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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


[x]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the fiscal year ended October 31, 2000

                                       or

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


                         Commission file number: 0-11254


                                 COPYTELE, INC.
             (Exact Name of Registrant as Specified in its Charter)


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


                              900 Walt Whitman Road
                               Melville, NY 11747
                                 (631) 549-5900
               (Address, Including Zip Code, and Telephone Number,
                 Including Area Code, of Registrant's Principal
                Executive Offices) Securities registered pursuant
                          to Section 12(b) of the Act:


     Title of Each Class                               Name of Each Exchange
                                                        on Which Registered
            NONE                                                NONE


           Securities registered pursuant to Section 12(g) of the Act:

                          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].

Aggregate  market value of the voting stock (which  consists solely of shares of
Common Stock) held by  non-affiliates  of the registrant as of January 19, 2001,
computed by reference to the closing sale price of the registrant's Common Stock
on the NASDAQ National Market System on such date ($1.13): $65,656,599.

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [_] No [_]

On January 19, 2001, the registrant had outstanding  63,804,060 shares of Common
Stock, par value $.01 per share,  which is the registrant's only class of common
stock.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE
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<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.  These  forward-looking  statements  are subject to
risks and uncertainties and other factors, some of which are beyond our control,
that could cause  actual  results to differ  materially  from those  forecast or
anticipated in the 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.
Except as required by law, we undertake no obligation to update  forward-looking
statements made in this Annual Report on Form 10-K or otherwise.

Overview

CopyTele,  Inc. is a  development-stage  enterprise.  In  response to  increased
commercial  awareness of security needs, we are  concentrating our activities on
the  development,   production  and  marketing  of  multi-functional  encryption
products  that  provide  high-grade   information   security  for  domestic  and
international  users over  virtually  every  communications  media.  Our line of
encryption  products  presently  includes the USS-900 (Universal Secure System),
the DSS-1000  (Digital Security System) and the ULP-1 (Ultimate Laptop Privacy).
The USS-900,  DSS-1000 and ULP-1 are  multi-functional,  hardware-based  digital
encryption   systems  that   incorporate  the  Harris   Corporation   encryption
cryptographic  chip - the  Citadel(TM)  CCX - or the  Triple  DES  algorithm  to
provide high-grade encryption.

We are also  continuing our research and  development  activities for additional
encryption products and for flat panel displays,  including display technologies
for simplified ultra-high resolution, charged particle E-Paper(TM) and thin film
designs suitable for low-cost plastic and field emission displays.

During  fiscal  2000  we   discontinued   production  of  our  Magicom(R)   2000
telecommunications  product and our SCS-700 encryption product that combined the
USS-900 with the Magicom(R)  2000, but we are continuing  sales of our remaining
inventory of the SCS-700.  As a result, we terminated the operations of Shanghai
CopyTele  Electronics Co. Ltd., our 55% owned joint venture in Shanghai,  China,
which is in the process of being liquidated.


<PAGE>


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 and our telephone number is 631-549-5900.

General Risks and Uncertainties

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

We have had net losses and  negative  cash  flows from  operations  in each year
since  our  inception  and we may  continue  to  incur  substantial  losses  and
experience  substantial  negative cash flows from  operations.  We have incurred
substantial  costs and expenses since our inception in developing our flat panel
display and encryption  technologies and in our efforts to produce  commercially
marketable products  incorporating our technology.  We have had limited sales to
our dealers,  distributors  and other  customers to support our operations  from
inception  through  October 31, 2000.  We have  incurred net losses  aggregating
$55,124,098  during the same period.  Research and  development  expenses during
that period  aggregated  approximately  $34,206,000 and negative cash flows from
operations  aggregated  $55,634,720.  We have set forth  below  our net  losses,
research and  development  expenses and negative cash flows from  operations for
the three fiscal years ended October 31, 2000:


                                            Fiscal Years Ended October 31,
                                            -----------------------------
                                         1998           1999           2000
                                         ----           ----           ----
Net Loss                              $7,135,954     $8,465,016     $4,964,173
Research and Development              $3,926,000     $3,163,000     $2,732,000
Negative Cash Flows From Operations   $7,736,211     $6,117,096     $4,840,578


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

We anticipate that we will require  additional  funding to continue our research
and  development  activities,  market our  products  and  satisfy  the  National
Association of Securities  Dealers,  Inc. (NASD)  requirement that we maintain a
minimum of $4 million of net  tangible  assets to maintain  our Nasdaq  National
Market  listing,  if cash generated from  operations is  insufficient to satisfy
these requirements.  Based on reductions in operating expenses that we have made
and additional reductions that we may implement,  if necessary,  we believe that
our cash resources, including cash received from November 1, 2000 to January 19,
2001, and other  potential  sources of cash flows will be sufficient to continue
operations  until at least  the end of the first  quarter  of  fiscal  2002.  We
anticipate  that,  thereafter,  we will continue to require  additional funds to
continue our  marketing  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. The sale of additional equity securities or convertible debt could


                                       2
<PAGE>


result in additional dilution to our stockholders.  We can give you 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.

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

We are  principally  engaged in the production  and marketing of  hardware-based
peripheral digital  encryption systems called the USS-900,  the DSS-1000 and the
ULP-1.  Our  encryption  products are only in their initial stages of commercial
production and marketing. 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 encryption products;

     o    our continuing ability to purchase the Citadel(TM)CCX  encryption chip
          from Harris Corporation for use in our encryption products;

     o    our production capabilities and those of our suppliers as required for
          the production of our encryption products;

     o    long-term  product  performance  and the capability of our dealers and
          distributors to adequately service our products;

     o    our ability to maintain an  acceptable  pricing level to end-users for
          our products;

     o    the ability of suppliers to meet our requirements and schedule;

     o    our  ability  to   successfully   develop  our  new   products   under
          development, particularly our new encryption products;

     o    rapidly changing consumer preferences; and

     o    the possible development of competitive products that could render our
          products obsolete or unmarketable.

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

Our Chief  Executive  Officer,  Denis A.  Krusos,  and our  President,  Frank J.
DiSanto,  founded  our  company in 1982 and are  engaged in the  management  and
operations of our business, including all aspects of our development, production
and marketing of our products and flat panel display technology.  Messrs. Krusos
and DiSanto,  and other senior executives,  are important to our future business
and  financial  arrangements.  The loss of the  services of any such persons may
have a material adverse effect on our business and prospects.


                                       3
<PAGE>


o    We may not be able to compete  successfully in the very competitive  market
     for our encryption products.


The market for our  encryption  products  worldwide  is 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.  We  cannot  give any
assurance  that we will be able to  compete  successfully  in the market for our
encryption products.

o    If we are unable to maintain our Nasdaq National Market listing, the market
     price of our common stock could be adversely affected.

The NASD  requires  that we  maintain a minimum  of $4  million of net  tangible
assets  and a market  price of at least $1 per  share in order to  continue  our
Nasdaq  National Market  listing.  If our stock were delisted,  it could have an
adverse  affect on the market price of our common stock and the liquidity of our
shares.  As of October 31,  2000,  our net  tangible  assets were  approximately
$5,558,000. The market price of our common stock on January 25, 2001 was $1.00

Products

          Encryption Products

We are  presently  marketing  the USS-900,  the DSS-1000 and the ULP-1 under the
Cryptele(TM)brand  name. The following is a brief  description of our encryption
products.

          USS-900

The USS-900 is a  hardware-based  peripheral  digital  encryption  system  which
incorporates  the Harris digital  cryptographic  chip - the Citadel(TM) CCX - to
provide  high-grade  information  encryption.  We  developed  and are  currently
producing the USS-900 in  cooperation  with Harris under a three-year  agreement
entered into in July 1999. Under the terms of this agreement, we are responsible
for the production, development, manufacturing and marketing of the USS-900, and
Harris has agreed to sell us the Citadel(TM) CXX encryption chip at a negotiated
price.  Harris also has agreed  that all USS-900  units may be marked or labeled
with the designation  "Secured by Harris." In addition,  the agreement  provides
that, for the term of the  agreement,  neither party will  participate  with any
other entity in the design, development or manufacture of a product functionally
equivalent to the USS-900 unless agreed upon by both parties.

The encryption  technology of the USS-900 encodes  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 used to encrypt the
information can be used to decrypt the information.  This product  automatically
generates new secret keys  electronically  with each call. It easily  interfaces
with telephones, fax machines or


                                       4
<PAGE>


computers to encrypt  information  communicated  over ordinary analog  telephone
lines,  via  satellite  or  via  the  internet.   When  communicating  encrypted
information  over a  communications  media,  a  USS-900  or  one  of  our  other
compatible  CopyTele products is required at both the sending and receiving end.
The  USS-900  operates  at  transmission  rates of 9,600 to 33,600 BPS (bits per
second.)

The  USS-900 is a compact  device  that is 6" deep x 4.38" wide x 1.38" high and
weighs  approximately 9 ounces.  The three major  components of the unit are the
Citadel(TM) CXX encryption  chip, a digital signal processor and modems enclosed
in a plastic case. The unit is portable,  has low power  consumption and has UL,
FCC, CE and U.S.  Commerce  Department  export  approvals.  The most significant
features of this product include the following:

o    Virus  Spread  Control - encrypts  e-mail  addresses  to guard  against the
     spread of viruses.

o    Secure E-mail Attachments - encrypts any computer file to be utilized as an
     e-mail  attachment  that  can be sent  over  the  Internet  or an  ordinary
     telephone line.

o    Secure  Voice   Communication   -  interfaces  with  virtually  any  analog
     telephone, allowing easy encryption of voice communication.

o    Secure Fax  Communication - interfaces with any analog fax machine attended
     or unattended, ensuring cryptographic communication of information.

o    Secure Point-to-Point File Transfers - interfaces with a computer, ensuring
     cryptographic communication of information between computers.

o    File Storage - interfaces with virtually any computer, with the utilization
     of a provided CD ROM, to encrypt and decrypt computer files with the use of
     a single  USS-900.  The encrypted  files can be stored on the computer,  on
     networks or on the Internet.

o    Secure  Simultaneous Voice and Data Communication (SVD) - interfaces with a
     telephone and computer to allow secure simultaneous voice communication and
     point-to-point  file  transfer over ordinary  analog  telephone  lines with
     transmission rates of 16,800 to 33,600 BPS.

o    Secure Voice Teleconferencing - interfaces with multiple telephone lines to
     provide  multi-person  encrypted  communications  over  ordinary  telephone
     lines.

o    Secure  Multi-Capability  - interfaces  with  telephones,  fax machines and
     computers to perform  secure and encrypted  voice,  fax and  point-to-point
     data communication all on the same phone call.

o    Tonal and Pulse Dialing - interfaces  with telephones and fax machines that
     have either tonal or pulse dialing  systems to provide  voice,  fax or data
     communications.


                                       5
<PAGE>


o    Algorithm  - capable of  encrypting  using  either the  Citadel(TM)  CCX or
     Triple DES algorithms.

o    Encryption Key Length - 128 bit

          DSS-1000

The DSS-1000 is a digital  encryption  device that can perform all the functions
of the  USS-900,  except for  facsimile  transmission  and SVD,  over digital or
analog telephone lines, via satellite or via the internet.  The DSS-1000 has the
additional  ability to interface with a telephone  handset of a digital phone to
secure voice and data  information  over digital lines at transmission  rates of
9,600 BPS. The DSS-1000 has the same size,  weight and major  components  of the
USS-900 and is enclosed in a plastic case. The unit is also portable and has low
power  consumption.  We have received  export approval for the DSS-1000 from the
U.S.  Department of Commerce using the  Citadel(TM) CCX or Triple DES algorithms
and a 128 bit encryption key length.

          ULP-1

The ULP-1 is a hardware-based  encryption PCMCIA (Personal  Computer Memory Card
International  Association)  card that plugs into notebook or laptop  computers.
The ULP-1 is the size of a credit card and operates as an  encryption/decryption
key to protect data files and e-mail attachments.  The ULP-1 also guards against
the spread of viruses by encrypting  e-mail  addresses.  The ULP-1 can easily be
removed when not in use, as a result of which the encrypted data in the computer
files cannot be decrypted and read by an unauthorized  person.  We have received
export  approval for the ULP-1 from the U.S.  Department  of Commerce  using the
Citadel(TM) CCX or Triple DES algorithms and a 128-bit encryption key length.

New Products Under Development

          Encryption Product

We are engaged in the development of a new encryption device that would be used
with digital cellular phones that are capable of transmitting both voice and
data. We are making hardware and software modifications to the basic USS-900
model in order to produce the device which will contain the Citadel CCX or
Triple DES algorithms. The device will be small, lightweight, portable and
battery powered. The device will interface with any digital cell phone that is
capable of transmitting data and will plug into digital cellular phones and into
a computer so that either voice or data can be encrypted. The device will have a
128 bit encryption key length. The new device would be available for sale in
both the industrial and retail markets as well as to U.S. and foreign government
agencies.


                                       6
<PAGE>
Flat-Panel Display Technology

During 2000, we continued to pursue our efforts to develop new  technologies for
color and video flat-panel displays. We cannot give you any assurance,  however,
that we will be able to successfully  develop these technologies or that we will
be able to apply any of these technologies to commercially marketable products.

          E-Paper(TM) Flat-Panel Display

The technology  utilized in the E-Paper(TM)  ultra-high  resolution display that
was developed and  incorporated  into the SCS-700,  which we are marketing  from
units in inventory,  is being further  developed  for possible  application  for
mobile  devices.  The  E-Paper(TM)  characteristics  of low  power  consumption,
flicker-free,  wide angle viewing and high  contrast are desirable  features for
mobile  devices.  The original  E-Paper(TM)  display was primarily  designed for
ultra-high  picture  quality and required  illumination.  It was able to display
information  like a printed  page,  one at a time. We believe it is desirable to
add  features  for  mobile  devices  so  that  displayed   information   can  be
continuously  updated  and  use  only  ambient  light.  The  new  design  we are
attempting  to develop would  incorporate  the  individual  control of pixels to
allow  continuous  updating of displayed  information,  have a high  contrast to
allow  viewing under normal  ambient  light and, due to a simplified  structure,
would result in lower manufacturing cost. The basic design consists of two glass
substrates,  which contain our  proprietary  yellow and black  charged  particle
suspension.  The viewing substrate is a clear glass so that individual yellow or
black pixels are displayed to form a high contrast  image.  The original  design
had a structure in the viewing side substrate that reduced the contrast and thus
required a lighting  system.  In the new  design,  a  simplified  pixel  control
structure is located on the non-viewing substrate.

To  further  develop  this  technology,  we are  using  available  silicon-based
substrates  that contain  pixels we  developed  from our solid state and optical
displays.  The format is 320 x 240 pixels having a resolution  of  approximately
100  pixels  per  inch.  These  substrates  are being  modified  to  operate  in
conjunction with our charged particles  suspension and are being addressed using
the 128 output chip drivers used in the original  E-Paper(TM)  display.  A newly
developed  suspension  is  being  utilized  to  conform  to  the  chip  driver's
capability  and to control  individual  pixels at  required  higher  speeds.  We
believe that  sufficient  speeds could be achieved in order to  accommodate  the
requirements of most portable devices. The technology could possibly be modified
to use printing  processes and plastic instead of the present silicone and glass
substrates.  We cannot give you any assurance,  however, that we will be able to
develop a commercially marketable display of this type.

Color and Video Flat Panels

          Thin Film Video Color Display (Field Emission Display)

During 2000, we continued our relationship with Volga Svet,  Limited,  a Russian
display company, for the development of an ultra-high resolution thin film color
and video


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<PAGE>


emissive flat panel display called FED, or field emission display.  We have been
working with Volga in developing  engineering prototype models of the FED and we
are continuing to modify our designs to simplify the fabrication  process and to
improve  reliability.  We  are  utilizing  a  unique  design  that  reduces  the
possibility  of pixels being  degraded by electrical  or mechanical  variations.
This new  structure  creates the video image  utilizing  film-edge,  low voltage
phosphors on a single  glass  substrate.  However,  the  film-edge,  which emits
electrons when electrical impulses are applied thereby illuminating the phosphor
in a pixel,  is  electrically  isolated from the phosphor so that electrical and
mechanical  structural variations will not degrade the image on a pixel. We have
implemented   this  approach  for  both  matrix  and  segmented   numerical  and
alphanumerical  displays.  As a result,  Volga has started limited production of
the segmented displays.  Volga is also developing structural design optimization
for the  matrix  display  structure  in an effort to yield  full  color at video
speed.  We anticipate that prototypes of the matrix display of 320 by 240 pixels
at a  resolution  of  approximately  100 pixels per inch could be  developed  by
mid-2001. We have applied for patent protection on the new matrix structure.  We
expect to  continue  this  development  effort  during the first half of 2001 in
order to optimize the operating performance required for manufacturing purposes.
If we are able to  successfully  develop the FED, the end product  would be only
approximately  one-third of an inch thick,  would provide a full color and video
display  with almost  hemispherical  viewing  angle,  and would be suitable  for
television, computer and telecommunications devices. We believe that, because of
its simplified design, if we could successfully develop this display we would be
able  to  produce  it  using  standard  semi-conductor   fabrication  production
equipment, which, in turn, could potentially result in lower costs to end-users.

          Solid State and Optical Display

During 2000, due to higher than expected fabrication  difficulties in creating a
display having a matrix of static micro  electromechanical  systems  pixels,  we
changed the goal for the  development  of our solid  state and  optical  display
technology.  Our new objective is to utilize the basic  technology to develop an
ultra-high  speed  optical  modulator for use in  encryption  technology  and to
process  optical  information.  We  believe  that the  advanced  version  of the
metalized  optical modulator is simpler to fabricate and potentially has greater
application  for the  communications  industry.  We are still  working  with the
Center for Advanced Thin Film Technology at the State  University of New York at
Albany on the technology.  If we can successfully develop the new modulator,  we
will  attempt to attract  major  communications  companies to  incorporate  this
technology into their systems.

Production

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
three main electronic components, the Citadel(TM) CCX encryption chip, a digital
signal processor,  and modems,  are contained on a printed circuit board. We are
currently using several U.S.-based


                                       8
<PAGE>


electronics-production  contractors  to procure the printed  circuit  boards and
mount the associated  electronics  components on the circuit board. We currently
utilize  approximately  a dozen  primary  component  and  printed  circuit-board
suppliers and two production assembly  contractors.  Given normal lead times, we
anticipate having a readily available supply of all electronics  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 board into the product  enclosure 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.

As of October 31, 2000, we produced  approximately 4,900 USS-900 units. We began
production of the DSS-1000 and the ULP-1 in December, 2000.

Marketing

We are  focusing our  marketing  efforts on selling our  encryption  products to
selected  distributors,  dealers and original  equipment  manufacturers who have
marketing  capabilities in the commercial  encryption field. We currently have a
sales and  marketing  office  consisting  of five  full-time  employees who work
principally  on a salaried  basis and devote their  efforts to sales and support
activities, and nine consultants.  We are seeking to increase our sales force by
adding established  manufacturer  representative  firms to bolster our effort to
expand into the retail market for one of our products.

We  presently  have  23  dealers  and  distributors  worldwide  who  market  our
encryption  products on a non-exclusive  basis along with one original equipment
manufacturer.  The dealers and  distributors  generally  are parties to one-year
renewable   agreements  that  do  not  contain   significant   minimum  purchase
requirements.

Our company and our dealer/distributor  network presently are focusing marketing
efforts  on the oil  industry,  financial  firms,  telecommunication  companies,
healthcare and insurance  industries,  multinational  corporations  and U.S. and
foreign government  agencies. A number of the dealers and distributors have been
in the  security  field  for  many  years  and have  more  recently  focused  on
encryption,  providing  products and services to multinational  corporations and
foreign governments. Many of the dealers and distributors that are headquartered
in the United States also provide worldwide sales and service coverage. They are
located in prime sales territories such as New York, Maryland,  Virginia, Texas,
Florida,  Georgia,  California,  Tennessee,  Oregon, Vermont and Minnesota.  Our
international  dealers and  distributors  provide  sales and support  service in
Europe, Asia, Africa and South America.

First  launched at the American  Society for  Industrial  Security  Show in late
1999, the USS-900 was the center of our marketing  effort in 2000, which focused
on the


                                       9
<PAGE>


commercial  encryption  market.  With the introduction of the ULP-1 in November,
2000, a breakthrough  encryption  product that brings encryption to the notebook
and laptop  computer  market through the use of a removable  PCMCIA Card, we are
now in a position  to expand our  marketing  activities  into the retail  market
through the use of manufacturer representatives and direct sales.

We continue to provide marketing,  service training and technical support to our
distributors and dealers.  During 2000, we demonstrated our encryption products,
together with  distributors and dealers,  at approximately  ten trade shows. The
USS-900 recently won two awards at the International Security Conference show in
New York. The USS-900 was chosen by the Security  Industry  Association (SIA) as
one of the "Security  Industry's  Finest-Recognized  as One of the Finest in New
Product  Development  and  Innovation"  and also  received  the  SIA's  "Product
Achievement Award-Business Services."

As part of our  effort to  increase  awareness  of  corporate  vulnerability  to
information  assault  and  espionage,  we ran a series  of  targeted  television
commercials as well as advertisements in security  magazines in 2000. We plan to
continue  this  advertising  effort  in 2001 in  order  to  familiarize  a broad
audience with our family of encryption products.

Competition

The market for encryption  products  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. We believe, however, that the technology contained in our products and
the size and features of the units distinguish them from the products being sold
by our competitors. The encryption security market is likely to be characterized
by rapid advances in technology and the continuing  introduction of new products
which 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.

Patents

We have  received  approximately  221 patents,  including  those from the United
States and certain  foreign  patent  offices,  expiring at various dates between
2005 and 2018. At the present time,  additional patent  applications are pending
with the United States and certain  foreign  patent  offices.  These patents are
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-PaperTM flat panel display, and for our solid state and
thin film video and flat panel display.


                                       10
<PAGE>
We have also filed or are planning to file patent  applications  for our optical
encryption   system,   our  FED  and  simplified   E-Paper  flat  panel  display
technologies  currently  under  development,  and for our USS-900,  DSS-1000 and
ULP-1 encryption technologies.

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 the USS-900,  DSS-1000 or ULP-1 are infringing  upon the patents of others.
We cannot assure you, however, that other products developed by us, if any, will
not  infringe  upon the  patents of  others,  or that we will not have to obtain
licenses  under the  patents  of others,  although  we are not aware of any such
infringement at this time.

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


Research and Development Expenses

Research and development expenses, which have comprised a significant portion of
our selling,  general and  administrative  expenses  since our  inception,  were
approximately $2,732,000, $3,163,000, $3,926,000, and $34,206,000 for the fiscal
years ended  October 31, 2000,  1999,  1998 and for the period from  November 5,
1982  (inception)  through  October 31, 2000,  respectively.  See  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations" below
and our Financial Statements.

Employees and Consultants

We had thirty-one full-time employees and twenty-one  consultants as of December
31, 2000. Twenty-seven of those 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.  Fourteen
individuals  are engaged in marketing and the remaining  individuals are engaged
in  administrative  and  financial  functions  for us. None of our employees are
represented by a labor organization or union.

Item 2. Properties.

We lease  approximately  12,900  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, 2003. Our
base rent is  approximately  $243,000 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  of the lease as of  November  30,  2002.  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 8 to our Financial Statements.


                                       11
<PAGE>


In February 1996, we entered into a five-year  lease with an unrelated party for
approximately  2,300  square feet of office  space in  Valhalla,  New York.  The
lease,  which expires on June 30, 2001 and is non-renewable,  currently provides
for a base rent of approximately $56,000 per annum.

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.

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

No matters were submitted by us to a vote of our shareholders  during the fourth
quarter of our fiscal year ended October 31, 2000.


Executive Officers of the Company

Our only  executive  officers are Denis A. Krusos,  Frank J.  DiSanto,  Frank W.
Trischetta  and Henry P. Herms.  The  information  required to be furnished with
respect to these executive  officers is set forth in Item 10 of Part III of this
Annual Report on Form 10-K and is incorporated herein by reference.


                                       12
<PAGE>


                                     PART II


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

Our common stock has been traded on the Nasdaq Stock Market National Market (the
"Nasdaq National Market"), the automated quotation system of the NASD, under the
symbol  "COPY,"  since  October 6, 1983,  the date public  trading of our common
stock  commenced.  The high and low  sales  prices  as  reported  by the  Nasdaq
National  Market for each quarterly  fiscal period during our fiscal years ended
October 31, 1999 and 2000 have been as follows:


--------------------------------------------------------------------------------
       Fiscal Period                   High                   Low
--------------------------------------------------------------------------------
     1st quarter 1999                  2.31                   1.00
     2nd quarter 1999                  1.88                   1.03
     3rd quarter 1999                  3.31                   1.38
     4th quarter 1999                  1.53                   0.69
--------------------------------------------------------------------------------
     1st quarter 2000                  1.81                   0.72
     2nd quarter 2000                  4.16                   1.06
     3rd quarter 2000                  3.25                   1.13
     4th quarter 2000                  2.25                   0.97
--------------------------------------------------------------------------------


As of January 19, 2001 the  approximate  number of record  holders of our common
stock was 1,320.

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.


                                       13
<PAGE>


Item 6. Selected Financial Data.

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


<TABLE>
<CAPTION>
                                     -----------------------------------------------------------------------------------------------
                                                                                                                    For the period
                                                   As of and for the fiscal year ended October 31,                 from November 5,
                                                                                                                   1982 (inception)
                                     ---------------------------------------------------------------------------        through
                                          2000           1999          1998            1997            1996        October 31, 2000
====================================================================================================================================
<S>                                    <C>            <C>           <C>             <C>             <C>             <C>
Sales                                  $1,471,998        $46,877    $       --      $       --      $       --        $1,518,875
------------------------------------------------------------------------------------------------------------------------------------
Gross Profit                              746,560          9,573            --              --              --           756,133
------------------------------------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses                 5,831,712      8,284,717       7,231,557       6,378,368       6,017,580      59,706,563
------------------------------------------------------------------------------------------------------------------------------------
Loss from and Impairment of                  --          345,947         377,219         335,391         148,630       1,225,000
Investment in Joint Venture
------------------------------------------------------------------------------------------------------------------------------------
Interest Income                           120,979        156,075         472,822         913,184         722,800       5,051,332
------------------------------------------------------------------------------------------------------------------------------------
Net (Loss)                             (4,964,173)    (8,465,016)     (7,135,954)     (5,800,575)     (5,443,410)    (55,124,098)
------------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Per Share of  Common
Stock - Basic and Diluted (a)               ($.08)         ($.14)          ($.12)          ($.10)          ($.10)         ($1.14)
------------------------------------------------------------------------------------------------------------------------------------
Total Assets                            6,894,501      7,239,544      13,334,972      19,988,207      24,710,420
------------------------------------------------------------------------------------------------------------------------------------
Long Term Obligations                        --             --              --              --              --
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity                    5,557,599      6,284,777      11,860,913      18,779,142      22,750,273
------------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Per Share                     --             --              --              --              --              --
of Common Stock
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

----------

(a)  Adjusted  for   three-for-one   stock  split   declared  in  October  1985,
     five-for-four stock split declared in August 1987,  two-for-one stock split
     declared in February 1991 and two-for-one stock split declared in May 1996.


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. These  forward-looking  statements are subject to
risks and uncertainties and other factors, some of which are beyond our control,
that could cause  actual  results to differ  materially  from those  forecast or
anticipated in the 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".


                                       14
<PAGE>


General

We have been a  development-stage  enterprise since our inception on November 5,
1982. Our principal activities include the development, production and marketing
of  multi-functional,  hardware-based,  peripheral digital  encryption  devices.
These  encryption   devices  provide   high-grade   security  for  domestic  and
international users over virtually every communications media. (See "Business --
Encryption Products").

Our line of encryption products presently includes the USS-900, the DSS-1000 and
the ULP-1, which are available with either the high-grade strength of the Harris
Corporation  ("Harris")  digital  cryptographic chip - the Citadel (TM) CCX - or
the Triple DES algorithm to provide high-grade  encryption.  Harris is supplying
the chip at a  negotiated  price under a  three-year  agreement  entered into in
1999. Triple DES is an algorithm available in the public domain,  which has been
incorporated  into our  software.  Triple  DES is used by many  U.S.  government
agencies.

During  fiscal  2000  we   discontinued   production  of  our  Magicom(R)   2000
telecommunications  product and our SCS-700 encryption  product,  which combined
the  USS-900  with  the  Magicom(R)  2000,  but we are  continuing  sales of our
remaining inventory of the SCS-700. As a result, we terminated the operations of
Shanghai CopyTele Electronics Co. Ltd, (the "Joint Venture") our 55% owned joint
venture in Shanghai, China, which is in the process of being liquidated.

We are also  continuing our research and  development  activities for additional
encryption  products and flat-panel  displays,  including our E-Paper ultra-high
resolution  display and our thin film color and video field emission  ultra-high
resolution  display.  In addition,  during 2000 we redirected our development of
solid-state optical technology to the development of an ultra-high speed optical
modulator for use in encryption  technology and to process optical  information.
(See  "Business  - New  Products  Under  Development").  We cannot  assure  you,
however,  that our efforts in these areas will be  successful.  (See "Business -
General Risks and Uncertainties").

We are currently using several U.S.-based electronic  production  contractors to
produce  the   components  for  our   encryption   devices.   (See  "Business  -
Production").  We sell  our  products  primarily  through  a  distributor/dealer
network and also to end-users. (See "Business - Marketing").

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


                                       15
<PAGE>


Results of Operations

Fiscal Year Ended  October 31,  2000  Compared to Fiscal Year Ended  October 31,
1999

Sales -

Sales for fiscal 2000 increased to approximately  $1,472,000 from  approximately
$47,000  in fiscal  1999.  Sales of the  USS-900  increased  in  fiscal  2000 to
approximately  $1,169,000,  or 79% of total sales, from approximately $25,000 in
fiscal  1999.  Sales of the SCS-700  increased  in fiscal 2000 to  approximately
$245,000, or 17% of total sales, from approximately $5,000 in fiscal 1999.

We are hopeful, although there is no assurance, that with an increased marketing
effort for our existing products and our new products under development, we will
procure  sufficient  sales  during  fiscal 2001 to emerge  from the  development
stage.

Gross Profit-

Gross profit  increased in fiscal 2000 to  $746,560,  or 51% as a percentage  of
sales,  compared  to $9,573 in fiscal  1999.  The  increase  in gross  profit is
primarily due to the increase in USS-900 sales.

Selling, General and Administrative Expenses-

Selling,  general and administrative expenses decreased approximately $2,453,000
or 30% to  approximately  $5,832,000  for the fiscal year ended October 31, 2000
from approximately $8,285,000 for the fiscal year ended October 31, 1999.

The fiscal  2000  decrease in selling,  general and  administrative  expenses is
primarily  a result of the timing of a  $1,407,000  reserve for amounts due from
the Joint  Venture,  which was  recorded in fiscal 1999.  In addition,  employee
compensation  and related costs  decreased by  approximately  $425,000 in fiscal
2000 as  compared  to fiscal  1999 as a result of  certain  personnel  waiving a
portion or all of their salary and related  pension  benefits and certain  sales
personnel becoming  independent  dealers and distributors.  These decreases were
offset by an  increase in  advertising  expense of  approximately  $279,000 as a
result of our  efforts to  increase  awareness  of  corporate  vulnerability  to
information espionage.

Research and Development Expenses-

Research and development  expenses,  which are included in selling,  general and
administrative  expenses,  were approximately  $2,732,000 and $3,163,000 for the
fiscal  years  ended  October  31,  2000 and 1999,  respectively.  Research  and
development expenses decreased approximately $431,000, or 14%, in fiscal 2000 as
compared to fiscal 1999 due to a reduction in outside  research and  development
efforts,  which we commenced performing in-house, and a reduction in engineering
supplies.  These reductions in research and development  expenses were partially
offset by an increase in patent related costs.


                                       16
<PAGE>


Loss from and Impairment of Investment in Joint Venture-  During fiscal 2000 the
Joint  Venture  terminated  operations  and  is  now in  the  process  of  being
liquidated.  Additional investments in the Joint Venture during fiscal 2000 were
not  material  to our  operations  and were  expensed  to  selling,  general and
administrative expenses.

Interest Income-

Interest income decreased by approximately $35,000 to approximately  $121,000 in
fiscal 2000 as compared to approximately $156,000 in fiscal 1999, primarily as a
result of a reduction in average funds available for investment.

Fiscal Year Ended  October 31,  1999  Compared to Fiscal Year Ended  October 31,
1998

Sales -

We commenced  recognizing  sales in the fourth quarter of fiscal 1999. Sales for
the fiscal  year ended  October  31,  1999 of  approximately  $47,000  primarily
consisted  of sales of the USS-900 of  approximately  $25,000 and the SCS-700 of
approximately $5,000.

Selling, General and Administrative Expenses-

Selling,  general and  administrative  expenses  increased 15% to  approximately
$8,285,000  for the  fiscal  year  ended  October  31,  1999 from  approximately
$7,232,000 for the fiscal year ended October 31, 1998.

The fiscal  1999  increase in selling,  general and  administrative  expenses is
primarily  a result of the timing of a  $1,407,000  reserve for amounts due from
the Joint Venture,  which was recorded in fiscal 1999. In addition,  we recorded
charges to earnings in fiscal 1999 to bring the  valuation  of inventory in line
with current estimates for obsolete and scrap parts, and other expenses. We also
incurred an increase of approximately  $166,000 in employee compensation expense
in fiscal 1999 as a result of hiring additional sales and marketing employees to
support the sales of our encryption products.

Research and Development Expenses-

Research and development  expenses,  which are included in selling,  general and
administrative  expenses,  were approximately  $3,163,000 and $3,926,000 for the
fiscal  years  ended  October  31,  1999 and 1998,  respectively.  Research  and
development expenses decreased approximately $763,000, or 19%, in fiscal 1999 as
compared to fiscal 1998 due to a reduction in outside  research and  development
efforts,  which we commenced  performing  in-house,  a reduction in  engineering
supplies and a reduction in patent related costs.

Loss from and Impairment of Investment in Joint Venture-

Loss from Joint Venture  decreased to  approximately  $346,000 in fiscal 1999 as
compared to approximately  $377,000 in fiscal 1998. This decrease was the result
of a decrease  in our  portion of the Joint  Venture's  loss for fiscal  1999 to
approximately  $261,000 as compared to  approximately  $377,000 in fiscal  1998,
offset by a permanent  impairment  charge on our investment in the Joint Venture
recorded in fiscal 1999.


                                       17
<PAGE>

Interest Income-

Interest income decreased by approximately $317,000 to approximately $156,000 in
fiscal 1999, as compared to approximately  $473,000 in fiscal 1998, primarily as
a result of a reduction in the average  funds  available  for  investment  and a
decrease in interest rates.

Liquidity and Capital Resources

Since our  inception,  we have met our liquidity and capital  expenditure  needs
primarily  from the proceeds of sales of our common stock in our initial  public
offering, in private placements,  upon exercise of warrants issued in connection
with the  private  placements  and our  initial  public  offering,  and upon the
exercise of stock options pursuant to our 1987, 1993 and 2000 stock option plans
(the "1987 Plan," the "1993 Plan," and the "2000 Share Plan," respectively.)

During the fiscal  years ended  October  31,  2000,  1999 and 1998,  we received
proceeds aggregating approximately $802,000,  $47,000, and $0, respectively,  in
payments  from our  customers  for  products  sold.  For the fiscal  years ended
October 31, 2000, 1999 and 1998, we received proceeds aggregating  approximately
$3,226,000,  $1,353,000, and $28,000,  respectively,  from the exercise of stock
options and warrants to purchase  shares of our common stock and the exercise of
warrants by members of the  immediate  families of our Chairman of the Board and
our  President.  During the fiscal  years ended  October  31, 2000 and 1999,  we
received  net  proceeds  aggregating   approximately  $801,000  and  $1,475,000,
respectively,  from sales of our common stock in private placements.  During the
period from  November 1, 2000  through  January 19, 2001,  we received  proceeds
aggregating  approximately  $495,000 from the exercise of stock options pursuant
to the 2000 Share Plan.

Working  capital  decreased  by  approximately   $3,408,000  from  approximately
$5,727,000 at October 31, 1999 to  approximately  $2,319,000 at October 31, 2000
as a result of the decrease in inventory,  the effect of the  inventory  related
barter transaction,  the use of marketable securities to fund operations and the
increase in accounts  payable offset by the increase in accounts  receivable and
the decrease in accrued liabilities.

Our operations used  approximately  $4,841,000 in cash during fiscal 2000. As of
October 31, 2000, working capital included approximately  $1,231,000 of cash and
marketable  securities  and  approximately  $1,337,000  of accounts  payable and
accrued  liabilities.  Based on reductions in operating  expenses that have been
made and additional reductions that may be implemented, if necessary, we believe
that these  resources,  including cash received from November 1, 2000 to January
19,  2001,  and other  potential  sources of cash flows  will be  sufficient  to
continue  operations until at least the end of the first quarter of fiscal 2002.
We anticipate that, thereafter,  we will continue to require additional funds to
continue our  marketing  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


                                       18
<PAGE>
insufficient to satisfy our liquidity requirements,  we may seek to sell debt or
equity  securities or to obtain a line of credit.  The sale of additional equity
securities  or  convertible  debt could  result in  additional  dilution  to our
stockholders.  We can give  you 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 definitive  arrangements
with respect to additional financing.

In connection with our annual audit, our Chairman of the Board and Chief
Executive Officer, our President, and an outside Director have represented to
our independent auditors that it is their intention to provide short term loans
to us of up to $450,000, $450,000 and $200,000, respectively, if we require
additional cash for our operations during the period ending January 31, 2002.
The loans would bear interest at 9% per annum, would be secured by accounts
receivable and inventory and would mature on January 31, 2002. These amounts
would be reduced on a pro-rata basis by any other debt or equity financing
obtained by us and by the proceeds received from certain sales. The
representation of each individual is conditioned upon his not becoming
incapacitated in a manner that prevents him from performing his present
responsibilities.

We are seeking to improve our liquidity through increased sales of products.  In
an effort to generate sales,  we have marketed the USS-900  directly to U.S. and
international office equipment distributors and dealers and, during fiscal 2000,
we have  recognized  total revenues of  approximately  $1,472,000.  We have also
recently commenced marketing the DSS-1000 and ULP-1. We are hopeful, although we
can give you no  assurance,  that we will generate  significant  revenues in the
future (through sales or otherwise) to improve our liquidity.

The NASD  requires  that we  maintain a minimum of  $4,000,000  of net  tangible
assets to  maintain  our  Nasdaq  National  Market  listing.  If our stock  were
delisted, the delisting could potentially have an adverse effect on the price of
our common stock and could adversely  affect the liquidity of the shares held by
our  stockholders.  Our  net  tangible  assets  as  of  October  31,  2000  were
approximately  $5,558,000. We anticipate that we may require additional funds to
maintain the NASD net tangible assets requirement.  We can give you no assurance
that we will be able to generate  adequate  funds from  operations or that funds
will be available to us from equity  financings.  We also can offer no assurance
that, if available,  we will be able to obtain such funds on favorable terms and
conditions.

The NASD  also  requires  that we  maintain  a  minimum  bid  price of $1.00 for
continued listing. If at any time the bid price for our common stock falls below
$1.00 per share for a period of thirty  consecutive  business days, the NASD has
the right to delist our stock if within ninety days thereafter the bid price for
the stock is not at least  $1.00 per  share  for a  minimum  of ten  consecutive
business days. If our stock were delisted,  the delisting  could have an adverse
affect on the price of our common stock and could adversely affect the liquidity
of the shares held by our stockholders. (See "Market for the Registrant's Common
Equity and Related Stockholder Matters").

Management  has  recorded  our  inventory  at its current  best  estimate of net
realizable value,  which is based upon the historic and future selling prices of
the USS-900 and  remaining  SCS-700s.  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 its current carrying value.


                                       19
<PAGE>


Our estimated  funding  capacity  indicated above assumes,  although there is no
assurance, that the waiver of salary and pension benefits by the Chairman of the
Board,  the President and senior level personnel will continue.  (See note 11 to
our Financial Statements).

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

We have  invested  a portion of our cash on hand in short  term,  fixed rate and
highly liquid  instruments  that have  historically  been  reinvested  when they
mature throughout the year. Although our existing marketable  securities 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. Disagreements on Accounting and Financial Disclosure.

Not applicable.


                                       20
<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 Principal              Age      Executive Officer
                                         Occupation                                            Since
----------------------------------------------------------------------------------------------------------
<S>                        <C>                                                  <C>            <C>
Denis A. Krusos            Director, Chairman of the Board and Chief            73             1982
                           Executive Officer
----------------------------------------------------------------------------------------------------------
Frank J. DiSanto           Director and President                               76             1982
----------------------------------------------------------------------------------------------------------
Henry P. Herms             Chief Financial Officer and Vice President -         55             2000
                           Finance
----------------------------------------------------------------------------------------------------------
Frank W. Trischetta        Senior Vice President - Marketing and Sales          60             1996
----------------------------------------------------------------------------------------------------------
George P. Larounis         Director                                             72             1997
----------------------------------------------------------------------------------------------------------
Lewis H. Titterton         Director                                             55             1999
----------------------------------------------------------------------------------------------------------
Anthony Bowers             Director                                             43             2000
----------------------------------------------------------------------------------------------------------
</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  and is a member of the New
York bar.

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.   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.  Trischetta  has served as our Senior Vice  President - Marketing  and Sales
since  February  1996.  Prior to joining  us, Mr.  Trischetta  was  employed  by
Panasonic  Corporation  for  approximately  15 years  where he served as General
Manager Marketing


                                       21
<PAGE>


and  Sales  for  Panasonic  Office  Automation  Products.  Prior  to  that,  Mr.
Trischetta  was  employed  by 3-M Company  for  approximately  17 years where he
advanced to a senior sales and marketing executive  position.  He holds a B.B.A.
degree from the University of Miami.

Mr.  Larounis has served as one of our Directors  since  September 1997 prior to
which he served as a consultant to us. Mr. Larounis held numerous positions as a
senior international executive of Bendix International and Allied Signal. He has
also served on the Board 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.

Mr.  Titterton has served as one of our Directors since July 1999. Mr. Titterton
is currently  Chief Executive  Officer of NYMED,  Inc. His background is in high
technology  with an emphasis  on health  care and he has been with  NYMED,  Inc.
since 1989.  Mr.  Titterton  founded  MedE  America,  Inc. in 1986 and was Chief
Executive Officer of Management and Planning Services, Inc from 1978 to 1986. He
holds a M.B.A.  degree from the State  University  of New York at Albany,  and a
B.A. degree from Cornell University.

Mr.  Bowers has served as one of our  Directors  since July 2000.  Mr. Bowers is
currently  a Partner of OTA  Limited  Partnership.  He has been with OTA Limited
Partnership  since 1997. Mr. Bowers was Director -  Institutional  Sales at Bear
Sterns  International  from 1994 to 1996 and Director -  Institutional  Sales at
Goldman  Sachs  International  from 1986 to 1994,  each of which were in London,
England.  From 1979 to 1982,  Mr.  Bowers was Manager - Investor  Relations  for
American  Express  Company in New York.  Mr.  Bowers  holds a B. A.  degree from
Amherst College and a M.B.A. degree from the Wharton School of Business.


                                       22
<PAGE>


Item 11. Executive Compensation.

Messrs.  Denis A. Krusos,  Chairman of the Board,  Chief  Executive  Officer and
Director, Frank J. DiSanto, President and Director, Frank W. Trischetta,  Senior
Vice  President  - Marketing  and Sales,  and Henry P.  Herms,  Chief  Financial
Officer and Vice President - Finance,  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 for an  undetermined
period of time commencing  November 1, 1985. As a result, Mr. Krusos received no
salary or bonus during the last three fiscal years.  Except for Mr.  Trischetta,
no other  executive  officer  received  an annual  salary and bonus in excess of
$100,000  during the fiscal  year ended  October  31,  2000.  The  following  is
compensation  information regarding Mr. Krusos and Mr. Trischetta for the fiscal
years ended October 31, 2000, 1999 and 1998:

<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,                          10/31/00              --              250,000
Chairman of the Board,                    10/31/99              --               50,000
Chief Executive Officer and Director      10/31/98              --              600,000
================================================================================================
Frank W. Trischetta                       10/31/00          $111,443            185,000(1)
Senior Vice President -                   10/31/99          $153,289             25,000(1)
Marketing and Sales                       10/31/98          $153,008             60,000(1)
------------------------------------------------------------------------------------------------
</TABLE>


(1)  Mr. Trischetta  participates in the CopyTele, Inc. employees' pension plan,
     a  money  purchase  deferred   compensation   pension  plan,  and  received
     contributions  in the amounts of $9,399,  $13,216 and $13,516 for the years
     2000, 1999, and 1998, respectively.


                                       23
<PAGE>


The following is information  regarding  stock options granted to Mr. Krusos and
Mr.  Trischetta  pursuant  to the 1993  Stock  Option  Plan  and the 2000  Share
Incentive Plan, during the fiscal year ended October 31, 2000:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                 OPTION GRANTS IN LAST FISCAL YEAR
====================================================================================================================================
                                       Individual Grants                                           Potential Realizable Value at
                                                                                                Assumed Annual Rates of Stock Price
                                                                                                   Appreciation for Option Term
------------------------------------------------------------------------------------------------------------------------------------
                                           Percent of
                        Number of        Total Options
                        Securities         Granted to         Exercise
                    Underlying Options    Employees in          Price           Expiration
       Name            Granted (#)        Fiscal Year         ($/Share)            Date              5% ($)            10% ($)
====================================================================================================================================
<S>                     <C>                  <C>             <C>                 <C>                <C>               <C>
Denis A. Krusos         250,000(2)           8.11%           $1.063 (3)          10/26/10           $167,129          $423,537
------------------------------------------------------------------------------------------------------------------------------------
Frank W. Trischetta     100,000(1)           3.24%           $0.844 (3)           12/5/09            $53,079          $134,512
                         50,000(1)           1.62%            $1.500(3)           4/23/10            $47,167          $119,531
                         35,000(2)           1.14%            $1.094(4)           8/20/10            $24,080           $61,024
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


     (1)  Options  granted  pursuant to the 1993 Stock  Option  Plan,  which are
          exercisable in whole or in part commencing one year following the date
          of grant unless otherwise  accelerated.  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 1993 Stock Option Plan.

     (2)  Options granted  pursuant to the 2000 Share Incentive Plan,  which are
          exercisable in whole or in part  commencing  six months  following the
          date of grant unless otherwise accelerated. 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 2000 Share Incentive Plan.

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

     (4)  The exercise price of these options was equal to the fair market value
          of the underlying common stock on the date of grant. These options are
          intended to qualify as incentive  stock options  within the meaning of
          Section 422 of the Internal Revenue Code of 1986, as amended.


                                       24
<PAGE>


The following is information regarding stock option exercises during fiscal 2000
by Mr. Krusos and Mr.  Trischetta  and the values of their options as of October
31, 2000:


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                  AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                                 FY-END OPTION/VALUES
=========================================================================================================================

                                                      Number of Securities Underlying          Value of Unexercised
                  Shares Acquired   Value Realized   Unexercised Options at Fiscal Year    In-the-Money Options at Fiscal
      Name        on Exercise (#)       ($)(1)                   End (#)                          Year End ($)(2)
                                                     --------------------------------------------------------------------
                                                       Exercisable     Unexercisable     Exercisable    Unexercisable
=========================================================================================================================
<S>                    <C>             <C>              <C>                <C>              <C>             <C>
Denis A. Krusos          --               --            2,845,180          250,000            --            --
                                                                                                            --
Frank W                75,000          $59,375            553,000           35,000          $9,350          --
Trischetta
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


     (1)  Such value was determined by applying the net  difference  between the
          last sales price of the stock on the day of exercise  and the exercise
          price for the options to the number of options exercised.

     (2)  Such value was determined by applying the net  difference  between the
          last sales  price of the stock on October  31,  2000 and the  exercise
          price  for the  options  to 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 2000  Share  Incentive  Plan,  each  non-employee
director is entitled to receive  nonqualified  stock options to purchase  20,000
shares of common  stock each year that such  director is elected to the Board of
Directors.


                                       25
<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 19, 2001 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 or executive officers and (c) all directors and
executive officers as a group:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                Amount and Nature of
                                                     Beneficial
Name and Address of Beneficial Owner               Ownership(1)(2)    Percent of Class
======================================================================================
<S>                                                   <C>                  <C>
Denis A. Krusos                                       7,089,040            10.56%
900 Walt Whitman Road
Melville, NY 11747
--------------------------------------------------------------------------------------
Frank J. DiSanto                                      3,666,295             5.49%
900 Walt Whitman Road
Melville, NY 11747
--------------------------------------------------------------------------------------
Henry P. Herms                                           50,000             0.08%
900 Walt Whitman Road
Melville, NY 11747
--------------------------------------------------------------------------------------
Frank W. Trischetta                                     738,000             1.15%
900 Walt Whitman Road
Melville, NY 11747
--------------------------------------------------------------------------------------
George P. Larounis                                      322,500             0.50%
900 Walt Whitman Road
Melville, NY 11747
--------------------------------------------------------------------------------------
Lewis H. Titterton                                    1,559,600(3)          2.42%
900 Walt Whitman Road
Melville, NY 11747
--------------------------------------------------------------------------------------
Anthony Bowers                                          224,300             0.35%
900 Walt Whitman Road
Melville, NY 11747
--------------------------------------------------------------------------------------
All Directors and Executive Officers as a Group      13,649,735(3)         19.02%
(7 persons)
--------------------------------------------------------------------------------------
</TABLE>


     (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.


                                       26
<PAGE>


     (2)  Includes 3,345,180 shares,  3,023,180 shares,  50,000 shares,  638,000
          shares,  322,500  shares,  20,000 shares,  50,000 shares and 7,448,860
          shares as to which Denis A. Krusos, Frank J. DiSanto,  Henry P. Herms,
          Frank W. Trischetta,  George P. Larounis, Lewis H. Titterton,  Anthony
          Bowers,  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 Plan and 2000 Plan.

     (3)  Includes  500,000  shares,  which Lewis H.  Titterton has the right to
          acquire upon the exercise of warrants.

Item 13. Certain Relationships and Related Transactions.

          None.


                                       27
<PAGE>


                                     PART IV


Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)(1)(2) Financial Statement Schedules

               See accompanying "Index to Financial Statements".

     (a)(3)    Executive Compensation Plans and Arrangements

               Stock Option Plan (1987) (filed as Exhibit 10.18 to the Company's
               Quarterly  Report on Form 10-Q for the fiscal quarter ended April
               30, 1987).

               Amendment to Stock Option Plan (1987)  (filed as Exhibit 10.69 to
               the  Company's  Annual  Report on Form 10-K for the  fiscal  year
               ended October 31, 1990).

               CopyTele,  Inc.  1993 Stock  Option Plan (filed as Annex A to the
               Company's Proxy Statement dated June 10, 1993).

               Amendment  to  CopyTele,  Inc.  1993 Stock  Option Plan (filed as
               Exhibit 4(d) to the Company's Form S-8 dated September 6, 1995).

               Amendment  to  CopyTele,  Inc.  1993 Stock  Option Plan (filed as
               Exhibit 10.32 to the Company's  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 the
               Company's Proxy Statement dated June 12, 2000).

          (b)  Reports on Form 8-K

               No current  report on Form 8-K was filed for the  Company  during
               the fourth quarter of its fiscal year ended October 31, 2000.

          (c)  Exhibits

               (a)  3.1       Certificate of Incorporation, as amended.

               (b)  3.2       By-laws, as amended and restated.

                    3.3       Amendment to By-laws.

               (c)  10.1      Stock  Option  Plan,  adopted on April 1, 1987 and
                              approved by shareholders on May 27, 1987.


                                       28
<PAGE>


               (d)  10.2      Amendment to Stock  Option Plan,  adopted on March
                              12, 1990 and approved by  shareholders  on May 24,
                              1990.

               (e)  10.3      CopyTele,  Inc. 1993 Stock Option Plan, adopted on
                              April 28,  1993 and  approved by  shareholders  on
                              July 14, 1993.

               (f)  10.4      Amendment No. 1 to the  CopyTele,  Inc. 1993 Stock
                              Option  Plan,  adopted on May 3, 1995 and approved
                              by shareholders on July 19, 1995.

               (g)  10.5      Amendment No. 2 to the  CopyTele,  Inc. 1993 Stock
                              Option Plan,  adopted on May 10, 1996 and approved
                              by shareholders on July 24, 1996.

               (h)  10.6      Agreement  dated  March  3,  1999  between  Harris
                              Corporation and CopyTele, Inc.

               (i)  10.7      Stock Subscription Agreement Dated April 27,
                              1999, including form of Warrant, between
                              CopyTele, Inc. and Lewis H. Titterton

               (j)  10.8      Agreement  dated July 28,  1999,  among  CopyTele,
                              Inc., Harris Corporation and RF Communications.

               (k)  10.9      Stock Subscription Agreement Dated August 30,
                              1999, including form of Warrant, between
                              CopyTele, Inc. and Lewis H. Titterton

               (l)  10.10     CopyTele, Inc. 2000 Share Incentive Plan

               (m)  23.1      Consent of Arthur Andersen LLP

               ----------

               (a)  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.

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

               (c)  Incorporated  by  reference  to Form  10-Q  for  the  fiscal
                    quarter ended April 30, 1987.

               (d)  Incorporated  by  reference to Form 10-K for the fiscal year
                    ended October 31, 1990.


                                       29
<PAGE>


               (e)  Incorporated  by reference to Proxy Statement dated June 10,
                    1993.

               (f)  Incorporated  by  reference  to Form S-8  (Registration  No.
                    33-62381) dated September 6, 1995.

               (g)  Incorporated  by  reference  to Form  10-Q  for  the  fiscal
                    quarter ended April 30, 1996.

               (h)  Incorporated  by  reference  to Form  10-Q  for  the  fiscal
                    quarter ended January 31, 1999.

               (i)  Incorporated  by  reference  to Form  10-Q  for  the  fiscal
                    quarter ended April 30, 1999.

               (j)  Incorporated by reference to Form 8-K dated July 28, 1999.

               (k)  Incorporated  by  reference to Form 10-K for the fiscal year
                    ended October 31, 1999.

               (l)  Incorporated  by reference to Annex A of the Company's Proxy
                    Statement dated June 12, 2000.

               (m)  Filed herewith.


                                       30
<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: Denis A. Krusos
                                     ------------------------
                                  Denis A. Krusos
                                  Chairman of the Board and
January 29, 2001                  Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the date indicated.


                                  Denis A. Krusos
                                  ---------------------------
                                  Denis A. Krusos
                                  Chairman of the Board,
                                  Chief Executive Officer
                                  and Director (Principal Executive
                                  Officer)


                                  Frank J. DiSanto
                                  ---------------------------
                                  Frank J. DiSanto
                                  President and Director


                                  Henry P. Herms
                                  ---------------------------
                                  Henry P. Herms
                                  Vice President - Finance,
                                  Chief Financial Officer  (Principal Financial
                                  and Accounting Officer)


                                  Lewis H. Titterton
                                  -----------------------------------
                                  Lewis H. Titterton
                                  Director


                                  George P. Larounis
                                  -----------------------------------
                                  George P. Larounis
                                  Director


                                  Anthony Bowers
                                  ---------------------------
                                  Anthony Bowers
                                  Director


                                       31
<PAGE>


                                  EXHIBIT INDEX


     Exhibit
Ref. Number            Description
---- -------           -----------

(a)  3.1       Certificate of Incorporation, as amended.

(b)  3.2       By-laws, as amended and restated.

     3.3       Amendment to By-Laws.

(c)  10.1      Stock  Option  Plan,  adopted  on April 1, 1987 and  approved  by
               shareholders on May 27, 1987.

(d)  10.2      Amendment  to Stock  Option  Plan,  adopted on March 12, 1990 and
               approved by shareholders on May 24, 1990.

(e)  10.3      CopyTele,  Inc. 1993 Stock Option Plan, adopted on April 28, 1993
               and approved by shareholders on July 14, 1993.

(f)  10.4      Amendment  No. 1 to the  CopyTele,  Inc.  1993 Stock Option Plan,
               adopted on May 3, 1995 and approved by  shareholders  on July 19,
               1995.

(g)  10.5      Amendment  No. 2 to the  CopyTele,  Inc.  1993 Stock Option Plan,
               adopted on May 10, 1996 and approved by  shareholders on July 24,
               1996.

(h)  10.6      Agreement  dated March 3, 1999  between  Harris  Corporation  and
               CopyTele, Inc.

(i)  10.7      Stock Subscription Agreement Dated April 27, 1999, including
               form of Warrant, between CopyTele, Inc. and Lewis H. Titterton.

(j)  10.8      Agreement  Dated  July 28,  1999  among  CopyTele,  Inc.,  Harris
               Corporation and RF Communications.

(k)  10.9      Stock Subscription Agreement Dated August 30, 1999, including
               form of Warrant, between CopyTele, Inc. and Lewis H. Titterton.

(l)  10.10     CopyTele, Inc. 2000 Share Incentive Plan.

(m)  23.1      Consent of Arthur Andersen LLP.

----------


                                       32
<PAGE>


(a)  Incorporated  by reference to Form 10-Q for the fiscal  quarter  ended July
     31, 1992 and the fiscal quarter ended July 31, 1997.

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

(c)  Incorporated  by reference to Form 10-Q for the fiscal  quarter ended April
     30, 1987.

(d)  Incorporated  by reference  to Form 10-K for the fiscal year ended  October
     31, 1990.

(e)  Incorporated by reference to Proxy Statement dated June 10, 1993.

(f)  Incorporated  by reference to Form S-8  (Registration  No.  33-62381) dated
     September 6, 1995.

(g)  Incorporated  by reference to Form 10-Q for the fiscal  quarter ended April
     30, 1996.

(h)  Incorporated by reference to Form 10-Q for the fiscal quarter ended January
     31, 1999.

(i)  Incorporated  by reference to Form 10-Q for the fiscal  quarter ended April
     30, 1999.

(j)  Incorporated by reference to Form 8-K dated July 28, 1999.

(k)  Incorporated  by reference  to Form 10-K for the fiscal year ended  October
     31, 1999.

(l)  Incorporated by reference to Annex A of the Company's Proxy Statement dated
     June 12, 2000.

(m)  Filed herewith.


                                       33
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

INDEX TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----

<S>                                                                                                     <C>
Report of Independent Public Accountants                                                                F-1

Balance Sheets as of October 31, 2000 and 1999                                                          F-2

Statements of Operations for each of the three fiscal years in the period ended October 31, 2000
   and for the period from inception (November 5, 1982) to October 31, 2000                             F-3

Statements of Shareholders' Equity for the period from inception (November 5, 1982) to
   October 31, 1983 and for each of the seventeen fiscal years in the period ended October 31, 2000     F-4 - F-7

Statements  of Cash Flows for each of the three fiscal years in the period ended
October 31, 2000 and for the period from inception (November 5, 1982) to October 31, 2000               F-8

Notes to Financial Statements                                                                           F-9 - F-19

Report of Independent Public Accountants on Schedule                                                    F-20
</TABLE>


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


<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To CopyTele, Inc.:

We have audited the  accompanying  balance sheets of CopyTele,  Inc. (a Delaware
corporation in the development  stage - Note 1) as of October 31, 2000 and 1999,
and the related statements of operations, statements of shareholders' equity for
the period from inception (November 5, 1982) to October 31, 1983 and for each of
the  seventeen  fiscal years in the period ended October 31, 2000 and cash flows
for the each of the three fiscal years in the period ended  October 31, 2000 and
for the period from  inception  (November  5, 1982) to October 31,  2000.  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 generally accepted
in the 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, 2000 and 1999, and the results of its operations and its cash flows for each
of the three  fiscal  years in the period  ended  October  31,  2000 and for the
period from  inception  to October  31,  2000,  in  conformity  with  accounting
principles generally accepted in the United States.


Melville, New York
January 19, 2001


                                      F-1
<PAGE>


COPYTELE, INC.

(Development Stage Enterprise)
BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                            October 31,      October 31,
                                                                                               2000             1999
                                                                                               ----             ----
<S>                                                                                        <C>              <C>
                                     ASSETS

CURRENT ASSETS:
   Cash, including cash equivalents and interest bearing accounts of $1,119,516 and
     $1,531,254, respectively                                                              $  1,134,045     $  1,587,830
   Marketable securities, at cost                                                                96,873          488,038
   Accounts receivable, net of allowance for doubtful accounts of $75,400                       594,851             --
   Inventories                                                                                1,769,285        4,538,608
   Prepaid expenses and other current assets                                                     60,433           67,099
                                                                                           ------------     ------------

                Total current assets                                                          3,655,487        6,681,575

PROPERTY AND EQUIPMENT, net of accumulated depreciation and
   amortization of $1,837,946 and $1,627,012, respectively                                      270,018          531,155

OTHER ASSETS                                                                                  2,968,996           26,814
                                                                                           ------------     ------------
                                                                                           $  6,894,501     $  7,239,544
                                                                                           ============     ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                        $  1,035,749     $    366,258
   Accrued liabilities                                                                          301,153          588,509
                                                                                           ------------     ------------

                Total current liabilities                                                     1,336,902          954,767

COMMITMENTS AND CONTINGENCIES (Note 8)

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;
     63,084,526 and 60,057,376 shares issued and outstanding, respectively                      630,845          600,574
   Additional paid-in capital                                                                60,050,852       55,844,128
   Deficit accumulated during the development stage                                         (55,124,098)     (50,159,925)
                                                                                           ------------     ------------
                                                                                              5,557,599        6,284,777
                                                                                           ------------     ------------
                                                                                           $  6,894,501     $  7,239,544
                                                                                           ============     ============
</TABLE>


The accompanying notes are an integral part of these balance sheets.


                                      F-2
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                                                    For the Period
                                                                                                                    from Inception
                                                                          For the Fiscal Year Ended October 31,   (November 5, 1982)
                                                                       ------------------------------------------          to
                                                                           2000           1999           1998      October 31, 2000
                                                                       ------------   ------------   ------------  ----------------

<S>                                                                    <C>            <C>            <C>             <C>
SALES                                                                  $  1,471,998   $     46,877   $       --      $  1,518,875

COST OF SALES                                                               725,438         37,304           --           762,742
                                                                       ------------   ------------   ------------    ------------
         Gross profit                                                       746,560          9,573           --           756,133
                                                                       ------------   ------------   ------------    ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
  (including research and development expenses of approximately
  $2,732,000, $3,163,000, $3,926,000 and $34,206,000, respectively)       5,831,712      8,284,717      7,231,557      59,706,563

LOSS FROM AND IMPAIRMENT OF INVESTMENT IN JOINT VENTURE (Note 4)               --          345,947        377,219       1,225,000
                                                                       ------------   ------------   ------------    ------------
INTEREST INCOME                                                             120,979        156,075        472,822       5,051,332
                                                                       ------------   ------------   ------------    ------------

NET (LOSS)                                                             $ (4,964,173)  $ (8,465,016)  $ (7,135,954)   $(55,124,098)
                                                                       ============   ============   ============    ============
NET (LOSS) PER SHARE OF COMMON STOCK:
  Basic and Diluted                                                    $       (.08)  $       (.14)  $       (.12)   $      (1.14)
                                                                       ============   ============   ============    ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
  Basic and Diluted                                                      62,261,250     58,792,745     57,865,834      48,193,117
                                                                       ============   ============   ============    ============

</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 5, 1982) TO OCTOBER 31, 1983
AND FOR EACH OF THE SEVENTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 2000


<TABLE>
<CAPTION>
                                                                                                                          Deficit
                                                                                                                        Accumulated
                                                                                 Common Stock          Additional       During the
                                                                            ------------------------     Paid-in        Development
                                                                              Shares      Par Value      Capital           Stage
                                                                            ----------    ---------    ----------      ------------

<S>                                                                          <C>           <C>         <C>              <C>
BALANCE, November 5, 1982 (inception)                                             --       $  --       $      --        $      --
  Sale of common stock, at par, to incorporators on November 8,
   1982                                                                      1,470,000      14,700            --               --
  Sale of common stock, at $.10 per share, primarily to officers
   and employees, from November 9, 1982 to November 30, 1982                   390,000       3,900          35,100             --
  Sale of common stock, at $2 per share, in private offering
    from January 24, 1983 to March 28, 1983                                    250,000       2,500         497,500             --
  Sale of common stock, at $10 per share, in public offering
    on October 6, 1983, net of underwriting discounts of $1
    per share                                                                  690,000       6,900       6,203,100             --
  Sale of 60,000 warrants to representative of underwriters,
    at $.001 each, in conjunction with public offering                            --          --                60             --
  Costs incurred in conjunction with private and public offerings                 --          --          (350,376)            --
  Net (loss) for the period                                                       --          --              --           (976,919)
                                                                             ---------     -------     -----------      -----------

BALANCE, October 31, 1983                                                    2,800,000      28,000       6,385,384         (976,919)
  Additional costs incurred in conjunction with public offering                   --          --           (11,654)            --
  Net (loss)                                                                      --          --              --         (1,542,384)
                                                                             ---------     -------     -----------      -----------

BALANCE, October 31, 1984                                                    2,800,000      28,000       6,373,730       (2,519,303)
  Common stock issued, at $12 per share, upon exercise of
    57,200 warrants from February 5, 1985 to October 16, 1985,
    net of registration costs                                                   57,200         572         630,845             --
  Proceeds from sales of common stock by individuals from
    January 29, 1985 to October 4, 1985 under agreements
    with the Company, net of costs incurred by the Company                        --          --           362,365             --
  Three-for-one stock split (A)                                              5,714,400      57,144         (57,144)            --
  Net (loss)                                                                      --          --              --         (1,745,389)
                                                                             ---------     -------     -----------      -----------

BALANCE, October 31, 1985                                                    8,571,600      85,716       7,309,796       (4,264,692)
  Common stock issued, at $4 per share, upon exercise of 2,800
    warrants in December 1985                                                    8,400          84          33,516             --
  Additional costs incurred by the Company in conjunction with
    sales of common stock by individuals from January 29, 1985
    to October 4, 1985 under agreements with the Company                          --          --           (62,146)            --
  Net (loss)                                                                      --          --              --         (1,806,696)
                                                                             ---------     -------     -----------      -----------

BALANCE, October 31, 1986                                                    8,580,000      85,800       7,281,166       (6,071,388)
  Sale of common stock, at market, to officers on January 9, 1987
    and April 22, 1987 and to members of their immediate families
    on July 28, 1987                                                            67,350         674         861,726             --
  Additional costs incurred by the Company in conjunction with
    sales of common stock by individuals from January 29, 1985
    to October 4, 1985 under agreements with the Company                          --          --            (1,474)            --
  Five-for-four stock split (A)                                              2,161,735      21,617         (21,617)            --
  Fractional share payments in conjunction with five-for-four
    stock split                                                                   --          --            (1,345)            --
  Sale of common stock, at market, to members of officers'
    immediate families on September 10, 1987 and to officers on
    October 29, 1987                                                            64,740         647         309,601             --
  Net (loss)                                                                      --          --              --         (1,401,736)
                                                                             ---------     -------     -----------      -----------
</TABLE>


                                      F-4
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 5, 1982) TO OCTOBER 31, 1983
AND FOR EACH OF THE SEVENTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 2000

Continued


<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                                 Common Stock         Additional      During the
                                                                            ------------------------    Paid-in       Development
                                                                              Shares      Par Value     Capital          Stage
                                                                            ----------    ---------   ----------     ------------

<S>                                                                         <C>           <C>          <C>            <C>
BALANCE, October 31, 1987                                                   10,873,825    108,738      8,428,057      (7,473,124)
  Sale of common stock, at market, to members of officers'
    immediate  families from  November 24, 1987 to June 29, 1988
    and  additional contributions by officers in January 1988 and
    March 1988 related to adjustments to sales price of common
    stock on October 29, 1987                                                  260,210      2,602      2,250,594            --
  Net (loss)                                                                      --         --             --        (1,317,305)
                                                                            ----------    -------    -----------     -----------

BALANCE, October 31, 1988                                                   11,134,035    111,340     10,678,651      (8,790,429)
  Sale of common stock, at market, to an officer on February 26,
    1989 and to members of officers' immediate families from
    February 26, 1989 (amended on March 10, 1989) to September
    27, 1989                                                                   142,725      1,427      2,093,851            --
  Sale of common stock, at market, to senior level personnel
    on February 26, 1989                                                        29,850        299        499,689            --
  Sale of common stock, at market, to unrelated party on
    February 26, 1989 amended on March 10, 1989                                 35,820        358        599,627            --
  Net (loss)                                                                      --         --             --        (1,101,515)
                                                                            ----------    -------    -----------     -----------

BALANCE, October 31, 1989                                                   11,342,430    113,424     13,871,818      (9,891,944)
  Sale of common stock, at market, to members of officers'
    immediate families from November 14, 1989 to October 15,
    1990                                                                       117,825      1,179      1,140,725            --
  Net (loss)                                                                      --         --             --        (1,111,413)

BALANCE, October 31, 1990                                                   11,460,255    114,603     15,012,543     (11,003,357)
  Sale of common stock, at market, to members of officers'
    immediate families on December 4, 1990                                      42,540        425        329,260            --
  Two-for-one stock split (A)                                               11,502,795    115,028       (115,028)           --
  Sale of common stock, at market, to members of officers'
    immediate families from April 26, 1991 to September 16, 1991               102,543      1,025      1,033,981            --
                                                                            ----------    -------    -----------     -----------
  Net (loss)                                                                      --         --             --        (1,299,992)

BALANCE, October 31, 1991                                                   23,108,133    231,081     16,260,756     (12,303,349)
  Sale of common stock, at market, to members of officers'
    immediate families from December 16, 1991 to October
    27, 1992                                                                   158,910      1,589      1,754,330            --
  Costs incurred in conjunction with registration of stock
    option plan                                                                   --         --          (33,251)           --
  Net (loss)                                                                      --         --             --        (1,827,356)
                                                                            ----------    -------    -----------     -----------
</TABLE>


                                      F-5
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 5, 1982) TO OCTOBER 31, 1983
AND FOR EACH OF THE SEVENTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 2000

Continued


<TABLE>
<CAPTION>
                                                                                                                        Deficit
                                                                                                                      Accumulated
                                                                                 Common Stock         Additional      During the
                                                                            ------------------------    Paid-in       Development
                                                                              Shares      Par Value     Capital          Stage
                                                                            ----------    ---------   ----------     ------------

<S>                                                                         <C>           <C>         <C>            <C>
BALANCE, October 31, 1992                                                   23,267,043    232,670     17,981,835     (14,130,705)
  Common stock issued upon exercise of stock options from
   December 16, 1992 to October 22, 1993 under stock option plan             1,032,940     10,330      5,914,480            --
  Common stock issued upon exercise of warrants by members
   of officers' immediate families in September 1993                           239,000      2,390        996,774            --
  Net (loss)                                                                      --         --             --        (2,762,849)
                                                                            ----------    -------    -----------     -----------

BALANCE, October 31, 1993                                                   24,538,983    245,390     24,893,089     (16,893,554)
  Costs incurred in connection with registration of stock option plan             --         --          (50,324)           --
  Common stock issued upon exercise of stock options from
    December 22, 1993 to June 14, 1994 under stock option plan                 233,200      2,332      1,273,411            --
  Common stock issued upon exercise of warrants by members
    of officers' immediate families in July 1994                                65,220        652        371,754            --
  Net (loss)                                                                      --         --             --        (3,427,517)
                                                                            ----------    -------    -----------     -----------

BALANCE, October 31, 1994                                                   24,837,403    248,374     26,487,930     (20,321,071)
  Costs incurred in connection with registration of stock option plan             --         --          (29,759)           --
  Common stock issued upon exercise of stock options from
   February 17, 1995 to October 30, 1995 under stock option plans              980,400      9,804      5,278,824            --
  Common stock issued upon exercise of warrants by members
   of officers' immediate families in February, July and
   September 1995                                                              137,300      1,373        755,132            --
  Net (loss)                                                                      --         --             --        (2,993,899)
                                                                            ----------    -------    -----------     -----------

BALANCE, October 31, 1995                                                   25,955,103    259,551     32,492,127     (23,314,970)
  Common stock issued upon exercise of stock options from
    November 2, 1995 to June 12, 1996 under stock option plans               2,288,800     22,888     15,843,842            --
  Common stock issued upon exercise of warrants by members
    of officers' immediate families in January and March, 1996                 138,280      1,383        527,802            --
  Two-for-one stock split (A)                                               28,382,183    283,822       (283,822)           --
  Common stock issued upon exercise of stock options from
    July 8, 1996 to October 30, 1996 under stock option plans                  532,500      5,325      1,795,395            --
  Common stock issued upon exercise of warrants by members
   of officers' immediate families in July and October, 1996                   107,790      1,078        559,262            --
  Net (loss)                                                                      --         --             --        (5,443,410)
                                                                            ----------    -------    -----------     -----------

BALANCE, October 31, 1996                                                   57,404,656    574,047     50,934,606     (28,758,380)
  Costs incurred in conjunction with registration of stock option                 --         --          (11,705)           --
   plan
  Common stock issued upon exercise of stock options from
   November 25, 1996 to October 6, 1997 under stock option plans               342,700      3,427      1,258,829            --
  Common stock issued upon exercise of warrants by members
    of officers' immediate families in March 1997                               98,820        988        502,905            --
  Common stock issued upon purchase of equipment                                15,000        150         74,850            --
  Net (loss)                                                                      --         --             --        (5,800,575)
                                                                            ----------    -------    -----------     -----------
</TABLE>


                                      F-6
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 5, 1982) TO OCTOBER 31, 1983
AND FOR EACH OF THE SEVENTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 2000

Continued


<TABLE>
<CAPTION>
                                                                                                                          Deficit
                                                                                                                        Accumulated
                                                                                 Common Stock           Additional      During the
                                                                            ------------------------      Paid-in       Development
                                                                              Shares      Par Value       Capital          Stage
                                                                            ----------    ---------     ----------     ------------

<S>                                                                         <C>              <C>         <C>            <C>
BALANCE, October 31, 1997                                                   57,861,176       578,612     52,759,485     (34,558,955)
  Stock option compensation to consultants                                        --            --          189,600            --
  Common stock issued upon exercise of stock options in May 1998                10,000           100         28,025            --
  Net (loss)                                                                      --            --             --        (7,135,954)
                                                                            ----------    ----------    -----------    ------------

BALANCE, October 31, 1998                                                   57,871,176       578,712     52,977,110     (41,694,909)
  Stock option compensation to consultants                                        --            --           61,650            --
  Common stock issued upon exercise of stock options between
                                                                               886,200         8,862      1,343,868            --
    January 15, 1999 and August 3, 1999
  Common stock issued in private placements on April 30, 1999 and
    September 8, 1999, net of expenses                                       1,300,000        13,000      1,461,500            --
  Net (loss)                                                                      --            --             --        (8,465,016)
                                                                            ----------    ----------    -----------    ------------

BALANCE, October 31, 1999                                                   60,057,376       600,574     55,844,128     (50,159,925)
  Stock option compensation to consultants                                        --            --          210,650            --
  Common stock issued in private placements in January and March
    2000, net of expenses                                                      616,500         6,165        794,420            --
  Common stock issued upon exercise of stock options from
    January 2000 to May 2000 under stock option plans                        2,267,400        22,674      3,003,050            --
  Common stock issued upon exercise of warrants in May 2000                    143,250         1,433        198,604            --
  Net (loss)                                                                      --            --             --        (4,964,173)
                                                                            ----------    ----------    -----------    ------------

BALANCE, October 31, 2000                                                   63,084,526    $  630,845    $60,050,852    $(55,124,098)
                                                                            ==========    ==========    ===========    ============
</TABLE>


(A)  Reflects  cumulative  effect on all share data prior to splits described in
     Note 7.


The accompanying notes are an integral part of these statements.


                                      F-7
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                                    For the Period
                                                                                                                    from Inception
                                                                             For the Fiscal Year Ended October 31, (November 5,1982)
                                                                       -------------------------------------------         to
                                                                           2000           1999           1998      October 31, 2000
                                                                       -----------    -----------    ------------  ----------------
<S>                                                                    <C>            <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Payments to suppliers, employees and consultants                     $(5,769,836)   $(6,314,512)   $ (8,249,844)   $(61,531,690)
  Cash received from customers                                             801,747         46,877            --           848,624
  Interest received                                                        127,511        150,539         513,633       5,048,346
                                                                       -----------    -----------    ------------    ------------
         Net cash (used in) operating activities                        (4,840,578)    (6,117,096)     (7,736,211)    (55,634,720)
                                                                       -----------    -----------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for purchases of property and equipment                         (30,717)       (40,283)       (185,876)     (2,054,159)
  Disbursements to acquire certificates of deposit and
    marketable securities                                                  (96,873)      (488,038)           --       (13,630,910)
  Proceeds from maturities of investments                                  488,038           --           970,808      13,534,037
  Investment made in Joint Venture                                            --             --              --        (1,225,000)
                                                                       -----------    -----------    ------------    ------------
         Net cash provided by (used in) investing activities               360,448       (528,321)        784,932      (3,376,032)
                                                                       -----------    -----------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from sales of common stock and warrants, net
    of underwriting discounts of $690,000 related to initial
    public offering in October 1983                                           --             --              --        17,647,369
  Proceeds from exercise of stock options and warrants,
    net of registration disbursements                                    3,225,760      1,352,730          28,125      40,286,973
  Proceeds from sale of common stock in private placements, net            800,585      1,474,500            --         2,275,085
  Proceeds from sales of common stock by individuals under
    agreements with the Company, net of disbursements made
    by the Company                                                            --             --              --           298,745
  Disbursements made in conjunction with sales of stock                       --             --              --          (362,030)
  Fractional share payments in conjunction with stock split                   --             --              --            (1,345)
                                                                       -----------    -----------    ------------    ------------
         Net cash provided by financing activities                       4,026,345      2,827,230          28,125      60,144,797
                                                                       -----------    -----------    ------------    ------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                                                                          (453,785)    (3,818,187)     (6,923,154)      1,134,045


CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                         1,587,830      5,406,017      12,329,171            --
                                                                       -----------    -----------    ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                             $ 1,134,045    $ 1,587,830    $  5,406,017    $  1,134,045
                                                                       ===========    ===========    ============    ============

RECONCILIATION OF NET (LOSS) TO NET CASH
  (USED IN) OPERATING ACTIVITIES:
   Net (loss)                                                          $(4,964,173)   $(8,465,016)   $ (7,135,954)   $(55,124,098)
   Stock option compensation to consultants                                210,650         61,650         189,600         461,900
   Loss from Joint Venture                                                    --          260,775         377,219       1,139,828
   Provision for doubtful accounts                                          75,400           --              --            75,400
   Depreciation and amortization                                           261,804        275,234         288,829       1,904,474
   Impairment of investment in Joint Venture                                  --           85,172            --            85,172
   Impairment of amount due from Joint Venture                                --        1,407,461            --         1,407,461
   Amortization of discount on marketable securities                          --             --            26,365            --
   Loss on disposal of property and equipment                               30,050           --              --            30,050
   (Increase) decrease in accounts receivable                             (670,251)          --              --          (670,251)
   (Increase) decrease in inventories                                     (230,677)    (1,819,393)     (2,587,717)     (4,769,285)
   Decrease (increase) in prepaid expenses and other current assets
                                                                             6,666        (20,460)      3,831,751        (922,433)
   Decrease (increase) in long-term amount due from joint venture             --        1,684,167      (3,091,628)     (1,407,461)
   (Increase) decrease in other assets                                      57,818         70,606          21,746          31,004
   Increase (decrease) in accounts payable and accrued liabilities         382,135        342,708         343,578       2,123,519
                                                                       -----------    -----------    ------------    ------------
         Net cash (used in) operating activities                       $(4,840,578)   $(6,117,096)   $ (7,736,211)   $(55,634,720)
                                                                       ===========    ===========    ============    ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH
  INVESTING ACTIVITIES:
   Barter transaction (Note 5)                                         $ 3,000,000    $      --      $       --      $  3,000,000
                                                                       ===========    ===========    ============    ============
</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-8
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


1.   NATURE AND DEVELOPMENT OF BUSINESS AND FUNDING

Organization and Development Of Business

CopyTele, Inc. (the "Company"), which was incorporated on November 5, 1982, is a
development stage enterprise whose principal activities include the development,
production and marketing of multi-functional  encryption  products.  The primary
encryption  product the Company has  produced is the USS-900  (Universal  Secure
System).  The USS-900 is a hardware-based  peripheral  digital encryption system
which  incorporates  a  private  label  digital  cryptographic  chip to  provide
high-grade  information  encryption.  The  Company  has also  developed a laptop
(personal  computer)  security  encryption  product - the ULP-1 (Ultimate Laptop
Privacy),  and a digital version of the USS-900 - the DSS-1000 (Digital Security
System). The Company is also continuing its research and development  activities
for  additional  encryption  products  and flat panel  display  technologies  in
addition to its ultra-high  resolution  charged particle  E-Paper(TM) flat panel
display.

Funding and Management's Plans

Since its inception,  the Company has met its liquidity and capital  expenditure
needs  primarily  through  the  proceeds  from sales of its common  stock in its
initial public offering, in private placements, upon exercise of warrants issued
in connection  with the private  placements  and public  offering,  and upon the
exercise  of  stock  options.  The  Company  is  hopeful,  that  with  both  the
development  of its new products and its increased  marketing  efforts,  it will
procure  enough  sales  throughout  fiscal 2001 to emerge  from the  development
stage.  However,  there can be no assurance  that the Company will be able to do
so.

The Company's operations used approximately $4,841,000 in cash during fiscal
2000. As of October 31, 2000, working capital included approximately $1,231,000
of cash and marketable securities and approximately $1,337,000 of accounts
payable and accrued liabilities. The Company believes that these resources and
other sources of cash flows will be sufficient to enable it to continue in
operation until at least the end of the first quarter of fiscal 2002, after
giving effect to certain reductions in operating expenses, as necessary. As of
January 29, 2001, the Company had approximately $703,000 in cash and marketable
securities, which reflects, in part, the proceeds from both the collection of
outstanding accounts receivable and the exercise of employee stock options.

The Company is seeking to improve its liquidity through increased sales of its
products. The Company may also seek to improve its liquidity through sales of
its common stock and additional exercises of stock options and warrants. There
can be no assurance that any of these plans will materialize.

The Company has had limited sales to its dealers, distributors and end-users
since its inception, and during fiscal 2000 has recognized revenue of
approximately $1,472,000. Despite the foregoing, there can be no assurance that
the Company will generate significant revenues in the future (through sales or
otherwise) to improve its liquidity, that the Company will have sufficient
revenues to generate a profit, that the Company will be able to expand its
current distributor/dealer network, that production capabilities will be
adequate, or that other products will not be produced by other companies that
will render the products of the Company obsolete.

The Chairman of the Board and Chief Executive Officer, the President, and an
outside Director have made a representation that it is their intention to
provide short term loans to the Company of up to $450,000, $450,000 and
$200,000, respectively, if the Company requires additional cash for its
operations during the period ending January 31, 2002. The loans would bear
interest at 9% per annum, would be secured by the Company's accounts receivable
and inventory and would mature on January 31, 2002. These amounts would be
reduced on a pro-rata basis by any other debt or equity financing obtained by
the Company and by the proceeds received from certain sales. The representation
of each individual is conditioned upon his not becoming incapacitated in a
manner that prevents him from performing his present responsibilities.

The National  Association of Securities Dealers,  Inc. requires that the Company
maintain a minimum of $4,000,000  of net tangible  assets to maintain its Nasdaq
National Market listing,  and a minimum bid price of at least $1.00 per share in
order to maintain its Nasdaq listing.  The Company anticipates that it will seek
additional sources of funding,  when necessary,  to satisfy such requirements or
for other  purposes.  There can be no assurance that such funding,  if required,
will be obtained.  The Company's  estimated  funding  capacity  indicated  above
assumes,  although there is no assurance,  that the waiver of salary and pension
benefits by the Chairman of the Board,  the President  and certain  senior level
personnel, will continue (Note 11).


                                      F-9
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000

Realizability of Assets

Management has recorded the Company's  inventory at its current best estimate of
net realizable value, which is based upon the historic and future selling prices
of the Company's  products.  To date, sales of the Company's  products have been
limited.  Accordingly,  there can be no  assurance  that the Company will not be
required to reduce the selling price of its inventory below its current carrying
value.

Furthermore,  management believes its other assets, which consist principally of
commercial  barter credits,  will be realized  through future usage (Notes 2 and
5), and accordingly are properly valued as of October 31, 2000.

Product Development

The Company has received 221 patents, including those from the United States and
certain foreign patent offices, expiring at various dates between 2005 and 2018.
At the present time,  additional patent applications are pending with the United
States and certain  foreign  patent  offices.  These  patents are related to the
design,  structure and method of  construction  of E-PaperTM flat panel display,
methods of operating  the E-PaperTM  flat panel  display,  particle  generation,
applications using the E-PaperTM flat panel display, and for its solid state and
thin film video and flat panel display.

The Company also has filed, or is planning to file, patent  applications for its
optical  encryption  system,  its FED and simplified  E-Paper flat panel display
technologies  currently under development,  and for its USS-900,  DSS-1000,  and
ULP-1 encryption technologies.

There can be no  assurance  that patents will be obtained for any of the pending
applications;  however, the Company has been advised by its patent counsel that,
in their  opinion,  the  subject  matter of the  pending  applications  contains
patentable  material.  In addition,  there can be no assurance  that any patents
held or obtained  will protect the Company  against  competitors  either with or
without  litigation.  The  Company  is not aware  that any of its  products  are
infringing upon the patents of others. There can be no assurance,  however, that
other  products  developed by the Company,  if any,  will not infringe  upon the
patents of others,  or that the Company will not have to obtain  licenses  under
the  patents of others.  The Company  believes  that the  foregoing  patents are
significant to the future operations of the Company.

The success and  profitability  of the Company's  products will depend upon many
factors,  many of which are  beyond  its  control.  These  factors  include  the
capability  of the  Company to market its  products,  the  Company's  continuing
ability  to  purchase  the  encryption  chip for use in the  USS-900  and  other
encryption  products,  long-term  product  performance and the capability of the
Company's dealers and distributors to adequately service the Company's products,
the  ability of the  Company to  maintain  an  acceptable  pricing  level to its
customers  for its  products,  the ability of  suppliers  to meet the  Company's
requirements and schedule, the Company's ability to successfully develop its new
products  under  development,  rapidly  changing  consumer  preference,  and the
possible  development  of  competitive  products that could render the Company's
products obsolete or unmarketable.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The  Company  recognizes  revenue  upon  shipment  and  passage  of title of its
products to its customers. The Company has not had any sales returns to date.

Accounts Receivable and Concentration of Credit Risk

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist  principally  of  accounts  receivable  from  sales in the
ordinary  course of business.  The Company  reviews its accounts  receivable for
potential doubtful accounts and maintains a reserve for estimated  uncollectible
amounts. Two customers  represented 20% and 38% of sales throughout fiscal 2000,
respectively,  and three  customers  represented  45%,  27% and 18% of  accounts
receivable, respectively, as of October 31, 2000.


                                      F-10
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


Cash Equivalents

Cash equivalents  consist of investments that are readily  convertible into cash
and have original maturities of three months or less.

Marketable Securities

The Company accounts for investments in marketable securities in accordance with
Statement of Financial  Accounting  Standards ("SFAS") No. 115,  "Accounting for
Certain  Investments  in Debt and Equity  Securities."  Under SFAS No. 115,  the
Company is required to classify each investment in marketable  securities in one
of three  categories:  trading,  available-for-sale,  or  held-to-maturity.  The
Company's  investments  at  October  31,  2000  and  1999,  were  classified  as
held-to-maturity  as the  Company  has the  ability  and  intent  to hold  these
securities  until they mature.  As such, in accordance  with SFAS No. 115, these
investments  are  presented  in the  accompanying  balance  sheet  at cost as of
October 31, 2000 and 1999.  Accrued interest income related to these investments
is included in earnings for the fiscal years ended October 31, 2000 and 1999.

Inventories

Inventories are stated at the lower of cost, determined on a first-in, first-out
basis, or market, which represents the Company's best estimate of market 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.

Other Assets

Other assets consists primarily of a barter credit asset, which will be realized
by the Company through future redemption of barter credits to be applied towards
advertising  and purchase  discounts  (Note 5). In accordance  with SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company  continually  evaluates the carrying amount of this
asset  for  any  potential  impairment.  Based  on this  evaluation,  management
believes that there is no impairment as of October 31, 2000.

Research and Development Expenses

Research  and  development  expenses  incurred by the  Company  are  included in
selling, general and administrative expenses in the year incurred.

Income Taxes

The Company  recognizes  deferred tax assets and  liabilities  for the estimated
future  tax  effects  of  events  that  have been  recognized  in the  Company's
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.

Stock-Based Compensation

The  Company  complies  with the  provisions  of SFAS No. 123,  "Accounting  for
Stock-Based  Compensation,"  by continuing to apply the provisions of Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees,"  while  providing the required pro forma  disclosures as if the fair
value method had been applied (Note 7).


                                      F-11
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


Net (Loss) Per Share of Common Stock

The Company complies with the provisions of SFAS No. 128,  "Earnings Per Share".
In accordance  with SFAS 128, basic net (loss) per common share ("Basic EPS") is
computed by dividing net (loss) by the weighted  average number of common shares
outstanding.  Diluted net (loss) per common share ("Diluted EPS") is computed by
dividing net (loss) by the weighted average number of common shares and dilutive
common share equivalents and convertible  securities then outstanding.  SFAS No.
128 requires the  presentation  of both Basic EPS and Diluted EPS on the face of
the statements of operations. 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.

Comprehensive Income

The Company  follows the  provisions of SFAS No. 130,  "Reporting  Comprehensive
Income",  which  requires  companies  to report all  changes in equity  during a
period,  except those  resulting from  investment by owners and  distribution to
owners,  in a financial  statement for the period in which they are  recognized.
Comprehensive  income is the total of net income and all other non-owner changes
in equity (or other  comprehensive  income) such as unrealized  gains/losses  on
securities  available-for-sale,  foreign  currency  translation  adjustments and
minimum pension liability  adjustments.  Comprehensive  and other  comprehensive
income must be reported on the face of the annual  financial  statements  or, in
the case of interim reporting, in the footnotes to the financial statements. The
Company's  operations  did not give rise to items  includible  in  comprehensive
income (loss) which were not already included in net income (loss). Accordingly,
the Company's  comprehensive  income (loss) is the same as its net income (loss)
for all periods presented.

Derivative Instruments

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting   for  Derivative   Instruments  and  Hedging   Activities,"   which
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities.  SFAS No. 133 is effective  for all fiscal years  beginning
after  June  15,  2000 (as  amended  by SFAS  No.  137)  and  will  not  require
retroactive  restatement of prior period  financial  statements.  This statement
requires the  recognition  of all  derivative  instruments  as either  assets or
liabilities in the balance sheet, measured at fair value. Derivative instruments
will be  recognized  as gains or losses  in the  period of  change.  If  certain
conditions are met where the derivative instrument has been designated as a fair
value hedge, the hedge items may also be marked to market through earnings, thus
creating an offset.  If the  derivative is designed and qualifies as a cash flow
hedge, the changes in fair value of the derivative instrument may be recorded in
comprehensive  income.  The Company does not expect the adoption of SFAS No. 133
to have a material impact on its financial  position or results of operations as
the Company does not presently make use of derivative instruments.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Reclassifications

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


                                      F-12
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


3.   INVENTORIES

Inventories consist of the following:

                                           October 31,
                                  -----------------------------
                                     2000               1999
                                  ----------         ----------

     Component parts              $  558,286         $2,113,917
     Work-in-process                 219,250               --
     Finished products               991,749          2,424,691
                                  ----------         ----------
                                  $1,769,285         $4,538,608
                                  ==========         ==========


4.   JOINT VENTURE

Shanghai  CopyTele  Electronics  Co., Ltd. (the "Joint  Venture" or "SCE"),  the
Company's  55% owned joint  venture in Shanghai,  China,  terminated  operations
during fiscal 2000 and is in the process of being liquidated.  In the opinion of
management  and its legal  counsel,  the Company is not  legally  liable for any
obligations of SCE, and  accordingly,  the impending  termination of SCE has not
had any impact on the  operations of the Company.  As such,  the Company has not
presented any amounts due from Joint Venture and amounts due to Joint Venture in
the accompanying  balance sheets,  as these amounts have been offset.  All other
related assets were previously reserved for in fiscal 1999.

The  Company  controlled  four of seven  votes of the Joint  Venture's  board of
directors.  However,  decisions  involving the Joint Venture  required  either a
unanimous or two-thirds vote of the Joint  Venture's  board of directors.  Since
the Company had significant  influence over the Joint  Venture's  operations but
did not have control,  the Company has historically  reflected its investment in
the Joint Venture under the equity method of accounting.

During fiscal 1999, in  accordance  with SFAS No. 121, the Company  recognized a
permanent impairment charge of approximately  $85,000 on its previously recorded
investment in Joint Venture,  due to the  uncertainty  of SCE generating  enough
future  undiscounted  cash flows to cover the carrying amount of the investment.
Additional  investments  in SCE in fiscal  2000 were  directly  expensed  to the
statement of  operations.  Such  investments  were not material to the Company's
fiscal 2000  statement of  operations.  In addition,  due to the  uncertainty of
realizing  the  amounts  due  from  SCE,  the  Company  reserved   approximately
$1,407,000 on its previously recorded amounts due from SCE during fiscal 1999.

5.   BARTER TRANSACTION

In August  2000,  the Company  entered  into a  nonmonetary  barter  transaction
whereby  $3,000,000 of certain inventory was sold in exchange for an equal value
of commercial  trade credits.  In accordance  with APB No. 29,  "Accounting  for
Non-Monetary  Transactions,"  the  Company  recognized  no  gain  or loss on the
transaction  as it is  management's  opinion that this  exchange was effected at
fair market value.  These trade  credits,  ($2,954,000  as of October 31, 2000),
which are recorded as other assets on the  accompanying  balance  sheet,  may be
redeemed  to  reduce  the  cost of  advertising  as well as other  products  and
services.

6.   ACCRUED LIABILITIES

Accrued liabilities consists of the following:

                                                          October 31,
                                                    -----------------------
                                                      2000           1999
                                                    --------       --------

     Accrued professional fees                      $114,894       $275,283
     Accrued pension                                 102,435        131,396
     Accrued payroll                                  49,255         70,553
     Accrued equipment purchases                        --           35,625
     Accrued other                                    34,569         75,652
                                                    --------       --------
                                                    $301,153       $588,509
                                                    ========       ========


                                      F-13
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


7.   SHAREHOLDERS' EQUITY

Sales of Common Stock and Issuance of Warrants

During fiscal 2000,  the Company sold 616,500 shares of its common stock in four
private  placements at an average price of $1.31 per share,  for an aggregate of
$800,585 net of expenses.  In  conjunction  with the sales of common stock,  the
Company issued  warrants to purchase  616,500 shares of common stock at exercise
prices  equal to the fair  market  value of the common  stock on the  respective
dates of issuance, expiring on various dates through March 22, 2002.

During  fiscal 1999,  the Company sold  1,300,000  shares of its common stock in
eight private placements at an average price of $1.15 per share, or an aggregate
of  $1,500,000  net of  expenses,  of  which  500,000  shares  were  sold  to an
individual  who became a director  of the Company in July 1999.  In  conjunction
with the  sales of  common  stock,  the  Company  issued  warrants  to  purchase
1,300,000  shares  of common  stock at an  average  exercise  price of $1.15 per
share, which expire on various dates through September 8, 2001.

As of October 31,  2000 and 1999,  all of the  warrants  to  purchase  shares of
common stock issued and outstanding were exercisable. At October 31, 1998, there
were no outstanding warrants.

Stock Splits

On October 4, 1985, the Company declared a three-for-one  stock split,  effected
in  the  form  of a  200%  stock  dividend,  payable  on  November  8,  1985  to
shareholders of record as of October 15, 1985.

On August 13, 1987, the Company declared a five-for-four  stock split,  effected
in  the  form  of a 25%  stock  dividend,  payable  on  September  15,  1987  to
shareholders of record as of August 31, 1987.

On February 12, 1991, the Company declared a two-for-one  stock split,  effected
in the form of a 100% stock dividend,  payable on March 18, 1991 to shareholders
of record as of February 25, 1991.

On May 24, 1996 the Company declared a two-for-one stock split,  effected in the
form of a 100% stock  dividend,  payable  on June 17,  1996 to  shareholders  of
record as of June 4, 1996.

The weighted average number of shares outstanding and net loss per share amounts
in the  accompanying  financial  statements  have been restated to reflect these
stock splits.

Preferred Stock

On May 29,  1986,  the  Company's  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.

Stock Option Plans

The Company has three stock option plans:  the 1987 Stock Option Plan (the "1987
Plan"),  the CopyTele,  Inc.  1993 Stock Option Plan (the "1993 Plan"),  and the
2000 Share  Incentive  Plan (the "2000 Share  Plan"),  which were adopted by the
Board  of  Directors  on  April  1,  1987,  April  28,  1993,  and May 8,  2000,
respectively.


                                      F-14
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


SFAS No. 123, "Accounting for Stock Based Compensation," encourages but does not
require  companies  to  record   compensation  cost  for  stock-based   employee
compensation  plans at fair value. The Company has chosen to continue to account
for  stock-based   employee   compensation  using  the  intrinsic  value  method
prescribed in APB No. 25. Compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
grant over the amount an employee  must pay to acquire the stock.  In accordance
with APB  Opinion  No.  25,  no  compensation  cost has been  recognized  by the
Company,  as all option  grants have been made at the fair  market  value of the
Company's stock on the date of grant.

Had compensation cost for these plans been determined at fair value,  consistent
with SFAS No.  123,  the  Company's  net loss and net loss per share  would have
increased to the following pro forma amounts:


<TABLE>
<CAPTION>
                                                                For the Year Ended October 31,
                                                             -----------------------------------------------
                                                                 2000             1999             1998
                                                             ------------    -------------    -------------

<S>                                        <C>               <C>             <C>              <C>
     Net (Loss):                           As Reported       $ (4,064,173)   $  (8,465,016)   $  (7,135,954)
                                           Pro Forma         $ (6,295,955)   $ (10,560,690)   $ (11,041,940)
     Basic and Diluted
     Net (Loss) Per Share of common stock: As Reported             $ (.08)          $ (.14)          $ (.12)
                                           Pro Forma               $ (.10)          $ (.18)          $ (.19)
</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,  2000,  1999 and 1998,
respectively:  risk free  interest  rates of 5.97%,  5.50% and  5.50%;  expected
dividend yields of 0%; expected lives of 2.50, 3.53 and 3.23 years; and expected
stock price  volatility of 85%, 78% and 69%. The weighted  average fair value of
options  granted under SFAS No. 123 for the years ended  October 31, 2000,  1999
and 1998 was $0.58, $1.46 and $1.47, respectively.

Options  granted to  non-employee  consultants  are accounted for using the fair
value  method  required by SFAS No. 123.  Compensation  expense for  consultants
recognized in the years ended October 31, 2000,  1999,  1998 and the period from
inception (November 5, 1982) to October 31, 2000 was $210,650, $61,650, $189,600
and  $461,900,  respectively,  which was  measured at the vesting  date upon the
Company's determination of performance commitment achievement in accordance with
Emerging Issues Task Force 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  selling,  general and  administrative
expenses on the accompanying statements of operations.

In May 1987,  the  Company's  shareholders  approved the 1987 Plan which,  after
giving  consideration to the five-for-four and the two two-for-one stock splits,
as well as an  amendment  approved by  shareholders  in May 1990 to increase the
number of shares  issuable  under the 1987 Plan,  provided  for the  granting of
stock options to purchase  9,000,000 shares of common stock of the Company.  The
1987 Plan provided for the granting of incentive stock options to key employees,
and  nonqualified  stock options to key employees,  consultants and directors of
the Company.  The option prices were  determined by the Board of Directors,  but
with respect to incentive stock options, the option price could not be less than
the fair market value at the date of grant.  The stock  options are  exercisable
over a period  not to  exceed  10  years,  also as  determined  by the  Board of
Directors.  In July 1992,  the  Company  registered  the shares of common  stock
covered  by the 1987  Plan.  Upon  approval  of the 1993  Plan by the  Company's
shareholders  in July 1993,  the 1987 Plan was  terminated  with  respect to the
grant of future options.


                                      F-15
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


Information  regarding  the 1987 Plan for the three years ended October 31, 2000
is as follows:


<TABLE>
<CAPTION>
                                                                            Current Weighted
                                                                            Average Exercise
                                                                Shares      Price Per Share
                                                                ------      ---------------

<S>                                                             <C>              <C>
    Shares Under Option at October 31, 1997                     686,160          $4.93
      Expired                                                   (37,600)         $2.47
                                                                -------
    Shares Under Option and Exercisable at October 31, 1998     648,560          $5.08
      Expired                                                   (67,760)         $5.00
                                                                -------
    Shares Under Option and Exercisable at October 31, 1999     580,800          $5.09
      Expired                                                  (125,000)         $3.20
                                                                -------
    Shares Under Option and Exercisable at October 31, 2000     455,800          $5.41
                                                                =======
</TABLE>


The following table summarizes information about stock options outstanding under
the 1987 Plan as of October 31, 2000:


<TABLE>
<CAPTION>
                                          Options Outstanding                       Options Exercisable
                           --------------------------------------------------   -----------------------------
                              Number       Weighted Average       Weighted        Number          Weighted
                           Outstanding        Remaining            Average      Exercisable       Average
         Exercise Prices   at 10/31/00     Contractual Life    Exercise Price   at 10/31/00    Exercise Price
         ---------------   -----------     ----------------    --------------   -----------    --------------

             <S>             <C>                 <C>                <C>           <C>               <C>
             $4.25             6,800             0.79               $4.25           6,800           $4.25
             $5.63           449,000             2.32               $5.42         449,000           $5.42
</TABLE>


The  exercise  price with respect to all of the options  granted  under the 1987
Plan since its  inception,  was at least equal to the fair  market  value of the
underlying common stock at the date of grant. As of October 31, 2000, all of the
options to purchase  shares of common stock  granted and  outstanding  under the
1987 Plan were exercisable.

On July 14, 1993, the Company's  shareholders  approved the 1993 Plan, which had
been adopted by the  Company's  Board of  Directors on April 28, 1993.  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.  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 the  Company's
shareholders  in July 2000,  the 1993 Plan was  terminated  with  respect to the
grant of future options.


                                      F-16
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


Information  regarding  the 1993 Plan for the three years ended October 31, 2000
is as follows:

                                                                Current Weighted
                                                                Average Exercise
                                                     Shares     Price Per Share
                                                   ----------   ----------------

     Shares Under Option at October 31, 1997       11,540,360        $5.19
                                                   ----------
       Granted                                      2,758,000        $2.82
       Canceled                                      (400,000)       $5.02
       Expired                                       (184,000)       $6.16
       Exercised                                      (10,000)       $2.81
                                                   ----------
     Shares Under Option at October 31, 1998       13,704,360        $4.71
                                                   ----------
       Granted                                      2,421,000        $1.46
       Canceled                                    (1,938,000)       $5.34
       Expired                                        (50,000)       $5.37
       Exercised                                     (886,200)       $1.53
                                                   ----------
     Shares Under Option at October 31, 1999       13,251,160        $4.22
                                                   ----------
       Granted                                      1,939,000        $4.72
       Canceled                                    (1,118,700)       $4.65
       Expired                                        (40,000)       $4.47
       Exercised                                   (2,267,400)       $1.03
                                                   ----------
     Shares Under Option at October 31, 2000       11,764,060        $4.23
                                                   ==========
     Options Exercisable at October 31, 2000       11,471,060        $4.30
                                                   ==========


The following table summarizes information about stock options outstanding under
the 1993 Plan as of October 31, 2000:


<TABLE>
<CAPTION>
                                      Options Outstanding                           Options Exercisable
                          -----------------------------------------------     ------------------------------
                                           Weighted
                            Number          Average           Weighted           Number          Weighted
          Range of        Outstanding      Remaining          Average         Exercisable        Average
      Exercise Prices     at 10/31/00   Contractual Life   Exercise Price     at 10/31/00     Exercise Price
      ---------------     -----------   ----------------   --------------     -----------     --------------

       <S>                 <C>                <C>               <C>            <C>                <C>
       $0.84 to $1.96      1,357,700          6.11              $1.27          1,079,700          $1.16
       $2.19 to $3.16      1,225,500          6.83              $2.34          1,210,500          $2.34
       $3.31 to $4.81      6,467,080          5.98              $4.24          6,467,080          $4.24
       $5.25 to $6.88      2,713,780          4.30              $6.55          2,713,780          $6.55
</TABLE>


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

On July 25, 2000, the Company's  shareholders  approved the 2000 Share Plan. The
maximum  number of  shares of common  stock  that may be  granted  is  5,000,000
shares.  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.
Directors and future directors shall automatically be granted nonqualified stock
options to purchase 20,000 shares of common stock upon their initial election to
the Board of Directors and at the time of each subsequent  annual meeting of the
Company's  stockholders  at which  such  director  is  elected  to the  Board of
Directors.

The 2000  Share  Plan is  administered  by the  Stock  Option  Committee,  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-17
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000


Information regarding the 2000 Share Plan for the year ended October 31, 2000 is
as follows:

                                                               Current Weighted
                                                               Average Exercise
                                                    Shares     Price Per Share
                                                    ------     ---------------

     Shares Under Option at October 31, 1999            --         $--
       Granted                                     1,144,000       $1.10
                                                   ---------
     Shares Under Option at October 31, 2000       1,144,000       $1.10
                                                   =========


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


<TABLE>
<CAPTION>
                                       Options Outstanding                          Options Exercisable
                         ---------------------------------------------------    ----------------------------
                                            Weighted
                            Number           Average            Weighted          Number         Weighted
          Range of       Outstanding        Remaining            Average        Exercisable      Average
      Exercise Prices    at 10/31/00     Contractual Life     Exercise Price    at 10/31/00   Exercise Price
      ---------------    -----------     ----------------     --------------    -----------   --------------
      <S>                 <C>                  <C>                <C>               <C>            <C>
      $1.06 to $1.38      1,144,000            9.37               $1.10             --             $-
</TABLE>


The  exercise  price with respect to all of the options  granted  under the 2000
Share Plan since its  inception,  was at least equal to the fair market value of
the underlying common stock at the grant date. As of October 31, 2000, 3,856,000
options were available for future grants under the 2000 Share Plan.

During the period from  November 1, 2000 through  January 19, 2001,  the Company
granted an additional  1,710,000  options under the 2000 Share Plan. During this
period,  options to purchase  719,500 shares of the Company's  common stock were
exercised for an aggregate amount of approximately $495,000.

8.   COMMITMENTS AND CONTINGENCIES

Leases

The Company  leases space at its  principal  location for office and  laboratory
research  facilities.  The current lease is for approximately 12,900 square feet
and  expires  on  November  30,  2003.   The  lease  contains  base  rentals  of
approximately  $243,000 per annum with a 3% annual  increase  and an  escalation
clause for increases in certain  operating  costs.  The Company has the right to
cancel a portion  of the lease as of  November  30,  2002.  This  lease does not
contain provisions for its renewal.

In February 1996, the Company entered into a five-year  lease for  approximately
2,300 square feet of office space. The lease, which expires on June 30, 2001 and
is non-renewable,  currently  provides for a base rent of approximately  $56,000
per annum.

Rent expense for the years ended October 31, 2000, 1999, 1998 and for the period
from  inception  (November  5,  1982) to October  31,  2000,  was  approximately
$332,000, $313,000, $287,000 and $2,756,000, respectively.

9.   EMPLOYEE PENSION PLAN

The  Company  adopted  a  noncontributory  defined  contribution  pension  plan,
effective   November  1,  1983,   covering   all  of  its   present   employees.
Contributions,  which are made to a trust, are based upon specified  percentages
of compensation,  as defined in the plan.  Pension cost, which was approximately
$102,000, $137,000, $123,000 and $907,000 for the fiscal years ended October 31,
2000,  1999,  1998 and for the period from the  inception of the plan to October
31, 2000, respectively, has been accrued and funded on a current basis.


                                      F-18
<PAGE>


COPYTELE, INC.
(Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000

10.   INCOME TAXES

At October 31, 2000, the Company had tax net operating loss and tax credit
carryforwards of approximately $78,246,000 and $1,684,000, respectively,
available, within statutory limits (expiring at various dates between 2001 and
2020), to offset any future regular Federal corporate taxable income and taxes
payable. The principal differences between the net loss for financial statement
purposes and the tax net operating loss attributable to the year ended October
31, 2000, were nondeductible expenses for tax purposes of joint venture
receivable reserves and impairment. 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.

The Company had tax net operating loss and tax credit carryforwards of
approximately $78,398,000 and $124,000, respectively, at October 31, 2000,
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
2001 and 2020 and the tax credit carryforwards expire between 2001 and 2010.

Deferred tax benefits at October 31, 2000 and 1999, which are fully offset by
valuation allowances, primarily represent the estimated future tax effects of
Federal and State net operating loss and tax credit carryforwards aggregating
approximately $32,537,000 and $33,026,000, respectively.

During the period from inception (November 5, 1982) to October 31, 2000, the
Company incurred no Federal and no material State income taxes.


11.  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

While there is no formal agreement,  the Company's Chairman of the Board and its
President  waived  any and all  rights to receive  salary  and  related  pension
benefits  for an  undetermined  period  of time  beginning  November  1985.  The
aggregate annual expenses for these individuals at the time of such waivers were
approximately $325,000.

Four other  individuals,  including an officer and three senior level  personnel
then employed at the Company,  waived salary and related  pension  benefits from
January  1987  through  December  1990.  While  there are no formal  agreements,
commencing   January  1991,  these   individuals   waived  such  rights  for  an
undetermined  period  of time and did not  receive  salary  or  related  pension
benefits  through  December  1992.  The  Company's  Chairman  of the Board,  its
President, and the three senior level personnel,  continued to waive such rights
beginning in January 1993,  for an  undetermined  period of time.  From February
1993 to September  1998,  one  additional  employee  also waived such salary and
benefit rights.  The aggregate annual expenses for these five individuals,  then
employed at the Company,  at the time of their  respective  initial waivers were
approximately   $440,000.  The  Company  does  not  anticipate  the  retroactive
reinstatement of any of the salary or related pension benefit waivers  indicated
above.


                                      F-19
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE


To CopyTele, Inc.:


We have audited in accordance with generally  accepted auditing  standards,  the
financial statements of CopyTele,  Inc. included in this registration  statement
and have issued our report  thereon dated  January 19, 2001.  Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole.  The schedule of valuation  and  qualifying  accounts is presented  for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements.  This schedule has been subjected to
the auditing  procedures applied in the audit of the basic financial  statements
and, in our opinion,  fairly states in all material  respects the financial data
required to be set forth therein in relation to the basic  financial  statements
taken as a whole.


Melville, New York
January 19, 2001


                                      F-20
<PAGE>


                                                                     SCHEDULE II

COPYTELE, INC
(Development Stage Enterprise)

VALUATION AND QUALIFYING ACCOUNTS
(rounded to the nearest thousand)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998


<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      end of period
--------------------------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>               <C>               <C>
               2000

Allowance for doubtful accounts                   $     --          $   75,400        $     --          $   75,400

Reserve on amounts due from Joint Venture         $1,407,000        $  862,000        $2,269,000        $     --
--------------------------------------------------------------------------------------------------------------------
               1999

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

Reserve on amounts due from Joint Venture         $     --          $1,407,000        $     --          $1,407,000
--------------------------------------------------------------------------------------------------------------------
               1998

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

Reserve on amounts due from Joint Venture         $     --          $     --          $     --          $     --
--------------------------------------------------------------------------------------------------------------------
</TABLE>





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


                                      F-21