several U.S. companies to encrypt the network data communication
links  between  corporate   servers,   scanners,   and  printers   contained  in
multi-functional  products.  The TCP/IP  encryption  provided by our DCS-1700 is
also being  evaluated  by firms that  require  secure data backup to meet HIPAA,
Sarbanes-Oxley, Gramm-Leach-Bliley and other corporate governance requirements.

                  There is  continued  interest  in our  encryption  products by
governments located in the Americas,  Europe,  Africa, Asia and the Middle East.
Applications  for these  customers  include  voice,  fax and data security using
land-line  and wireless  phones.  Product  evaluations  by these  customers  are
usually thorough and take time to materialize into firm orders.

                  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.

GENERAL RISKS AND UNCERTAINTIES

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

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, 2005. 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, 2005:


                                       6
<PAGE>

<TABLE>
<CAPTION>
                                                                     FISCAL YEARS ENDED OCTOBER 31,
                                                            ------------------------------------------------
                                                               2005               2004               2003
                                                            ----------         ----------        -----------
<S>                                                         <C>                <C>               <C>
Net loss.............................................       $4,451,257         $3,360,655        $3,114,411
Research and development expenses....................        2,266,911          2,164,427         1,807,742
Net cash used in operations..........................        1,720,332          1,205,122           958,501
</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,  AND OUR  AUDITORS  HAVE ISSUED A "GOING  CONCERN"  AUDIT
         OPINION.

                  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.  The
auditor's report on our financial  statements as of October 31, 2005 states that
the net loss incurred  during the year ended October 31, 2005,  our  accumulated
deficit  as of that  date,  and the  other  factors  described  in Note 1 to the
Financial  Statements raise substantial doubt about our ability to continue as a
going concern.  The auditor's  report on our financial  statements for the years
ended  October 31, 2004 and 2003  contained a similar  statement.  Our financial
statements  have been prepared  assuming we will continue as a going concern and
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

                  We believe  that our existing  cash and  accounts  receivable,
together  with cash flows from expected  sales of  encryption  products and flat
panel displays, and other potential sources of cash flows, will be sufficient to
enable us to continue in operation  until at least the end of the first  quarter
of fiscal 2007. We anticipate that, thereafter, we will require additional funds
to continue marketing,  production, and research and development activities, and
we  will  require   outside   funding  if  cash  generated  from  operations  is
insufficient to satisfy our liquidity requirements.  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 prior to the first  quarter of fiscal 2007.  The sale of
additional equity securities or convertible debt could result in dilution to our
stockholders. We can give no assurance that we will be able to generate adequate
funds from  operations,  that funds will be  available to us from debt or equity
financings  or that,  if  available;  we will be able to  obtain  such  funds on
favorable terms and conditions.  We currently have no arrangements  with respect
to additional financing. If we cannot obtain such funds if needed, we would need
to curtail or cease some or all of our operations.

                                       7
<PAGE>

o        WE MAY NOT GENERATE SUFFICIENT REVENUE TO SUPPORT OUR OPERATIONS IN THE
         FUTURE OR TO GENERATE PROFITS.

                  We  are  engaged  in  two   principal   operations:   (i)  the
development,  production  and marketing of thin  high-brightness  Flat Panel CRT
displays and (ii) 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 only
recently started to produce color and monochrome versions of our high-brightness
Flat Panel CRT displays and 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   ability  to   successfully   market  our  line  of  thin
                  high-brightness   Flat  Panel  CRT  displays  and   encryption
                  products;
         o        the capability of Volga to produce thin high-brightness  color
                  and monochrome Flat Panel CRT displays and supply them to us;
         o        our ability to jointly  develop with Volga and produce a color
                  Flat Panel CRT display with various electron emission systems;
         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   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; and
         o        our future  negotiations  with Volga with  respect to payments
                  and other arrangements  under our Joint Cooperation  Agreement
                  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.


                                       8
<PAGE>


o        WE ARE  DEPENDENT  UPON A FEW  KEY  EXECUTIVES  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, and our
President,  Frank J. DiSanto, who founded our company in 1982 and are 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,  Messrs.  Krusos and DiSanto,  as well as our
other skilled  management and technical  personnel,  are important to our future
business  and  financial  arrangements.  The  loss of the  services  of any such
persons  could have a material  adverse  effect on our  business  and  operating
results.

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.

NEW TECHNOLOGIES UNDER DEVELOPMENT

         FLAT PANEL CRT DISPLAY TECHNOLOGY

                  During 2005, we continued to pursue our efforts to develop new
technologies  for our color and  monochrome  Flat  Panel  CRT  displays.  We are
currently focusing on developing two new technologies.


                                       9
<PAGE>

                  First,  we are further  developing  our Flat Panel CRT display
technology to  incorporate  in our displays our low voltage and low power carbon
nanotube electron  emission system as part of PMECS. We are utilizing  nanotubes
derived from three sources,  including from a U.S. company.  We have developed a
number of different  configurations of carbon nanotube electron emission systems
to  optimize  the  type  of  nanotube   system   necessary  for  PMECS.  We  are
incorporating  our nanotube system in conjunction with PMECS into our Flat Panel
CRT displays and we are currently evaluating the performance  characteristics of
the nanotube system operation.  Our PMECS system  incorporating carbon nanotubes
does not require a focusing element, operates at low voltages, and has low power
consumption. We are also utilizing our E-Paper(TM) technology in connection with
development of our PMECS  incorporating  our carbon nanotube  electron  emission
technology.

                  In  addition,  we are  developing a unique  spacer  technology
which would support the display glass substrates under vacuum.  Our color matrix
structures contain no backlight,  color filter or polarizer.  Accordingly,  with
our use of chip on glass ("COG") matrix design,  the overall  display  thickness
using PMECS with such spacer technology is expected to be approximately  1/16 of
an inch,  thinner than any LCD. There can be no assurance that we can develop or
produce displays using our PMECS with the spacer technology.

         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 developing an encryption  solution for encrypting  data
and GPS information used in the fleet management of vehicles.  We have continued
to make  prototypes of our  encryption  solution,  including,  recently,  a more
compact version, to demonstrate our solution's feasibility.

                                       10
<PAGE>

                  We are further  developing  an  encryption  solution to secure
data links among corporate servers and scanners,  include to secure data backup,
to meet HIPAA, Sabanes-Oxley, Gramm-Leach-Bliley, and other corporate government
requirements.  We are also  developing  an  encryption  system to secure  e-mail
services.  The system will allow  corporations  or individuals to encrypt e-mail
transactions, transparent to the individual user. In addition, we are developing
for Boeing,  a voice product to operate over the Thuraya network having a higher
level of security.

                  We are also  developing  and have  produced a prototype  of an
encryption  product to encrypt the next  generation  voice and data handset over
the Thuraya network.

PRODUCTION

         FLAT PANEL VIDEO DISPLAY PRODUCTS

                  We are producing  models,  with the assistance of Volga,  both
color and monochrome  Flat Panel CRT displays using the 5.5 inch  (diagonal) TFT
color matrix  structures with 960 x 234 pixels which  incorporate PMECS supplied
to us by the Asian  company.  The  displays  also  incorporate  our hardware and
software to generate color and monochrome  information on our displays.  We have
updated our hardware  and software in these  displays to permit them to generate
video, such as color or black and white movies from a DVD player.  Currently, we
can supply a limited  quantity of displays  and we are  investigating  utilizing
either the Asian company or other TFT LCD and CRT  production  companies to mass
produce the displays for our or their potential users. We are also investigating
licensing the technology to those  companies,  including the Asian company,  for
their use in mass producing  displays for their and our  customers.  There is no
assurance  that we can mass  produce the  displays or that we can make  suitable
mass production arrangements with other companies.

         ENCRYPTION PRODUCTS

                  Our  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.

                  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

                  We  are   continuing   to  pursue   marketing   and  licensing
opportunities  for our display  technology,  however to date we have not had any
revenue from sales or licensing of our Flat Panel CRT. We have  utilized  models
of our 5.5 inch  (diagonal)  color and monochrome  displays to  demonstrate  the
capabilities  of our  display  and  its  advantages  over  LCD,  Plasma  and CRT
displays.


                                       11
<PAGE>

                  We have  commenced  displaying  our Flat Panel CRT  display at
exhibitions.  In May 2005,  we exhibited our Flat Panel CRT display to personnel
from more than one hundred companies and government  agencies at the Society for
Information Display International Symposium, Seminar and Exhibition, the premier
international  gathering of scientists,  engineers,  manufacturers and users for
the  discussion,  presentation,  viewing and exhibiting of  information  display
technology. In October 2005, we also exhibited our Flat Panel CRT color displays
at the FPD  International  2005  "Displaying the Future"  exhibition in Yokohama
City, Japan, the leading international exhibition on flat panel displays. We are
following  up with a number of  companies  that have  expressed  an  interest in
utilizing our display technology for their products.  Our strategy is to license
our display  technology for use by major flat panel display  companies for their
display products.

                  We have  continued  to work  with one  company  to  develop  a
plug-in module of our 5.5-inch (diagonal) monochrome display to replace the LCDs
in  that  company's  product.   Our  display  passed  the  company's   operating
environment  requirements and, as a result, we have received a purchase order to
provide the customer with a seed  quantity of such  modules.  Volga has produced
the modules to meet part of this  purchaser's  requirements.  We are planning to
utilize our monochrome Flat Panel CRT display incorporating our PMECS technology
to supply the current customer requirements.

         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 with three companies on applications  involving our
encryption  technology that offer simple,  straight-forward  compliance measures
for these laws and we have  agreements  with several large  companies to provide
them with both our  hardware  and  software  solutions  to meet  their  security
requirements.

                  We  have  a  long  term  agreement   with  Boeing,   which  is
distributing our line of encryption products.  These include voice, fax and data
products on both an exclusive and  non-exclusive  basis.  We have an experienced
marketing  representative  located  in Dubai to expand  both our  marketing  and
customer support operations in the Middle East. We attended and supported Boeing
at the Thuraya Service  Providers Forum in September 2005, which was attended by
more than 100 world-wide  Thuraya  service  providers.  Our encryption  products
offered by Boeing  were also  displayed  by three  major  companies  at the Gulf
Information Technology Exhibition (GITEX) in Dubai in September 2005. GITEX 2005
is among the world's top IT exhibitions and celebrated its 25th anniversary this
year.  We also have  entered  into an  agreement  with a major  Thuraya  service
provider to distribute our encryption equipment.


                                       12
<PAGE>

                  We have an agreement with a major defense contractor to supply
its  world-wide  fax  security  requirements.   Other  large  organizations  are
evaluating  our  products  in  connection  with  their  security   requirements,
including one company that is evaluating an interface with its satellite GPS and
data  communication  fleet  management  network  and  another  company  that  is
evaluating  an  encryption  solution to secure data links  between  scanners and
printers in its  multi-functional  products.  Upon completion of its evaluation,
the latter company would sell our line of encryption products on its website.

                  Through  these  efforts,  we  have  recently  begun  receiving
initial  orders and requests  from city,  state,  U.S.  government  agencies and
financial institutions. We expect that these orders could result in requirements
for larger quantities of units for their security applications.

                  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.

CUSTOMERS

                  During fiscal 2005, we  recognized  approximately  $339,000 in
net sales from The  Boeing  Company,  approximately  77% of our total net sales.
During  fiscal 2004 we recognized  approximately  $300,000 in net sales from The
Boeing  Company,  or  approximately  61% of total net sales,  and  approximately
$93,000 in net sales from Outfitter  Satellite,  Inc., or  approximately  19% of
total net sales.  During  fiscal 2003 we  recognized  approximately  $60,000 and
$31,000, respectively, in net sales from two customers, or approximately 25% and
13% of total net sales.  All of such sales were 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.


                                       13
<PAGE>

PATENTS

                  We have  received  patents from the United  States and certain
foreign patent offices, expiring at various dates between 2006 and 2022. We have
also filed or are  planning to file patent  applications  for our Flat Panel CRT
panel  display  technologies,  including  our  PMECS  technology,  and  for  our
encryption technologies.

                  We have received from the U.S.  patent office patents for four
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,  two of our patent applications
describing our display technology have recently been published.

                  We have  received  from the U.S.  patent  office  two  patents
related to our  encryption  technology.  Three other of our patent  applications
describing  our fax,  voice and data  encryption  over  satellite  and  cellular
communication networks have recently been published.

                  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
$2,267,000,  $2,164,000,  and  $1,808,000 for the fiscal years ended October 31,
2005, 2004 and 2003, respectively.  See "Management's Discussion and Analysis of
Financial   Condition  and  Results  of  Operations"  below  and  our  Financial
Statements.


                                       14
<PAGE>

EMPLOYEES AND CONSULTANTS

                  We had 22 full-time employees and 11 consultants as of October
31, 2005. Eighteen of these individuals, including our Chairman of the Board and
Chief  Executive  Office  and  our  President,   are  engaged  in  research  and
development.  Their backgrounds include expertise in physics,  chemistry, optics
and  electronics.  Seven  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 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, 2008. Our base rent is  approximately  $260,000 per annum with a 3%
annual  increase and an  escalation  clause for  increases in certain  operating
costs.  We have the right to cancel a portion or the entire  lease as of May 31,
2006. This lease does not contain provisions for its renewal and management will
continue  to  evaluate  the future  adequacy  of this  facility.  We  anticipate
securing a lease  renewal  for this  facility at the end of the lease term if we
determine to remain there. See Note 9 to our 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 pending legal proceedings.



                                       15
<PAGE>



ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                  At our Annual  Meeting of  Stockholders,  held on October  31,
2005,  four  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, 2005 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             81,316,734                 994,832
               Frank J.  DiSanto           81,507,436                 804,130
               Henry P. Herms              81,344,944                 966,572
               George P.  Larounis         81,581,679                 729,887

         (b)  Ratification  of  selection of Grant  Thornton LLP as  independent
auditors for the fiscal year ending October 31, 2005:

                           FOR              AGAINST                 ABSTAIN

                       81,767,227           400,110                 144,229




                                       16
<PAGE>





                                     PART II

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
                  MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock has traded on the  Over-the-Counter  Bulletin Board,  under the
symbol "COPY",  since March 27, 2003. Prior to that date our common stock traded
on The Nasdaq Stock Market,  Inc. On August 2, 2002 our listing was  transferred
from the The Nasdaq National Market to The Nasdaq SmallCap Market.  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, 2004 and 2005
have been as follows:

-------------------------------------------------------------------------------
             Fiscal Period                     High                      Low
===============================================================================
            1st quarter 2004                    $0.63                    $0.31
            2nd quarter 2004                     1.32                     0.26
            3rd quarter 2004                     1.10                     0.55
            4th quarter 2004                     1.27                     0.58
-------------------------------------------------------------------------------
            1st quarter 2005                     1.08                     0.72
            2nd quarter 2005                     0.77                     0.43
            3rd quarter 2005                     0.67                     0.35
            4th quarter 2005                    $0.68                    $0.44
-------------------------------------------------------------------------------

                  As of  January  25,  2006,  the  approximate  number of record
holders of our common stock was 1,361 and the closing  price of our common stock
was $0.85 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.



                                       17
<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,
                                                       -------------------------------------------------------------------------
                                                             2005          2004           2003           2002            2001
--------------------------------------------------------------------------------------------------------------------------------
Revenue -
<S>                                                     <C>            <C>            <C>           <C>            <C>
     Net Sales                                          $   439,785    $   494,462    $   244,221    $   645,027    $   732,435
     Collaborative agreement                                   --             --             --        4,541,667        958,333
                                                       -------------------------------------------------------------------------
          Total revenue                                     439,785        494,462        244,221      5,186,694      1,690,768
                                                       -------------------------------------------------------------------------
Cost of revenue -
     Cost of goods and services sold                        132,966        176,112        123,140        327,056        323,705
     Provision for excess inventory                         586,662           --           52,804        100,000           --
     Collaborative agreement                                   --             --             --        1,444,002        373,934
                                                       -------------------------------------------------------------------------
          Total cost of revenue                             719,628        176,112        175,944      1,871,058        697,639
--------------------------------------------------------------------------------------------------------------------------------
Gross Profit (Loss)                                        (279,843)       318,350         68,277      3,315,636        993,129
--------------------------------------------------------------------------------------------------------------------------------
Research and Development Expenses                         2,266,911      2,164,427      1,807,742      1,625,974      2,324,979
--------------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative Expenses              1,919,010      1,518,911      1,379,614      2,177,608      2,272,386
--------------------------------------------------------------------------------------------------------------------------------
Impairment Loss on Commercial Trade Barter Credits             --             --             --        2,820,800           --
--------------------------------------------------------------------------------------------------------------------------------
Interest Income                                              14,507          4,333          4,668         23,506         32,279
--------------------------------------------------------------------------------------------------------------------------------
Net Loss                                                 (4,451,257)    (3,360,655)    (3,114,411)    (3,285,240)    (3,571,957)
--------------------------------------------------------------------------------------------------------------------------------
Net Loss Per Share of  Common Stock - Basic and Diluted       ($.05)         ($.04)         ($.04)         ($.05)         ($.06)
--------------------------------------------------------------------------------------------------------------------------------
Total Assets                                              1,466,253      2,316,050      2,330,491      2,731,509      6,562,403
--------------------------------------------------------------------------------------------------------------------------------
Long Term Obligations                                          --             --             --             --             --
--------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity                                      1,118,023      1,872,930      1,988,206      2,317,490      4,166,526
--------------------------------------------------------------------------------------------------------------------------------
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 1. BUSINESS - GENERAL RISKS AND  UNCERTAINTIES." 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.


                                       18
<PAGE>


GENERAL

                  Our principal  operations are the development,  production and
marketing of  multi-functional  encryption  products  that  provide  information
security  for   domestic   and   international   users  over   virtually   every
communications  media,  and the  development,  production and marketing of thin,
high-brightness, flat panel CRT displays.

                  During 2005, we continued to pursue our efforts to develop new
technologies  for our color and monochrome  flat panel CRT displays.  After more
than eight years of developing our high-brightness, thin, flat panel CRT display
technology,  we have achieved our goal of producing a flat panel display  ("Flat
Panel CRT") that not only preserves many of the beneficial  characteristics of a
cathode ray tube ("CRT") but is thin and consumes  less power.  We achieved this
goal by  creating a TFT (thin  film  technology)  based  pixel  matrix  electron
control system  ("PMECS") that can operate with virtually any electron  emission
system.  We have begun to market our Flat Panel CRT by  demonstrating it at flat
panel display  exhibitions  and to potential  customers and  licensees.  We have
produced models of full color thin Flat Panel CRT displays that can be connected
to a DVD player to show color or black and white movies.

                  Our Flat Panel CRT displays incorporating PMECS consist of two
thin  glass  substrates  which are  vacuumed  and  sealed  using our  unique low
temperature  technology.  Our Flat Panel CRT displays can operate with virtually
any type of electron  emission  system,  have gray scale and color or monochrome
capability,  operate  at low  voltages,  have no  pixel  cross-talk  (i.e.,  the
operation  of a pixel does not  interfere  with other  pixels),  and consume low
power.  In  addition,   PMECS,  in  conjunction   with  our  electron   emission
technologies,  is applicable to any size display from small hand-held devices to
large HDTV  products.  We believe that Flat Panel CRT displays  with PMECS could
potentially  have a cost similar to a CRT and thus cost less than current LCD or
plasma displays.

                  The PMECS, which is located on one of the substrates, is being
exclusively  produced for us by an Asian company  utilizing its mass  production
TFT liquid crystal display ("LCD") facilities. Our supplier has incorporated the
PMECS  into 5.5 inch  (diagonal)  TFT  color  matrix  structures  with 960 x 234
pixels. We are now producing,  with the assistance of Volga Svet Ltd. ("Volga"),
a Russian  display  company  that we have been  working with for more than eight
years,  our  CTVD-201   monochrome  and  CTVD-202  color  displays  using  these
structures in combination with our proprietary  electron emission  technologies.
These emission technologies, which include carbon nanotubes, both reflective and
non-reflective  planar edge, and thin  filaments,  are suitable for a variety of
display  applications.  In particular,  we are incorporating our low voltage and
low power carbon  nanotube  electron  emission  system into our displays.  These
carbon nanotubes are extremely small carbon elements, approximately 10,000 times
thinner than the width of a human hair, that emit electrons  under  controllable
conditions. We are working with one of our sources of nanotubes, a U.S. company,
to  incorporate  its  carbon  nanotubes  into our 5.5 inch  diagonal  color  and
monochrome displays.


                                       19
<PAGE>

                  We have successfully  tested our Flat Panel CRT displays under
various  environmental  conditions.  This  included  subjecting  our displays to
shock,  vibration,  and operating temperatures from -40(degree)C to 85(degree)C.
Our  displays  are  capable of  operating  under  both  sunlight  and  nighttime
conditions.  As a result,  we believe  that our  displays  can meet  performance
requirements for both outdoor and indoor applications.  We have also reduced the
operating   voltage   requirements  of  our  displays  to  further  improve  the
reliability and extend the life of our displays.

                  There  can be no  assurance  that  we can  produce  commercial
quality  displays,  that we can produce such displays in commercial  quantities,
that we can successfully market our displays,  or of the revenue we might derive
from sales of our displays. See "Business - General Risks and Uncertainties".

                  We  produce  and  market a line of  high-grade,  hardware  and
software based  encryption  products that provide  security for voice,  fax, and
data   transmissions   utilizing   cellular,   satellite,   digital  and  analog
communication  media.  Our encryption  technology  products  encode  information
through a  complex  mathematical  formula  called an  algorithm.  The  algorithm
requires a secret "key" to both encrypt and decrypt information. Only the secret
key  that  is used to  encrypt  the  information  can be  used  to  decrypt  the
information.  Our products automatically generate new secret keys electronically
with each call. When communicating  encrypted  information over a communications
media,  all of our  products  generally  are  required  at both the  sending and
receiving end.

                  Our  line  of  encryption  products  consists  mainly  of  our
multi-functional,   hardware-based   digital  encryption  systems  that  provide
high-grade  voice,  fax and data  encryption  using either the  Citadel(TM)  CCX
encryption  cryptographic chip (which is manufactured by the Harris Corporation)
or the Triple DES or AES  algorithm  (algorithms  available in the public domain
which are used by many U.S. government agencies). In addition, we have developed
two  software-based  security  products - one that uses either the Triple DES or
the AES algorithm to encrypt data files and e-mail  attachments  in both desktop
and laptop computers  utilizing  Microsoft Windows operating systems and another
that is able  to  encrypt  voice  and  data  transmitted  between  cellular  and
satellite  phones  and  among  servers,  scanners,  and  printers.  We sell  our
encryption products directly to end-users and through dealers and distributors.


                                       20
<PAGE>

                  Over the past year,  we have expanded our  encryption  product
line and  currently  have 18  different  products in our product  line.  We have
continued to direct our marketing  efforts toward  participation in the security
opportunities  created by the U.S.  Department  of Homeland  Security,  the U.S.
Defense  Department,  the Health Insurance  Portability and  Accountability  Act
("HIPAA"),  the  Sarbanes-Oxley  Act,  and the  Gramm-Leach-Bliley  Act. We have
entered into agreements with three major U.S.  companies to supply them with our
encryption  equipment,  which  is  capable  of  securing  fax,  voice,  and data
information over satellite,  digital, and analog communication  networks. We are
working  with a company  to  develop  an  encryption  product  to secure  e-mail
transactions,  transparent  to the  individual  user.  If  this  product  can be
successfully developed, we will seek to license our technology, non-exclusively,
to the company.  We are also working  with two  companies to secure  information
between  corporate  servers  and  printers,  and  between  users and high  speed
networks.

                  We  have  developed  a line  of  products  for  use  over  the
satellite  communications  network of the Thuraya  Satellite  Telecommunications
Company  ("Thuraya"),  located  in Dubai,  United  Arab  Emirates.  The  Thuraya
network,  developed  by  the  Boeing  Company  ("Boeing"),   provides  satellite
communications in Europe, Africa, Russia, the Middle East and Asia. Our products
enable the Thuraya network to provide encrypted communications between satellite
phones,  from  satellite  phones to  desk-based  phones,  or between  desk-based
phones. Our products can encrypt both data and, with our DCS-1400-D,  which uses
a compact encryption module attached to the Thuraya handset, voice communication
over the Thuraya network.  End-users  benefiting from our encryption  technology
include Thuraya  customers served by Boeing in Iraq, U.S. military forces in the
Middle East, and other U.S. government personnel.

                  Several  companies are  distributing and marketing our line of
products  for use with the Thuraya  network.  We have an  agreement  with Boeing
under which Boeing is a  distributor  of such  products.  In  addition,  a major
Thuraya  service  provider has also become a distributor  of, and has purchased,
certain of such  products.  Thuraya  itself has  included  13 of our  encryption
products   sold  by   Boeing  on  the   Boeing   page  of   Thuraya's   website,
http://www.thuraya.com/country/int_sp/boeing/products.htm. Our products are also
being marketed by another of Thuraya's  international  service  providers,  Fort
Info Technology FZC, located in Dubai, and are listed on Fort Info  Technology's
website, www.forttel.com, under Secure Communications.

                  Under our  agreement  with  Boeing,  Boeing  is the  exclusive
distributor  of  our  DCS-1400-D  (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.  We have expanded our
line of products distributed by Boeing, which now consists of 13 products. These
products  contain  the brand  name of Thuraya  and have  operating  controls  in
Arabic.  In  addition,  with  funding  provided  by Boeing we have  developed  a
prototype of a docking unit  containing the DCS-1400  system to encrypt the next
generation  voice and data handset to operate over the Thuraya  network.  We are
also developing for Boeing,  a voice product to operate over the Thuraya network
having a higher level of security.  We are also developing additional encryption
products required for applications over the Thuraya network.


                                       21
<PAGE>

                  In connection with Boeing  becoming the exclusive  distributor
of certain of our products, Boeing authorized us to use its name on our website.
Accordingly,  customers desiring to purchase these encryption  products can find
authorized  Boeing sales  information on the  "Encryption  Products" page of our
website. In January 2005, Boeing introduced,  demonstrated (with our assistance)
and began marketing our encryption  products to more than 100 world-wide Thuraya
service providers.

                  Our  encryption  products can also be used to further  encrypt
data over the Globalstar network. Globalstar provides a satellite voice and data
service  throughout  a  world-wide  coverage  area.  Our  DCS-1200  and DCS-1400
encryption    devices    are    included    on    the    Globalstar     webpage,
http://www.globalstarusa.com/en/products/encryption.php.

                  We are  continuing  to  develop a  hardware  device to encrypt
Short  Message  Service  ("SMS"),  an  inexpensive  text  message  communication
protocol  that is used in many cellular and  satellite  phones and networks.  We
currently  plan to utilize  this  encryption  solution in  conjunction  with the
Thuraya  handsets,  but it can be used  for  data  communications  across  other
platforms as well.

                  Our products provide secure communications with many different
satellite  phones,  including the Thuraya  7100/7101  handheld terminal ("HHT"),
Globalstar GPS-1600 HHT, Telit SAT-550/600 HHT,  Globalstar  GPS-2800/2900 fixed
phone,  Iridium  9500/9505 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
Fixed Docking Unit,  and  Sattrans's  SAT-OFFICE  Fixed Docking Unit and SAT-VDA
Hands-Free Car Kit.

                  We have also developed modifications of our standard equipment
for other  applications.  We have  provided  modifications  of our  hardware and
software   encryption   solutions  to  several  large  organizations  which  are
evaluating our products in connection with their security  requirements.  We are
supplying our USS-900AF automatic fax encryption product to a major U.S. defense
contractor to secure its worldwide  fax  communication.  We have entered into an
agreement  with  another  major U.S.  company and  supplied an initial  proof of
concept  encryption  solution  utilizing  another of our products  that has been
configured to interface with that company's  satellite global positioning system
("GPS") and data communication fleet management network.

                  We are supplying another major U.S. company with our USS-900AF
to secure fax  communication of personal medical records.  We are also providing
our DCS-1700 to several U.S. companies to encrypt the network data communication
links  between  corporate   servers,   scanners,   and  printers   contained  in
multi-functional  products.  The TCP/IP  encryption  provided by our DCS-1700 is
also being  evaluated  by firms that  require  secure data backup to meet HIPAA,
Sarbanes-Oxley, Gramm-Leach-Bliley and other corporate governance requirements.


                                       22
<PAGE>

                  There is  continued  interest  in our  encryption  products by
governments located in the Americas,  Europe,  Africa, Asia and the Middle East.
Applications  for these  customers  include  voice,  fax and data security using
land-line  and wireless  phones.  Product  evaluations  by these  customers  are
usually thorough and take time to materialize into firm orders.

                  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. 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. We have also
been  working  with several  large  organizations  to provide them with both our
hardware  and software  encryption  solutions  for them to evaluate  whether the
solutions  meet their security  requirements  and have begun  supplying  several
major U.S. companies with our encryption products.  We have also begun to market
our flat panel video display products to potential  purchasers for incorporation
into their  products.  We anticipate  that current cash on hand,  cash generated
from  operations,  and cash generated from the exercise of employee options will
be adequate to fund our operations at least through the end of the first quarter
of fiscal 2007.

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

CRITICAL ACCOUNTING POLICIES

                  Our  financial  statements  are  prepared in  conformity  with
accounting  principles  generally  accepted in the United  State 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.


                                       23
<PAGE>


         REVENUE RECOGNITION

                  SALES

                  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.

         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.  During fiscal 2005, we recorded a provision for excess
inventory due to changes in product requirements of approximately  $587,000. 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  using the
intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion
No. 25 "Accounting for Stock Issued to Employees" and comply with the disclosure
provision  of  Statement  of  Financial  Accounting  Standards  ("SFAS") No. 123
"Accounting for Stock Based Compensation" and SFAS No. 148 "Accounting for Stock
Based  Compensation - Transition and  Disclosure,  an amendment of SFAS No. 123"
("SFAS No. 148"),  effective February 1, 2003. If we were to include the cost of
employee stock option compensation in the financial statements, our net loss for
the fiscal years ended October 31, 2005,  2004 and 2003 would have  increased by
approximately $2,804,000,  $2,909,000 and $889,000,  respectively,  based on the
fair value of the stock options  granted to  employees.  See "- Impact of Recent
Accounting Pronouncements"

RESULTS OF OPERATIONS

FISCAL YEAR ENDED  OCTOBER 31,  2005  COMPARED TO FISCAL YEAR ENDED  OCTOBER 31,
2004

         NET SALES AND GROSS PROFIT

                  NET SALES.  Net sales  decreased by  approximately  $54,000 in
fiscal 2005, to approximately $440,000, as compared to approximately $494,000 in
fiscal 2004.  All sales during both  periods were from  encryption  products and
services.  The decrease in net sales was  principally  due to a decrease in unit
sales  of  approximately  $114,000,  offset  by  an  increase  in  revenue  from
encryption  services of  approximately  $60,000.  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.


                                       24
<PAGE>

         GROSS  PROFIT  (LOSS).  Gross  profit  (loss) from sales of  encryption
products and services  decreased by approximately  $598,000 in fiscal 2005, to a
loss of approximately  $280,000,  as compared to a gross profit of approximately
$318,000 in fiscal 2004. The decrease in gross profit is primarily the result of
the provision for excess  inventory  due to changes in product  requirements  of
approximately  $587,000  recorded in fiscal  2005.  The decrease in gross profit
also resulted  from the decrease in net sales,  which was offset by the decrease
in cost of sales from  goods and  products  sold to  approximately  $133,000  in
fiscal 2005, as compared to approximately  $176,000 in fiscal 2004. Gross profit
as a percent of sales in fiscal 2004 was approximately  64%. Gross profit (loss)
as a percent  of sales in fiscal  2005 is not  meaningful,  since we  recorded a
loss, due to the inventory  adjustment  during the year.  Because of the limited
number of  transactions  during each of the periods,  gross profit  percentages,
excluding  the effect of inventory  adjustments,  are  sensitive  to  individual
transactions.

         RESEARCH AND DEVELOPMENT EXPENSES

                  Research and development  expenses  increased by approximately
$103,000  in  fiscal  2005,  to  approximately  $2,267,000,  from  approximately
$2,164,000 in fiscal 2004. The increase in research and development expenses was
principally  due to an increase in employee  compensation  and related  costs of
approximately $262,000,  primarily resulting from the grant of employee bonuses,
and an increase in patent related expenses of approximately $34,000, offset by a
decrease of approximately  $192,000 in outside research and development  expense
relating to our development of our Flat Panel CRT displays.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

                  Selling,  general and  administrative  expenses  increased  by
approximately   $400,000  to  approximately   $1,919,000  in  fiscal  2005  from
approximately  $1,519,000 in fiscal 2004.  The increase in selling,  general and
administrative  expenses was principally due to an increase in professional fees
of  approximately  $276,000,  approximately  $50,000 of which was incurred  with
respect to a theft by a former employee (see "Investigation and Recovery Efforts
Regarding  Misappropriated  Funds"),  an increase in employee  compensation  and
related costs of approximately  $128,000 and a net increase in the provision for
doubtful  accounts  of  approximately  $111,000,  offset a charge to  expense of
approximately  $75,000 in fiscal 2004 related to the theft by a former employee.
The net  increase  in the  provision  for  doubtful  accounts  of  approximately
$111,000  was due to a provision of  approximately  $38,000 in fiscal 2005 and a
decrease  in the  provision  of  approximately  $73,000 in fiscal  2004 due to a
partial collection of the outstanding receivable to which the provision related.



                                       25
<PAGE>

         INTEREST INCOME

         Interest income was approximately  $15,000 in fiscal 2005,  compared to
approximately  $4,000 in the  comparable  prior-year  period.  The  increase  in
interest income was principally due to an increase in prevailing  interest rates
and the higher  interest  rates received on funds  invested in  certificates  of
deposit in fiscal 2005.

FISCAL YEAR ENDED  OCTOBER 31,  2004  COMPARED TO FISCAL YEAR ENDED  OCTOBER 31,
2003

         NET SALES AND GROSS PROFIT

                  NET SALES.  Net sales increased by  approximately  $250,000 in
fiscal 2004, to approximately $494,000, as compared to approximately $244,000 in
fiscal 2003.  All sales during both  periods were from  encryption  products and
services.  The increase in net sales was  principally due to an increase in unit
sales of our encryption products. Our encryption sales have been limited and are
sensitive to  individual  large  transactions.  We believe that changes in sales
between periods generally represent the nature of the early stage of our product
and sales channel development.

                  GROSS PROFIT.  Gross profit from sales of encryption  products
and  services   increased  by   approximately   $250,000  in  fiscal  2004,   to
approximately $318,000, as compared to approximately $68,000 in fiscal 2003. The
increase in gross profit was primarily  due to the increase in sales,  to higher
gross profit  percentages on certain  transactions as compared to the prior-year
period,  and the effect of a write down of Magicom  inventory  in fiscal 2003 of
approximately  $53,000.  Gross  profit  as  a  percent  of  sales  increased  to
approximately  64% in fiscal 2004,  as compared to  approximately  28% in fiscal
2003. Because of the limited number of transactions  during each of the periods,
gross profit percentages are sensitive to individual transactions.

         RESEARCH AND DEVELOPMENT EXPENSES

                  Research and development  expenses  increased by approximately
$356,000  in  fiscal  2004,  to  approximately  $2,164,000,  from  approximately
$1,808,000 in fiscal 2003. The increase in research and development expenses was
principally  due to an increase in employee  compensation  and related  costs of
approximately  $126,000 and an increase in outside  research and  development of
approximately $209,000.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

                  Selling,  general and  administrative  expenses  increased  by
approximately   $139,000  to  approximately   $1,519,000  in  fiscal  2004  from
approximately  $1,380,000 in fiscal 2003.  The increase in selling,  general and
administrative  expenses  was  principally  due to an in increase in  consulting
expense of  approximately  $198,000,  an increase in employee  compensation  and
related costs of approximately  $116,000,  an increase in shareholder  relations
expense  of  approximately   $31,000,   an  increase  in  professional  fees  of
approximately  $24,000,  and a charge to  expense  of  approximately  $75,000 in
fiscal 2004 related to the theft by a former  employee,  offset by a decrease in
the  provision  for bad  debts  of  approximately  $278,000  and a  decrease  in
advertising expense of approximately  $34,000. The decrease in the provision for
bad debts of approximately  $278,000  resulted from a provision for bad debts in
fiscal 2003 of approximately  $205,000 and reversal in fiscal 2004 of previously
reserved  amounts of  approximately  $73,000 due to a partial  collection of the
outstanding receivable to which the provision relates.


                                       26
<PAGE>

         INTEREST INCOME

                  Interest  income  was  approximately  $4,000 in  fiscal  2004,
compared to approximately $5,000 in fiscal 2003.

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 2001 and 2002, we also received payments under
a  technology  development  agreement.  In  addition,  commencing  in the fourth
quarter  of fiscal  1999,  we began to  generate  cash  flows  from sales of our
encryption products.

         During  fiscal  2005,  our  operating   activities  used  approximately
$1,720,000 in cash.  This  resulted  from  payments to suppliers,  employees and
consultants  of   approximately   $2,216,000,   which  was  offset  by  cash  of
approximately  $481,000  received from  collections  of accounts  receivable and
other  receivables  related to sales of  encryption  products and  approximately
$15,000 of interest income received. In addition, during fiscal 2005 we received
approximately  $1,629,000 in cash upon the exercise of stock  options,  invested
approximately  $401,000 in short-term  investments consisting of certificates of
deposit and purchased  approximately $4,000 of equipment. As a result, our cash,
cash equivalents,  and short-term investments,  at October 31, 2005 decreased to
approximately $907,000 from approximately $1,003,000 at the end of fiscal 2004.

                  Accounts  receivable  decreased by approximately  $31,000 from
approximately  $63,000  at the end of fiscal  2004 to  approximately  $32,000 at
October 31, 2005. The decrease in accounts  receivable is a result of the timing
of  collections.  Other  receivables  decreased  by  approximately  $54,000 from
approximately  $84,000 at the end of fiscal 2004 to approximately $30,000 at the
end of fiscal 2005.  The decrease in other  receivables  is a result of proceeds
received from the sale of a portion of the common stock received from a customer
to settle this accounts receivable of approximately  $21,000 and a provision for
bad  debts  related  to  this  accounts  receivable  of  approximately  $33,000.
Inventories  decreased  approximately  $614,000 from  approximately  $999,000 at
October 31, 2004 to  approximately  $385,000 at October 31, 2005, as a result of
the provision for excess inventory of  approximately  $587,000 due to changes in
product  requirements,  as well as timing of shipments and production schedules.
Prepaid  expenses and other current assets  decreased by  approximately  $42,000
from approximately  $122,000 at the end of fiscal 2004 to approximately  $80,000
at October 31,  2005.  The  decrease  in prepaid  expenses  and other  assets is
primarily  due to the receipt of a receivable  of  approximately  $100,000  from
insurance companies related to a theft by a former employee (see "-Investigation
and  Recovery  Efforts  Regarding  Misappropriated  Funds"),  offset by  prepaid
outside research and development expenses of approximately $50,000 as of October
31, 2005.  Accounts payable and accrued  liabilities  decreased by approximately
$95,000 from  approximately  $443,000 at the end of fiscal 2004 to approximately
$348,000 at October 31, 2005, as a result of the issuance of  restricted  common
stock to  settle  a  liability  of  approximately  $115,000  and the  timing  of
payments.


                                       27
<PAGE>

                  As a result of these changes,  working  capital at October 31,
2005 decreased to approximately  $1,086,000 from approximately $1,829,000 at the
end of fiscal 2004.

                  Our  working  capital  includes   inventory  of  approximately
$385,000 and $999,000 at October 31, 2005 and 2004, respectively. Management has
recorded our  inventory at the lower of cost or our current best estimate of net
realizable  value.  During  fiscal  2005,  we  recorded a  provision  for excess
inventory of approximately  $587,000 due to changes in product requirements.  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.

         During  fiscal years ended  October 31, 2005,  2004 and 2003, we issued
shares of common stock to certain employees for services  rendered,  principally
in lieu of cash compensation.  Included in such shares issued during fiscal 2005
were shares issued to our Chairman of the Board and Chief Executive Officer.  We
recorded  compensation expense for the fiscal years ended October 31, 2005, 2004
and 2003 of approximately $1,822,000,  $1,507,000 and $1,292,000,  respectively,
for shares of common stock issued to employees.  In addition during fiscal 2005,
2004 and 2003,  we issued  shares of common  stock to  consultants  for services
rendered.  We recorded consulting expense for the fiscal years ended October 31,
2005,  2004  and  2003  of   approximately   $37,000,   $342,000  and  $360,000,
respectively, for shares of common stock issued to consultants.

                  Our plans and  expectations for our working capital needs also
assume  that our  Chairman  of the  Board and Chief  Executive  Officer  and our
President  will  continue  to  perform   services   without   significant   cash
compensation  or pension  benefits.  While there are no formal  agreements,  our
Chairman of the Board and Chief Executive  Officer and our President  waived any
and all  rights to  receive  salary  and  related  pension  benefits  commencing
November 1985 through October 31, 2003.  Commencing in fiscal 2004, our Chairman
of the Board and Chief  Executive  Officer  and our  President  began  receiving
salary, which in the aggregate  approximated $189,000 and $172,000 for the years
ended October 31, 2005 and 2004,  respectively,  of which approximately  $97,000
and $135,000,  respectively,  was in the form of common  stock.  There can be no
assurance   that  they  will  continue  to  provide  such  services  under  such
compensation arrangements.

                  The auditor's report on our financial statements as of October
31,  2005 states that the net loss  incurred  during the year ended  October 31,
2005, our accumulated  deficit as of that date, and the other factors  described
in Note 1 to the Financial  Statements raise substantial doubt about our ability
to continue as a going concern. The auditor's report on our financial statements
for the years ended October 31, 2004 and 2003 contained a similar statement. Our
financial  statements  have been  prepared  assuming we will continue as a going
concern and do not include any adjustments that might result from the outcome of
this uncertainty


                                       28
<PAGE>

                  We believe  that our existing  cash and  accounts  receivable,
together  with cash flows from expected  sales of  encryption  products and flat
panel displays, and other potential sources of cash flows, will be sufficient to
enable us to continue in operation  until at least the end of the first  quarter
of fiscal 2007. We anticipate that, thereafter, we will require additional funds
to continue our marketing,  production, and research and development activities,
and we will  require  outside  funding  if cash  generated  from  operations  is
insufficient to satisfy our liquidity requirements.  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 prior to the first  quarter of fiscal 2007.  The sale of
additional equity securities or convertible debt could result in dilution to our
stockholders.  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 or otherwise) to improve our liquidity 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 funds will be available to us from debt or equity  financings
or that, if available;  we will be able to obtain such funds on favorable  terms
and  conditions.  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.  We have been working with several large
organizations  to provide them with both our  hardware  and software  encryption
solutions  for them to  evaluate  whether  the  solutions  meet  their  security
requirements  and have begun  supplying  several major U.S.  companies  with our
encryption  products.  We have also begun to market our flat panel video display
products to potential  purchasers for incorporation into their products.  During
fiscal 2005, we have  recognized  revenue from sales of  encryption  products of
approximately $440,000.


                                       29
<PAGE>


                  The following  table  presents our expected cash  requirements
for contractual obligations outstanding as of October 31, 2005:

<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                    $   55,000              --               --             --        $  55,000

Noncancelable  Operating
Leases                       $  151,000              --               --             --        $ 151,000
                             ----------    --------------    ------------    -------------    ----------
Total Contractual
Cash Obligations             $  206,000              --               --             --        $ 206,000
                             ==========    ==============    ============    =============    ==========
</TABLE>


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

INVESTIGATION AND RECOVERY EFFORTS REGARDING MISAPPROPRIATED FUNDS

                  In  December  2004,  we  determined  that a former  accounting
employee   embezzled   funds  from  us.  We  initially   conducted  an  internal
investigation,  and  subsequently  engaged  an  independent  accounting  firm to
conduct an  independent  investigation  of this  matter.  Through  our  internal
investigation,  we determined  that the amount  embezzled by the employee during
fiscal 2004 and the first month of fiscal 2005 was  approximately  $189,000.  We
also  discovered  approximately  $4,000 in deposits to our account  during these
periods  that we believe  were made by the  employee in an effort to conceal his
fraudulent  activity,  for a net loss to us during this period of  approximately
$185,000.  The  independent  accounting  firm agreed with this  conclusion.  The
independent   accounting   firm  determined  that  the  employee  had  committed
additional fraudulent activity during fiscal 2003, and we subsequently conducted
a further  internal  review of activity by the employee since his hiring in 2001
and determined that the employee had committed additional fraudulent activity in
fiscal 2002 and fiscal 2001, as well. The total losses from such activity during
fiscal 2003, 2002 and 2001 was approximately $28,000. The independent accounting
firm also agreed with these conclusions.

                  We have recovered approximately $110,000 of the losses through
insurance  proceeds.  We applied  $100,000 of such recovery to fiscal 2004,  and
recorded  a  charge  to  expense  of  approximately   $75,000  in  fiscal  2004,
representing  the  remainder of the fiscal 2004 loss.  We applied the  remaining
$10,000 of such recovery to fiscal 2005, representing the entire loss identified
in such period. During fiscal 2005, we also recovered  approximately $4,000 from
financial  institutions,  which we recorded  as a recovery  when  received.  The
losses in fiscal 2001 through  fiscal 2003 were the result of false expenses for
which no  corresponding  asset was  received.  Accordingly,  such  amounts  were
previously  expensed  in the  years  such  funds  were  embezzled.  We will seek
additional  recoveries  from  other  parties  which,  if we  are  successful  in
recovering  additional amounts, will be recorded as recoveries in future periods
when they are received.  Based on the amount and nature of the  embezzlement and
the expected  recoveries,  we do not believe that the fraudulent  activity had a
material effect on any of our previously issued financial statements.


                                       30
<PAGE>

                  We incurred  approximately  $50,000 of  accounting  and  other
professional  fees related to this matter during fiscal 2005.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

                  In December 2004, the FASB issued SFAS No. 123(R), "Accounting
for Stock-Based  Compensation" ("SFAS No. 123(R)").  SFAS No. 123(R) establishes
standards for the accounting for  transactions in which an entity  exchanges its
equity  instruments for goods or services.  This Statement  focuses primarily on
accounting  for  transactions  in which an entity obtains  employee  services in
share-based payment  transactions.  SFAS No. 123(R) requires that the fair value
of such  equity  instruments  be  recognized  as an  expense  in the  historical
financial  statements as services are performed.  Prior to SFAS No. 123(R), only
certain pro forma  disclosures  of fair value were  required.  The provisions of
this Statement were effective for the first interim  reporting  period beginning
after June 15, 2005.  In April 2005,  the  Securities  and  Exchange  Commission
announced a deferral of the  effective  date of SFAS No.  123(R) until the first
interim reporting period of the first fiscal year beginning after June 15, 2005.
Accordingly,  we will adopt SFAS No. 123(R)  commencing  with the quarter ending
January 31, 2006. We are currently evaluating the effect of SFAS No. 123(R). The
adoption  of SFAS No.  123(R)  is  expected  to have a  material  effect  on our
financial statements.

                  In May 2005, the FASB issued SFAS No. 154, "Accounting Changes
and Error Corrections" ("SFAS 154"). SFAS 154 replaces the Accounting Principles
Board Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial  Statements," to require retrospective  application
to prior periods' financial statements of changes in accounting  principle.  The
provisions of SFAS 154 are effective for accounting changes made in fiscal years
beginning  after  December 15, 2005. The adoption of SFAS 154 is not expected to
have a material effect on our financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

                  We have  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  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.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                  See accompanying "Index to Financial Statements."


                                       31
<PAGE>




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 2005.

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 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, 2005. 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, 2005.

                  Management's  assessment of the  effectiveness of our internal
control over  financial  reporting  as of October 31, 2005,  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 2005 that has  materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.



                                       32
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
   COPYTELE, INC.

We have audited management's assessment, included in the accompanying Management
Report on  Internal  Control  Over  Financial  Reporting,  that  CopyTele,  Inc.
maintained effective internal control over financial reporting as of October 31,
2005, based on criteria  established in INTERNAL CONTROL - INTEGRATED  FRAMEWORK
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
(the "COSO criteria").  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.   Our
responsibility  is to  express  an opinion  on  management's  assessment  and an
opinion on the  effectiveness  of 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,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, 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 accounting principles generally accepted in the United States of America. 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 accounting principles generally accepted in the United States of
America,  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.



                                       33
<PAGE>

In our opinion, management's assessment that CopyTele, Inc. maintained effective
internal  control over  financial  reporting  as of October 31, 2005,  is fairly
stated,  in all material  respects,  based on the COSO  criteria.  Also,  in our
opinion,  the Company maintained,  in all material respects,  effective internal
control  over  financial  reporting  as of October 31,  2005,  based on the COSO
criteria.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States), the balance sheets of the Company as
of  October  31,  2005 and  2004,  and the  related  statements  of  operations,
shareholders'  equity and cash  flows for each of the three  years in the period
ended  October 31,  2005,  and our report  dated  January 26, 2006  expressed an
unqualified  opinion  thereon and  included an  explanatory  paragraph as to the
uncertainty of the Company's ability to continue as a going concern.



/s/ GRANT THORNTON LLP

Melville, New York
January 26, 2006


ITEM 9B.          OTHER INFORMATION.

                  None.




                                       34
<PAGE>




                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

                  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              78           1982
                          Executive Officer
-----------------------------------------------------------------------------------------------------------
Frank J. DiSanto          Director and President                                 81           1982
-----------------------------------------------------------------------------------------------------------
Henry P. Herms            Director, Chief Financial Officer and Vice             60           2000
                          President - Finance
-----------------------------------------------------------------------------------------------------------
George P. Larounis        Director                                               77           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.  DiSanto  has  served as one of our  Directors  and as our
President  since  November  1982.  He holds a  B.E.E.  degree  from  Polytechnic
Institute of Brooklyn and an M.E.E. degree from New York University.

                  Mr. 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 with the firm of Arthur  Andersen LLP and a CPA. 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) fillings
were made on a timely basis during fiscal year 2005.


                                       35
<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.

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.

                  Messrs.  Denis  A.  Krusos,   Chairman  of  the  Board,  Chief
Executive Officer and Director,  Frank J. DiSanto,  President and Director,  and
Henry P. Herms, Chief Financial Officer,  Vice President - Finance and Director,
are our  executive  officers.  While  there are no formal  agreements,  Denis A.
Krusos and Frank J.  DiSanto  waived  any and all  rights to receive  salary and
related pension benefits  commencing  November 1, 1985 through October 31, 2003.
As a result,  Messrs.  Krusos and  DiSanto  received  no salary or bonus  during
fiscal 2003.  Effective  for fiscal 2004,  Mr.  Krusos and Mr.  DiSanto began to
receive  salary.  The  salary  received  by Mr.  Krusos in fiscal  2005 and 2004
included approximately $97,000 and $135,000, respectively, which was paid in the
form of common stock. Except for Mr. Krusos, no other executive officer received
an annual  salary and bonus in excess of  $100,000  during the fiscal year ended
October 31, 2005. The following is compensation information regarding Mr. Krusos
for the fiscal years ended October 31, 2005, 2004 and 2003:




                                       36
<PAGE>



<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------

                                        SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------
                                                                                        Long-Term
                                                Fiscal          Annual             Compensation Awards
                  Name and                      Year         Compensation         Securities Underlying
             Principal Position                 Ended          Salary                   Options(#)
-----------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>                    <C>
Denis A. Krusos,                               10/31/05         $147,200               2,500,000
Chairman of the Board,                         10/31/04         $135,075               1,750,000
Chief Executive Officer and Director           10/31/03            --                  1,500,000
-----------------------------------------------------------------------------------------------------------
</TABLE>


         The following is  information  regarding  stock options  granted to Mr.
Krusos pursuant to the 2003 Share  Incentive Plan,  during the fiscal year ended
October 31, 2005:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                    OPTION GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------------------
                                                                            Potential Realizable Value at
                             Individual Grants                              Assumed Annual Rates of Stock
                                                                            Price Appreciation for Option
                                                                                        Term
-----------------------------------------------------------------------------------------------------------

                       Number of      Percent of
                      Securities     Total Options
                      Underlying      Granted to     Exercise
                    Options Granted  Employees in     Price     Expiration
       Name               (#)         Fiscal Year   ($/Share)      Date        5% ($)         10% ($)
-----------------------------------------------------------------------------------------------------------
<S>                  <C>             <C>           <C>           <C>         <C>             <C>
Denis A. Krusos      1,500,000 (1)      19.00%       $0.65 (2)     2/17/15     $613,172       $1,553,900
                      1000,000 (1)      12.67%       $0.52 (2)    10/30/15     $327,025       $  828,746
-----------------------------------------------------------------------------------------------------------
</TABLE>


         (1)      Options  granted  pursuant to the 2003 Share  Incentive  Plan,
                  which  are  exercisable  in  whole  or in part on the  date of
                  grant.  The  options  are not  issued  in  tandem  with  stock
                  appreciation or similar rights and are not transferable  other
                  than by will or the  laws of  descent  and  distribution.  The
                  options terminate upon termination of employment,  except that
                  in the case of death,  disability or  termination  for reasons
                  other than cause, options may be exercised for certain periods
                  of time  thereafter  as set forth in the 2003 Share  Incentive
                  Plan.

         (2)      The  exercise  price of these  options  was  equal to the fair
                  market value (closing price) of the underlying common stock on
                  the date of grant. These options are nonqualified options.

                                       37
<PAGE>

                  The following is information  regarding stock option exercises
during fiscal 2005 by Mr. Krusos and the values of his options as of October 31,
2005:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                            AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                           FY-END OPTION VALUES
============================================================================================================
                      Shares    Value Realized      Number of Securities          Value of Unexercised
                   Acquired on        ($)          Underlying Unexercised       In-the-Money Options at
       Name        Exercise (#)                Options at Fiscal Year End (#)    Fiscal Year End ($)(1)
                                               -------------------------------------------------------------
                                                 Exercisable   Unexercisable   Exercisable   Unexercisable
============================================================================================================
<S>                                               <C>                            <C>
Denis A. Krusos         -              -          8,278,290          -           $480,000          -
------------------------------------------------------------------------------------------------------------
</TABLE>

         (1)      Such value was  determined by  multiplying  the net difference
                  between  the last sales price of the stock on October 31, 2005
                  and the  exercise  price  for the  options  by the  number  of
                  unexercised in-the-money options held.

                  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.  Accordingly,  Mr. Larounis was granted  nonqualified
stock  options to  purchase  60,000  shares of common  stock for  services  as a
director.  In addition,  Mr. Larounis was granted  nonqualified stock options to
purchase 100,000 shares of common stock for services as a consultant.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                  AND MANAGEMENT.

                  The  following  table  sets  forth  certain  information  with
respect to our common  stock  beneficially  owned as of January  25, 2006 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:




                                       38
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                       Amount and Nature of Beneficial      Percent of
       Name and Address of Beneficial Owner                    Ownership(1)(2)                Class
===========================================================================================================
<S>                                                                <C>                        <C>
Denis A. Krusos                                                    10,095,670                 9.89%
900 Walt Whitman Road
Melville, NY  11747
-----------------------------------------------------------------------------------------------------------
Frank J. DiSanto                                                    4,809,505                  4.91%
900 Walt Whitman Road
Melville, NY  11747
-----------------------------------------------------------------------------------------------------------
Henry P. Herms                                                        781,575                    *
900 Walt Whitman Road
Melville, NY  11747
-----------------------------------------------------------------------------------------------------------
George P. Larounis                                                    410,000                    *
900 Walt Whitman Road
Melville, NY 11747
-----------------------------------------------------------------------------------------------------------
All Directors and Executive Officers as a Group
 (4 persons)                                                       16,096,750                 14.99%

-----------------------------------------------------------------------------------------------------------
</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.

         (2)      Includes 8,278,290 shares,  4,166,290 shares,  770,000 shares,
                  410,000  shares and  13,624,580  shares which Denis A. Krusos,
                  Frank J. DiSanto,  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.

EQUITY COMPENSATION PLAN INFORMATION

                  The  following  is  information  as of October  31, 2005 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 7 to  Financial  Statements  for more
information on these plans.



                                       39
<PAGE>

<TABLE>
<CAPTION>
                                                                                      NUMBER OF SECURITIES
                                     NUMBER OF                                        REMAINING AVAILABLE
                                  SECURITIES TO BE                                    FOR FUTURE ISSUANCE
                                    ISSUED UPON                                          UNDER EQUITY
                                    EXERCISE OF           WEIGHTED AVERAGE            COMPENSATION PLANS
                                    OUTSTANDING           EXERCISE PRICE OF          (EXCLUDING SECURITIES
                                 OPTIONS, WARRANTS        OUTSTANDING OPTIONS,        REFLECTED IN COLUMN
PLAN CATEGORY                        AND RIGHTS           WARRANTS AND RIGHTS                  (A))
----------------------------    ---------------------     -----------------------    ------------------------
                                        (a)                            (b)                           (c)
<S>                                     <C>                           <C>                          <C>
Equity compensation plans               9,507,046                     $2.94                        45,773
approved by security
holders

Equity compensation plans              12,505,200                     $0.61                     1,221,644
not approved by security
holders

Total                                  22,012,246                     $1.62                     1,267,417
</TABLE>



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                  None.



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,
2005, and 2004.

<TABLE>
<CAPTION>
                         TYPE OF FEE                      2005                    2004
           --------------------------------------      ---------                ---------
<S>                                                    <C>                      <C>
           Audit Fees                                  $ 219,854                $ 127,460

           Audit Related Fees                              7,800                        -

           Tax Fees - Tax return review                        -                        -

           All Other Fees                                      -                        -

           Total                                       $ 227,654                $ 127,460
</TABLE>


                                       40
<PAGE>

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  September  30,  2005.  We did not  enter  into any  non-audit
engagement or relationship with Grant Thornton LLP during fiscal 2005.




                                       41
<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).

                  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).


                                       42
<PAGE>




         (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      By-laws, as amended. (Filed herewith.)

         10.1     CopyTele,  Inc.  1993 Stock Option Plan,  adopted on April 28,
                  1993  and   approved  by   shareholders   on  July  14,  1993.
                  (Incorporated  by reference to Proxy  Statement dated June 10,
                  1993.)

         10.2     Amendment No. 1 to the CopyTele,  Inc. 1993 Stock Option Plan,
                  adopted on May 3, 1995 and  approved by  shareholders  on July
                  19, 1995. (Incorporated by reference to Form S-8 (Registration
                  No. 33-62381) dated September 6, 1995.)

         10.3     Amendment No. 2 to the CopyTele,  Inc. 1993 Stock Option Plan,
                  adopted on May 10, 1996 and approved by  shareholders  on July
                  24,  1996.  (Incorporated  by  reference  to Form 10-Q for the
                  fiscal quarter ended April 30, 1996.)

         10.4     Agreement  dated March 3, 1999 between Harris  Corporation and
                  CopyTele, Inc. (Incorporated by reference to Form 10-Q for the
                  fiscal quarter ended January 31, 1999.)

         10.5     Stock Subscription  Agreement dated April 27, 1999,  including
                  form  of  Warrant,   between  CopyTele,   Inc.  and  Lewis  H.
                  Titterton.  (Incorporated  by  reference  to Form 10-Q for the
                  fiscal quarter ended April 30, 1999.)

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

         10.7     Stock Subscription  Agreement dated August 30, 1999, including
                  form  of  Warrant,   between  CopyTele,   Inc.  and  Lewis  H.
                  Titterton.  (Incorporated  by  reference  to Form 10-K for the
                  fiscal year ended October 31, 1999.)

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

         10.9     Amendment  No. 1 to the CopyTele,  Inc.  2000 Share  Incentive
                  Plan,  adopted on July 6, 2001 and approved by shareholders on
                  August 16, 2001.  (Incorporated  by reference to Form 10-Q for
                  the fiscal quarter ended July 31, 2001.)


                                       43
<PAGE>

         10.10    Amendment  No. 2 to the CopyTele,  Inc.  2000 Share  Incentive
                  Plan, adopted on July 16, 2002 and approved by shareholders on
                  September 12, 2002. (Incorporated by reference to Exhibit 4(e)
                  to our Form S-8  (Registration  No. 333-99717) dated September
                  18, 2002.)

         10.11    Amendment,  dated  May  10,  2001,  to the  Joint  Cooperation
                  Agreement   between   CopyTele,   Inc.  and  Volga  Svet  Ltd.
                  (Incorporated  by reference to Exhibit  10.14 to our Form 10-K
                  for the fiscal year ended October 31, 2001.)

         10.12    Letter Agreement between  CopyTele,  Inc. and Volga Svet Ltd.,
                  dated as of February 1, 2002.  (Incorporated  by  reference to
                  Exhibit  10.15 to our  Form  10-K for the  fiscal  year  ended
                  October 31, 2001.)

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

         10.14    Amendment  No. 1 to the CopyTele,  Inc.  2003 Share  Incentive
                  Plan  (Incorporated  by  reference to Exhibit 4(e) to our Form
                  S-8 dated November 9, 2004).

         10.15    Form of Stock Option Agreement under CopyTele, Inc. 2003 Share
                  Incentive Plan  (Incorporated  by reference to Exhibit 10.1 to
                  our Quarterly Report on Form 10-Q for the fiscal quarter ended
                  July 31, 2004).

         10.16    Form of Stock Award Agreement under CopyTele,  Inc. 2003 Share
                  Incentive Plan  (Incorporated  by reference to Exhibit 10.2 to
                  our Quarterly Report on Form 10-Q for the fiscal quarter ended
                  July 31, 2004).

         10.17    Long Term Agreement dated April 2, 2004 between CopyTele, Inc.
                  and Boeing Satellite Systems International,  Inc., as modified
                  September  16,  2004.  (Incorporated  by  reference to Exhibit
                  10.17 to our Annual  Report on Form 10-K for the  fiscal  year
                  ended October 31, 2004.)

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


                                       44
<PAGE>

         31.1     Certification of Chief Executive Officer,  pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002, dated January 31, 2006.
                  (Filed herewith.)

         31.2     Certification of Chief Financial Officer,  pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002, dated January 31, 2006.
                  (Filed herewith.)

         32.1     Statement of Chief Executive Officer, pursuant to Section 1350
                  of Title 18 of the United States Code, dated January 31, 2006.
                  (Filed herewith.)

         31.2     Statement of Chief Financial Officer, pursuant to Section 1350
                  of Title 18 of the United States Code, dated January 31, 2006.
                  (Filed herewith.)



                                       45
<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 31, 2006                  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 31, 2006                  Officer)

                                  By /s/ FRANK J. DISANTO
                                  ---------------------------------
                                  Frank J. DiSanto
January 31, 2006                  President and Director

                                  By: /s/ HENRY P. HERMS
                                  ---------------------------------
                                  Henry P. Herms
                                  Vice President - Finance,
                                  Chief Financial Officer and
                                  Director (Principal Financial
January 31, 2006                  and Accounting Officer)

                                  By:  /s/ GEORGE P. LAROUNIS
                                  ---------------------------------
                                  George P. Larounis
January 31, 2006                  Director


                                       46
<PAGE>


COPYTELE, INC.


INDEX TO FINANCIAL STATEMENTS
OCTOBER 31, 2005

<TABLE>
<CAPTION>
                                                                                             Page
                                                                                             -----

<S>                                                                                             <C>
Report of Independent Registered Public Accounting Firm: Grant Thornton LLP                   F-1

Balance Sheets as of October 31, 2005 and 2004                                                F-2

Statements of Operations for the years ended October 31, 2005, 2004 and 2003                  F-3

Statement of Shareholders' Equity for the years ended October 31, 2005, 2004 and 2003         F-4

Statements of Cash Flows for the years ended October 31, 2005, 2004 and 2003                  F-5

Notes to Financial Statements                                                             F-6 - F-20

Schedule of Valuation and Qualifying Accounts                                                 S-1


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.
</TABLE>

<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
       COPYTELE, INC.

We have audited the accompanying balance sheets of CopyTele,  Inc. as of October
31,  2005 and 2004,  and the related  statements  of  operations,  shareholders'
equity,  and cash flows for each of the three years in the period ended  October
31, 2005. 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, 2005,
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  26, 2006  expressed  an  unqualified  opinion on
management's  assessment of the effectiveness of internal control over financial
reporting and an unqualified  opinion on the  effectiveness  of internal control
over financial  reporting.  These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted  our audits in  accordance  with  auditing  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
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of CopyTele,  Inc. as of October
31, 2005 and 2004,  and the results of its operations and cash flows for each of
the three  years in the period  ended  October  31,  2005,  in  conformity  with
accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the Company has incurred a net loss of approximately  $4,451,000 during the year
ended  October 31, 2005,  and, as of that date,  the Company has an  accumulated
deficit of approximately  $72,908,000.  These and the other factors described in
Note 1 raise  substantial  doubt  about the  Company's  ability to continue as a
going  concern.  Management's  plans in regard to these matters are described in
Note 1. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.

We have also audited the  financial  statement  schedule  listed in the Index at
Item 15(a) (2). In our opinion,  this schedule,  when  considered in relation to
the  basic  financial  statements  taken as a  whole,  presents  fairly,  in all
material respects, the information therein.



/s/ GRANT THORNTON LLP

Melville, New York
January 26, 2006



                                      F-1
<PAGE>
COPYTELE, INC.

BALANCE-SHEETS


<TABLE>
<CAPTION>
                                                                                October 31,     October 31,
                                    ASSETS                                         2005            2004
                                    ------                                     ------------    ------------
CURRENT ASSETS:
<S>                                                                            <C>             <C>
   Cash and cash equivalents                                                   $    506,517    $  1,002,777
   Short-term investments                                                           400,776            --
   Accounts receivable, net of allowance for doubtful accounts of $0 and
         $149,455, respectively                                                      32,117          63,460
   Other receivables, net of allowance for doubtful accounts of $141,511
      and $108,793, respectively                                                     30,000          84,308
   Inventories                                                                      384,996         999,429
   Prepaid expenses and other current assets                                         79,829         122,482
                                                                               ------------    ------------
                  Total current assets                                            1,434,235       2,272,456

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of
   $2,115,714 and $2,101,008, respectively                                           27,131          38,085

OTHER ASSETS                                                                          4,887           5,509
                                                                               ------------    ------------
                                                                               $  1,466,253    $  2,316,050
                                                                               ============    ============

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

CURRENT LIABILITIES:
   Accounts payable                                                            $    270,806    $    402,640
   Accrued liabilities                                                               77,424          40,480
                                                                               ------------    ------------

                  Total current liabilities                                         348,230         443,120

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;
       91,975,538 and 85,523,253 shares issued and outstanding, respectively        919,755         855,233
   Additional paid-in capital                                                    73,105,886      69,474,058
   Accumulated deficit                                                          (72,907,618)    (68,456,361)
                                                                               ------------    ------------
                                                                                  1,118,023       1,872,930
                                                                               ------------    ------------
                                                                               $  1,466,253    $  2,316,050
                                                                               ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-2
<PAGE>
COPYTELE, INC.

STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                             For the Years Ended October 31,
                                                     ---------------------------------------------
                                                          2005            2004             2003
                                                     ------------    ------------    -------------
<S>                                                  <C>             <C>             <C>
NET SALES                                            $    439,785    $    494,462    $    244,221

COST OF SALES
     Cost of goods and services sold                      132,966         176,112         123,140
     Provision for excess inventory                       586,662            --            52,804
                                                     ------------    ------------    ------------
                              Total costs of sales        719,628         176,112         175,944
                                                     ------------    ------------    ------------
                  Gross profit (loss)                    (279,843)        318,350          68,277

OPERATING EXPENSES
   Research and development expenses                    2,266,911       2,164,427       1,807,742
   Selling, general and administrative expenses         1,919,010       1,518,911       1,379,614
                                                     ------------    ------------    ------------
                   Total operating expenses             4,185,921       3,683,338       3,187,356
                                                     ------------    ------------    ------------
LOSS FROM OPERATIONS                                   (4,465,764)     (3,364,988)     (3,119,079)

INTEREST INCOME                                            14,507           4,333           4,668
                                                     ------------    ------------    ------------
NET LOSS                                             $ (4,451,257)   $ (3,360,655)   $ (3,114,411)
                                                     ============    ============    ============
PER SHARE INFORMATION:
Net loss per share:
   Basic and Diluted                                      $(.05 )         $(.04 )         $(.04 )
                                                     ============    ============    ============
Shares used in computing net loss per share:
   Basic and Diluted                                   88,480,379      82,953,519      75,153,015
                                                     ============    ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>
COPYTELE

STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2005, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                        Common Stock           Additional
                                                                   ------------------------      Paid-in     Accumulated
                                                                      Shares     Par Value       Capital       Deficit
                                                                   -----------   ----------    -----------  -------------
<S>                                                               <C>             <C>        <C>           <C>
BALANCE, October 31, 2002                                           70,257,155      702,572    63,596,213    (61,981,295)

   Stock option compensation to consultants                               --           --           4,800           --
   Common stock issued upon exercise of stock options under stock
     option plans                                                    4,046,500       40,465     1,087,725           --
   Common stock issued to employees pursuant to stock incentive           --
       plans                                                         4,483,111       44,831     1,246,906           --
   Common stock issued to consultants pursuant to stock incentive
       plans                                                         1,364,712       13,647       346,753           --
   Net loss                                                               --           --            --       (3,114,411)
                                                                    ----------   ----------   -----------    ------------

BALANCE, October 31, 2003                                           80,151,478      801,515    66,282,397    (65,095,706)

   Stock option compensation to consultants                               --           --         196,691           --
   Common stock issued upon exercise of stock options under stock
     option plans                                                    2,236,500       22,365     1,177,605           --
   Common stock issued to employees pursuant to stock incentive
       plans                                                         2,491,415       24,914     1,481,679           --
   Common stock issued to consultants pursuant to stock incentive
       plans                                                           643,860        6,439       335,686           --
   Net loss                                                               --           --            --       (3,360,655)
                                                                    ----------   ----------   -----------    ------------
BALANCE, October 31, 2004                                           85,523,253      855,233    69,474,058    (68,456,361)

   Stock option compensation to consultants                               --           --          93,349           --
   Common stock issued upon exercise of stock options under stock
     option plans                                                    3,083,800       30,838     1,597,762           --
   Common stock issued to employees pursuant to stock incentive
       plans                                                         3,129,485       31,294     1,790,335           --
   Common stock issued to consultants pursuant to stock incentive
       plans                                                            60,000          600        36,800           --
   Unregistered common stock issued to consultants                     179,000        1,790       113,582
   Net loss                                                               --           --            --       (4,451,257)
                                                                    ----------   ----------   -----------   -------------
BALANCE, October 31, 2005                                           91,975,538   $  919,755   $73,105,886   $(72,907,618)
                                                                    ==========   ==========   ===========   =============
</TABLE>

The accompanying notes are an integral part of this statement.



                                      F-4
<PAGE>

COPYTELE

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       For the Years Ended October 31,
                                                                                ------------------------------------------
                                                                                   2005            2004           2003
                                                                                -----------    ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>            <C>            <C>
   Payments to suppliers, employees and consultants                             $(2,216,270)   $(1,792,103)   $(1,234,490)
   Cash received from customers                                                     481,431        582,648        271,321
   Interest received                                                                 14,507          4,333          4,668
                                                                                -----------    -----------    -----------
         Net cash used in operating activities                                   (1,720,332)    (1,205,122)      (958,501)
                                                                                -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Disbursements to acquire short-term investments (certificates of deposit)       (400,776)          --             --
   Payments for purchases of property and equipment                                  (3,752)       (15,602)          (980)
                                                                                -----------    -----------    -----------
         Net cash used in investing activities                                     (404,528)       (15,602)          (980)
                                                                                -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options, net of registration disbursements     1,628,600      1,199,970      1,128,190
                                                                                -----------    -----------    -----------
         Net cash provided by financing activities                                1,628,600      1,199,970      1,128,190
                                                                                -----------    -----------    -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                               (496,260)       (20,754)       168,709

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    1,002,777      1,023,531        854,822
                                                                                -----------    -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                        $   506,517    $ 1,002,777    $ 1,023,531
                                                                                ===========    ===========    ===========
RECONCILIATION OF NET LOSS TO NET CASH USED IN
   OPERATING ACTIVITIES:
   Net loss                                                                     $(4,451,257)   $(3,360,655)   $(3,114,411)
   Stock option compensation to consultants                                          93,349        196,691          4,800
   Stock awards granted to employees and consultants pursuant to stock
     incentive plans                                                              1,859,029      1,848,717      1,652,137
   Provision for (recovery of) doubtful accounts                                     37,718        (73,159)       205,011
   Provision for slow-moving inventory                                              586,662           --           52,804
   Depreciation and amortization                                                     14,706         16,997         33,083
   Change in operating assets and liabilities:
       Accounts receivable and other receivables                                     47,933         94,016         27,097
       Inventories                                                                   27,771         45,446        198,520
       Prepaid expenses and other current assets                                     42,653        (74,510)        54,547
       Other assets                                                                     622            500           (355)
       Accounts payable and accrued liabilities                                      20,482        100,835        (71,734)
                                                                                -----------    -----------    -----------
         Net cash used in operating activities                                  $(1,720,332)   $(1,205,122)   $  (958,501)
                                                                                ===========    ===========    ===========
SUPPLEMENTAL DISCLOSURE  OF NON-CASH FINANCING
    ACTIVITIES:
    Unregistered common stock issued to settle a liability                      $   115,372    $      --      $      --
                                                                                ===========    ==========     ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

1.                BUSINESS AND FUNDING

DESCRIPTION OF BUSINESS

                  CopyTele,  Inc.  was  incorporated  on November  5, 1982.  Our
principal   operations  are  the   development,   production  and  marketing  of
multi-functional  encryption  products  that  provide  information  security for
domestic and international users over virtually every  communications  media and
the development,  production and marketing of thin, high-brightness,  flat panel
CRT displays.

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 2001 and 2002, we also received payments under
a  technology  development  agreement.  In  addition,  commencing  in the fourth
quarter  of  fiscal  1999,  we have  generated  cash  flows  from  sales  of our
encryption products.

                  During   fiscal   2005,   our   operating    activities   used
approximately  $1,720,000  in cash.  This  resulted  from payments to suppliers,
employees and consultants of approximately $2,216,000,  which was offset by cash
of approximately  $481,000 received from collections of accounts  receivable and
other  receivables  related to sales of  encryption  products and  approximately
$15,000 of interest income received. In addition, during fiscal 2005 we received
approximately  $1,629,000 in cash upon the exercise of stock  options,  invested
approximately  $401,000 in short-term  investments consisting of certificates of
deposit and purchased  approximately $4,000 of equipment. As a result, our cash,
cash equivalents,  and short-term investments,  at October 31, 2005 decreased to
approximately $907,000 from approximately $1,003,000 at the end of fiscal 2004.

                  We  believe  that  our  existing   cash,   cash   equivalents,
short-term  investments and accounts  receivable,  together with cash flows from
expected sales of encryption products and flat CRT displays, and other potential
sources of cash flows,  will be sufficient to enable us to continue in operation
until at least the end of the first quarter of fiscal 2007. We anticipate  that,
thereafter,  we  will  require  additional  funds  to  continue  our  marketing,
production, and research and development activities, and we will require outside
funding if cash  generated  from  operations  is  insufficient  to  satisfy  our
liquidity  requirements.  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  prior to the first  quarter of fiscal  2007.  The sale of  additional
equity   securities  or  convertible  debt  could  result  in  dilution  to  our
stockholders.  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 or otherwise) to improve our liquidity 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.


                                      F-6
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


                  The  accompanying  financial  statements  have  been  prepared
assuming that we will continue as a going concern.  As shown in the accompanying
financial  statements,  we have incurred a net loss of approximately  $4,451,000
during  the year ended  October  31,  2005,  and,  as of that  date,  we have an
accumulated  deficit of approximately  $72,908,000.  These and the other factors
described  herein  raise  substantial  doubt  about our ability to continue as a
going  concern.  Management's  plans in  regard to these  matters  are set forth
above. Our financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

2.                SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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,  2005 and 2004,  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 three
months or less.  During the years ended  October 31,  2005,  2004 and 2003,  the
Company did not pay any interest or income taxes.

SHORT-TERM INVESTMENTS

                  Short-term  investments  represent  certificates  of deposits,
carried at amortized cost, with maturities of less than twelve months.  The fair
values of the certificates of deposits, including accrued interest,  approximate
their carrying value due to their short maturities.

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 they
became uncollectible.


                                      F-7
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS



                  Changes in our allowance for doubtful accounts are as follows:

<TABLE>
<CAPTION>
                                                 Year Ended October 31,
                                                -----------------------
                                                   2005        2004
                                                ---------    ----------

<S>                                             <C>          <C>
Beginning balance                               $ 149,455    $ 159,230
   Provision for doubtful accounts receivable       5,000         --
   Accounts written off                          (154,455)      (9,775)
                                                ---------    ----------
Ending balance                                  $    --      $ 149,455
                                                =========    ==========
</TABLE>

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.  During fiscal 2005, we recorded a provision for excess
inventory of approximately $587,000 due to changes in product requirements.  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.

PROPERTY AND EQUIPMENT

                  Property and  equipment,  consisting primarily of  engineering
equipment,  is stated at cost.  Depreciation  is calculated  on a  straight-line
basis over the  estimated  useful lives of the related  assets,  primarily  five
years.

RESEARCH AND DEVELOPMENT EXPENSES

                  Research  and  development  expenses  are expensed in the year
incurred.

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

                  In December 2002,  the Financial  Accounting  Standards  Board
("FASB") issued Statement of Financial  Accounting  Standards  ("SFAS") No. 148,
"Accounting for Stock-Based  Compensation-Transition  and Disclosure" ("SFAS No.
148"), which addresses financial accounting and reporting for recording expenses
for the fair value of stock options.  SFAS No. 148 provides  alternative methods
of  transition  for a voluntary  change to fair value based method of accounting
for stock-based employee compensation.  Additionally, SFAS No. 148 requires more
prominent  and more  frequent  disclosures  in  financial  statements  about the
effects of  stock-based  compensation.  The adoption of SFAS No. 148  disclosure
requirements,  effective  February  1,  2003,  had no  effect  on our  financial
position  or results of  operations.  SFAS No. 123  "Accounting  for Stock Based
Compensation"  ("SFAS No.  123")  encourages  but does not require  companies to
record  compensation cost for stock-based  employee  compensation  plans at fair
value.  We account for stock  options  granted to employees  using the intrinsic
value method  prescribed in Accounting  Principles  Board ("APB") Opinion No. 25
"Accounting  for Stock Issued to  Employees"  ("APB  Opinion No. 25") and comply
with the  disclosure  provisions of SFAS No. 123 and SFAS No. 148.  Compensation
cost for stock  options  issued to  employees  and  directors is measured as the
excess,  if any,  of the quoted  market  price of our stock at the date of grant
over the  amount an  employee  or  director  must pay to acquire  the stock.  In
accordance  with APB Opinion  No. 25, we have not  recognized  any  compensation
cost, as all option grants to employees and directors have been made at the fair
market value of our stock on the date of grant.


                                      F-8
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

                  Had  compensation  cost for stock options granted to employees
been  determined at fair value,  consistent  with SFAS No. 123, our net loss and
net loss per share would have increased to the following adjusted amounts:


<TABLE>
<CAPTION>
                                                                           For the Year Ended October 31,
                                                                 -----------------------------------------------
                                                                      2005             2004            2003
                                                                 ------------     ------------     -------------
<S>                                                              <C>              <C>              <C>
   Net loss as reported                                          $ (4,451,257)    $ (3,360,655)    $ (3,114,411)
   Add: Total stock-based employee compensation
            expense, determined under fair value based
            method, for all awards, net of related tax effect      (2,804,466)      (2,909,217)        (889,145)
                                                                 ------------     ------------     ------------
   Net loss as adjusted                                          $ (7,255,723)    $ (6,269,872)    $ (4,003,556)
                                                                 ============     ============     ============
   Net loss per share, basic and diluted:
            As reported                                               $ (0.05)         $ (0.04)         $ (0.04)
                                                                 ============     ============     ============
            As adjusted                                               $ (0.08)         $ (0.08)         $ (0.05)
                                                                 ============     ============     ============
</TABLE>

                  The fair value of each option  grant is  estimated at the date
of  grant  using  the   Black-Scholes   option  pricing  model.   The  following
weighted-average  assumptions  were used for grants for the years ended  October
31, 2005, 2004 and 2003, respectively:  risk free interest rates of 3.75%, 2.58%
and 1.39%;  expected  dividend  yields of 0% for all periods;  expected lives of
2.50 years,  2.49 years and 1.49 years;  and expected stock price  volatility of
106%,  124% and 139%. The weighted  average fair value of options  granted under
SFAS No. 123 for the fiscal  years  ended  October 31,  2005,  2004 and 2003 was
$0.35, $0.55 and $0.13, respectively.

                  We account for  options  granted to  non-employee  consultants
using the fair value method required by SFAS No. 123.  Compensation  expense for
consultants,  recognized in the years ended October 31, 2005, 2004 and 2003, was
approximately  $93,000,  $197,000 and $5,000,  respectively.  Such  compensation
expense is  included in either  research  and  development  expenses or selling,
general  and  administrative  expenses,  as  applicable,   in  the  accompanying
statements of operations.

NET LOSS PER SHARE OF COMMON STOCK

                  We comply with the  provisions of SFAS No. 128,  "Earnings Per
Share" ("SFAS No. 128").  In  accordance  with 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 impact of common  stock  equivalents  then
outstanding  would  be  anti-dilutive.   For  this  reason,  excluded  from  the
calculation of Diluted EPS for the years ended October 31, 2005,  2004 and 2003,
were options to purchase  22,012,246  shares,  18,064,546  shares and 15,522,246
shares, respectively.


                                      F-9
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


FAIR VALUE OF FINANCIAL INSTRUMENTS

                  We  comply  with the  provisions of SFAS No. 107,  "Disclosure
about Fair Value of Financial Instruments," which requires disclosures about the
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, 2005 and 2004, due to their short term nature.

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.  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 December 2004, the FASB issued SFAS No. 123(R), "Accounting
for Stock-Based  Compensation" ("SFAS No. 123(R)").  SFAS No. 123(R) establishes
standards for the accounting for  transactions in which an entity  exchanges its
equity  instruments for goods or services.  This Statement  focuses primarily on
accounting  for  transactions  in which an entity obtains  employee  services in
share-based payment  transactions.  SFAS No. 123(R) requires that the fair value
of such  equity  instruments  be  recognized  as an  expense  in the  historical
financial  statements as services are performed.  Prior to SFAS No. 123(R), only
certain pro forma  disclosures  of fair value were  required.  The provisions of
this Statement were effective for the first interim  reporting  period beginning
after June 15, 2005.  In April 2005,  the  Securities  and  Exchange  Commission
announced a deferral of the  effective  date of SFAS No.  123(R) until the first
interim reporting period of the first fiscal year beginning after June 15, 2005.
Accordingly,  we will adopt SFAS No. 123(R)  commencing  with the quarter ending
January 31, 2006. The adoption of SFAS No. 123(R) is expected to have a material
effect on our financial  statements with respect to future options granted after
the adoption of this Statement.

                                      F-10
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

                  In May 2005, the FASB issued SFAS No. 154, "Accounting Changes
and Error Corrections" ("SFAS 154"). SFAS 154 replaces the Accounting Principles
Board Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial  Statements," to require retrospective  application
to prior periods' financial statements of changes in accounting  principle.  The
provisions of SFAS 154 are effective for accounting changes made in fiscal years
beginning  after  December 15, 2005. The adoption of SFAS 154 is not expected to
have a material effect on our 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 2005,  one
customer in the  Encryption  Products and Services  Segment  represented  77% of
total net sales.  During fiscal 2004, two customers in the  Encryption  Products
and Services Segment represented 61% and 19%, respectively,  of total net sales.
During  fiscal  2003,  two  customers  in the  Encryption  Products and Services
Segment  represented 25% and 13%,  respectively,  of total net sales. At October
31,  2005,  one  customer  in  the  Encryption  Products  and  Services  Segment
represented 100% of net accounts receivable.  At October 31, 2004, two customers
in the  Encryption  Products  and  Services  Segment  represented  48% and  44%,
respectively, of net accounts receivable.

4.                OTHER RECEIVABLES

                  In May and June 2002, we received restricted common stock from
a  customer  in  connection   with  an   outstanding   accounts   receivable  of
approximately $323,000 and anticipated settling this accounts receivable through
the ultimate sale of the common stock.  This customer has agreed with us to cure
any  deficiency  between the proceeds  from the sale of the common stock and the
balance of the  outstanding  accounts  receivable.  In addition,  the customer's
principal  shareholder has personally agreed to cure any deficiency in the event
that the  customer  defaults on its  agreement  to cure such  deficiency,  up to
$292,000.  During  fiscal 2005 and 2004, we received  proceeds of  approximately
$22,000  and  $110,000,  respectively,  from the sale of a portion of the common
stock.  As of October 31, 2005, we held 200,000 shares of common stock,  subject
to no restrictions, with a fair value of approximately $16,000, and we intend to
sell the  remaining  portion of such  stock  during  the next  twelve  months to
recover the receivable.  This receivable is recorded on the accompanying balance
sheets at  management's  estimate of its net realizable  value of  approximately
$30,000 and $84,000 as of October 31, 2005 and 2004, respectively.



                                      F-11
<PAGE>


COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS






5.                INVENTORIES


Inventories consist of the following as of:

<TABLE>
<CAPTION>
                                                                        October 31,
                                                                    -------------------
                                                                       2005      2004
                                                                    ---------  --------

<S>                                                                 <C>        <C>
                            Component parts                         $134,084   $304,862
                            Work-in-process                           41,379    114,075
                            Finished products                        209,533    580,492
                                                                    --------   --------
                                                                    $384,996   $999,429
                                                                    ========   ========
</TABLE>

6.                ACCRUED LIABILITIES

Accrued liabilities consist of the following as of:


<TABLE>
<CAPTION>

                                                                        October 31,
                                                                    ------------------
                                                                       2005      2004
                                                                    ---------  -------

<S>                                                                <C>       <C>
                            Accrued professional fees              $   221   $21,485
                            Accrued payroll and related expenses    65,682     7,136
                            Accrued other                           11,521    11,859
                                                                   -------   -------
                                                                   $77,424   $40,480
                                                                   =======   =======
</TABLE>

7.                SHAREHOLDERS' EQUITY

COMMON STOCK ISSUANCES

                  During the years ended  October 31,  2005,  2004 and 2003,  we
issued 3,129,485 shares, 2,491,415 shares and 4,483,111 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").  Included in such shares  issued during fiscal 2005 and 2004 were
120,000 shares and 235,000 shares, respectively,  issued to Denis A. Krusos, our
Chairman of the Board and Chief Executive Officer,  and 16,025 shares and 25,000
shares,  respectively,  issued to Henry P. Herms, our Vice President-Finance and
Chief Financial Officer,  respectively. We recorded compensation expense for the
years  ended  October  31,  2005,  2004  and 2003 of  approximately  $1,822,000,
$1,507,000 and  $1,292,000,  respectively,  for shares of common stock issued to
employees.  In addition  during  fiscal 2005,  2004 and 2003,  we issued  60,000
shares,  643,860 shares and 1,364,712 shares,  respectively,  of common stock to
consultants for services  rendered  pursuant to the 2003 Share Plan and the 2000
Share Plan. We recorded consulting expense for the years ended October 31, 2005,
2004 and 2003 of approximately $37,000, $342,000 and $360,000, respectively, for
shares of common stock issued to consultants.

                  During the year ended  October  31,  2005,  we issued  179,000
shares of  unregistered  common  stock to settle a  liability  of  approximately
$115,000.



                                      F-12
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS



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, 2005 and 2004, there is
no preferred stock issued and outstanding.

STOCK OPTION PLANS

                  As of October 31, 2005, 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.

                  Stock  options  outstanding  as of October 31, 2002 of 309,000
shares under our 1987 Stock Option Plan expired during fiscal 2003 and no shares
are available for future grants under this plan.  Information regarding the 1987
Plan for the three years ended October 31, 2005 is as follows:

<TABLE>
<CAPTION>
                                                                            Current Weighted
                                                                            Average Exercise
                                                                  Shares     Price Per Share
                                                                 --------   ----------------
<S>                                                             <C>          <C>
Shares Under Option and Exercisable at October 31, 2002           309,000        $5.63
     Expired                                                     (309,000)       $5.63
                                                                 --------     --------
Shares Under Option and Exercisable at October 31, 2003                --        $  --
                                                                 ========     ========
</TABLE>

                  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.  The 1993
Plan was administered by the Stock Option Committee, which determined the option
price,  term and  provisions of each option.  Since June 2004, the 1993 Plan has
been  administered  by the Board of Directors.  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.



                                      F-13
<PAGE>



COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS




                  Information  regarding the 1993 Plan for the three years ended
October 31, 2005 is as follows:

<TABLE>
<CAPTION>
                                                                            Current Weighted
                                                                            Average Exercise
                                                                   Shares   Price Per Share
                                                                ----------  ----------------
<S>                                                             <C>              <C>
Shares Under Option at October 31, 2002                         10,796,780       $4.26
  Canceled                                                      (1,973,000)      $6.37
                                                                ----------
Shares Under Option at October 31, 2003                          8,823,780       $3.79
  Canceled                                                        (956,700)      $4.40
                                                                ----------
Shares Under Option at October 31, 2004                          7,867,080       $3.72
  Canceled                                                      (1,078,500)      $3.02
  Exercised                                                        (70,000)      $0.84
                                                                ----------
Shares Under Option and Exercisable at October 31, 2005          6,718,580       $3.86
                                                                ==========
</TABLE>

                  The following table summarizes information about stock options
outstanding under the 1993 Plan as of October 31, 2005:


<TABLE>
<CAPTION>
                                      Options Outstanding                                       Options Exercisable
                   --------------------------------------------------------------------- ----------------------------------
                                           Weighted
                        Number               Average                     Weighted           Number             Weighted
     Range of        Outstanding            Remaining                    Average          Exercisable          Average
  Exercise Prices    at 10/31/05         Contractual Life             Exercise Price      at 10/31/05       Exercise Price
 ----------------- -----------------  -------------------------  ----------------------- ---------------  -----------------
<S>                  <C>                 <C>                        <C>                  <C>            <C>
  $0.84 to $1.56        784,000               4.04                       $1.10                784,000        $1.10
       $2.28            855,000               2.70                       $2.28                855,000        $2.28
  $3.38 to $4.81      4,684,580               1.03                       $4.39              4,684,580        $4.39
       $6.38            395,000                .88                       $6.38                395,000        $6.38
</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.

                  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.

                                      F-14
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

                  Information  regarding the 2000 Share Plan for the three years
ended October 31, 2005 is as follows:


<TABLE>
<CAPTION>

                                                                                    Current Weighted
                                                                                    Average Exercise
                                                                   Shares           Price Per Share
                                                                  ----------        ---------------
<S>                                                               <C>                   <C>
Shares Under Option at October 31, 2002                            3,599,966             $0.70
  Granted                                                            910,000             $0.23
  Canceled                                                          (235,000)            $0.63
  Exercised                                                         (995,500)            $0.25
                                                                  ----------
Shares Under Option at October 31, 2003                            3,279,466             $0.71
  Canceled                                                           (39,500)            $1.14
  Exercised                                                         (387,500)            $0.45
                                                                  ----------
Shares Under Option at October 31, 2004                            2,852,466             $0.74
  Canceled                                                           (45,000)            $1.06
  Exercised                                                          (19,000)            $0.40
                                                                  ----------
Shares Under Option and Exercisable at October 31, 2005            2,788,466             $0.73
                                                                  ==========
</TABLE>

                  The following table summarizes information about stock options
outstanding under the 2000 Share Plan as of October 31, 2005:

<TABLE>
<CAPTION>
                                    Options Outstanding                       Options Exercisable
                  ---------------------------------------------------- --------------------------------
                                      Weighted
                     Number            Average            Weighted          Number        Weighted
    Range of       Outstanding        Remaining            Average        Exercisable      Average
 Exercise Prices   at 10/31/05     Contractual Life     Exercise Price    at 10/31/05   Exercise Price
----------------- -------------  --------------------  --------------- --------------- ----------------
<S>              <C>                 <C>               <C>                <C>             <C>
  $0.34 - $0.40      961,000             5.65              $0.40              961,000         $0.40
  $0.44 - $0.74      725,466             5.05              $0.68              725,466         $0.68
  $0.94 - $1.09    1,102,000             4.93              $1.06            1,102,000         $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, 2005,
45,773 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, 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.  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-15
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


                  Information  regarding the 2003 Share Plan for the three years
ended October 31, 2005 is as follows:

<TABLE>
<CAPTION>
                                                                        Current Weighted
                                                                        Average Exercise
                                                           Shares       Price Per Share
                                                         ----------     ----------------
<S>                                                       <C>             <C>
   Shares Under Option at October 31, 2002                       --           $  --
     Granted                                              6,470,000           $0.29
     Exercised                                           (3,051,000)          $0.29
                                                         ----------
   Shares Under Option at October 31, 2003                3,419,000           $0.30
     Granted                                              5,775,000           $0.80
     Exercised                                           (1,849,000)          $0.56
                                                         ----------
   Shares Under Option at October 31, 2004                7,345,000           $0.63
     Granted                                              8,195,000           $0.57
     Canceled                                               (40,000)          $0.93
     Exercised                                           (2,994,800)          $0.52
                                                         ----------
   Shares Under Option at October 31, 2005               12,505,200           $0.61
                                                         ==========
   Options Exercisable at October 31, 2005               12,445,200           $0.61
                                                         ==========
</TABLE>

                  The following table summarizes information about stock options
outstanding under the 2003 Share Plan as of October 31, 2005:

<TABLE>
<CAPTION>

                                      Options Outstanding                         Options Exercisable
                  ---------------------------------------------------------- ----------------------------------
                                          Weighted
                      Number                Average           Weighted            Number          Weighted
   Range of          Outstanding           Remaining          Average           Outstanding        Average
Exercise Prices      at 10/31/05         Contractual Life    Exercise Price     at 10/31/05     Exercise Price
----------------- ----------------- ---------------------- ----------------- ---------------- -----------------
<S>                <C>                <C>                 <C>                <C>             <C>
 $0.25 - $0.46           3,583,000          7.43                $0.29              3,583,000       $0.29
 $0.51 - $0.77           5,611,200          9.37                $0.60              5,611,200       $0.60
 $0.81 - $1.07           3,311,000          8.58                $0.92              3,251,000       $0.92
</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, 2005,
1,221,644 shares were available for future grants under the 2003 Share Plan.

8.                INVESTIGATION AND RECOVERY EFFORTS REGARDING
                  MISAPPROPRIATED FUNDS

                  During  fiscal  2004 and the  first  month of fiscal  2005,  a
former employee embezzled  approximately $185,000 in cash of which approximately
$10,000 related to fiscal 2005.  During fiscal 2005, we recovered  approximately
$110,000  of such  loss  through  insurance  proceeds,  of  which  approximately
$100,000 is recorded as other current assets on the  accompanying  balance sheet
as of October 31, 2004.  We also  recorded a charge to expense in fiscal 2004 of
approximately  $75,000 related to this matter.  During fiscal 2003 and 2002, the
former  employee  committed   additional   fraudulent   activities   aggregating
approximately  $25,000,  which were expensed during such fiscal periods.  During
fiscal 2005, we recovered approximately $4,000 from financial institutions which
was recorded as a recovery  when  received.  If we are  successful in recovering
additional amounts, such amounts up to approximately $71,000 will be recorded as
recoveries in future periods when and if any are received.


                                      F-16
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

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, 2008. The lease  contains base rentals of  approximately
$252,000  per annum  with a 3% annual  increase  and an  escalation  clause  for
increases in certain  operating  costs. We have the right to cancel a portion or
the entire lease as of May 31, 2006. As of October 31, 2005,  our  noncancelable
operating lease  commitments  are  approximately  $151,000.  This lease does not
contain provisions for its renewal.

                  Rent expense for the years ended  October 31,  2005,  2004 and
2003, was approximately $252,000, $247,000 and $235,000, respectively.

CONSULTING AGREEMENT

                  In addition, as of October 31, 2005 we had commitments under a
consulting agreement of approximately $55,000,  payable during the first quarter
of fiscal 2006.

10.               EMPLOYEE PENSION PLAN

                  We  adopted a  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, 2005, 2004 and 2003.

11. INCOME TAXES

                  Income tax provision (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                      Year Ended October 31,
                                            -----------------------------------------
                                                 2005           2004           2003
                                            ------------    -----------    ----------
Federal:
<S>                                         <C>              <C>            <C>
     Current                                $        --    $        --     $       --
     Deferred                                (1,200,000)    (1,383,000)    (1,499,000)

State:
     Current                                         --             --             --
     Deferred                                  (177,000)      (203,000)      (220,000)
Adjustment to valuation allowance related
   to net deferred tax assets                 1,377,000      1,586,000      1,719,000
                                            -----------    -----------    -----------
                                            $        --    $        --     $       --
                                            ===========    ===========    ===========
</TABLE>


                                      F-17
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

                                   The tax effects of temporary differences that
give rise to significant portions of the deferred tax asset, net, at October 31,
2005 and 2004, are as follows:

<TABLE>
<CAPTION>
                                                                                    2005                      2004
                                                                                ------------            ------------
             Long-term deferred tax assets:
<S>                                                                             <C>                     <C>
                Other assets                                                    $  1,128,000            $  1,128,000
                Federal and state NOL and tax credit carryforwards                36,876,000              35,673,000
                Other                                                                276,000                 102,000
                                                                                ------------            ------------
                   Subtotal                                                       38,280,000              36,903,000
             Less: valuation allowance                                           (38,280,000)            (36,903,000)
                                                                                ------------            ------------
                    Deferred tax asset, net                                     $          -            $          -
                                                                                ============            ============
</TABLE>

                  As of October 31, 2005, we had tax net operating  loss and tax
credit carryforwards of approximately $87,080,000 and $1,913,000,  respectively,
available,  within  statutory limits (expiring at various dates between 2006 and
2025), 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  $87,140,000 and $128,000,  respectively,  as of October 31, 2005,
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
2006 and 2025 and the tax credit carryforwards expire between 2006 and 2020.

                  During the three years ended  October 31, 2005, we incurred no
Federal and no State income taxes.

12.               SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

                  While  there were no formal  agreements,  our  Chairman of the
Board and Chief Executive Officer and our President waived any and all rights to
receive salary and related  pension  benefits  commencing  November 1985 through
October  2003.  Commencing  in fiscal 2004,  our Chairman of the Board and Chief
Executive  Officer  and our  President  began  receiving  salary,  which  in the
aggregate  approximated  $189,000 and  $172,000 for the years ended  October 31,
2005 and 2004, respectively. From fiscal 1987 through July 31, 2003, three other
senior  level  personnel  also  waived  salary  and  related  pension  benefits.
Commencing  in fiscal 2003,  the three senior level  personnel  began  receiving
salary, which in the aggregate approximated  $435,000,  $289,000 and $57,000 for
the years ended October 31, 2005, 2004 and 2003, respectively.

13.               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


                                      F-18
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

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)  Flat-panel
display and (ii)  Encryption  products and services.  The  following  represents
selected financial  information for our segments for the years ended October 31,
2005, 2004 and 2003:


                                                ENCRYPTION
                                  FLAT-PANEL    PRODUCTS AND
SEGMENT DATA                        DISPLAY      SERVICES          TOTAL
-------------------------------   ------------  ------------   -------------
Year Ended October 31, 2005:
Net sales                         $      --      $   439,785    $   439,785
Net loss                           (1,764,610)    (2,686,647)    (4,451,257)
Depreciation                            6,220          8,486         14,706
Interest income                         5,793          8,714         14,507
Stock awards granted to
    employees and consultants
    pursuant to stock incentive
    plans                             661,425      1,197,604      1,859,029
Total assets                          431,037      1,035,216      1,466,253
Additions to long-lived assets          1,587          2,165          3,752


Year Ended October 31, 2004:
Net sales                         $      --      $   494,462    $   494,462
Net loss                           (1,773,282)    (1,587,373)    (3,360,655)
Depreciation                            8,192          8,805         16,997
Interest income                         2,010          2,323          4,333
Stock awards granted to
    employees and consultants
    pursuant to stock incentive
    plans                             855,991        992,726      1,848,717
Total assets                          563,363      1,752,687      2,316,050
Additions to long-lived assets          7,520          8,082         15,602


Year Ended October 31, 2003:
Net sales                         $      --      $   244,221    $   244,221
Net loss                           (1,812,624)    (1,301,787)    (3,114,411)
Depreciation                           18,534         14,549         33,083
Interest income                         2,615          2,053          4,668
Stock awards granted to
    employees and consultants
    pursuant to stock incentive
    plans                             906,549        745,588      1,652,137
Total assets                          625,774      1,704,717      2,330,491
Additions to long-lived assets            980           --              980



                                      F-19
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

GEOGRAPHIC INFORMATION

                  We generate  revenue  both  domestically  (United  States) and
internationally.  International  sales  are  based on the  country  in which our
customer  (distributor)  is located.  For the years ended October 31, 2005, 2004
and 2003, and as of each respective  year-end,  sales and accounts receivable by
geographic area are as follows:

                  Geographic Data              2005       2004        2003
                  ------------------------   ----------  --------   ---------
                  Net sales:
                           United States      $409,521   $479,621   $199,810
                           International        30,264     14,871     44,401
                                              --------   --------   --------
                                              $439,785   $494,492   $244,211
                                              ========   ========   ========
                  Accounts receivable, net:
                           United States      $ 32,117   $ 63,460   $ 37,600
                           International          --         --        3,900
                                              --------   --------   --------
                                              $ 32,117   $ 63,460   $ 41,500
                                              ========   ========   ========


14.               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, 2005:
    Income Statement Data:
<S>                                           <C>            <C>            <C>            <C>
      Net sales                               $   212,591    $    46,709    $   132,125    $    48,360
        Gross profit (loss)                       148,018        (89,149)      (222,703)      (116,009)
        Net loss                               (1,006,494)    (1,179,995)    (1,119,053)    (1,145,715)
        Net loss per share of common stock-
            basic and diluted                 $     (0.01)   $     (0.01)   $     (0.01)   $     (0.01)

Year Ended October 31, 2004:
    Income Statement Data:
      Net sales                               $    39,000    $   101,804    $   216,447    $   137,211
        Gross profit                               24,401         70,105        133,227         90,617
        Net loss                                 (809,354)      (694,900)    (1,034,212)      (822,189)
        Net loss per share of common stock-
            basic and diluted                 $     (0.01)   $     (0.01)   $     (0.01)   $     (0.01)

</TABLE>


                                      F-20



<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

COPYTELE, INC.
SCHEDULE II



VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2005, 2004 AND 2003


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
         COLUMN A                          COLUMN B               COLUMN C          COLUMN D          COLUMN E
-----------------------------------------------------------------------------------------------------------------
                                                                Additions
                                        Balance at           Charged to costs                        Balance at
       Description                  beginning of period        and expenses       Deductions (1)   end of period
---------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------
      2005
      -----
<S>                                      <C>                <C>              <C>                     <C>
Allowance for doubtful accounts          $149,455           $   5,000        $  154,455              $       --

Reserve against other receivables        $108,793           $  41,340        $    8,622                 141,511

Reserve for slow moving inventory        $     --           $ 586,662        $   44,131              $  542,531
---------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------
       2004
       ----
Allowance for doubtful accounts          $159,230           $      --        $    9,775               $  149,455

Reserve against other receivables        $181,952           $      --        $   73,159                  108,793
---------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------
       2003
       -----
Allowance for doubtful accounts          $325,505           $  23,056        $  189,331               $  159,230

Reserve against other receivables        $     --           $ 181,952        $       --               $  181,952
---------------------------------------------------------------------------------------------------------------
</TABLE>

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



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


                                      S-1



<PAGE>


                                  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      By-laws, as amended. (Filed herewith.)

10.1     CopyTele,  Inc.  1993 Stock Option Plan,  adopted on April 28, 1993 and
         approved by shareholders on July 14, 1993.  (Incorporated  by reference
         to Proxy Statement dated June 10, 1993.)

10.2     Amendment No. 1 to the CopyTele,  Inc. 1993 Stock Option Plan,  adopted
         on May  3,  1995  and  approved  by  shareholders  on  July  19,  1995.
         (Incorporated  by reference  to Form S-8  (Registration  No.  33-62381)
         dated September 6, 1995.)

10.3     Amendment No. 2 to the CopyTele,  Inc. 1993 Stock Option Plan,  adopted
         on May  10,  1996  and  approved  by  shareholders  on July  24,  1996.
         (Incorporated  by reference to Form 10-Q for the fiscal  quarter  ended
         April 30, 1996.)

10.4     Agreement dated March 3, 1999 between Harris  Corporation and CopyTele,
         Inc.  (Incorporated  by reference  to Form 10-Q for the fiscal  quarter
         ended January 31, 1999.)

10.5     Stock  Subscription  Agreement dated April 27, 1999,  including form of
         Warrant,  between CopyTele, Inc. and Lewis H. Titterton.  (Incorporated
         by reference to Form 10-Q for the fiscal quarter ended April 30, 1999.)

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

10.7     Stock Subscription  Agreement dated August 30, 1999,  including form of
         Warrant,  between CopyTele, Inc. and Lewis H. Titterton.  (Incorporated
         by reference to Form 10-K for the fiscal year ended October 31, 1999.)

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

10.9     Amendment  No. 1 to the  CopyTele,  Inc.  2000  Share  Incentive  Plan,
         adopted  on July 6, 2001 and  approved  by  shareholders  on August 16,
         2001.  (Incorporated  by reference to Form 10-Q for the fiscal  quarter
         ended July 31, 2001.)

10.10    Amendment  No. 2 to the  CopyTele,  Inc.  2000  Share  Incentive  Plan,
         adopted on July 16, 2002 and approved by  shareholders on September 12,
         2002.  (Incorporated  by  reference  to  Exhibit  4(e) to our  Form S-8
         (Registration No. 333-99717) dated September 18, 2002.)


<PAGE>

10.11    Amendment,  dated  May 10,  2001,  to the Joint  Cooperation  Agreement
         between CopyTele,  Inc. and Volga Svet Ltd.  (Incorporated by reference
         to Exhibit 10.14 to our Form 10-K for the fiscal year ended October 31,
         2001.)

10.12    Letter Agreement between  CopyTele,  Inc. and Volga Svet Ltd., dated as
         of February 1, 2002. (Incorporated by reference to Exhibit 10.15 to our
         Form 10-K for the fiscal year ended October 31, 2001.)

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

10.14    Amendment  No.  1 to the  CopyTele,  Inc.  2003  Share  Incentive  Plan
         (Incorporated  by  reference  to  Exhibit  4(e) to our Form  S-8  dated
         November 9, 2004).

10.15    Form  of  Stock  Option  Agreement  under  CopyTele,  Inc.  2003  Share
         Incentive  Plan  (Incorporated  by  reference  to  Exhibit  10.1 to our
         Quarterly  Report on Form 10-Q for the  fiscal  quarter  ended July 31,
         2004).

10.16    Form of Stock Award Agreement under CopyTele, Inc. 2003 Share Incentive
         Plan (Incorporated by reference to Exhibit 10.2 to our Quarterly Report
         on Form 10-Q for the fiscal quarter ended July 31, 2004).

10.17    Long Term  Agreement  dated April 2, 2004  between  CopyTele,  Inc. and
         Boeing Satellite Systems International, Inc., as modified September 16,
         2004.  (Incorporated by reference to Exhibit 10.17 to our Annual Report
         on Form 10-K for the fiscal year ended October 31, 2004.)

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  31,  2006.  (Filed
         herewith.)

31.2     Certification  of Chief Financial  Officer,  pursuant to Section 302 of
         the  Sarbanes-Oxley  Act  of  2002,  dated  January  31,  2006.  (Filed
         herewith.)

32.1     Statement of Chief Executive Officer, pursuant to Section 1350 of Title
         18 of the United States Code, January 31, 2006. (Filed herewith.)

31.2     Statement of Chief Financial Officer, pursuant to Section 1350 of Title
         18 of the United States Code, January 31, 2006. (Filed herewith.)