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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A

                                AMENDMENT NO. 1

[x]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended October 31, 2004

                                       or

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

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

          Delaware                                     11-2622630
--------------------------------          --------------------------------------
(State or Other Jurisdiction of            (I.R.S. Employer Identification No.)
 Incorporation or Organization)
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                              900 Walt Whitman Road
                               Melville, NY 11747
                                 (631) 549-5900

  (Address, Including Zip Code, and Telephone Number, Including Area Code, of
                   Registrant's Principal Executive Offices)

          Securities registered pursuant to Section 12(b) of the Act:
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      Title of Each Class                           Name of Each Exchange
                                                     on Which Registered
            NONE                                            NONE

           Securities registered pursuant to Section 12(g) of the Act:
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                          Common Stock, $.01 par value

                                (Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x].

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [x] No [_]

Aggregate market value of the voting stock (which consists solely of shares of
Common Stock) held by non-affiliates of the registrant as of April 30, 2004 (the
last business day of the registrant's most recently completed second fiscal
quarter), computed by reference to the closing sale price of the registrant's
Common Stock on the Over-the-Counter Bulletin Board on such date ($1.08):
$87,364,065.

On January 10, 2005, the registrant had outstanding 86,794,198 shares of Common
Stock, par value $.01 per share, which is the registrant's only class of common
stock.

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<PAGE>
                                EXPLANATORY NOTE

We are filing this  Amendment  No. 1 on Form 10-K/A to our Annual Report on Form
10-K for the year ended  October 31, 2004 to correct  two  typographical  errors
contained  in  "Item 7 -  Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results of  Operations  - Fiscal  Year Ended  October  31,  2004
Compared  to Fiscal  Year Ended  October  31,  2003 - Sales -  Revenue.  For the
convenience of the reader,  this Amendment No. 1 sets forth the complete text of
the Form 10-K as so amended.  This  Amendment No. 1 does not reflect events that
have  occurred  after  the  original  filing  of the  Form  10-K or  update  the
information  set forth in the Form 10-K subsequent to such original  filing.  In
connection with the filing of this Amendment No. 1, we are including as exhibits
currently  dated  certifications  of  our  chief  executive  officer  and  chief
financial  officer and a currently  dated  consent  letter from our  independent
registered public accounting firm.

<PAGE>



                      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
video displays.

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

     We  currently  have 14  different  products  in our line of  hardware-based
encryption  solutions.  Our encryption products are  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 of which  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 the  other of which  can
encrypt voice and data in cellular and satellite phones, scanners, and printers.
We sell our encryption  products  directly to end-users and through  dealers and
distributors.

     We have  developed  modifications  of our  standard  products  for specific
applications.  We have developed and are producing several products for use with
the satellite  communications  network of Thuraya  Satellite  Telecommunications
Company  ("Thuraya"),   a  network  built  by  Boeing  Satellite  Systems,  Inc.
("Boeing") that provides  communication in Europe,  Africa,  Russia,  the Middle
East and Asia.  Our products can encrypt  voice  communication,  using a compact
encrypted module attached to the Thuraya handset, and automatically  encrypt fax
communications  over the Thuraya  network.  Additionally,  we have developed two
products to provide  satellite  and cellular fax  encryption.  Our products thus
enable the Thuraya network to provide encrypted communications between satellite
phones,  from  satellite  phones to  desk-based  phones,  or between  desk-based
phones.

                                        1
<PAGE>

     In April  2004,  we entered  into an  agreement  with Boeing to provide our
encryption  products for use over the Thuraya  network.  Under a September  2004
modification to the agreement,  Boeing is the exclusive  distributor of seven of
our products.

     In connection with Boeing becoming the exclusive distributor of some of our
products,  Boeing  authorized  us to use its name on our  website.  Accordingly,
customers  desiring to purchase such products can find  authorized  Boeing sales
information on the "Encryption Products" page of our website, . In January 2005,
Boeing  introduced,  demonstrated  and  began  marketing  CopyTele's  encryption
products to more than 100 Thuraya Service  Providers.  CopyTele  assisted Boeing
with such  demonstrations.  The products  introduced included two new encryption
products  that  CopyTele is selling to Boeing,  the Thuraya  DCS-1400  for voice
encryption and the Thuraya  USS-900T for fax encryption.  These products contain
the  brand  name of  Thuraya  and their  operating  controls  are in the  Arabic
language.

     We also have 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.  A major U.S.  defense
contractor has begun to purchase one of our products,  which  provides  landline
fax  encryption  automatically  with any  standard  fax  machine,  to secure its
worldwide  fax  communication.  We have entered  into an agreement  with another
major U.S. company to supply a proof of concept  encryption  solution  utilizing
another  product  that has been  configured  to  interface  with that  company's
satellite  global  positioning  system  ("GPS")  and  data  communication  fleet
management  network.  Another major U.S. company is planning to sell our line of
encryption  products  on its  website.  We are  also  developing  an  encryption
solution to secure data links  between that  company's  scanners and printers in
its multi-functional products.

     We have recently received from the U.S. patent office two patent notices of
allowance for securing e-mail attachments in four of our products, and for three
other  products.  We are  continuing  to apply for  additional  patents  for our
encryption technology.

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

     We are  continuing to work on our electron  emission  display  ("Flat CRT")
technology.  We  believe  that our  unique  low  voltage  and low power Flat CRT
display will be an important  entry into the rapidly  expanding flat panel field
for all applications,  from cell phones to TV. Flat CRT technology is recognized
as one of the most promising candidates to replace the cathode ray tube ("CRT").
CRTs have been highly  successful  for decades,  but are bulky and power hungry.
Flat CRT technology, by contrast, permits production of a display that preserves
the desirable  characteristics of a CRT - including  full-color;  a wide viewing
angle;  the ability to operate in severe  environmental  conditions;  and a long
operational life - in a much more compact, energy-efficient flat panel display.

                                        2
<PAGE>

     We have  developed  a Flat  CRT  that  not  only  preserves  the  desirable
characteristics  of a CRT but also  achieves high  brightness,  has a unique low
voltage and power  electron  emission  design and pixel  structure with built-in
pixel memory, and has long life. Our Flat CRT displays:

     o    can be  produced in a variety of sizes,  permitting  their use in many
          applications from small hand-held devices to large  high-definition TV
          devices;

     o    function in a broad environmental  range,  similar to a CRT, including
          operating at night or in sunlight and over a large temperature range;

     o    have low power consumption;

     o    can be viewed from a wide angle, similar to a CRT;

     o    have high brightness with video capability;

     o    have no picture geometric distortion - the phosphor in each pixel is
          stimulated individually; and

     o    can display  both  wide-screen  and standard TV formats for digital TV
          and DVD operations.

     Currently, liquid crystal displays ("LCDs") are the most commonly used flat
panel displays in commercial products.  We believe that our display has a number
of advantages over LCD displays:

     o    No  backlight  (LCDs  require a backlight  that  results in high power
          consumption and contains mercury)

     o    No  thermistor  (LCDs  require  thermistors  to control  operation  at
          various temperatures)

     o    No polarizer (polarizers are required in LCDs)

     o    No color filter (LCDs require color filters)

     o    Almost hemispherical viewing angle (LCDs have limited viewing angles)

                                        3
<PAGE>

     o    Higher contrast ratio

     o    Faster video response time

     o    Operation over a wider range of ambient temperatures

     o    Longer life

     o    Not affected by ultraviolet light (LCDs contain a liquid crystal which
          may deteriorate after long exposure to direct sunlight)

     o Safer (leakage of liquid crystals from LCDs may be dangerous)

     We have provided our display to a potential  customer for evaluation of the
display's  performance  in a product  which  must  operate  over a wide  ambient
temperature  range in an outdoor  environment.  After  successfully  testing our
display, the customer ordered a seed quantity of modules containing our display,
to replace LCD modules in our customer's  product. We have recently supplied the
customer  with displays that the customer has installed in its product for field
evaluation.  However,  to be able to supply large quantities of displays to this
customer  and other  potential  customers,  we have been  developing  a Flat CRT
display based on our thin film technology ("TFT"). We have determined to produce
only these  displays  and we are  planning to use these  displays to supply this
customer's requirements.

     We entered into an agreement,  in June 2004,  with an Asian company,  which
currently mass produces TFT LCDs, to jointly produce  prototypes of two modified
TFT color matrix  pixel  structures  for our Flat CRT display  based on our high
brightness technology. The two color matrix structures,  which are components of
our  displays,  are a 7-inch  (diagonal)  with 1440 x 234  pixels and a 5.5 inch
(diagonal) with 960 x 234 pixels.  As part of our TFT color matrix design,  each
pixel contains  memory to achieve high brightness at video rates. We have funded
the development of these prototypes,  and may enter into a further agreement for
commercial  production of the  structures or the complete  color  displays.  The
company has agreed to produce such structures only for us.

     In October  2004,  we  developed,  with the  assistance  of Volga Svet Ltd.
("Volga"),  a Russian  display  company  that we have been working with for over
seven  years,  prototype  displays  containing  the  modified  TFT color  matrix
structures we received  under our  agreement  with the Asian  company.  Upon the
completion of our evaluation of the structures, we believe that Volga can supply
a limited production  capability and we are planning to utilize either the Asian
company or other TFT LCD  production  companies  to mass produce the display for
potential users. The prototype  monochrome display Model CTDV-201 has a 5.5 inch
(diagonal) with 320 x 234 pixels and has the following specifications.

                                        4
<PAGE>

     Display Technology:                          Proprietary CopyTele Flat Thin
                                                  High Brightness Video Display

     Display Area:                                113mm (H) x 87mm(V)

     Display Diagonal:                            140mm (5.5 inches)

     No. of Pixels:                               320 x 234

     Pixel Pitch:                                 .318mm x .318mm

     Viewing Angle:                               Almost hemispherical

     Response Time:                               10 microseconds

     We have also  developed  another  prototype  color display  Model  CTDV-202
having a  5.5-inch  diagonal  with 960 x 234  pixels,  which  has the  following
specifications:

     Display Technology:                          Proprietary CopyTele Flat Thin
                                                  High Brightness Video Display

     Display Area:                                113mm (H) x 87mm(V)

     Display Diagonal:                            140mm (5.5 inches)

     No. of Pixels:                               960 x 234

     Pixel Pitch:                                 .106mm x .318mm

     Viewing Angle:                               Almost hemispherical

     Response Time:                               10 microseconds

     We are also  completing  the assembly,  with the  assistance  of Volga,  of
another prototype display containing the modified TFT color matrix structures we
received under our agreement with the Asian company. The prototype color display
has  a  7.0  inch  (diagonal)  with  1440  x  234  pixels,  with  the  following
specifications:

     Display Technology:                          Proprietary CopyTele Flat Thin
                                                  High Brightness Video Display

     Display Area:                                154mm (H) x 87mm(V)

     Display Diagonal:                            178mm (7.0 inches)

     No. of Pixels:                               1440 x 234

     Pixel Pitch:                                 .107mm x .372mm

     Viewing Angle:                               Almost hemispherical

     Response Time:                               10 microseconds

                                       5
<PAGE>

     To activate the red, green and blue phosphors contained in the modified TFT
color matrix  pixel  structure  in our  displays,  we are using both our current
electron emission  technology and a new nanotube technology we are developing in
cooperation with a U.S. company.  The new technology  consists of a unique array
of low voltage controllable nanotubes for electron emission. These nanotubes are
extremely  small carbon  elements,  approximately  2,500 times  thinner than the
width of a human hair, that emit electrons  under  controllable  conditions.  In
cooperation   with  that   company,   we  have  produced   experimental   design
configurations  which  demonstrate  the  feasibility of the nanotube  technology
meeting  our  design  requirements.  We have  the  exclusive  right  to use this
company's nanotube technology for display applications.

     We have recently received,  from the U.S. patent office,  patents for three
variations  of our video  display  technology  and a notice of  allowance of the
claims contained in our patent  application for one other variation of our video
display  technology.  We are continuing to apply for additional  patents for our
video display technology.

     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, but
not limited to, 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.  Although payments
from Futaba  Corporation  ("Futaba") of Japan,  under an agreement  with Futaba,
provided  substantial  cash from  operations  during the year ended  October 31,
2002,  since the  agreement  with Futaba  terminated  in June 2002,  we will not
receive any further payments under this agreement.

                                       6
<PAGE>

     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,  2004.  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, 2004:

                                               Fiscal Years Ended October 31,
                                               ------------------------------
                                               2004          2003         2002
                                               ----          ----         ----
Net loss.................................. $ 3,360,655  $ 3,114,411  $ 3,285,240
Research and development expenses.........   2,164,427    1,807,742    1,625,974
Net cash used in operations...............   1,025,122      958,501      431,471

     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, 2004 states that the net
loss incurred during the year ended October 31, 2004, 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,  2003  and  2002  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
2006.  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  2006.  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.

                                        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 video  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
monochrome  versions  of  our  high-brightness   flat  panel  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 video displays and encryption products;

     o    the  capability  of Volga to produce thin  high-brightness  monochrome
          video displays and supply them to us;

     o    our ability to jointly  develop  with Volga and  produce a  full-color
          video display;

     o    our ability to develop and produce displays using controllable
          nanotubes and modified TFT technology;

     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;

     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 small size of our accounting  and financial  staff has exposed us,
          and may expose us in the future,  to risks  relating  to our  internal
          control, and may limit our growth.

     The small size of our  accounting  and  financial  staff has  exposed us to
risks relating to our internal control over financial reporting.  In particular,
as  discussed  under Item 9A,  Controls and  Procedures,  in December  2004,  we
discovered  that  an  employee  in our  accounting  staff  had  defrauded  us of
approximately  $189,000 (of which approximately  $4,000 we believe was replaced)
during fiscal 2004 and the first month of fiscal 2005 and approximately  $28,000
during the period from fiscal 2001 through fiscal 2003.  While we have recovered
approximately  $110,000 of such loss  through  insurance  proceeds and will seek
additional recoveries from other parties, and we have taken steps to improve our
internal  controls  to prevent  such  activity  in the  future,  there can be no
assurance that our controls and procedures  will prevent all errors or fraud, or
that any future such losses  would be insured or otherwise  recoverable.  We may
need to recruit  additional staff to improve our internal controls or to support
growth of our business,  the costs of which would reduce the funds available for
research and development and marketing activities.

     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.  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.

                                        9
<PAGE>

Products
--------

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

     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.

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

     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.

     A summary of our encryption  products,  and additional features of each, is
as follows:

                                       10
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
        Product                               Features
----------------------------------------------------------------------------------------------
                          Voice    Fax    Data                 Comments
----------------------------------------------------------------------------------------------
<S>                      <C>       <C>    <C>       <C>
DCS-1400*                   X                       Compact, lightweight, portable
                                                    encryption terminal for securing
                                                    voice communications when connected
                                                    to data capable digital cellular or
                                                    satellite telephones.
----------------------------------------------------------------------------------------------
Thuraya DCS-1400 **, ***    X                       Secure voice communication for use
                                                    with Thuraya satellite telephones.
                                                    Compact, lightweight, portable
                                                    encryption terminal
----------------------------------------------------------------------------------------------
DCS-1200 *, ***             X              X        Secure voice and data
                                                    communications when connected to
                                                    data capable digital cellular or
                                                    satellite telephones or virtually
                                                    any PBX phone.
----------------------------------------------------------------------------------------------
DCS-1400D **,***            X                       Integrated  encryption  docker  for
                                                    the Thuraya handset.
----------------------------------------------------------------------------------------------
USS-900 *                   X       X      X        Compact and portable high-grade
                                                    security hardware system capable of
                                                    encrypting voice, fax, data and
                                                    data storage when combined with a
                                                    telephone, fax machine, or
                                                    computer.
----------------------------------------------------------------------------------------------
USS-900 Narrowband *        X       X      X        Voice, fax and data option for
                                                    low-speed PSTN communication.
                                                    Compatible with DCS-1200 &
                                                    DCS-1400.
----------------------------------------------------------------------------------------------
USS-900T **                 X                       Secure fax unit for direct
                                                    connection to the Thuraya handset
                                                    and an analog fax machine. Enhanced
                                                    Thuraya fax speed.
----------------------------------------------------------------------------------------------
Thuraya USS-900T **, ***            X               Secure Thuraya fax communication.
                                                    Encrypting fax unit for direct
                                                    connection to the Thuraya handset
                                                    and an analog fax machine. Enhanced
                                                    Thuraya fax speed.
----------------------------------------------------------------------------------------------
USS-900TL **                        X               Connect to analog fax machines and
                                                    PSTN line. Compatible with the
                                                    USS-900-T.
----------------------------------------------------------------------------------------------
USS-900WF **                        X               Secure low-speed fax for other
                                                    satellite and cellular networks
                                                    (Inmarsat, Globalstar, etc).
----------------------------------------------------------------------------------------------
USS-900WFL **                       X               Connect to analog fax machines and
                                                    PSTN line. Compatible with the
                                                    USS-900-WF.
----------------------------------------------------------------------------------------------
USS-900AF AutoFax                   X               Compact high-grade security
                                                    hardware system automatically
                                                    encrypting fax communication when
                                                    connected to any G-3 fax machine.
                                                    Receive both secure and clear fax
                                                    messages automatically.
----------------------------------------------------------------------------------------------
STS-1500                    X                       Easy to use secure voice
                                                    teleconferencing system that
                                                    provides simultaneous encrypted
                                                    voice communications with up to 5
                                                    locations.
----------------------------------------------------------------------------------------------
USS-900 Security                           X        Protect individual files or entire
Software                                            folders with just a few clicks of
                                                    the mouse. Send and receive
                                                    encrypted e-mail attachments.
                                                    Restrict unauthorized computer
                                                    access by preventing the Windows
                                                    Operating System from initiating
                                                    without proper identification.
 ----------------------------------------------------------------------------------------------
ULP-1                                      X        Easy-to-use hardware based
                                                    encryption solution. Simply plug it
                                                    into laptop computers via the use
                                                    of a PCMCIA card. Protect the
                                                    integrity of your computer by
                                                    ensuring that your private and
                                                    confidential information stays that
                                                    way.
----------------------------------------------------------------------------------------------
DCS-1800 Encryption         X              X        Developed for cellular and
Software                                            satellite phone manufacturers for
                                                    easy inclusion of the DCS- 1800
                                                    Security Software directly into the
                                                    telephone, thus providing the
                                                    consumer with an operator friendly
                                                    self-contained secure wireless
                                                    phone for voice and data
                                                    communications.
----------------------------------------------------------------------------------------------

*       Sold by Boeing

**      Sold exclusively by Boeing

***     Sold by Boeing to Thuraya Services Providers under the Thuraya
        brand name.


</TABLE>

                                       11
<PAGE>

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

     Flat Panel Video Display Technology
     -----------------------------------

     During 2004, we continued to pursue our efforts to develop new technologies
for color, video flat panel displays.

     We are  further  developing  our  display  technology  to  incorporate  our
modified matrix TFT pixel structure  (which is based on our high brightness Flat
CRT technology and which we jointly produce with an Asian company that currently
mass  produces  TFT LCDs) and  drivers  of LCDs into our  displays,  so that our
displays may be produced by facilities  currently  producing  LCDs. We have made
prototypes  of a 5.5 inch  (diagonal)  display,  with the  assistance  of Volga,
containing our modified TFT color matrix  structure and having 320 x 234 and 960
x 234 pixels.  We have also  received  color  matrix  structures  from the Asian
company and are  completing  the assembly,  with the  assistance of Volga,  of a
prototype  display having a 7.0 inch (diagonal) with 1440 x 234 pixels.  We have
incorporated in our prototype  displays low  temperature  vacuum sealing and the
use of low voltages and power to conform to the requirements of our modified TFT
color matrix structures. Our prototypes utilize voltages comparable to a TFT LCD
and contain  blue-green or red, green and blue phosphors to operate at these low
voltages.

     We are  continuing  to further  develop these Flat CRT displays to optimize
the low  temperature  vacuum sealing  technologies  and driver  electronics  for
production  purposes.  Our Flat CRT  contains  no  backlight,  color  filter  or
polarizer  required in LCD displays which represent the major costs in producing
LCDs.

     We are also  developing,  with the assistance of a U.S.  company,  a unique
nanotube technology for another electron emission that we are planning to use in
our Flat CRT. To conform with our color matrix  structures,  our nanotube design
utilizes  low voltages and no focusing  elements.  The use of nanotube  electron
emission reduces the power consumption of our display and can be incorporated in
hand-held and HDTV television products.  The new technology consists of a unique
array of low voltage controllable nanotubes for electron emission. The nanotubes
are extremely small carbon elements,  approximately 2,500 times thinner than the
width of a human hair, that emit electrons under controllable conditions.

                                       12
<PAGE>

     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, and use a chip on glass ("COG")
matrix  design,  so  that  the  overall  display  thickness  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 color video  displays or displays  using modified
TFT technology or that we can produce larger display sizes or greater quantities
using such technology.

     We are  also  utilizing  our  E-Paper(TM)  technology  in  connection  with
development  of  our  unique  nanotube  electron  emission  technology.  We  are
currently  investigating  the  possible  licensing  of our  E-Paper(TM)  display
technology  and  patents.  We can give no  assurance  that we will  license  our
technology and patents.

     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 made prototypes to
demonstrate the feasibility of our encryption  solution.  We are also developing
an  encryption  solution  to secure data links  between  scanners  and  printers
contained in one company's multi-functional products.

     We  are  continuing  the  process  of  obtaining  U.S.  federal  government
certification  for our  encryption  products.  To obtain  certification,  we are
modifying our software and other  technology to conform to the  requirements  of
the government's  published  standards.  The certification would attest that our
products  meet  such   standards   and  that  the  features   described  in  our
specification sheets are actually implemented in our products.

Production
----------

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

     Volga  has  produced,  under our Joint  Cooperation  Agreement,  monochrome
5-inch (diagonal)  displays having 320 x 240 pixels.  Volga used sources for the
required materials and components located in Russia, U.S., Europe, and Asia. The
displays  produced by Volga were used to supply  modules for  evaluation  by our
current  customer.  Also,  the displays  were used to  determine  the design and
specifications  to modify the TFT color pixel  structures  supplied by the Asian
company. We are, with the assistance of Volga, producing the displays containing
the TFT color pixel structures. Upon the completion of our evaluation of the TFT
color  based  pixel  structures,  we  believe  that  Volga can  supply a limited
production capability and we are planning to utilize either the Asian company or
other TFT LCD  production  companies to mass  produce the display for  potential
users.  There is no  assurance  that we can produce the  displays or that we can
make suitable production arrangements with other companies.

                                       13
<PAGE>

     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  opportunities  for  our  display
technology.  We have utilized models of our monochrome 5-inch (diagonal) display
to demonstrate the capabilities of our display and its advantages over LCDs.

     We have  continued to work with one company to develop a plug-in  module of
our 5-inch (diagonal) 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  modified  TFT color
matrix pixel  structures  based  displays  for  supplying  the current  customer
requirements and for other applications we are pursuing.

     Some of these  applications  would require large size displays that include
the  capability  to provide a  wide-screen  or standard TV format for TV and DVD
operation.  Our  current  Asian  supplier  is in the  process of  expanding  its
facilities to produce  larger size displays.  Applications  that we are pursuing
for incorporation of our displays include both outdoor and indoor  informational
displays such as those located in parking meters and automobiles.

                                       14
<PAGE>

     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,  by the enactment of the Health  Insurance  Portability  and
Accountability  Act of 1996  ("HIPAA"),  and by the  Defense  Department.  HIPAA
requires  certain  privacy  protection for medical records and other health care
information for individuals. We have agreements with a number of 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.  In  January  2005,  Boeing   introduced,
demonstrated and began marketing CopyTele's encryption products to more than 100
Thuraya Service Providers. CopyTele assisted Boeing with such demonstrations. 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. The latter company is planning to 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.

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

Customers
---------

     During fiscal 2004 we recognized approximately $300,000 in revenue from The
Boeing Company,  or approximately  61% of total net revenue,  and  approximately
$93,000 in revenue from Outfitter Satellite, Inc., or approximately 19% of total
net  revenue.  All of such revenue was in our  Encryption  Products and Services
Segment.  During  fiscal 2003 we recognized  approximately  $60,000 and $31,000,
respectively,  in revenue  from two  customers  in the  Encryption  and Services
Segment,  or approximately 25% and 13% of total net revenue.  During fiscal 2002
we recognized approximately $4,542,000 in revenue from Futaba under an agreement
with Futaba, or approximately 88% of total revenue.

                                       15
<PAGE>

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

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

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

Patents
-------

     We have received  patents from the United States and certain foreign patent
offices,  expiring at various dates between 2005 and 2022. We have also filed or
are  planning  to file  patent  applications  for our video flat  panel  display
technologies currently under development, and for our encryption technologies.

     We have  recently  received from the U.S.  patent office  patents for three
variations  of our video  display  technology  and a notice of  allowance of the
claims  contained  in our  patent  application  for one  variation  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.  We have  recently  also received two patents for certain of our
encryption technology.

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

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

                                       16
<PAGE>

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

     Research  and   development   expenses   were   approximately   $2,164,000,
$1,808,000, and $1,626,000 for the fiscal years ended October 31, 2004, 2003 and
2002,  respectively.  See  "Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations" below and our Financial Statements.

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

     We had 23 full-time  employees and 22  consultants  as of October 31, 2004.
Twenty  of these  individuals,  including  our  Chairman  of the  Board  and our
President,  are engaged in research and development.  Their backgrounds  include
expertise in physics,  chemistry,  optics and electronics.  Nineteen 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  $255,000 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 11 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.

                                       17
<PAGE>

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

     At our Annual  Meeting of  Stockholders,  held on October  28,  2004,  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, 2004 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               78,409,567             575,046
           Frank J.  DiSanto             78,409,767             574,846
           Henry P. Herms                78,413,517             571,096
           George P.  Larounis           78,578,882             405,731

     (b) Ratification of selection of Grant Thornton LLP as independent auditors
for the fiscal year ending October 31, 2004:

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

               78,734,151                 229,250                 21,212

                                       18
<PAGE>

                                     PART II
                                     -------

Item 5.   Market for the Registrant's Common Equity and
          ---------------------------------------------
          Related Stockholder Matters.
          ----------------------------

     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
and The Nasdaq Stock Market,  Inc. for each  quarterly  fiscal period during our
fiscal years ended October 31, 2003 and 2004 have been as follows:

--------------------------------------------------------------------------------
             Fiscal Period                   High                   Low
================================================================================
            1st quarter 2003                $0.35                  $0.15
            2nd quarter 2003                 0.41                   0.12
            3rd quarter 2003                 0.75                   0.22
            4th quarter 2003                 0.88                   0.51
--------------------------------------------------------------------------------
            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
--------------------------------------------------------------------------------

     As of January 10, 2005,  the  approximate  number of record  holders of our
common  stock was 1,400 and the closing  price of our common stock was $0.86 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.

                                       19
<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 fiscal year ended October 31,
                                                     -----------------------------------------------------------------------------
                                                             2004            2003           2002            2001          2000
----------------------------------------------------------------------------------------------------------------------------------
Revenue
<S>                                                          <C>            <C>            <C>            <C>          <C>
   Sales, net                                                $494,462       $244,221       $645,027       $732,435     $1,471,998

   Collaborative agreement                                         --             --      4,541,667        958,333             --

       Total revenue
                                                              494,462        244,221      5,186,694      1,690,768      1,471,998
----------------------------------------------------------------------------------------------------------------------------------
Gross Profit                                                  318,350         68,277      3,315,636        993,129        746,560
----------------------------------------------------------------------------------------------------------------------------------
Research and Development Expenses                           2,164,427      1,807,742      1,625,974      2,324,979      2,732,229
----------------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative  Expenses               1,518,911      1,379,614      2,177,608      2,272,386      3,099,483
----------------------------------------------------------------------------------------------------------------------------------
Impairment Loss on Commercial Trade  Barter Credits                --             --      2,820,800             --             --
----------------------------------------------------------------------------------------------------------------------------------
Interest Income                                                 4,333          4,668         23,506         32,279        120,979
----------------------------------------------------------------------------------------------------------------------------------
Net Loss                                                   (3,360,655)    (3,114,411)    (3,285,240)    (3,571,957)    (4,964,173)
----------------------------------------------------------------------------------------------------------------------------------
Net Loss Per Share of  Common Stock - Basic and Diluted         ($.04)         ($.04)         ($.05)         ($.06)         ($.08)
----------------------------------------------------------------------------------------------------------------------------------
Total Assets                                                2,316,050      2,330,491      2,731,509      6,562,403      6,894,501
----------------------------------------------------------------------------------------------------------------------------------
Long Term Obligations                                              --             --             --             --             --
----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity                                        1,872,930      1,988,206      2,317,490      4,166,526      5,557,599
----------------------------------------------------------------------------------------------------------------------------------
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 "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.



                                       20
<PAGE>

General
-------

                  Our principal  operations are the development,  production and
marketing of  multi-functional  hardware and software based 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 video displays.

                  We  currently  have  14  different  products  in our  line  of
hardware-based    encryption    solutions.    Our   encryption    products   are
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 of which 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 the
other of which can encrypt  voice and data in  cellular  and  satellite  phones,
scanners,  and printers.  We sell our encryption  products directly to end-users
and through dealers and distributors.

                  We have developed  modifications of our standard  products for
specific applications.  We have developed and are producing several products for
use  with  the   satellite   communications   network   of   Thuraya   Satellite
Telecommunications  Company  ("Thuraya"),  a network  built by Boeing  Satellite
Systems, Inc. ("Boeing") that provides  communication in Europe, Africa, Russia,
the Middle East and Asia. Our products can encrypt voice communication,  using a
compact  encrypted  module attached to the Thuraya  handset,  and  automatically
encrypt fax  communications  over the  Thuraya  network.  Additionally,  we have
developed  two products to provide  satellite and cellular fax  encryption.  Our
products  thus enable the Thuraya  network to provide  encrypted  communications
between satellite phones, from satellite phones to desk-based phones, or between
desk-based phones.

                  In April 2004,  we entered  into an  agreement  with Boeing to
provide  our  encryption  products  for use over the  Thuraya  network.  Under a
September  2004   modification  to  the  agreement,   Boeing  is  the  exclusive
distributor of seven of our products.

In  connection  with Boeing  becoming the exclusive  distributor  of some of our
products,  Boeing  authorized  us to use its name on our  website.  Accordingly,
customers  desiring to purchase such products can find  authorized  Boeing sales
information on the "Encryption Products" page of our website, . In January 2005,
Boeing  introduced,  demonstrated  and  began  marketing  CopyTele's  encryption
products to more than 100 Thuraya Service  Providers.  CopyTele  assisted Boeing
with such  demonstrations.  The products  introduced included two new encryption
products  that  CopyTele is selling to Boeing,  the Thuraya  DCS-1400  for voice
encryption and the Thuraya  USS-900T for fax encryption.  These products contain
the  brand  name of  Thuraya  and their  operating  controls  are in the  Arabic
language.


                                       21
<PAGE>

                  We also have 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.  A major
U.S.  defense  contractor  has  begun to  purchase  one of our  products,  which
provides landline fax encryption automatically with any standard fax machine, to
secure its worldwide fax  communication.  We have entered into an agreement with
another  major U.S.  company to supply a proof of  concept  encryption  solution
utilizing  another  product  that has been  configured  to  interface  with that
company's  satellite global  positioning  system ("GPS") and data  communication
fleet  management  network.  Another major U.S.  company is planning to sell our
line of encryption products on its website. We are also developing an encryption
solution to secure data links  between that  company's  scanners and printers in
its multi-functional products.

                  We are also  continuing our research and  development  work on
our electron  emission  display  ("Flat CRT")  technology.  We have provided our
display to a potential customer for evaluation of the display's performance in a
product which must operate over a wide ambient  temperature  range in an outdoor
environment. After successfully testing our display, the customer ordered a seed
quantity of modules  containing our display,  to replace liquid crystal  display
("LCD")  modules  in our  customer's  product.  We have  recently  supplied  the
customer  with displays that the customer has installed in its product for field
evaluation.  However,  to be able to supply large quantities of displays to this
customer  and other  potential  customers,  we have been  developing  a Flat CRT
display based on our thin film technology ("TFT"). We have determined to produce
only these  displays  and we are  planning to use these  displays to supply this
customer's requirements.

                  We entered  into an  agreement,  in June  2004,  with an Asian
company,  which currently mass produces TFT LCDs, to jointly produce  prototypes
of two modified TFT color matrix pixel structures for our Flat CRT display based
on our high brightness  technology.  The two color matrix structures,  which are
components of our displays, are a 7-inch (diagonal) with 1440 x 234 pixels and a
5.5 inch  (diagonal)  with 960 x 234  pixels.  As part of our TFT  color  matrix
design, each pixel contains memory to achieve high brightness at video rates. We
have funded the  development of these  prototypes,  and may enter into a further
agreement  for  commercial  production of the  structures or the complete  color
displays. The company has agreed to produce such structures only for us.

                  In October 2004, we  developed,  with the  assistance of Volga
Svet Ltd.  ("Volga"),  a Russian  display company that we have been working with
for over seven  years,  prototype  displays  containing  the  modified TFT color
matrix  structures we received under our agreement  with the Asian company.  The
prototype  displays we have  assembled  are the 5.5 inch  (diagonal)  monochrome
Model  CTDV-201  with 320 x 234 pixels and the 5.5 inch  (diagonal)  color Model
CTDV-202  with 960 x 234 pixels.  We are also  completing  the assembly of a 7.0
inch (diagonal) prototype color display containing the modified TFT color matrix
structures with 1,440 x 234 pixels. Upon the completion of our evaluation of the
structures, we believe that Volga can supply a limited production capability and
we are planning to utilize  either the Asian company or other TFT LCD production
companies to mass produce the display for potential users.


                                       22
<PAGE>

                  To activate the red, green and blue phosphors contained in the
modified TFT color matrix pixel structure in our displays, we are using both our
current  electron  emission  technology  and a new  nanotube  technology  we are
developing in cooperation with a U.S. company.  The new technology consists of a
unique array of low voltage controllable nanotubes for electron emission.  These
nanotubes are extremely small carbon elements, approximately 2,500 times thinner
than  the  width  of a  human  hair,  that  emit  electrons  under  controllable
conditions.  In  cooperation  with that company,  we have produced  experimental
design   configurations  which  demonstrate  the  feasibility  of  the  nanotube
technology meeting our design  requirements.  We have the exclusive right to use
this company's nanotube technology for display applications.

                  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".

                  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 2006.

                  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.

                                       23
<PAGE>

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.

         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.

                  Collaborative Agreement
                  -----------------------

                  A  $2.5  million  payment  received  from  Futaba  Corporation
("Futaba") of Japan in June 2001, pursuant to an agreement with Futaba, has been
recognized  ratably  over the  period  between  June  2001 and  June  2002,  the
contractually defined one-year period of our commitment under this agreement.  A
subsequent  $3 million  payment  received  from Futaba  under this  agreement in
January  2002 has been  recognized  ratably  over the  remainder of the one-year
period.

                  Sales Returns
                  -------------

                  Revenues are recorded net of estimated sales returns.

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

                  Inventories  are  stated  at  the  lower  of  cost,  including
material,  labor and overhead,  determined on a first-in,  first-out  basis,  or
market,  which represents our best estimate of market value. We regularly review
inventory  quantities  on  hand,  particularly  finished  goods,  and  record  a
provision  for excess and  obsolete  inventory  based  primarily on forecasts of
future  product  demand.   Our  net  income  (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.


                                       24
<PAGE>

         Valuation of Long-Lived Assets
         ------------------------------

                  We assess the impairment of long-lived  assets whenever events
or  changes  in  circumstances  indicate  that  the  carrying  value  may not be
recoverable.  Factors  considered  important  that could  trigger an  impairment
review include a significant underperformance relative to expected historical or
projected future operating  results and cash flows, a significant  change in the
manner of the use of the asset or a  significant  negative  industry or economic
trend.  When management  determines that the carrying value of long-lived  asset
may not be  recoverable  based  upon the  existence  of one or more of the above
indicators of impairment, the carrying amount of the asset would be written down
to fair value based upon the present  value of estimated  future cash flows,  to
reflect the impairment.

                  During the year ended  October  31,  2002,  we  recognized  an
impairment  loss in the amount of  approximately  $2,821,000 in connection  with
unused  commercial trade barter credits.  These trade credits may be redeemed to
reduce  the cost of  advertising  as well as other  products  and  services.  To
utilize these barter credits in exchange for advertising and purchase discounts,
we must pay  between  65-70%  of the  transaction  value in  cash.  Because  our
anticipated  cash  flow  was  negatively  affected  by  the  termination  of the
agreement with Futaba, our ability to make such payments and thereby utilize the
barter  credits is uncertain.  Such  impairment  loss is the only  impairment of
long-lived  assets recorded in the fiscal years ended October 31, 2004, 2003 and
2002.

         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, 2004,  2003 and 2002 would have  increased by
approximately $2,909,000, $889,000 and $283,000, respectively, based on the fair
value of the  stock  options  granted  to  employees.  See "-  Impact  of Recent
Accounting Pronouncements"




                                       25
<PAGE>




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

Fiscal Year Ended October 31, 2004 Compared to Fiscal Year Ended
October 31, 2003
----------------------------------------------------------------

         Sales


                  Revenue.   Revenue  from  sales  increased  by   approximately
$250,000 in fiscal 2004, to approximately $494,000, as compared to approximately
$244,000  in  fiscal 2003. All revenue  during both periods was from  encryption
products and services.  The increase in 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 revenue, 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  revenue  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.

         Collaborative Agreement


                  Revenue.  We recognized no collaborative  agreement revenue in
fiscal 2004 and fiscal 2003.

         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 a theft by a former  employee (see "-  Investigation  and
Recovery Efforts Regarding  Misappropriated Funds"), 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 the prior year
of  approximately  $205,000  and  reversal in the current  period 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.

Fiscal Year Ended October 31, 2003 Compared to Fiscal Year Ended
October 31, 2002
-----------------------------------------------------------------

          Sales

                  Revenue.   Revenue  from  sales  of  encryption  products  and
services  decreased by  approximately  $401,000 in fiscal 2003, to approximately
$244,000, as compared to approximately  $645,000 in fiscal 2002. The decrease in
sales was due to lower 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   decreased  by   approximately   $150,000  in  fiscal  2003,   to
approximately $68,000, as compared to approximately $218,000 in fiscal 2002. The
decrease in gross profit was  primarily  due to the  decrease in revenue.  Gross
profit   reflects  a  write  down  of  Magicom   inventory  in  fiscal  2003  of
approximately  $53,000 and a provision for slow moving inventory relating to the
USS-900 in fiscal 2002 of approximately  $100,000.  Gross profit as a percent of
revenue   decreased  to  approximately  28%  in  fiscal  2003,  as  compared  to
approximately 34% in fiscal 2002.

         Collaborative Agreement

                  Revenue.  We recognized no collaborative  agreement revenue in
fiscal  2003,  as compared  to  approximately  $4,542,000  in fiscal  2002.  All
collaborative  agreement  revenue was  revenue  received  from  Futaba  under an
agreement  with Futaba.  We recognized  payments  received from Futaba as income
ratably over the  contractually  defined one-year period of our commitment under
this agreement. Since the agreement with Futaba terminated in June 2002, we will
not receive any further payments under this agreement.

         Gross  Profit.  We  recognized  no  gross  profit  from   collaborative
agreement  in fiscal 2003,  as compared to  approximately  $3,098,000  in fiscal
2002. Gross profit from  collaborative  agreement in fiscal 2002 was net of cost
of revenue of approximately  $1,444,000,  consisting of research and development
costs relating to display  technology,  including cost of revenue related to our
agreement with Volga of approximately $1,194,000. Research and development costs
relating  to display  technology  were  included  in  research  and  development
expenses prior to the commencement of our agreement with Futaba in June 2001 and
after its termination in June 2002.


                                       27
<PAGE>

         Research and Development Expenses

                  Research and development  expenses  increased by approximately
$182,000  in  fiscal  2003,  to  approximately  $1,808,000,  from  approximately
$1,626,000  in fiscal 2002.  The increase in research and  development  expenses
reflected  the   classification  of  development   efforts  related  to  display
technology  during  the  term of our  agreement  with  Futaba  of  approximately
$250,000  in  fiscal  2002 as costs  of  revenue  rather  than as  research  and
development expenses. In addition,  non-employee consultant expense increased by
approximately  $235,000  and  outside  research  and  development  increased  by
approximately $68,000, offset by a decrease in employee compensation and related
costs  of  approximately   $160,000,  a  decrease  in  depreciation  expense  of
approximately  $49,000,  a decrease in patent related  expenses of approximately
$57,000 and a decrease in engineering supplies expense of approximately $56,000.

         Selling, General and Administrative Expenses

                  Selling,  general and  administrative  expenses  decreased  by
approximately   $798,000  to  approximately   $1,380,000  in  fiscal  2003  from
approximately  $2,178,000 in fiscal 2002.  The decrease in selling,  general and
administrative   expenses   reflects  a  decrease   in   professional   fees  of
approximately $372,000, a decrease in employee compensation and related costs of
approximately  $203,000,  the elimination of expenses  related to listing on the
Nasdaq Stock Market of approximately  $90,000,  a decrease in other  shareholder
relations  expenses  of  approximately  $44,000  and a decrease  in  advertising
expense of  approximately  $50,000,  offset by the  recovery  in the  prior-year
period of a previously recorded bad debt charge of approximately $60,000.

         Interest Income

                  Interest  income  was  approximately  $5,000 in  fiscal  2003,
compared to  approximately  $24,000 in fiscal  2002.  The  reduction in interest
income  was the  result  of from a  decrease  in  average  funds  available  for
investment and a reduction in prevailing interest rates.

                                       28
<PAGE>

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

                  From our inception through June 2001, we 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.  Commencing  in the fourth  quarter of
fiscal  1999,  we also  began to  generate  cash  from  sales of our  encryption
products,  and, from June 2001 to January 2002, we received development payments
from Futaba.

                  In June 2001 and  January  2002,  we  received  payments  from
Futaba of  $2,500,000  and  $3,000,000,  respectively,  under an agreement  with
Futaba. Additionally, under agreements with Volga, we paid Volga an aggregate of
$1,110,000  and  $360,000  during  fiscal  2002  and  2001,  respectively,   for
development  efforts during the term of our agreement with Futaba, exclusive of
other costs incurred under the agreement with Futaba.

                  During   fiscal   2004,   our   operating    activities   used
approximately  $1,205,000  in cash.  This  resulted  from payments to suppliers,
employees and consultants of approximately $1,792,000,  which was offset by cash
of approximately  $583,000 received from collections of accounts  receivable and
other  receivables  related to sales of  encryption  products and  approximately
$4,000 of interest income received. In addition, during fiscal 2004, we received
approximately  $1,200,000  in cash  upon  the  exercise  of  stock  options  and
purchased  approximately  $16,000 of equipment.  As a result,  our cash and cash
equivalents  at October 31, 2004  decreased  to  approximately  $1,003,000  from
approximately $1,024,000 at the end of fiscal 2003.

                  Accounts  receivable  increased by approximately  $21,000 from
approximately  $42,000  at the end of fiscal  2003 to  approximately  $63,000 at
October  31,  2004.  The  increase  in  accounts  receivable  is a result of the
increase in revenue, the timing of collections and the decrease in the allowance
for doubtful accounts. Other receivables decreased by approximately $43,000 from
approximately $127,000 at the end of fiscal 2003 to approximately $84,000 at the
end of fiscal 2004.  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  and  other  receipts  from the  customer
aggregating  approximately $116,000,  offset by a reduction of the provision for
bad debts related to this  accounts  receivable of  approximately  $73,000.  The
reduction of the  provision for bad debts is based on  management's  estimate of
the other receivables' net realizable value. Inventories decreased approximately
$46,000  from  approximately  $1,045,000  at October 31,  2003 to  approximately
$999,000  at  October  31,  2004,  as a result of the  timing of  shipments  and
production  schedules.  Prepaid  expenses and other current assets  increased by
approximately  $74,000 from  approximately  $48,000 at the end of fiscal 2003 to
approximately $122,000 at October 31, 2004. The increase in prepaid expenses and
other assets is primarily  due to 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").  The
balance of the  insurance  proceeds  we received  of  approximately  $10,000 was
applied to fiscal 2005.  Accounts payable and accrued  liabilities  increased by
approximately  $101,000 from approximately $342,000 at the end of fiscal 2003 to
approximately  $443,000  at October  31,  2004,  as a result of the  increase in
operating expenses and the timing of payments.

                  As a result of these changes,  working  capital at October 31,
2004 decreased to approximately  $1,829,000 from approximately $1,943,000 at the
end of fiscal 2003.

                  Our  working  capital  includes   inventory  of  approximately
$999,000 and $1,045,000 at October 31, 2004 and 2003,  respectively.  Management
has recorded our  inventory at the lower of cost or our current best estimate of
net  realizable  value.  To  date,  sales of our  products  have  been  limited.
Accordingly,  there can be no  assurance  that we will not be required to reduce
the selling price of our inventory below our current carrying value.

                                       29
<PAGE>

                  During fiscal years ended October 31, 2004,  2003 and 2002, 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 2004 were shares issued to our Chairman of the Board and Chief  Executive
Officer. We recorded compensation expense for the fiscal years ended October 31,
2004,  2003 and 2002 of  approximately  $1,507,000,  $1,292,000 and $ 1,313,000,
respectively, for shares of common stock issued to employees. In addition during
fiscal 2004,  2003 and 2002, we issued shares of common stock to consultants for
services  rendered.  We recorded  consulting  expense for the fiscal years ended
October  31,  2004,  2003  and  2002 of  approximately  $342,000,  $360,000  and
$115,000, 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. For the year ended October 31, 2004, our
Chairman of the Board and Chief Executive  Officer received salary in the amount
of approximately $135,000 in the form of common stock and our President received
salary in the amount of approximately $37,000 in cash. 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,  2004 states that the net loss  incurred  during the year ended  October 31,
2004, 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, 2003 and 2002 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 2006. 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 2006.  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.

                  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 2004, we have  recognized  revenue from sales of  encryption  products of
approximately $494,000.


                                       30
<PAGE>

                  The following  table  presents our expected cash  requirements
for contractual obligations outstanding as of October 31, 2004:


<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                        $  45,000             --              --             --          $   45,000

Noncancelable
Operating Leases                   $255,000          $153,000          --             --          $  408,000
                                 -----------       ----------    ----------     -----------       ----------
Total Contractual
Cash Obligations                  $ 300,000          $153,000          --             --          $  453,000
                                 ===========       ==========    ==========     ===========       ==========
</TABLE>


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


                                       31
<PAGE>

                  We have incurred approximately $45,000 of accounting and other
professional  fees  related to this  matter  during the first  quarter of fiscal
2005.

                  In  connection with  the audit of our financial statements for
the year  ended October 31, 2004, Grant Thornton LLP, our independent registered
public accounting firm, advised  us that there  were material weaknesses  in our
internal controls  that  did not  allow us  to prevent  or detect  earlier  such
fraudulent activities, and  that such  weaknesses are  "material weaknesses", as
defined under standards established by  the Public Company  Accounting Oversight
Board.   As a  result,  and in  response  also  to recommendations  made by  the
independent  accounting  firm  that  conducted the investigation, to help ensure
against such fraudulent activity  in  the  future we have implemented changes to
our cash processing and control  procedures.  We  are  also  in  the  process of
implementing  changes to our operating bank account.  See Item 9A "Controls  and
Procedures."

Impact of Recent Accounting Pronouncement
-----------------------------------------

                  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 are effective for the first interim  reporting period that begins
after June 15, 2005. Accordingly,  we will adopt SFAS No. 123(R) commencing with
the quarter  ending  October 31,  2005.  If we had included the cost of employee
stock option  compensation  in our  financial  statements,  our net loss for the
fiscal  years ended  October 31,  2004,  2003 and 2002 would have  increased  by
approximately $2,909,000, $889,000 and $283,000, respectively.  Accordingly, the
adoption  of SFAS No.  123(R)  is  expected  to have a  material  effect  on our
financial statements.


                                       32
<PAGE>


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."



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

                  None.



Item 9A.          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,  other than as described  below,  our  disclosure  controls and
procedures were effective as of the end of fiscal 2004.

         There was no change in our internal  control over  financial  reporting
during the fourth  quarter of fiscal 2004 that has  materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.


                                       33
<PAGE>

         Subsequent to the end of fiscal 2004,  however,  in connection with our
audit of our financial statements for the fiscal year ended October 31, 2004, we
determined  that a former  accounting  employee  embezzled  funds  from  us.  We
immediately  conducted an internal  investigation  and, on December 17, 2004, we
filed with the SEC a Current Report on Form 8-K disclosing  this  determination.
In addition to our  internal  investigation,  we  discussed  the matter with our
independent  registered  public  accounting  firm,  Grant Thornton LLP, and also
engaged   another   independent   accounting  firm  to  conduct  an  independent
investigation of this matter.  The independent  accounting firm undertook to (i)
gain an  understanding  of the facts  and  circumstances  surrounding  the known
fraudulent activity related to the former employee's embezzlement of funds, (ii)
determine if the former  employee  engaged in fraudulent  activities  other than
what had already been identified by our internal  investigation,  (iii) identify
other employees or third parties, if any, that may have been associated with the
known fraudulent activity,  (iv) with respect to fiscal 2004 and the first month
of fiscal 2005, gain an understanding of our internal controls as they relate to
the  areas in which  the  employee  was  involved  (such  as cash  receipts  and
disbursements) and the  responsibilities  assigned to the former employee,  test
these areas for fraud, identify any weaknesses in our internal controls relating
to  these  areas,  make  recommendations  as to  improvements  in such  internal
controls, and quantify potential misstatements to our financial statements,  and
(v) for fiscal 2001 through fiscal 2003,  review areas in which the employee was
involved for fraud.

         Through  our  internal  investigation  and the  independent  accounting
firm's investigation, we have determined the following:

     o    Our  internal  investigation  concluded  that  the  former  accounting
          employee was the sole employee participating in the embezzlement.  The
          independent accounting firm agreed with this conclusion.

     o    The independent  accounting  firm was unable to determine  whether any
          non-employee  third  party  aided  or  abetted  the  employee  in  his
          fraudulent  activity.  We have no  evidence,  however,  that any third
          party aided or abetted him.

     o    Our internal  investigation  determined  that,  in fiscal 2004 and the
          first month of fiscal 2005,  the former  employee  wrote checks out to
          himself  using  fraudulent  authorized  signatures,  failed to deposit
          several of his own checks  which were paid to us, and  concealed  such
          activities  through the alteration of bank  statements.  We determined
          that the amount  embezzled  by the employee  during these  periods was
          approximately  $189,000.  We also discovered  approximately  $4,000 in
          deposits to our account during these periods that we believe were made
          by the employee in an effort to conceal his fraudulent activity, for a
          net loss to us during  this  period  of  approximately  $185,000.  The
          independent accounting firm agreed with these conclusions.

     o    The  independent  accounting  firm  determined  that the  employee had
          committed additional fraudulent activity during fiscal 2003, resulting
          a loss of approximately  $4,500.  We subsequently  conducted a further
          internal  review of activity by the employee  since his hiring in 2001
          and determined that the employee had committed  additional  fraudulent
          activity in fiscal 2002 and fiscal 2001,  resulting  in losses  during
          those periods of approximately $20,000 and $3,500,  respectively.  The
          independent accounting firm agreed with these conclusions.

                                       34
<PAGE>

     o    The  independent  accounting  firm  concluded  that,  except  for  the
          activity  our  internal  investigation  had  revealed and the activity
          between 2001 and 2003 described  above,  the former  employee,  in all
          likelihood did not engage in any other fraudulent activity.

     o    Our internal investigation  concluded,  and the independent accounting
          firm  agreed,  that the  employee's  responsibilities  in other  areas
          (accounts receivable,  sales,  inventory and payroll) was very limited
          and, therefore, the possibility of fraudulent activity in these areas,
          by this employee, was remote.

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

         We have incurred a total of  approximately  $45,000 of  accounting  and
other professional fees related to this matter through January 14, 2005.

         In connection with the audit of the Company's financial  statements for
the year ended  October 31,  2004,  Grant  Thornton  advised us that there was a
weakness in our internal control over financial  reporting that did not allow us
to prevent or detect earlier such  fraudulent  activities.  Specifically,  Grant
Thornton  found  that  there  was a lack of  procedures  in place to  effect  an
adequate  segregation  of duties over cash and  related  cash  processing.  This
weakness caused the following deficiencies:

     o    inadequate control of processing of cash receipts,

     o    inadequate control over bank transfers,

     o    inadequate   control   over   original   bank   statements   and   the
          reconciliation process, and

     o    inadequate control over unused checks.



                                       35
<PAGE>

         Grant  Thornton  advised  us  that  these  deficiencies   constitute  a
"material weakness" under standards established by the Public Company Accounting
Oversight Board.

         As a  result,  and in  response  also  to  recommendations  made by the
independent  accounting  firm that conducted the  investigation,  to help ensure
against such fraudulent  activity in the future, we have implemented  changes in
certain of our internal controls over financial reporting, as follows:

     o    an individual from  management,  rather than someone in the accounting
          department,  will open the bank  statements  as they are received from
          the bank and review them for any unusual checks or other  transactions
          before  providing  the  statements  to the  accounting  department  to
          perform reconciliations;

     o    this individual will compare all of the cancelled checks returned with
          the bank  statement with our  disbursement  records to ensure that the
          records  reflect  the  information  on the check and will  review  the
          checks for unusual or unexpected endorsements; and

     o    mail will be opened by personnel outside the accounting department and
          any checks will be immediately  restrictively  endorsed prior to being
          given to the accounting department.

         The independent  accounting firm also recommended we adopt a "zero-base
balance" or a "sweep"  account in our operating  bank account to enable the bank
to transfer  funds to the  operating  account only when checks are presented for
payment. We are in the process of implementing this recommendation.  We are also
in the process of hiring a replacement for the former  accounting  employee.  We
have also reviewed the  segregation of duties in our  accounting  department and
will further segregate duties once such person is hired, taking into account our
staffing size and  composition.  Finally,  the independent  accounting firm also
recommended  that, as our business grows, we consider using a lockbox system for
processing cash receipts, under which customers will be requested, via notations
on invoices or monthly statements or the use of preaddressed  envelopes, to send
their payments to a post office box, which will be accessible  only by (and will
be collected daily by) our bank. We will continue to evaluate the  effectiveness
of our  disclosure  controls  and  procedures  and our  internal  controls  over
financial  reporting  on an  ongoing  basis,  and will  take  further  action as
appropriate. However, there can be no assurance that our controls and procedures
will prevent all errors or fraud.



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

                  None.


                                       36
<PAGE>




<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              77           1982
                          Executive Officer
-----------------------------------------------------------------------------------------------------------
Frank J. DiSanto          Director and President                                 80           1982
-----------------------------------------------------------------------------------------------------------
Henry P. Herms            Director, Chief Financial Officer and Vice             59           2000
                          President - Finance
-----------------------------------------------------------------------------------------------------------
George P. Larounis        Director                                               76           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.  Prior to joining us, Mr. Herms was employed by  takeoutmusic.com  Holding
Corp. as Chief Financial Officer, from May 2000 to November 2000. Prior to that,
for  approximately  12 years,  Mr.  Herms was a  Principal,  Director  and Chief
Financial Officer of a group of affiliated,  privately held companies  operating
under the Ultratan  trade name. 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.


                                       37
<PAGE>


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 2004.

Code of Ethics

                  As of the date of this  report,  we have not  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.  Because of the small number of our employees, and
in particular  the small number and long service of our senior  management,  our
Board of  Directors  has not  believed  it  necessary  to adopt a formal code of
ethics.  However,  our  Board  continues  to  evaluate  this in light of  recent
developments  concerning  governance of public  companies  generally,  including
rules adopted by the Securities and Exchange Commission and the stock markets.

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 2002 and 2003.  Effective  for fiscal 2004,  Mr.  Krusos began to receive
compensation  in the form of common stock and Mr.  DiSanto began to receive cash
compensation.  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, 2004. The following is compensation information regarding Mr. Krusos
for the fiscal years ended October 31, 2004, 2003 and 2002:


                                       38
<PAGE>

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

                                        SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------------------------
                                                Fiscal
                  Name and                       Year            Annual                Long-Term
             Principal Position                  Ended        Compensation        Compensation Awards
                                                                                 Securities Underlying
                                                                                      Options (#)
-----------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>                    <C>
Denis A. Krusos,                               10/31/04         $135,075               1,750,000
Chairman of the Board,                         10/31/03            -                   1,500,000
Chief Executive Officer and Director           10/31/02            -                       -
-----------------------------------------------------------------------------------------------------------
</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, 2004:

<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       500,000 (1)        8.66%       $0.43 (2)    2/22/14      $135,212       $  342,655
                      250,000 (1)        4.33%       $0.71 (2)    5/10/14      $127,351       $  322,733
                    1,000,000 (1)       17.32%       $1.04 (2)    10/25/14     $654,050       $1,657,492
-----------------------------------------------------------------------------------------------------------
</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.



                                       39
<PAGE>

                  The following is information  regarding stock option exercises
during fiscal 2004 by Mr. Krusos and the values of his options as of October 31,
2004:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                            AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                           FY-END OPTION/VALUES
============================================================================================================
                                                    Number of Securities            Value of Unexercised
                                                   Underlying Unexercised          In-the-Money Options at
                      Shares         Value       Options at Fiscal Year End (#)    Fiscal Year End ($)(1)
                     Acquired on    Realized   -------------------------------------------------------------
 Name                Exercise (#)     ($)       Exercisable   Unexercisable   Exercisable   Unexercisable
============================================================================================================
<S>                     <C>         <C>           <C>           <C>             <C>               <C>
Denis A. Krusos         -              -          5,778,290          -          $1,909,750         -
------------------------------------------------------------------------------------------------------------
</TABLE>

         (1)      Such value was  determined by  multiplying  the net difference
                  between  the last sales price of the stock on October 31, 2004
                  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.


                                       40
<PAGE>






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  10, 2005 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:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                              Amount and Nature of
                                                                    Beneficial              Percent of
                                                                 Ownership(1)(2)               Class
===========================================================================================================
<S>                                                                <C>                         <C>
Denis A. Krusos                                                    7,747,600                   8.37%
900 Walt Whitman Road
Melville, NY  11747
-----------------------------------------------------------------------------------------------------------
Frank J. DiSanto                                                   4,309,505                   4.76%
900 Walt Whitman Road
Melville, NY  11747
-----------------------------------------------------------------------------------------------------------
Henry P. Herms                                                       595,000                    *
900 Walt Whitman Road
Melville, NY  11747
-----------------------------------------------------------------------------------------------------------
George P. Larounis                                                   330,000                    *
900 Walt Whitman Road
Melville, NY 11747
-----------------------------------------------------------------------------------------------------------
All Directors and Executive Officers as a Group (4  persons)      12,982,105                  13.36%
-----------------------------------------------------------------------------------------------------------
</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  5,778,290  shares,  3,666,290  shares,  570,000 shares,
               330,000 shares and 10,344,580 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.

                                       41
<PAGE>

Equity Compensation Plan Information

                  The  following  is  information  as of October  31, 2004 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 9 to  Financial  Statements  for more
information on these plans.

<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              10,719,546                     $2.93                           773
approved by security
holders

Equity compensation plans               7,285,000                     $0.62                    12,566,129
not approved by security
holders

Total                                  18,004,546                     $1.99                    12,566,902
</TABLE>



Item 13. Certain Relationships and Related Transactions.
         -----------------------------------------------

                  None.



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

                  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,
2004, and 2003.


                         Type of Fee             2004            2003
                        -----------             ------           ----
           Audit Fees                          $127,460        $120,448
           Audit Related Fees                      --

           Tax Fees - Tax return review            --

           All Other Fees                          --
                                               --------        --------
           Total                               $127,460        $120,448
                                               ========        ========


                                       42
<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  17,  2004.  We did not  enter  into any  non-audit
engagement or relationship with Grant Thornton LLP during fiscal 2004.








                                       43
<PAGE>






                                     PART IV
                                     -------

Item 15.          Exhibits, 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,
                   2005).

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

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


                                       44
<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  and  restated.  (Incorporated  by
                        reference to Post-Effective  Amendment No. 1 to Form S-8
                        (Registration No. 33-49402) dated December 8, 1993.)

            3.3         Amendment to By-laws. (Incorporated by reference to Form
                        10-Q for the fiscal quarter ended January 31, 2003.)

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

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

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

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

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

                                       45
<PAGE>

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

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

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

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

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

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

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

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

            10.14       Amendment  No.  1  to  the  CopyTele,  Inc.  2003  Share
                        Incentive  Plan  (Incorporated  by  reference to Exhibit
                        4(e) to our Form S-8 dated November 9, 2005).


                                       46
<PAGE>


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

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

            10.17       Long  Term   Agreement   dated  April  2,  2004  between
                        CopyTele,    Inc.   and   Boeing    Satellite    Systems
                        International,  Inc.,  as modified  September  16, 2004.
                        (Previously Filed.)

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

            31.1        Certification  of Chief Executive  Officer,  pursuant to
                        Section  302 of the  Sarbanes-Oxley  Act of 2002,  dated
                        January 18, 2005. (Filed herewith.)

            31.2        Certification  of Chief Financial  Officer,  pursuant to
                        Section  302 of the  Sarbanes-Oxley  Act of 2002,  dated
                        January 18, 2005. (Filed herewith.)

            32.1        Statement  of  Chief  Executive  Officer,   pursuant  to
                        Section  1350 of Title  18 of the  United  States  Code,
                        dated January 18, 2005. (Filed herewith.)

            31.2        Statement  of  Chief  Financial  Officer,   pursuant  to
                        Section  1350 of Title  18 of the  United  States  Code,
                        dated January 18, 2005. (Filed herewith.)


                                       47
<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 18, 2005                          Chief Executive Officer



                                       48



<PAGE>

COPYTELE, INC.


INDEX TO FINANCIAL STATEMENTS
OCTOBER 31, 2004

<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>                                                                                                          <C>
Report of Independent Registered Public Accounting Firm: Grant Thornton LLP                                F-1
Balance Sheets as of October 31, 2004 and 2003                                                             F-2
Statements of Operations for the years ended October 31, 2004, 2003 and 2002                               F-3
Statement of Shareholders' Equity for the years ended October 31, 2004, 2003 and 2002                      F-4
Statements of Cash Flows for the years ended October 31, 2004, 2003 and 2002                               F-5
Notes to Financial Statements                                                                           F-6 - F-22
Schedule of Valuation and Qualifying Accounts                                                              S-1
</TABLE>


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


                                       49
<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.  (the
"Company")  (a Delaware  corporation)  as of October 31, 2004 and 2003,  and the
related statements of operations,  shareholders'  equity and cash flows for each
of the three  years in the  period  ended  October  31,  2004.  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, 2004 and 2003, and the results of its operations and its cash flows for each
of the three years in the period ended  October 31,  2004,  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  $3,361,000 during the year
ended  October 31, 2004,  and, as of that date,  the Company has an  accumulated
deficit of approximately  $68,456,000.  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) as of October 31, 2004 and 2003 and for each of the three years in
the period  ended  October 31,  2004.  In our opinion,  this  schedule  presents
fairly,  in all  material  respects,  the  information  required to be set forth
therein.




/s/ GRANT THORNTON LLP
-----------------------------------------
Melville, New York
January 4, 2005, except for Note 10 as to
   which the date is January 12, 2005




                                       F-1
<PAGE>



COPYTELE, INC.

BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                      October 31,           October 31,
                                    ASSETS                                               2004                  2003
                                --------------                                     ----------------      ----------------
CURRENT ASSETS:
<S>                                                                                <C>                   <C>
   Cash and cash equivalents                                                       $      1,002,777      $      1,023,531
   Accounts receivable, net of allowance for doubtful accounts of $149,455
      and $159,230, respectively                                                             63,460                41,500
   Other receivables, net of allowance for doubtful accounts of $108,793
      and $181,952, respectively                                                             84,308               127,124
   Inventories                                                                              999,429             1,044,875
   Prepaid expenses and other current assets                                                122,482                47,972
                                                                                   ----------------      ----------------
                  Total current assets                                                    2,272,456             2,285,002

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of
   $2,101,008 and $2,084,010, respectively                                                   38,085                39,480

OTHER ASSETS                                                                                  5,509                 6,009
                                                                                   ----------------      ----------------
                                                                                   $      2,316,050      $      2,330,491
                                                                                   ================      ================
                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES:
   Accounts payable                                                                $        402,640      $        316,865
   Accrued liabilities                                                                       40,480                25,420
                                                                                   ----------------      ----------------
                  Total current liabilities                                                 443,120               342,285

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;
       85,523,253 and 80,151,478 shares issued and outstanding, respectively                855,233               801,515
   Additional paid-in capital                                                            69,474,058            66,282,397
   Accumulated deficit                                                                  (68,456,361)          (65,095,706)
                                                                                   ----------------      ----------------
                                                                                          1,872,930             1,988,206
                                                                                   ----------------      ----------------
                                                                                   $      2,316,050      $      2,330,491
                                                                                   ================      ================

</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,
                                                             -------------------------------------------------------
                                                                 2004                 2003                 2002
                                                             ------------         ------------         ------------
REVENUE
<S>                                                          <C>                  <C>                  <C>
   Sales, net                                                $    494,462         $    244,221         $    645,027
   Collaborative agreement                                           --                   --              4,541,667
                                                             ------------         ------------         ------------
                  Total revenue                                   494,462              244,221            5,186,694

COST OF REVENUE
   Cost of sales                                                  176,112              175,944              427,056
   Cost of collaborative agreement                                   --                   --              1,444,002
                                                             ------------         ------------         ------------
                  Total cost of revenue                           176,112              175,944            1,871,058

                  Gross profit                                    318,350               68,277            3,315,636
                                                             ------------         ------------         ------------
OPERATING EXPENSES
   Research and development expenses                            2,164,427            1,807,742            1,625,974
   Selling, general and administrative expenses                 1,518,911            1,379,614            2,177,608
   Impairment loss on commercial trade barter credits                --                   --              2,820,800
                                                             ------------         ------------         ------------
                   Total operating expenses                     3,683,338            3,187,356            6,624,382
                                                             ------------         ------------         ------------
LOSS FROM OPERATIONS                                           (3,364,988)          (3,119,079)          (3,308,746)

INTEREST INCOME                                                     4,333                4,668               23,506
                                                             ------------         ------------         ------------
NET LOSS                                                     $ (3,360,655)        $ (3,114,411)        $ (3,285,240)


PER SHARE INFORMATION:
Net loss per share:
   Basic and Diluted                                         $       (.04)       $        (.04)        $       (.05)
                                                             ------------         ------------         ------------
Shares used in computing net loss per share:
   Basic and Diluted                                           82,953,519           75,153,015           68,088,748
                                                             ============        =============         ============

</TABLE>


The accompanying notes are an integral part of these statements.


                                       F-3
<PAGE>


COPYTELE, INC.


STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2004, 2003 AND 2002



<TABLE>
<CAPTION>
                                                                          Common Stock         Additional
                                                                   -------------------------    Paid-in     Accumulated
                                                                      Shares    Par Value       Capital       Deficit
                                                                   -----------  ----------    -----------  --------------
<S>                                                                 <C>            <C>          <C>           <C>
BALANCE, October 31, 2001                                           66,521,100     665,211      62,197,370    (58,696,055)
   Common stock issued upon exercise of stock options under stock
     option plans                                                       20,000         200           7,800           --
   Common stock issued to employees for services rendered            3,311,405      33,114       1,280,039           --
   Common stock issued to consultants                                  404,650       4,047         111,004           --
   Net loss                                                               --          --              --       (3,285,240)
                                                                    ----------  ----------     -----------   ------------

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 for services rendered            4,483,111      44,831       1,246,906           --
   Common stock issued to consultants                                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 for services rendered            2,491,415      24,914       1,481,679           --
   Common stock issued to consultants                                  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)
                                                                    ==========  ==========     ===========   ============
</TABLE>



The accompanying notes are an integral part of this statement.


                                      F-4



<PAGE>
COPYTELE, INC.


STATEMENTS  OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          For the Years Ended October 31,
                                                                                --------------------------------------------------
                                                                                      2004              2003            2002
                                                                                ----------------  ---------------  ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>              <C>              <C>
   Payments to suppliers, employees and consultants                               $(1,792,103)     $(1,234,490)     $(4,136,913)
   Cash received from customers                                                       582,648          271,321          681,936
   Cash received from collaborative agreement                                            --               --          3,000,000
   Interest received                                                                    4,333            4,668           23,506
                                                                                ----------------  ---------------  ---------------
         Net cash used in operating activities                                     (1,205,122)        (958,501)        (431,471)
                                                                                ----------------  ---------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Payments for purchases of property and equipment                                   (15,602)            (980)         (38,567)
                                                                                ----------------  ---------------  ---------------
         Net cash used in investing activities                                        (15,602)            (980)         (38,567)
                                                                                ----------------  ---------------  ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options, net of registration disbursements       1,199,970        1,128,190            8,000
                                                                                ----------------  ---------------  ---------------
         Net cash provided by financing activities                                  1,199,970        1,128,190            8,000
                                                                                ----------------  ---------------  ---------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                  (20,754)         168,709         (462,038)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                    1,023,531          854,822        1,316,860
                                                                                ----------------  ---------------  ---------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $ 1,002,777      $ 1,023,531      $   854,822
                                                                                ================  ===============  ===============

RECONCILIATION OF NET LOSS TO NET CASH USED IN
   OPERATING ACTIVITIES:
   Net loss                                                                       $(3,360,655)     $(3,114,411)     $(3,285,240)
   Impairment loss on commercial trade barter credits                                   --               --          2,820,800
   Stock option compensation to consultants                                           196,692            4,800             --
   Stock awards granted to employees and consultants pursuant to stock
     incentive plans                                                                1,848,717        1,652,137        1,428,204
   Provision for [recovery of] doubtful accounts                                      (73,159)         205,011          155,505
   Provision for slow-moving inventory                                                  --               --             100,000
   Depreciation and amortization                                                       16,997           33,083           86,471
   Change in operating assets and liabilities:
       Accounts receivable and other receivables                                       94,015           27,097          (19,846)
       Inventories                                                                     45,446          251,324          193,151
       Prepaid expenses and other current assets                                      (74,510)          54,547           34,383
       Other assets                                                                       500             (355)          36,959
       Accounts payable and accrued liabilities                                       100,835          (71,734)        (440,191)
       Deferred revenue                                                                  --               --         (1,541,667)
                                                                                ----------------  ---------------  ---------------
         Net cash used in operating activities                                    $(1,205,122)     $  (958,501)     $  (431,471)
                                                                                ================  ===============  ===============
</TABLE>



The accompanying notes are an integral part of these statements.


                                      F-5

<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


1.       NATURE AND DEVELOPMENT OF BUSINESS AND FUNDING

ORGANIZATION

         CopyTele,  Inc. was  incorporated  on November 5, 1982.  Our  principal
operations are the  development,  production  and marketing of  multi-functional
hardware  and  software  based  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 video displays.

PRODUCTS

         We currently have 14 different  products in our line of  hardware-based
encryption  solutions.  Our encryption products are  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 of which  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 the  other of which  can
encrypt voice and data in cellular and satellite phones, scanners, and printers.
We sell our encryption  products  directly to end-users and through  dealers and
distributors.

         We are  also  continuing  our  research  and  development  work  on our
electron  emission  display ("Flat CRT")  technology.  We have been developing a
Flat CRT display  based on our thin film  technology  ("TFT") and have  produced
prototype displays containing TFT color matrix structures.

FUNDING AND MANAGEMENT'S PLANS

         From our  inception  through June 2001,  we had 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.  Commencing  in the fourth  quarter of
fiscal  1999,  we began to  generate  cash flows  from  sales of our  encryption
products,  and, from June 2001 to January 2002, we received development payments
from Futaba Corporation ("Futaba") of Japan.

         During  fiscal  2004,  our  operating   activities  used  approximately
$1,205,000 in cash.  This  resulted  from  payments to suppliers,  employees and
consultants  of   approximately   $1,792,000,   which  was  offset  by  cash  of
approximately  $583,000  received from  collections  of accounts  receivable and
other  receivables  related to sales of  encryption  products and  approximately
$4,000 of interest income received. In addition,  during fiscal 2004 we received
approximately  $1,200,000  in cash  upon  the  exercise  of  stock  options  and
purchased  approximately  $16,000 of equipment.  As a result,  our cash and cash
equivalents  at October 31, 2004  decreased  to  approximately  $1,003,000  from
approximately $1,024,000 at the end of fiscal 2003.

                                      F-6
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


         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 2006. 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 2006.  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.

         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  $3,361,000 during the
year ended  October  31,  2004,  and,  as of that date,  we have an  accumulated
deficit  of  approximately  $68,456,00.  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

         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.

         COLLABORATIVE AGREEMENT

                  A $2.5  million  payment  received  from  Futaba in June 2001,
         pursuant  to  an  agreement  with  Futaba  described  in  Note  3,  was
         recognized ratably over the period between June 2001 and June 2002, the
         contractually  defined  one-year  period of our  commitment  under this
         agreement.  A subsequent $3 million payment  received from Futaba under
         this  agreement  in  January  2002  was  recognized  ratably  over  the
         remainder of the one-year period.

         SALES RETURNS

                  Revenues are recorded net of estimated sales returns.

                                      F-7
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


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, 2004 and  October  31,  2003,  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, 2004,  2003 and 2002,  the Company did
not pay any interest or income taxes.

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.

         Changes in our allowance for doubtful accounts are as follows:

<TABLE>
<CAPTION>
                                                                Year Ended October 31,
                                                              --------------------------
                                                                  2004            2003
                                                              ---------         --------
<S>                                                           <C>               <C>
     Beginning balance                                        $ 159,230         $325,505
        Provision for doubtful accounts receivable                    -           23,056
        Accounts written off                                     (9,775)        (189,331)
                                                              ---------         ---------
     Ending balance                                           $ 149,455         $ 159,230
                                                              =========         =========
</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.  Our net income (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.

                                      F-8
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS



VALUATION OF LONG-LIVED ASSETS

         We assess  the  impairment  of  long-lived  assets  whenever  events or
changes  in   circumstances   indicate  that  the  carrying  value  may  not  be
recoverable.  Factors  considered  important  that could  trigger an  impairment
review include a significant underperformance relative to expected historical or
projected future operating  results and cash flows, a significant  change in the
manner of the use of the asset or a  significant  negative  industry or economic
trend.  When management  determines that the carrying value of long-lived  asset
may not be  recoverable  based  upon the  existence  of one or more of the above
indicators of impairment, the carrying amount of the asset would be written down
to fair value based upon the present  value of  estimate  future cash flows,  to
reflect the impairment. See Note 4.

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-9
<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,
                                                             ------------------------------------------
                                                                 2004           2003          2002
                                                             ------------   ------------   ------------
<S>                                                          <C>            <C>            <C>
Net loss as reported                                         $(3,360,655)   $(3,114,411)   $(3,285,240)
Add: Total stock-based employee compensation
         expense, determined under fair value based
         method, for all awards, net of related tax effect    (2,909,217)      (889,145)      (282,908)
                                                             -----------    -----------    -----------
Net loss as adjusted                                         $(6,269,872)   $(4,003,556)   $(3,568,148)
                                                             ===========    ===========    ===========

Net loss per share, basic and diluted:
         As reported                                         $     (0.04)   $     (0.04)   $     (0.05)
                                                             ===========    ===========    ===========
         As adjusted                                         $     (0.08)   $     (0.05)   $     (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, 2004, 2003 and
2002, respectively: risk free interest rates of 2.58%, 1.39% and 3.26%; expected
dividend yields of 0% for all periods;  expected lives of 2.49 years, 1.49 years
and 2.50 years;  and expected stock price  volatility of 124%, 139% and 93%. The
weighted average fair value of options granted under SFAS No. 123 for the fiscal
years  ended  October  31,  2004,  2003 and 2002 was  $0.55,  $0.13  and  $0.34,
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 fiscal years ended  October 31, 2004,  2003 and
2002, was approximately $197,000, $5,000 and $0, respectively. Such compensation
expense was recognized in accordance  with Emerging  Issues Task Force Issue No.
00-08,  "Accounting  by a Grantee  for an Equity  Instrument  to be  Received in
Conjunction  with  Providing  Goods or Services" and No. 96-18  "Accounting  for
Equity Instruments That Are Issued to Other Than Employees for Acquiring,  or in
Conjunction with Selling, Goods or Services," and is included in either research
and development  expenses or selling,  general and administrative  expenses,  as
applicable, in the accompanying statements of operations.

NET INCOME (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 income (loss) per
common  share  ("Basic  EPS") is computed by dividing  net income  (loss) by the
weighted average number of common shares outstanding.  Diluted net income (loss)
per common share  ("Diluted  EPS") is computed by dividing net income  (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 fiscal years ended
October 31, 2004,  2003 and 2002,  were options to purchase  18,064,546  shares,
15,522,246 shares and 14,705,746 shares, respectively.


                                      F-10
<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,
accounts  and  other  receivables  and  accounts   payable,   reflected  in  the
accompanying  balance sheet,  approximates fair value as of October 31, 2004 and
2003, 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.

EFFECT OF RECENTLY ISSUED PRONOUNCEMENT

         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 are effective for the first interim  reporting period that begins
after June 15, 2005. Accordingly,  we will adopt SFAS No. 123(R) commencing with
the quarter  ending  October 31,  2005.  If we had included the cost of employee
stock option  compensation  in our  financial  statements,  our net loss for the
fiscal  years ended  October 31,  2004,  2003 and 2002 would have  increased  by
approximately $2,909,000, $889,000 and $283,000, respectively.  Accordingly, the
adoption  of SFAS No.  123(R)  is  expected  to have a  material  effect  on our
financial statements.

3.       COLLABORATIVE AGREEMENT

         From June 2001 until June 2002,  pursuant to an agreement  with Futaba,
we worked with Futaba to jointly develop and  commercialize  a full-color  video
display  utilizing  our display  technology.  We received  payments  from Futaba
aggregating  $5,500,000  during the term of this  agreement.  We have no further
performance obligations with respect to this agreement.

         In  1997,  we  entered  into  an  agreement   with  Volga  for  certain
development efforts in connection with our display technology.  Under amendments
to this agreement,  we paid Volga an aggregate of $1,110,000  during fiscal 2002
for development efforts during the term of our agreement with Futaba.


                                      F-11
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS



4.       BARTER TRANSACTION AND ASSOCIATED IMPAIRMENT

         In August 2000, we entered into a  nonmonetary  barter  transaction  in
which we sold $3,000,000 of certain  inventory in exchange for an equal value of
commercial trade credits. In accordance with APB Opinion No. 29, "Accounting for
Non-Monetary  Transactions," we recognized no gain or loss on the transaction as
it was  management's  opinion  that this  exchange  was  effected at fair market
value.  These  trade  credits  could  have been  redeemed  to reduce the cost of
advertising  as well as other  products  and  services.  As is  typical  of such
arrangements,  to  utilize  barter  credits  we  would  have  to  pay a  certain
percentage of the  advertising or other expense in cash. In accordance with SFAS
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," we continually  evaluated the carrying amount of this
asset.

         Unused  barter  credits  at  May  1,  2002   aggregated   approximately
$2,821,000.  To utilize  these barter  credits in exchange for  advertising  and
purchase discounts, we would have to pay between 65-70% of the transaction value
in cash.  Because  our  anticipated  cash flow was  negatively  affected  by the
termination of the agreement with Futaba,  our ability to make such payments and
thereby utilize the barter credits was uncertain. Therefore, during fiscal 2002,
we wrote off all unused barter credits,  thereby  recognizing an impairment loss
in the amount of approximately  $2,821,000.  This impairment loss relates to our
Encryption Products Segment.

5.       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 2004, two customers in the
Encryption Products and Services Segment represented 61% and 19%,  respectively,
of total net  revenues.  During  fiscal 2003,  two  customers in the  Encryption
Products and Services Segment  represented 25% and 13%,  respectively,  of total
net revenues.  Futaba,  in the Flat Panel Display  Segment,  represented  88% of
total net revenues in fiscal 2002.  At October 31,  2004,  two  customers in the
Encryption Products and Services Segment represented 48% and 44%,  respectively,
of net accounts receivable. At October 31, 2003, two customers in the Encryption
Products and Services  Segment  represented  47% and 36%,  respectively,  of net
accounts receivable.

6.       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  2004 and 2003,  we  received  aggregate  proceeds  of
approximately $110,000 and $14,000, respectively,  from the sale of a portion of
the common  stock.  As of October 31,  2004,  we hold  240,000  shares of common
stock, subject to no restrictions,  with a fair value of approximately  $72,000,
and we intend to sell the remaining portion of such stock during the next twelve
months to recover the  receivable.  This  receivable  is stated at  management's
estimate of its net realizable value.


                                      F-12
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS



7.       INVENTORIES

Inventories consist of the following as of:


<TABLE>
<CAPTION>
                                                                               October 31,
                                                                    ----------------------------------
                                                                          2004             2003
                                                                    ----------------  ----------------
<S>                                                                 <C>               <C>
             Component parts                                        $        304,862  $       341,344
             Work-in-process                                                 114,075           48,324
             Finished products                                               580,492          655,207
                                                                    ----------------  ---------------
                                                                    $        999,429  $     1,044,875
                                                                    ================  ===============
</TABLE>


8.       ACCRUED LIABILITIES

Accrued liabilities consist of the following as of:

<TABLE>
<CAPTION>
                                                                               October 31,
                                                                    ----------------------------------
                                                                          2004             2003
                                                                    -------------     ----------------
<S>                                                                 <C>               <C>
              Accrued professional fees                             $      21,485     $       7,000
              Accrued payroll and related expenses                          7,136             5,607
              Accrued other                                                11,859            12,813
                                                                    -------------     -------------
                                                                    $      40,480     $      25,420
                                                                    =============     =============
</TABLE>


9.       SHAREHOLDERS' EQUITY

COMMON STOCK ISSUANCES

         During  fiscal years ended  October 31, 2004,  2003 and 2002, we issued
2,491,415 shares, 4,483,111 shares and 3,311,405 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 2004 were 235,000
shares and 25,000  shares  issued to Denis A. Krusos,  our Chairman of the Board
and Chief Executive Officer, and Henry P. Herms, our Vice  President-Finance and
Chief Financial Officer,  respectively. We recorded compensation expense for the
fiscal years ended October 31, 2004, 2003 and 2002 of approximately  $1,507,000,
$1,292,000 and  $1,313,000,  respectively,  for shares of common stock issued to
employees.  In addition  during fiscal 2004,  2003 and 2002,  we issued  643,860
shares,  1,364,712 shares and 404,650 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 fiscal years ended October
31,  2004,  2003 and 2002 of  approximately  $342,000,  $360,000  and  $115,000,
respectively, for shares of common stock issued to consultants.

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, 2004 and 2003, there is
no preferred stock issued and outstanding.

                                      F-13
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS




STOCK OPTION PLANS

         As of October 31, 2004, 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, 2004 is as follows:


<TABLE>
<CAPTION>
                                                                                                  Current Weighted
                                                                                                  Average Exercise
                                                                                 Shares           Price Per Share
                                                                            ---------------       -----------------
<S>                                                 <C> <C>                        <C>                  <C>
     Shares Under Option and Exercisable at October 31, 2001                       449,000              $5.63
        Expired                                                                   (140,000)             $5.63
                                                                            --------------
     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 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-14
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS






         Information  regarding  the 1993 Plan for the three years ended October
31, 2004 is as follows:

<TABLE>
<CAPTION>
                                                                                 Current Weighted
                                                                                 Average Exercise
                                                                   Shares        Price Per Share
                                                                 ----------      ----------------
<S>                                                              <C>               <C>
Shares Under Option at October 31, 2001                          10,876,780          $4.23
  Canceled                                                          (80,000)         $3.94
                                                                 ----------
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 and Exercisable at October 31, 2004           7,867,080          $3.72
                                                                 ===========
</TABLE>


         The  following  table  summarizes   information   about  stock  options
outstanding under the 1993 Plan as of October 31, 2004:

<TABLE>
<CAPTION>
                                        Options Outstanding                         Options Exercisable
                          ------------------------------------------------    --------------------------------
                                             Weighted
                           Number            Average            Weighted          Number          Weighted
       Range of          Outstanding        Remaining           Average        Exercisable        Average
   Exercise Prices       at 10/31/04     Contractual Life    Exercise Price    at 10/31/04     Exercise Price
 --------------------- ---------------- ------------------- ----------------- --------------- -----------------
<S>                       <C>                  <C>              <C>                  <C>          <C>
 $0.84 to $1.96            1,126,500            3.45             $1.22            1,126,500        $1.22
 $2.28 to $3.16              885,000            3.58             $2.31              885,000        $2.31
 $3.31 to $4.81            5,460,580            1.80             $4.27            5,740,580        $4.27
 $5.75 to $6.38              395,000            1.88             $6.38              845,000        $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 and  incentive  stock  options will not be  exercisable  for more than 10
years.


                                      F-15
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


         Information  regarding  the 2000 Share Plan for the three  years  ended
October 31, 2004 is as follows:


<TABLE>
<CAPTION>
                                                                                         Current Weighted
                                                                                         Average Exercise
                                                                         Shares          Price Per Share
                                                                    ---------------      -----------------
<S>                                                                       <C>                    <C>
Shares Under Option at October 31, 2001                                   3,609,966              $0.70
  Granted                                                                   60,000               $0.34
  Canceled                                                                 (50,000)              $0.75
  Exercised                                                                (20,000)              $0.40
                                                                    ---------------
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 and Exercisable at October 31, 2004                  2,852,466               $0.74
                                                                    ==============
</TABLE>


         The  following  table  summarizes   information   about  stock  options
outstanding under the 2000 Share Plan as of October 31, 2004:

<TABLE>
<CAPTION>
                                        Options Outstanding                          Options Exercisable
                         ----------------------------------------------------  ---------------------------------
                                             Weighted
                           Number             Average            Weighted         Number          Weighted
       Range of          Outstanding         Remaining           Average        Exercisable       Average
   Exercise Prices       at 10/31/04     Contractual Life     Exercise Price    at 10/31/04    Exercise Price
 --------------------- ---------------- -------------------- ----------------- -------------- -----------------
<S>                       <C>                <C>                <C>               <C>             <C>
    $0.15 - $0.40            990,000            6.65               $0.40             990,000        $0.40
    $0.44 - $0.94            825,466            6.05               $0.71             825,466        $0.71
    $1.00 - $1.38          1,037,000            5.82               $1.08           1,067,000        $1.08
</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, 2004,  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-16
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


         Information  regarding  the 2003  Share  Plan for the two  years  ended
October 31, 2004 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
                                                                     ==============
  Options Exercisable at October 31, 2004                                 7,285,000               $0.62
                                                                     ==============
</TABLE>


         The  following  table  summarizes   information   about  stock  options
outstanding under the 2003 Share Plan as of October 31, 2004:


<TABLE>
<CAPTION>
                                          Options Outstanding                           Options Exercisable
                           ----------------------------------------------------- -----------------------------------
                                               Weighted
                             Number            Average            Weighted           Number           Weighted
          Range of         Outstanding        Remaining           Average         Outstanding          Average
       Exercise Prices     at 10/31/04     Contractual Life    Exercise Price     at 10/31/04      Exercise Price
      ------------------ ---------------- ------------------- ----------------- ----------------- ------------------
<S>      <C>   <C>           <C>                  <C>              <C>              <C>                 <C>
         $0.25-$0.46         3,408,000            8.26             $0.29            3,408,000           $0.29
         $0.51-$0.75           586,000            9.01             $0.57              586,000           $0.57
         $0.81-$1.07         3,351,000            9.58             $0.92            3,291,000           $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, 2004,  12,566,129
shares were available for future grants under the 2003 Share Plan.

10.      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
relates  to  fiscal  2005.   Subsequent   to  October  31,  2004,  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 have 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. 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.


                                      F-17
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS





11.      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  $255,000 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.

         Rent expense for the years ended October 31, 2004,  2003 and 2002,  was
approximately $247,000, $235,000 and $250,000, respectively.

As of October 31, 2004, our  noncancelable  operating  lease  commitments are as
follows:

                           2005                        $    255,000
                           2006                             153,000
                                                   ----------------
                                                       $    408,000

CONSULTING AGREEMENT

         In  addition,  as of  October  31,  2004  we had  commitments  under  a
consulting  agreement of approximately  $45,000 payable during the first quarter
of fiscal 2005.

12.      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, 2004, 2003 and 2002.


                                      F-18

<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS




13.      INCOME TAXES

         Income tax provision (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                                        Year Ended October 31,
                                                        ------------------------------------------------------
                                                              2004               2003               2002
                                                        ----------------   ----------------   ----------------
       Federal:
<S>                                                     <C>                <C>                <C>
          Current                                       $              -   $              -   $              -
          Deferred                                            (1,383,000)        (1,499,000)           (19,000)

       State:
          Current                                                      -                  -                  -
          Deferred                                              (203,000)          (220,000)            (3,000)
          Adjustment to valuation allowance related
            to net deferred tax assets                         1,586,000          1,719,000             22,000
                                                        ----------------   ----------------   ----------------
                                                        $              -   $              -   $              -
                                                        ================   ================   ================
</TABLE>


The tax effects of temporary  differences that give rise to significant portions
of the deferred tax asset, net, at October 31, 2004 and 2003, are as follows:



<TABLE>
<CAPTION>
                                                                            2004                2003
                                                                      ---------------     ----------------
       Long-term deferred tax assets:
<S>                                                                   <C>                  <C>
          Other assets                                                $     1,128,000      $     1,128,000
          Federal and state NOL and tax credit carryforwards               35,673,000           34,147,000
          Other                                                               102,000               42,000
                                                                      ---------------      ---------------
             Subtotal                                                      36,903,000           35,317,000

       Less: valuation allowance                                          (36,903,000)         (35,317,000)
                                                                      ---------------      ---------------
           Deferred tax asset, net                                    $             -      $             -
                                                                      ===============      ===============
</TABLE>


         As of October 31, 2004,  we had tax net  operating  loss and tax credit
carryforwards  of  approximately   $84,249,000  and  $1,840,000,   respectively,
available,  within  statutory limits (expiring at various dates between 2005 and
2024), 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  $84,322,000 and $128,000,  respectively,  as of October 31, 2004,
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
2005 and 2024 and the tax credit carryforwards expire between 2005 and 2024.

         During the three years ended  October 31, 2004,  we incurred no Federal
and no State income taxes.

                                      F-19
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


14.      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 31,
2003.  For the year ended October 31, 2004,  our Chairman of the Board and Chief
Executive Officer received salary in the amount of approximately $135,000 in the
form of  common  stock  and our  President  received  salary  in the  amount  of
approximately  $37,000 in  cash.  From 1987 through  July 31, 2003,  three other
senior  level  personnel  also  waived  salary  and  related  pension  benefits.
Commencing  in August 2003,  the three senior level  personnel  began  receiving
compensation in the form of salary, which in the aggregate approximated $289,000
and $57,000 for the years ended October 31, 2004 and 2003, respectively.

15.      SEGMENT INFORMATION

         We follow the provisions of SFAS No. 131,"Disclosures about Segments of
an Enterprise and Related  Information" ("SFAS No. 131").  Reportable  operating
segments are determined based on management's approach. The management approach,
as  defined  by SFAS No.  131,  is based  on the way  that the  chief  operating
decision-maker  organizes the segments within an enterprise for making operating
decisions  and  assessing  performance.  While our  results  of  operations  are
primarily reviewed on a consolidated  basis, the chief operating  decision-maker
also manages the  enterprise in two segments:  (i)  Flat-panel  display and (ii)
Encryption  products and services.  The following  represents selected financial
information  for our  segments for the years ended  October 31,  2004,  2003 and
2002:

<TABLE>
<CAPTION>
                                                            Encryption
                                      Flat-Panel           Products and
             Segment Data               Display              Services               Total
----------------------------------   ---------------       ------------         ------------
Year Ended October 31, 2004:
<S>                                    <C>                  <C>                  <C>
Revenues                               $        --          $   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
</TABLE>

                                      F-20
<PAGE>
COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                            Encryption
                                        Flat-Panel          Products and
             Segment Data                 Display             Services               Total
----------------------------------    ---------------       ------------         ------------
Year Ended October 31, 2003:
<S>                                    <C>                  <C>                  <C>
Revenues                                $        --          $   224,221          $   224,221
Net income (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

Year Ended October 31, 2002:
Revenues                                $ 4,541,667          $   645,027          $ 5,186,694
Net income (loss)                         1,800,365           (5,085,605)          (3,285,240)
Depreciation                                 29,676               56,795               86,471
Interest income                               8,067               15,439               23,506
Impairment loss on
    commercial trade barter
    credits                                    --              2,820,800            2,820,800
Stock awards granted to
    employees and consultants
    pursuant to stock incentive
    plans                                   451,997              976,207            1,428,204
Total assets                                355,061            2,376,448            2,731,509
Additions to long-lived assets               13,236               25,331               38,567

</TABLE>

                                      F-21
<PAGE>


COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


GEOGRAPHIC INFORMATION

         We   generate   revenue   both   domestically   (United   States)   and
internationally.  International  revenues  are based on the country in which our
customer  (distributor)  is located.  For the years ended October 31, 2004, 2003
and 2002, and as of each respective  year-end,  sales and accounts receivable by
geographic area are as follows:


<TABLE>
<CAPTION>
    Geographic Data                 2004               2003              2002
----------------------------      --------        ------------        ----------
Revenue:
<S>                               <C>              <C>                <C>
     United States                $479,621         $  199,810         $  622,144
     Japan                            --                 --            4,541,667
     Other international            14,871             44,401             22,883
                                  --------         ----------         ----------
                                  $494,492         $  244,211         $5,186,694
                                  ========         ==========         ==========
Accounts receivable, net:
     United States                $ 63,460         $   37,600         $   68,177
     International                    --                3,900              9,603
                                  --------         ----------         ----------
                                  $ 63,460         $   41,500         $   77,780
                                  ========         ==========         ==========
</TABLE>


16.      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, 2004:
  Income Statement Data:
<S>                                             <C>                <C>                <C>                  <C>
      Revenue                                   $  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)

Year Ended October 31, 2003:
  Income Statement Data:
      Revenue                                   $  91,339          $  21,743          $    83,240          $  47,899
    Gross profit                                   29,314              6,083               52,743            (19,863)
    Net income (loss)                            (804,596)          (970,024)            (650,765)          (689,026)
    Net loss per share of common stock-
            basic and diluted                   $   (0.01)         $   (0.01)         $     (0.01)         $   (0.01)
</TABLE>


                                      F-22
<PAGE>



COPYTELE, INC.
SCHEDULE II

                                       S-1

VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2004, 2003 AND 2002


<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
--------------------------------------------------------------------------------------------------------------------
   2004
<S>                                        <C>                  <C>               <C>             <C>
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
--------------------------------------------------------------------------------------------------------------------
  2002
Allowance for doubtful accounts            $      240,000       $  155,505        $  70,000       $   325,505
--------------------------------------------------------------------------------------------------------------------
</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
                                 -------------

            3.1         Certificate of Incorporation,  as amended. (Incorporated
                        by reference to Form 10-Q for the fiscal  quarter  ended
                        July 31,  1992 and to Form 10-Q for the  fiscal  quarter
                        ended July 31, 1997.)

            3.2         By-laws,  as  amended  and  restated.  (Incorporated  by
                        reference to Post-Effective  Amendment No. 1 to Form S-8
                        (Registration No. 33-49402) dated December 8, 1993.)

            3.3         Amendment to By-laws. (Incorporated by reference to Form
                        10-Q for the fiscal quarter ended January 31, 2003.)

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

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

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

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

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


<PAGE>

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

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

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

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

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

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

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

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

            10.14       Amendment  No.  1  to  the  CopyTele,  Inc.  2003  Share
                        Incentive  Plan  (Incorporated  by  reference to Exhibit
                        4(e) to our Form S-8 dated November 9, 2005).


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

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

            10.17       Long  Term   Agreement   dated  April  2,  2004  between
                        CopyTele,    Inc.   and   Boeing    Satellite    Systems
                        International,  Inc.,  as modified  September  16, 2004.
                        (Previously Filed.)

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

            31.1        Certification  of Chief Executive  Officer,  pursuant to
                        Section  302 of the  Sarbanes-Oxley  Act of 2002,  dated
                        January 18, 2005. (Filed herewith.)

            31.2        Certification  of Chief Financial  Officer,  pursuant to
                        Section  302 of the  Sarbanes-Oxley  Act of 2002,  dated
                        January 18, 2005. (Filed herewith.)

            32.1        Statement  of  Chief  Executive  Officer,   pursuant  to
                        Section  1350 of Title  18 of the  United  States  Code,
                        dated January 18, 2005. (Filed herewith.)

            31.2        Statement  of  Chief  Financial  Officer,   pursuant  to
                        Section  1350 of Title  18 of the  United  States  Code,
                        dated January 18, 2005. (Filed herewith.)