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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, 1999

                                       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.

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           (Exact Name of Registrant as Specified in its Charter)

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

                              900 Walt Whitman Road
                               Melville, NY 11747
                                 (631) 549-5900
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(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:

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

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
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                                (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 21, 2000,
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): $61,406,422.

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 21, 2000, the registrant had outstanding  60,927,376 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.  Our  principal  activities
include the development, production and marketing of multi-functional encryption
products,   under  the  Cryptele(TM)   brand  name,  which  provide   high-grade
information  security for domestic and  international  users over  virtually any
communications  media. The first encryption products we have produced under this
product line are the USS-900  (Universal  Secure System) and the SCS-700 (Secure
Communication  System).  The  USS-900 is a  hardware  based  peripheral  digital
encryption system which incorporates the Harris  Corporation  encryption digital
cryptographic  chip-- the  Citadel(TM) CCX - to provide  high-grade  information
encryption.  The SCS-700  combines  the USS-900  with a modified  version of the
Magicom(R)  2000, our first  developed  product,  to provide a secure  telephone
based multi-functional  telecommunications  system incorporating our E-Paper(TM)
flat panel display technology.

We are also  continuing our research and  development  activities for additional
encryption  products and other flat panel  displays in addition to our patented,
compact, ultra-high resolution, charged particle, E-Paper(TM) flat panel display
technology.  The additional flat panel display  technologies  include simplified
E-Paper(TM) and thin film designs  suitable for low-cost  plastic displays using
printing  techniques and field  emission  displays.  We are also  continuing our
efforts to develop  coated  particles  derived from our  E-Paper(TM)  flat panel
display  technology.  If developed,  these coated particles could potentially be
used by manufacturers of toners and pigments.

We initially formed Shanghai CopyTele Electronics Co., Ltd., our 55% owned joint
venture in Shanghai, China, in 1995 to produce and market Magicom(R) 2000 and to
supply it to us for sale outside of China.  Shanghai CopyTele currently supplies
a portion of the electronic  components,  sub-assemblies and accessories for use
in the USS-900 and also produces the modified  Magicom(R) 2000 units used in the
SCS-700.

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

We have had  limited  sales to  dealers,  distributors  and other  customers  to
support our operations since our inception.  We have expended  approximately $31
million for research and development since our inception. We have had net losses
and  negative  cash flow from  operations  in each  year of our  business  since
inception  and we may  continue  to  incur  substantial  losses  and  experience
substantial  negative  cash  flows  from  operations.  See  Notes 1 and 2 to our
Financial Statements.

                                       1
<PAGE>
Based on  reductions in operating  expenses  that have been made and  additional
reductions  that may be  implemented,  if  necessary,  we believe  that our cash
resources,  including  cash  received from November 1, 1999 to January 27, 2000,
will be sufficient  until at least the end of fiscal 2000.  We anticipate  that,
thereafter,  we may  continue  to  require  additional  funds  to  continue  our
marketing,   research  and  development  activities,   if  cash  generated  from
operations is insufficient to satisfy our liquidity requirements. We may seek to
sell debt or equity  securities  or to obtain a line of credit,  if  needed.  In
addition,  we may need to raise  additional  equity financing to satisfy an NASD
requirement  that we have a minimum  of $4  million  of net  tangible  assets to
maintain our Nasdaq  National  Market  listing.  The NASD also  requires that we
maintain a minimum  bid price of at least  $1.00 per share in order to  continue
our listing. If our stock were delisted, the delisting could potentially have an
adverse  affect on the market price of our common stock and the liquidity of our
shares. We cannot give you any assurance that additional  financing,  if needed,
will be  available  to us or  that,  if  available,  we  will be able to  obtain
additional  financing  on  favorable  terms and  conditions.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Liquidity and Capital Resources".

Our  encryption  products are only in their  initial  stages of  production  and
marketing. The success and profitability of these products will depend upon many
factors, many of which are beyond our control, including:

o our ability to successfully market the USS-900 and SCS-700;

o our continuing  ability to purchase the  Citadel(TM)CCX  encryption  chip from
  Harris for use in the USS-900;

o our  production  capabilities  and those of our  suppliers as required for the
  production of the USS-900, and the modified Magicom(R)2000 for the SCS-700;

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 obtain adequate supplies of substrates for the SCS-700;

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.

Consequently,  we cannot give you any assurance that we will generate sufficient
revenues to support our operations in the future or that we will have sufficient
revenues to generate profits.

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

                                       2
<PAGE>
Products
--------

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

The  USS-900 and the  SCS-700  are our first  encryption  products in the market
place under the Cryptele(TM) brand name. The following is a brief description of
each product.

         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,  based in part on sales of the  USS-900.  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
Harris  nor  CopyTele  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.  The product  automatically
generates  new secret keys  electronically  with each call.  The USS-900  easily
interfaces  with  telephones,  fax machines or computers to encrypt  information
communicated  over ordinary  telephone  lines or via the internet.  A USS-900 is
required at both the  sending and  receiving  end when  communicating  encrypted
information over any communications media.

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 and export approvals.  The most significant features of this product include
the following:

                                       3
<PAGE>
o    Secure E-mail Attachments - encrypts any computer file to be utilized as an
     e-mail  attachment  which  can be sent  over the  Internet  or an  ordinary
     telephone line.

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

o    Secure Fax  Communication  -  interfaces  with any 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 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 telephone lines.

o    Secure Voice Teleconferencing - interfaces with multiple telephone lines to
     provide  multi-persons  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 or fax
     communications.

                  SCS-700
                  -------

The SCS-700 is a system that contains a modified  version of the Magicom(R) 2000
and the  USS-900.  The  Magicom(R)  2000 now  contains  additional  hardware and
software that enable it to interface with the USS-900 and, as a result,  operate
as a secure  communication  system known as the SCS-700. The modified Magicom(R)
2000 unit  incorporates  our  E-Paper(TM)  flat panel  display  technology  (see
"E-PaperTM Flat Panel  Display")  making the SCS-700 a  multi-functional  screen
based secured communication system that can provide various functions, including
the following:

                                       4
<PAGE>
o        communicate by e-mail over the Internet;

o        provide  all  functions  over a  single  telephone  line,  including
         simultaneous  voice  and  electronic handwriting and editing of
         documents;

o        input and retrieve documents to and from a computer's storage;

o        edit and transmit received documents;

o        send and receive full page paperless faxes;

o        rapidly scan documents, pictures and drawings into a computer;

o        send and receive handwritten information; and

o        encrypted communications.

The SCS-700 is  compatible  with and can send  information  to fax  machines and
computers.  In addition, it can interface with any printer,  including our Magic
Printer,  to print  received  information.  The  SCS-700,  with the USS-900 as a
component,  is able to provide high-grade  information  security for all SCS-700
functions,  including  the ability to secure voice,  fax, data and  simultaneous
voice and handwriting communications.

The high  resolution  of our  E-Paper(TM)  flat panel  display has enabled us to
produce a compact,  lightweight  product  (approximately  8 pounds  when used in
conjunction  with  the  USS-900  unit)  capable  of  displaying  a full  page of
information,  which is considerably  smaller than conventional  lower resolution
displays would allow. The product size is suitable for office and home use.

         Magic Printer
         -------------

We developed,  in conjunction with a Japanese supplier, a small portable printer
called Magic Printer.  Our sales of Magic Printer to date have been minimal.  As
of October 31, 1999, we had approximately  2,200 printers in inventory which are
being marketed as an optional accessory for the SCS-700 where desk space is at a
premium  or for use  with  personal,  notebook,  or  laptop  computers.  We will
determine in the future  whether to continue with the Japanese  supplier or seek
other sources.

                                       5
<PAGE>
         New Products Under Development
         ------------------------------

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

We are in  the  process  of  developing  three  new  high-speed  hardware  based
encryption  devices  that can be inserted  into  personal  computers or cellular
phones. One device is a PCMIA-Card  (Personal Computer Memory Card International
Association) for the mobile laptop market.  The other is a PCI-Card  (Peripheral
Component  Interconnect)  for the desktop  market.  Each of these  devices would
bring  very  high-speed  and high  grade  secure  hardware  encryption  to their
intended products. As for the third device, we have commenced the design process
for an  attachment  for  cellular  phones  that  would  encrypt  voice  and data
information.  We have  completed  the  hardware  design  of the  PCMIA-Card  and
PCI-Card  products and are now developing the software.  If we can  successfully
develop all three of these products,  they could be used to encrypt all types of
computer data including files stored on computer networks and cellular voice and
data.  These  products  also  could  be used  in a wide  range  of  applications
including business, personal and financial security.

                  Coated Particles
                  ----------------

During 1999,  using the coated  particles  technology  that we developed for the
fluid contained in the E-Paper(TM) flat panel display,  we continued our efforts
to  develop  coated  particles  that  could be used in  pigments  and toners for
printers and copiers.  These particles would have a very narrow range of size as
compared to those currently  available in printers and copiers.  We believe this
enhancement would result in better resolution, less color degradation with time,
and more  consistent  response to an applied  electric  field than is  presently
available in commercial  products.  In addition,  we anticipate  that the coated
particles fabrication process will be simplified and will not require mechanical
procedures  of  grinding  and  extensive  sieving.   We  are  investigating  the
possibility  of licensing  this  technology or forming joint  arrangements  with
companies that produce pigments and toners.

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

During 1999, we continued to produce our  E-Paper(TM)  flat panel display and to
pursue our  efforts to develop new  technologies  for color and video flat panel
displays.

                  E-Paper(TM) Flat Panel Display
                  ------------------------------

The  E-Paper(TM)  flat panel  display  incorporated  in the  SCS-700  posesses a
combination  of  features  that are not  presently  available  in other  display
screens. These features include:

o  ultra-high resolution;

o  compatibility  with fax terminals -- 200 lines per inch in the horizontal and
   vertical  directions  with  up to a full  page  of  information  with
   real-time display;

o  a minimal amount of inactive space between pixels or picture elements
   allowing the image to appear smoother;

o  image  retention  without  refreshing  which has eliminated the need for
   image repetition with resulting flicker and operator fatigue;

o  approximately 180 degree viewing angle;

o  low power consumption for writing; and

o  image retention with minimal power consumption.

                                       6
<PAGE>
Our 7.8 inch diagonal flat panel is one of the principal features of the SCS-700
product.  This flat panel has 1,280 lines by 896 lines with a resolution  of 200
lines per inch in both directions containing  approxmately 1,150,000 pixels, and
has an image area of approximately 6.4 x 4.5 inches.

Included as an integral part of our E-Paper(TM)  flat panel display is a plastic
tip pen and  touch  writing  screen.  Due to the  ultra-high  resolution  of the
display,  any  language  may be clearly  written with the use of the plastic tip
pen. The E-Paper(TM)  flat panel display also  incorporates an integrated  front
illumination  system.  This  system  provides  viewing  of the flat  panel  from
nighttime  to  sunlight  ambient  light  conditions.   By  incorporating   these
capabilities,  our E-Paper(TM) flat panel display provides clear and comfortable
viewing, from any angle, of pictures, text in any language, and graphics.

We have in inventory a sufficient  quantity of flat panel glass  substrates  and
displays to meet our current  marketing  requirements.  We are in the process of
developing a simplified and, hopefully, lower cost version of this display which
would  incorporate  a simpler  and unique  display  structure.  If  successfully
developed, we could use this lower cost display in future simplified versions of
the SCS-700. We have produced  feasibility models of this simpler display.  This
display would have the capability of independently  controlling pixels to create
images.  The technology could possibly be suitable for production using printing
processes  and plastic  instead of the glass  substrates we currently use in the
display.  We cannot  give you any  assurance,  however,  that we will be able to
develop a commercially  marketable  display of this type. If we cannot,  we will
have to find another  supplier of flat panel glass  substrates  once our current
supply is exhausted,  or incorporate  the FED technology into an updated version
of the SCS-700. We cannot give you any assurance,  however, that we will be able
to obtain an adequate supply of these substrates or successfully incorporate the
FED technology.

         Color and Video Flat Panels
         ---------------------------

                  Thin Film Video Color Display (Field Emission Display)
                  ------------------------------------------------------

During 1999, 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 emissive flat panel display called "FED" (field emission display).  We
have been  working  with  Volga  during  the past year  towards  developing  the
engineering  prototype  models  of  the  FED.   Approximately  600  FED  display
substrates were produced by Volga in connection  with the prototype  development
effort.  We visited the Volga  research  facilities to evaluate and assist Volga
with the design and  performance  of the display.  Prototype  models  displaying
multi-color phosphors and matrix configurations were produced to demonstrate the
feasibility  of this  technology.  We are  continuing  to work with Volga in the
areas  of  reliability  and  reproducibility  of  the  display.   This  includes
performing life and uniformity  tests of the display.  We expect to continue the
development  effort  during the first  quarter of the year 2000 to optimize  the
operating  performance  required for manufacturing  purposes.  If we are able to
successfully develop the FED it would utilize a new film-edge, low voltage and a
single  substrate  technology to generate an ultra-high  resolution of 230 lines
per inch in both the vertical and horizontal direction,  or a resolution of more
than  50,000  pixels  per  square  inch.  This  display,  which  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 can successfully  develop the 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.

                                       7
<PAGE>

                  Solid State and Optical Display
                  -------------------------------

During 1999,  we continued  our efforts to develop solid state and optical video
and color capability pursuant to development arrangements with a network of U.S.
companies  and U.S.  universities,  including  The Center for Advanced Thin Film
Technology  at the State  University of New York at Albany.  In connection  with
these  efforts,   we  produced  a  variety  of  arrays  of  static  Mems  (micro
electromechanical systems) pixels to be used in our display. We also developed a
thin film  modulator  in  conjunction  with the  arrays of  static  Mems  pixels
necessary  to create  high  resolution  images.  The optical  modulator  viewing
surface  contains a compound of vanadium which changes its contrast at extremely
high speeds when it is electronically  energized.  As a result, field sequential
operation,  that is,  scanning one primary color at a time, is possible  thereby
providing  higher  definition  video  and  color  displays  on a single  silicon
substrate.  The present pixel array,  on a four inch silicon wafer, is 216 lines
per inch in both the  horizontal  and vertical  directions,  or more than 46,000
pixels per square inch. We plan to continue our development  efforts to optimize
the fabrication process of the Mems pixel technology in order to select the most
reliable  pixel and  display  sizes for the  panel.  In  addition,  we have been
developing a simplified  version of the technology that could be used to display
information  on  signage.  We may be able to use  this  simplified  version  for
printing on plastic  substrates.  As a result,  this display  could operate over
wide temperature ranges which would make it suitable for both indoor and outdoor
applications.  We recently  demonstrated the feasibility of constructing  such a
display on a plastic substrate, and we are continuing our development efforts to
further refine this technology.

Joint Venture
-------------

We formed  Shanghai  CopyTele  on April 10,  1995  pursuant  to a Joint  Venture
Agreement  dated  March  28,  1995  between  CopyTele  and  Shanghai  Electronic
Components Corp.  Shanghai  CopyTele is a limited liability company in Shanghai,
China having a duration of 20 years. See Note 3 to our Financial  Statements and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital Resources".

Shanghai CopyTele produces the modified  Magicom(R) 2000 used in the SCS-700 and
supplies  us with  certain  components  for the  USS-900.  Shanghai  CopyTele is
subject to the rules and  regulations  of China's  legal and economic  system as
well as its  political and economic  environment.  Although  China  currently is
encouraging a favorable business  environment with foreign businesses  operating
in China, we cannot give you any assurance that rules or regulations will not be
put into effect in the future that could  diminish or  eliminate  our ability to
produce our product in China or  successfully  participate  in the operations of
Shanghai CopyTele.

Production
----------

We initially  produced a limited  number of USS-900 units which we used for test
marketing purposes in the United States and at trade shows. Thereafter,  several
U.S. based  sub-contractors  produced additional USS-900 units, some of which we
have used to obtain a larger test marketing  evaluation  and to satisfy  initial
purchase orders.  After we produced the first 400 units, we started using a U.S.
based electronic production contractor to produce the USS-900. Shanghai CopyTele
supplied  portions of the required  electronic  components,  sub-assemblies  and
accessories  for all these  units.  As of January  21,  2000,  we have  produced
approximately 900 units with approximately 1,000 units in process.

                                       8
<PAGE>
The USS-900  consists  of a printed  circuit  board  populated  with  electrical
components  and  connectors  enclosed in a plastic case. The unit contains three
main  components:   the  Citadel(TM)  CCX  encryption  chip,  a  digital  signal
processor, and modems. The contractor sources all of the components of the unit,
with the exception of the  Citadel(TM)  CCX encryption  chip supplied by Harris.
Thus far,  Shanghai  CopyTele has supplied the contractor  with a portion of the
electronic  components,   sub-assemblies  and  accessories  for  the  unit.  The
contractor will now begin sourcing these  components as well.  Given normal lead
times,  we  anticipate  a readily  available  supply of all  components  for the
USS-900.

The contractor produces and tests the complete circuit board for the USS-900. We
are continuing to perform final assembly and functionality  testing of all units
prior  to  shipment  to  our  distributors  and  customers.   We  are  currently
negotiating  with the  contractor  to have it  completely  assemble and test the
units and ship them directly to our distributors  and customers.  We cannot give
you any assurance, however, that we will reach a mutually acceptable arrangement
with this contractor.

The SCS-700  contains a modified  version of the  Magicom(R)  2000. The modified
unit has additional  hardware and software that enables it to interface with the
USS-900  and  thereby  operate  as a secure  communication  system  known as the
SCS-700. Shanghai CopyTele produces the modified Magicom(R) 2000 for the SCS-700
system. We then combine the modified Magicom(R) 2000 with the USS-900 to produce
the SCS-700.  Shanghai  CopyTele is also producing  additional  E-Paper(TM) flat
panel  displays  for use in the  production  of  SCS-700s  and for  spare  parts
purposes.

During 1999, Shanghai CopyTele produced or modified approximately 600 Magicom(R)
2000  units,  for use in  SCS-700s.  In  addition,  we modified a portion of our
inventory of  Magicom(R)  2000 units so that as of December  31, 1999,  we had a
sufficient  quantity  of modified  Magicom(R)  2000 units in  inventory  to meet
current demand.

Marketing
---------

         USS-900 and SCS-700
         -------------------

Based on input we received  regarding our Magicom(R)  2000 unit,  during 1999 we
revised  our  marketing  strategy  to  concentrate  on  developing  a  universal
multi-functional   peripheral   encryption  unit  (USS-900)  and  modifying  the
Magicom(R)   2000  to   interface   with  the  USS-900  and  thereby   become  a
multi-functional  encryption system (SCS-700).  As a result, we are now focusing
our  marketing  efforts on selling our  products to  selected  distributors  and
dealers who have marketing  capabilities in the encryption  field. Our sales and
marketing  office,  which consists of a marketing team of 10 sales personnel and
independent sales representatives, is implementing this marketing strategy. As a
result of our  efforts,  as of January  21,  2000,  two large  office  equipment
suppliers and fifteen  distributors  and dealers  specializing in the encryption
field have begun marketing the USS-900.  We are marketing the SCS-700  directly,
and  through  several of our  dealers,  mainly to U.S.  and  foreign  government
agencies.  We do not  have  long-term  agreements  with  any  of our  suppliers,
distributors and dealers, other than Harris. Most of our suppliers, distributors
and dealers,  however, have purchased limited quantities of units under purchase
orders mainly for the purpose of evaluating  the product and selling it to their
customers.  The marketing of our products began after the completion of the test
marketing  phase and the products  were launched in late  September  1999 at the
American Society of Industrial Security trade show.

                                       9
<PAGE>
We provide  marketing,  service  training  and  technical  support to all of our
distributors  and dealers.  During 1999,  we,  along with our  distributors  and
dealers,  demonstrated our encryption  products in approximately 13 trade shows.
In  addition,  we  demonstrated  our  products  directly  to  customers  of  our
distributors  and dealers to initially  measure the  products'  performance  and
marketability,  and to solicit customers and additional dealers and distributors
to further expand our marketing capability.

As part of our  effort to  launch  the  USS-900,  during  1999 we also  retained
Fitzgerald Communications, Inc. of Orlando, Florida as our advertising and media
agency. Fitzgerald Communications deals with high-technology accounts engaged in
business-to-business    and    business-to-government    commerce.    Fitzgerald
Communications:

o has produced the advertising literature for the Cryptele(TM)brand name;

o is  preparing  advertising  to be placed  during the next year in  appropriate
  trade publications; and

o is preparing a campaign to promote us as an encryption product supplier in the
  trade and financial markets.

Fitzgerald  Communications  also will  provide us with  support  for trade shows
scheduled for the year 2000.

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

The USS-900 and  SCS-700 are subject to intense  competition  that exists in the
encryption and  telecommunications  industries.  Although successful product and
systems  development  is not  necessarily  dependent  on  substantial  financial
resources,  most of our competitors are larger and possess  financial  resources
significantly greater than ours.

There are several other companies that sell hardware and/or software  encryption
products. We believe, however, that the features included in our USS-900 and the
size of the unit distinguish it from the products being sold by these companies.

We believe  that the  modified  Magicom(R)  2000 used in the SCS-700 is a unique
product in that it  incorporates  features  of many  different  products  on the
market, such as computers, telephones and fax machines. Other products currently
available on the market do not combine all the features  found in the Magicom(R)
2000 with a high  resolution  flat  panel  display.  We  believe  that it is the
E-PaperTM flat panel display,  with its high resolution and associated features,
together  with the  encryption  capability  provided  by the  USS-900  that will
distinguish the SCS-700 from other comparable products in the marketplace.

We cannot  give you any  assurances  that  products  or  systems  comparable  or
superior to the USS-900 or the SCS-700 will not be developed  which would render
the  USS-900,  the  SCS-700  or other  products  developed  by us in the  future
difficult to market or otherwise obsolete.

                                       10
<PAGE>
Patents
-------

We have  received  approximately  204 patents,  including  those from the United
States and certain  foreign  patent  offices,  expiring at various dates between
2005 and 2017. 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-PaperTM
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.

We have also filed or are  planning  to file patent  applications  for our solid
state and  optical and thin film video  color flat panel  display  technologies,
currently  under  development,   for  our  coated  particles,  for  our  USS-900
technology and for our simplified E-PaperTM Flat Panel Display.

We have  licensed a number of our  patents  covering  the  E-PaperTM  flat panel
display (but excluding our manufacturing  technology) to Shanghai CopyTele on an
exclusive basis in China.

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 protect us against  competitors either with or without litigation.
We are not aware that either the USS-900 or the SCS-700 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, along
with Shanghai  CopyTele,  will not have to obtain  licenses under the patents of
others, although we are not aware of any 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 $3,163,000, $3,926,000, $3,642,000, and $31,474,000 for the fiscal
years ended October 31, 1999,  1998 and 1997 and for the period from November 5,
1982  (inception)  through  October 31, 1999,  respectively.  See  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations" below
and our Financial Statements.

                                       11
<PAGE>
Employees and Consultants
-------------------------

We had thirty-five  full-time employees and fourteen  consultants as of December
31, 1999. Twenty six of these  individuals,  including our Chairman of the Board
and our President,  are engaged in research and development.  Their  backgrounds
include expertise in physics, chemistry, optics and electronics. Ten 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.

As of December 31, 1999,  Shanghai CopyTele had  approximately 16 employees,  of
which 7 were  engaged in  production  and 9 were engaged in  administrative  and
other functions.

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

We lease  approximately  11,200  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 which expires November 30, 2001. Our
base rent is  approximately  $201,000 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,  2000.  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 in the
facility. See Note 5 to our Financial Statements.

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 $55,775 per annum.

In  October  1996,  we  entered  into  a  lease  with  an  unrelated  party  for
approximately  2,000  square  feet of  office  and  laboratory  space  near  our
principal  offices.  In May 1997 this lease was  modified  to add an  additional
optical facility of  approximately  5,000 square feet of space and to extend the
lease to June 30, 2000. The modified lease currently provides for a base rent of
approximately  $50,000  per annum and an  escalation  clause  for  increases  in
certain operating costs.

                                       12
<PAGE>
Shanghai CopyTele owns and operates from a 30,000 square foot, one-story office,
warehouse and production facility in the Shanghai Songjiang  Industrial Zone, on
land acquired  pursuant to a 50 year land-use  contract  dated October 11, 1995,
with the Land  Administration  Bureau of Shanghai County.  Shanghai CopyTele has
obtained  short-term  loans from a Chinese bank aggregating  approximately  U.S.
$1,000,000 which are secured by the land-use  contract and building.  See Note 3
to our Financial Statements.

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

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

We are not a party to any pending legal proceedings.

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, 1999.

Executive Officers of the Company
---------------------------------

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

                                       13
<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  National
Association of Securities Dealers,  Inc. ("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, 1998 and 1999
have been as follows:

--------------------------------------------------------------------------------
             Fiscal Period            High           Low
--------------------------------------------------------------------------------
            1st quarter 1998         $4.75          $2.38
            2nd quarter 1998          4.63           1.78
            3rd quarter 1998          4.13           1.13
            4th quarter 1998          2.13           0.63
--------------------------------------------------------------------------------
            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
--------------------------------------------------------------------------------

As of January 21, 2000 the  approximate  number of record  holders of our common
stock was 1,250.

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.

                                       14
<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
                                                                                                              from November 5, 1982
                                                                                                               (inception) through
                                                   As of and for the year ended October 31,                      October 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>            <C>            <C>            <C>               <C>
                                         1999          1998           1997           1996          1995
------------------------------------------------------------------------------------------------------------------------------------
Sales                                   $46,877     $   -          $ -             $   -       $    -                  $46,877
------------------------------------------------------------------------------------------------------------------------------------
Selling General and
Administrative Expenses               8,284,717     7,231,557      6,378,368      6,017,580      3,332,312          53,874,851
------------------------------------------------------------------------------------------------------------------------------------
Loss from Shanghai CopyTele             345,947       377,219        335,391        148,630         17,813           1,225,000
------------------------------------------------------------------------------------------------------------------------------------
Interest Income                         156,075       472,822        913,184        722,800        356,226           4,930,353
------------------------------------------------------------------------------------------------------------------------------------
Net (Loss)                           (8,465,016)   (7,135,954)    (5,800,575)    (5,443,410)    (2,993,899)        (50,159,925)
------------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Per Share of  Common
Stock (a)                                 ($.14)        ($.12)         ($.10)         ($.10)         ($.06)             ($1.06)
------------------------------------------------------------------------------------------------------------------------------------
Total Assets                          8,101,544    13,334,972     19,988,207      24,710,420     9,695,398
------------------------------------------------------------------------------------------------------------------------------------
Long Term Obligations                 $    -        $    -          $    -            $  -        $    -
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity                  6,284,777    11,860,913     18,779,142     22,750,273      9,436,708
------------------------------------------------------------------------------------------------------------------------------------
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.

                                       15
<PAGE>
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".

General
-------

We have been a  development  stage  company  since our  inception on November 5,
1982. Our principal activities include the development, production and marketing
of USS-900,  a hardware based  peripheral  digital  encryption  device,  and the
SCS-700, which combines the USS-900 with a modified Magicom(R) 2000 to provide a
secure telephone based multi-functional telecommunications product incorporating
our E-Paper(TM) flat panel display  technology (See "Business -- Products").  We
are also  continuing  our research and  development  activities  for  additional
encryption  products,  and other  ultra-high  resolution  flat  panel  displays,
including video and color displays, and coated particles which could potentially
be used by  manufacturers  of toners and  pigments.  See  "Business - Flat Panel
Display  Technology - Color and Video Flat Panels" and  "Business - New Products
Under  Development".  We cannot assure you,  however,  that our efforts in these
areas  will be  successful.  We also  cannot  assure  you that we will  generate
significant  revenues in the future,  that we will have  sufficient  revenues to
generate  profit or that other products will not be produced by other  companies
that will render our products obsolete or unmarketable.  See "Business - General
Risks and Uncertainties".

We are producing and have commenced a marketing  program for the USS-900 and the
SCS-700. The USS-900 uses Harris' digital  cryptographic chip - the Citadel(TM)
CCX - which is capable of providing high-grade information encryption. Harris is
supplying the chip under a three year  agreement at a negotiated  price based in
part on sales of USS-900. We have produced a limited number of the USS-900s with
the assistance of a U.S. based  sub-contractor.  Shanghai  CopyTele produces the
modified  Magicom(R) 2000 for the SCS-700 system.  During fiscal 1999,  Shanghai
CopyTele  also  supplied  us  with  a  portion  of  the  electronic  components,
sub-assemblies and accessories for the USS-900. See "Business - Production".

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

                                       16
<PAGE>
Results of Operations
---------------------

We sell our USS-900,  SCS-700 and Magic Printer  products to end-users  directly
and  through a  distributor/dealer  network.  We have had  limited  sales to our
dealers,  distributors  and other customers to support our operations  since our
inception,  and during  fiscal  1999 we  recognized  revenue on our fiscal  1999
non-refundable sales. 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 2000 to emerge
from the development stage.

Selling, general and administrative  expenses,  excluding the loss from Shanghai
CopyTele, for the fiscal years ended October 31, 1999, 1998 and 1997 and for the
period  from  November  5,  1982  (inception)  through  October  31,  1999  were
approximately $8,285,000, $7,232,000, $6,378,000 and $53,875,000,  respectively.
These amounts include  research,  development and tooling costs of approximately
$3,163,000,  $3,926,000,  $3,642,000 and $31,474,000,  respectively,  as well as
normal operating expenses.

Selling, general and administrative  expenses,  excluding the loss from Shanghai
CopyTele,  increased by approximately $1,053,000, to approximately $8,285,000 in
fiscal 1999 from approximately  $7,232,000 in fiscal 1998. The increase resulted
primarily from a reserve for the amount due from Shanghai  CopyTele,  charges to
earnings to bring the valuation of inventory in line with current estimates, for
obsolete,  spare and scrap parts and other  expenses.  The increases were offset
somewhat  by  decreases  in  expenditures  for  engineering  supplies,   certain
marketing costs,  professional  fees, and research and development for video and
color flat panel displays.

Employee  compensation  and related  costs  increased in fiscal 1999 over fiscal
1998  principally  as a result  of the  hiring  of three  additional  sales  and
marketing employees and one additional paid engineering employee.  Payroll taxes
and pension  costs also  increased  as a result of the  additional  compensation
costs.  An increase in employee stock option  exercises  during fiscal 1999 also
caused increased payroll taxes over fiscal 1998. Other employee benefit programs
increased  commensurate  with  the  additional  employees  as well as some  rate
increases  in fiscal  1999.  Rents also  increased as a result of the leasing of
additional storage space. Insurance expense increased in fiscal 1999 as a result
of higher  level  coverage  needed and the  addition of one policy.  A charge to
earnings  was  recorded  in  fiscal  1999 in  order to bring  the  valuation  of
inventory  in line with  current  estimates  and for  obsolete,  spare and scrap
parts.  Due to the  uncertainty  of  realizing  the  amounts  due from  Shanghai
CopyTele,  we  reserved  all  amounts  in excess of the  amount we owe  Shanghai
CopyTele. We also incurred a charge to earnings for interest relating to certain
prior year tax payments paid in the current year.

                                       17
<PAGE>
Engineering  supplies  decreased  in fiscal  1999 as  compared  to  fiscal  1998
primarily  as a result  of  reduced  purchases  of  components  used to  develop
engineering  changes to modify the Magicom(R)  2000 in fiscal 1998.  Engineering
service costs increased in fiscal 1999 as compared to fiscal 1998 as a result of
the  USS-900  development  effort.  Marketing  costs  for  the  Magicom(R)  2000
decreased  in  fiscal  1999  as  compared  to  fiscal  1998 as a  result  of the
elimination of non-recurring  costs associated with marketing start-up costs and
reduced travel and entertainment and marketing service costs.  However,  product
promotion and trade show expenses  increased in fiscal 1999.  Professional  fees
were also lower in fiscal  1999 as  compared to fiscal 1998 as a result of lower
fees  incurred for patent  related  services  while legal fees  increased in the
current year.  Research and development costs for flat panel displays  decreased
in the aggregate  during the comparable  years  principally as a result of lower
costs  incurred  in  connection  with the  development  of our  video  and color
displays.  Our  non-cash  charge to  earnings  for stock based  compensation  to
consultants  mandated  by SFAS No. 123 was lower in fiscal  1999 as  compared to
fiscal 1998.

Our portion of Shanghai  CopyTele's  loss for the fiscal years ended October 31,
1999, 1998 and 1997 and for the period from April 10, 1995 (Shanghai  CopyTele's
inception)  through  October 31,  1999 were  approximately  $261,000,  $377,000,
$335,000 and $1,140,000,  respectively. The decrease in the loss for fiscal 1999
year from the fiscal  1998 year of  approximately  $116,000  was  primarily  the
result  of cost  reductions,  production  efficiencies  and  limited  production
activity with respect to modifying  Magicom(R) 2000 for the SCS-700 program.  We
also  recognized a permanent  impairment  charge on our  investment  in Shanghai
CopyTele  due to the  uncertainty  of Shanghai  CopyTele  generating  sufficient
future  undiscounted  cash flows to cover the carrying amount of our investment.
Any additional investments in Shanghai CopyTele will be directly expensed to the
statements of operations.

Selling, general and administrative  expenses,  excluding the loss from Shanghai
CopyTele,  increased by  approximately  $854,000,  to  approximately  $7,232,000
during fiscal 1998 from  approximately  $6,378,000 in fiscal 1997. This increase
resulted  primarily from increases in expenditures for research and development,
employee   compensation   and  related  costs,   stock  based   compensation  to
consultants,  and to a lesser  extent  communication  costs,  rent,  travel  and
professional fees.

Research  and  development  costs  increased  principally  as a result  of costs
incurred in connection with the development of our flat panel displays programs.
Employee  compensation  and related  costs  increased in fiscal 1998 over fiscal
1997 as a result of a full year's cost of the hiring of additional marketing and
engineering  personnel  during  the  fiscal  1997 year  which had only a partial
year's  costs.  To a lesser  extent some employee  benefit  programs  incurred a
slight increase in rates in fiscal 1998.

In fiscal  1998,  we  recorded a non-cash  charge to  earnings  for stock  based
compensation  to  consultants  mandated  by  SFAS  No.  123  with an  offset  to
Additional   Paid-In  Capital.   There  was  no  such  charge  in  fiscal  1997.
Communication and travel costs increased, although to a lesser extent than other
expenses that increased,  as a result of increased activity  associated with our
distributor and dealer program. Rent increased as a result of leasing additional
space in fiscal  1998 and the effect of a full year's rent in fiscal 1998 versus
a partial  year's rent in fiscal 1997 for other leases.  Professional  fees were
also slightly  higher in fiscal 1998 as a result of additional  accounting  fees
associated  with Shanghai  CopyTele and the proposed  transaction  with Shanghai
Instrumentation and Electronics Holding Group Company ("SIEC").

                                       18
<PAGE>
Engineering supplies remained  approximately the same in fiscal 1998 as compared
to fiscal  1997  primarily  as a result of reduced  purchases  of  panels,  chip
drivers and Magicom(R) 2000s used for testing and evaluation  purposes offset by
the cost to implement  engineering  changes to  Magicom(R)  2000 and the related
cost to eliminate obsolete  components as a result of these changes. A charge to
earnings was recorded in order to bring inventory valuation in line with current
estimates and to reflect a lower selling price to dealers and distributors. Some
marketing  costs  decreased  in fiscal 1998 as a result of  non-recurring  costs
associated with the start-up costs in the prior year.

Our portion of Shanghai  CopyTele's  loss  increased  in fiscal 1998 over fiscal
1997 by approximately  $42,000 as a result of manufacturing costs being absorbed
over a limited  quantity of product  produced,  cost incurred in connection with
the implementation of a quality management program, and initial marketing costs.

While there is no formal agreement,  our Chairman of the Board and our President
have waived salary and related pension  benefits for an  undetermined  period of
time commencing November 1985. Four other individuals,  including an officer and
three senior level  personnel,  then  employed by us,  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 they did not receive  salary or related
pension benefits through December 1992. Our Chairman of the Board, our President
and the three senior level personnel  continued to waive such rights  commencing
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. See "Executive  Compensation" and Note 8 to our Financial Statements for
a more complete discussion regarding salary and related pension benefit waivers.

The decrease in interest income of $317,000 from  approximately  $473,000 during
fiscal 1998 as compared to  approximately  $156,000  during fiscal 1999 resulted
primarily  from a decrease  in average  funds  available  for  investment  and a
decrease in interest  rates.  The decrease in interest income during fiscal 1998
as compared to fiscal 1997 of approximately $440,000 resulted from a decrease in
average funds  available for  investment  aided  slightly by a small increase in
interest rates.  Funds available for investment during 1999, 1998 and 1997, on a
monthly weighted average basis, were  approximately  $3,511,000,  $8,557,000 and
$17,394,000,  respectively.  The  investment  instruments  selected  by  us  are
principally money market accounts and treasury investments.

                                       19
<PAGE>
Year 2000 Issue
---------------

We are not  aware of any Year 2000  problems  affecting  us.  The cost for us to
address this issue was immaterial.  Our contingency plan remains available to us
should we need to implement  any part.  We will  continue to monitor our systems
and  relationships  for any  potential  Year 2000  problems that we have not yet
uncovered.

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 public  offering and upon the exercise of stock
options pursuant to our Stock Option Plan,  adopted by the Board of Directors on
April 1, 1987, and our 1993 Stock Option Plan, adopted by the Board of Directors
on April 28, 1993, and amended on May 3, 1995 and May 10, 1996.

For the fiscal years ended October 31, 1999, 1998 and 1997, we received proceeds
aggregating  approximately  $1,353,000,  $28,000, and $1,754,000,  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 year ended  October
31, 1999, we received  proceeds of $1,500,000  from sales of our common stock in
private placements.  During the period from November 1, 1999 through January 27,
2000, we received proceeds aggregating  approximately $895,000 from the exercise
of stock  options  pursuant  to the 1993 Plan and  private  placements.  Working
capital decreased by approximately  $1,833,000 from approximately  $7,560,000 at
October 31, 1998 to approximately  $5,727,000 at October 31, 1999 as a result of
the loss incurred for the year and the purchase of property and equipment offset
by the proceeds received during the same period.

Our operations used  approximately  $6,100,000 in cash during fiscal 1999. As of
October 31, 1999, our working capital included approximately  $2,076,000 of cash
and  marketable  securities  and  approximately  $955,000 (net of  approximately
$862,000 due to Shanghai CopyTele) 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 our cash
resources,  including  cash  received from November 1, 1999 to January 27, 2000,
will be sufficient to continue operations until at least the end of fiscal 2000.
We anticipate that, thereafter,  we will continue to require additional funds to
continue  our  marketing,  and  research  and  development  activities  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 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.

                                       20
<PAGE>
We are seeking to improve our  liquidity  through  the sale of  products.  In an
effort to generate sales, we have commenced  marketing the USS-900  directly and
to U.S.  office  equipment  distributors  and  dealers.  We also have  commenced
marketing  the SCS-700  system  utilizing  the  Magicom(R)  2000, as modified to
function as a secure  communication  system, to government agencies and units of
the armed forces. We are hopeful, although we can give you no assurance, that by
marketing the USS-900 encryption device and the modified Magicom(R) 2000 SCS-700
system, sufficient sales will be generated to improve our liquidity.

The NASD  requires  that we  maintain a minimum  of $4  million of net  tangible
assets to  maintain  our  Nasdaq  National  Market  listing.  If our stock  were
delisted, the delisting could potentially have an adverse affect 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,  1999  were
approximately  $6,300,000. 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, that funds will
be available to us from 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 equity financings.

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".

Shanghai CopyTele required an initial aggregate capital investment of $3,500,000
from the parties to the joint venture. The Joint Venture Agreement  contemplates
an additional  $3,500,000 of funding which may be borrowed from banks,  of which
$1,080,000  has  been  borrowed  to  date.   Short-term  loans  aggregating  the
$1,080,000  are from a Chinese  bank,  secured  by the  building  and a land-use
contract with the Land Administration Bureau of Shanghai County, and from one of
the Chinese  parties.  We have  contributed  $1,225,000 in cash,  and technology
valued for the  purposes  of  Shanghai  CopyTele  at  $700,000,  and the Chinese
parties contributed  $1,575,000 in cash to Shanghai CopyTele.  Shanghai CopyTele
may require  additional  capitalization  depending upon the nature and extent of
its business  activities.  We can give you no assurance that adequate funds will
be available to Shanghai CopyTele,  including any future capital  contributions,
if any, beyond its initial capital contributions or that, if available, Shanghai
CopyTele will be able to obtain such funds on favorable terms and conditions.

                                       21
<PAGE>
We paid $130,600 in cash to Shanghai CopyTele in 1999 of the total amount we owe
to them, which enabled Shanghai CopyTele to continue the production of a limited
number of  modified  Magicom(R)  2000  units for the  SCS-700  system  and panel
assemblies. Additionally, we have reacquired from Shanghai CopyTele a portion of
our  Magicom(R)  2000  inventory of parts for the purpose of minimizing  Chinese
import duty and value added taxes.  The amounts due from Shanghai  CopyTele were
reduced by the value of the  inventory  reacquired.  We intend to make the parts
inventory  available  to  Shanghai  CopyTele  in the  future  based on  Shanghai
CopyTele's production requirements.

We have recorded our inventory at management's  current best estimate of its net
realizable  value,  which is based upon the historic and future selling price of
our products. To date, sales of our products have been limited.  Accordingly, we
cannot assure you that we will not have to further  reduce the selling prices of
our  inventory  below its current  carrying  value to  accomplish  our  business
strategies.

The  amounts due from  Shanghai  CopyTele  are  primarily  costs  related to the
purchase by Shanghai  CopyTele of components  for use in Magicom(R)  2000 units.
Due to the uncertainty of realizing the amounts due from Shanghai  CopyTele,  we
have reserved all amounts in excess of the amount we owe Shanghai  CopyTele.  As
of October 31, 1999, we owed Shanghai CopyTele approximately $862,000 which when
paid could be used by Shanghai  CopyTele to repay us. Sales of units by Shanghai
CopyTele to us may result in an increase in our  inventory  before the units are
then sold by us in the ordinary course of our business.

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.

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

Not applicable.

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

See accompanying "Index to Financial Statements".

Item 9.  Disagreements on Accounting and Financial Disclosure.
         ----------------------------------------------------

Not applicable.

                                       22
<PAGE>


                                    PART III
                                    --------

Item 10.  Directors and Executive Officers of the Registrant.
          --------------------------------------------------
<TABLE>
<CAPTION>

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


                                        Position with the Company                                      Director and/or
Name                                    and Principal Occupation                            Age     Executive Officer Since
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                                                 <C>            <C>
Denis A. Krusos                         Director, Chairman of the Board and Chief            72             1982
                                        Executive Officer
------------------------------------------------------------------------------------------------------------------------------------
Frank J. DiSanto                        Director and President                               75             1982
------------------------------------------------------------------------------------------------------------------------------------
Gerald J. Bentivegna                    Director, Vice President - Finance and Chief         50             1994
                                        Financial Officer
------------------------------------------------------------------------------------------------------------------------------------
Frank W. Trischetta                     Senior Vice President - Marketing and Sales          59             1996
------------------------------------------------------------------------------------------------------------------------------------
George P. Larounis                      Director                                             71             1997
------------------------------------------------------------------------------------------------------------------------------------
Lewis H. Titterton                      Director                                             54             1999
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       23
<PAGE>
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 Juris Doctor 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.  Bentivegna has served as our Vice  President - Finance and Chief  Financial
Officer since  September  1994 and as one of our  Directors  since in July 1995.
Prior to joining us, Mr.  Bentivegna was employed at Marino Industries Corp. for
approximately  10  years,  where he served as  Controller,  Treasurer  and Chief
Financial  Officer.  He holds a M.B.A.  degree from Long Island University and a
B.B.A. from Dowling College.

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 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. 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.  from the  State  University  of New York at  Albany,  and a B.A.
degree from Cornell University.

                                       24
<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 Gerald J. Bentivegna, Vice President -
Finance, Chief Financial Officer and Director, are our executive officers. While
there are no formal agreements,  Denis A. Krusos and Frank J. DiSanto waived any
and  all  rights  to  receive  salary  and  related  pension   benefits  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, 1999. The following
is  compensation  information  regarding Mr. Krusos and Mr.  Trischetta  for the
fiscal years ended October 31, 1999, 1998 and 1997:


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

                                                SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------------------------------





                                                Fiscal
                                                 Year
                       Name and                  Ended                  Annual                      Long-Term
                   Principal Position            -----              Compensation                 Compensation Awards
                                                                    ------------               Securities Underlying
                                                                                                     Options (#)
<S>                                            <C>               <C>                             <C>
----------------------------------------------------------------------------------------------------------------------------
Denis A. Krusos,                                 10/31/99                -                           50,000
Chairman of the Board,                           10/31/98                -                          600,000
Chief Executive Officer and Director             10/31/97                -                          575,000
----------------------------------------------------------------------------------------------------------------------------
Frank W. Trischetta                              10/31/99            $153,289                        25,000
Senior Vice President -                          10/31/98            $153,008                        60,000
Marketing and Sales                              10/31/97            $152,500                        30,000
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       25
<PAGE>
The following is information  regarding  stock options granted to Mr. Krusos and
Mr.  Trischetta  pursuant  to the 1993 Stock  Option Plan during the fiscal year
ended October 31, 1999:

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

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

                            Number of          Percent of
                           Securities         Total Options
                      Underlying Options      Granted to          Exercise
Name                      Granted (#) (1)    Employees in           Price           Expiration
                                              Fiscal Year         ($/Share)            Date               5% ($)             10% ($)
<S>                    <C>                    <C>               <C>                <C>                <C>               <C>
------------------------------------------------------------------------------------------------------------------------------------
Denis A. Krusos           50,000                 2.07%            $1.313 (2)          4/8/09             $41,287           $ 104,629
------------------------------------------------------------------------------------------------------------------------------------
Frank W. Trischetta       25,000                 1.03%            $1.313 (3)          4/8/09             $20,643            $ 52,315
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         (1)      The options 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)      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.

         (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  intended  to qualify as  incentive
                  stock  options  within  the  meaning  of  Section  422  of the
                  Internal Revenue Code of 1986, as amended.

                                       26
<PAGE>
The following is information regarding stock option exercises during fiscal 1999
by Mr. Krusos and Mr.  Trischetta  and the values of their options as of October
31, 1999:

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


                                                        Number of Securities Underlying        Value of Unexercised
      Name        Shares Acquired   Value Realized  Unexercised Options at Fiscal Year   In-the-Money Options at Fiscal
                  on Exercise (#)        ($)                       End (#)                          Year End ($)
                                                    --------------------------------------------------------------------
                                                       Exercisable     Unexercisable     Exercisable    Unexercisable
<S>                   <C>              <C>           <C>                <C>               <C>             <C>
========================================================================================================================
Denis A. Krusos          -                -             2,920,180          50,000              -               -
------------------------------------------------------------------------------------------------------------------------
Frank W.                 -                -               453,000          25,000              -               -
Trischetta
------------------------------------------------------------------------------------------------------------------------

</TABLE>

There is no present  arrangement for cash compensation of directors for services
in that capacity.  Under the 1993 Stock Option Plan, each non-employee  director
elected to the Board of  Directors  is  entitled to receive  nonqualified  stock
options to purchase  20,000 shares of common stock upon his initial  election to
the Board of Directors and nonqualified  stock options to purchase 40,000 shares
each subsequent year that such director is elected to the Board of Directors.

                                       27
<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 21, 2000 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
Name and Address of Beneficial Owner                  Beneficial Ownership(1)(2)          Percent of Class
<S>                                                       <C>                             <C>
===================================================================================================================
Denis A. Krusos                                                7,096,940                       11.13%
900 Walt Whitman Road
Melville, NY  11747
-------------------------------------------------------------------------------------------------------------------
Frank J. DiSanto                                               3,675,710(3)                     5.78%
900 Walt Whitman Road
Melville, NY  11747
-------------------------------------------------------------------------------------------------------------------
Gerald J. Bentivegna                                             306,000                         .50%
900 Walt Whitman Road
Melville, NY  11747
-------------------------------------------------------------------------------------------------------------------
Frank W. Trischetta                                              578,000                         .94%
900 Walt Whitman Road
Melville, NY  11747
-------------------------------------------------------------------------------------------------------------------
George P. Larounis                                               282,500                         .46%
15-17 A. Tsoha St.
11521 Athens, Greece
-------------------------------------------------------------------------------------------------------------------
Lewis H. Titterton                                             1,539,600(4)                     2.51%
6 Autumn Lane
Saratoga Springs, NY  12866
-------------------------------------------------------------------------------------------------------------------
All Directors and Executive Officers as a Group               13,478,750(3)(4)                 19.80%
(6 persons)
-------------------------------------------------------------------------------------------------------------------
--------------------
</TABLE>

                                       28
<PAGE>
(1) A  beneficial  owner of a  security  includes  any person  who  directly  or
indirectly  has or shares voting power and/or  investment  power with respect to
such  security or has the right to obtain such voting  power  and/or  investment
power  within  sixty (60)  days.  Except as  otherwise  noted,  each  designated
beneficial  owner in this report has sole voting power and investment power with
respect to the shares of our common stock beneficially owned by such person.

(2) Includes 2,845,180 shares, 2,675,180 shares, 304,000 shares, 528,000 shares,
282,500 shares, 0 shares and 6,634,860 shares as to which Denis A. Krusos, Frank
J. DiSanto, Gerald J. Bentivegna, Frank W. Trischetta, George P. Larounis, Lewis
H. Titterton 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.

(3) Includes 613,215 shares held by the Frank J. DiSanto Revocable Living Trust.
Mr.  DiSanto is the trustee and has sole  voting and  investment  power over the
trust.  Includes  250,000  shares which are pledged to a bank under a commercial
loan.

(4) 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.
          ------------------------------------------------

On April 30,  1999,  Lewis H.  Titterton,  who became a  director  in July 1999,
purchased  300,000  shares of our common stock at a purchase  price of $1.50 per
share (the market price on the date of the agreement),  or an aggregate purchase
price of $450,000, pursuant to a Stock Subscription Agreement, dated as of April
27, 1999, between CopyTele and Mr. Titterton. Pursuant to the Stock Subscription
Agreement, Mr. Titterton also was issued a Warrant to purchase 300,000 shares of
our common stock at a purchase price of $1.50 per share.  The Warrant expires on
April 30, 2001.

On September 8, 1999, Lewis H. Titterton  purchased 200,000 shares of our common
stock at a purchase  price of $1.00 per share (the  market  price on the date of
the agreement), or an aggregate purchase price of $200,000,  pursuant to a Stock
Subscription  Agreement,  dated as of August 30, 1999,  between CopyTele and Mr.
Titterton.  Pursuant to the Stock Subscription Agreement, Mr. Titterton also was
issued a Warrant to purchase  200,000  shares of our common  stock at a purchase
price of $1.00 per share. The Warrant expires on September 8, 2001.

                                       29
<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).

                                       30
<PAGE>
(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, 1999.

(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.

(d) 10.2  Amendment  to 1987 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  Joint  Venture  Contract,  dated as of March 28,  1995, by and between
          Shanghai Electronic Components Corp. and CopyTele, Inc.

(f) 10.5  Technology  License  Agreement,  dated as of March  28,  1995,  by and
          between Shanghai CopyTele Electronics Co., Ltd. and CopyTele, Inc.

(g) 10.6  Amendment No. 1 to the CopyTele,  Inc. 1993 Stock Option Plan, adopted
          on May 3, 1995 and approved by shareholders on July 19, 1995.

(h) 10.7  Assignment Agreement, dated as of July 10, 1995, by and among Shanghai
          Electronic  Components  Corp.,  Shanghai   International  Trade  and
          Investment Developing Corp. and CopyTele, Inc.

(i) 10.8  Amendment No. 2 to the CopyTele,  Inc. 1993 Stock Option Plan, adopted
          on May 10, 1996 and approved by shareholders on July 24, 1996.

(j) 10.9  Contract Granting Land-Use Rights, dated October 11, 1995, between the
          Land  Administration  Bureau Songjiang County and Shanghai CopyTele
          Electronics Co., Ltd.

(k)10.10  Agreement dated March 3, 1999 between Harris Corporation and CopyTele,
          Inc.

                                       31
<PAGE>
(l) 10.11 Stock Subscription  Agreement Dated April 27, 1999,  including form of
          Warrant, between CopyTele, Inc. and Lewis H. Titterton

(m) 10.12 Agreement  dated July  28,1999,  between  CopyTele,  Inc.  and Harris
          Corporation, RF Communications

(n) 10.13 Stock Subscription  Agreement Dated August 30, 1999, including form of
          Warrant, between CopyTele, Inc. and Lewis H. Titterton

(n) 21    List of Significant Subsidiaries.

(n) 23.1  Consent of Arthur Andersen LLP.

(n) 27    Financial Data Schedule.

(n) 99.1  Financial Statements of Shanghai CopyTele Electronics Co., Ltd.

(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.

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

(f)  Incorporated by reference to Form 8-K dated March 28, 1995.

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

(h)  Incorporated by reference to Form 10-K for the fiscal year ended October
     31, 1995.

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

(j)  Incorporated by reference to Form 10-Q for the fiscal quarter ended January
     31, 1997.

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

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

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

(n)  Filed herewith.

                                       32
<PAGE>


                                   SIGNATURES
                                   ----------

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                 COPYTELE, INC.

                                        By:/s/ Denis A. Krusos
                                               ------------------
                                        Denis A. Krusos
                                        Chairman of the Board and
January 28, 2000                        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.


                                           /s/ Denis A. Krusos
                                           -------------------
                                           Denis A. Krusos
                                           Chairman of the Board,
                                           Chief Executive Officer
                                           and Director (Principal Executive
January 28, 2000                           Officer)

                                           /s/ Frank J. DiSanto
                                           --------------------
                                           Frank J. DiSanto
January 28, 2000                           President and Director

                                           /s/ Gerald J. Bentivegna
                                           ------------------------
                                           Gerald J. Bentivegna
                                           Vice President - Finance,
                                           Chief Financial Officer and
                                           Director (Principal Financial
January 28, 2000                           and Accounting Officer)

                                           /s/ Lewis H. Titterton
                                           ----------------------
                                           Lewis H. Titterton
January 28, 2000                           Director

                                           /s/ George P. Larounis
                                           ----------------------
                                           George P. Larounis
January 28, 2000                           Director


                                       33
<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                Joint  Venture  Contract,  dated  as of  March  28,
                             1995,  by  and  between  Shanghai Electronic
                             Components Corp. and CopyTele, Inc.

(f)      10.5                Technology  License  Agreement,  dated as of March
                             28, 1995,  by and between  Shanghai CopyTele
                             Electronics Co., Ltd. and CopyTele, Inc.

(g)      10.6                Amendment No. 1 to the CopyTele,  Inc. 1993 Stock
                             Option Plan,  adopted on May 3, 1995 and approved
                             by shareholders on July 19, 1995.

(h)      10.7                Assignment  Agreement,  dated as of July 10, 1995,
                             by and among  Shanghai  Electronic Components
                             Corp.,  Shanghai  International  Trade and
                             Investment  Developing Corp. and CopyTele, Inc.

                                       34
<PAGE>
(i)      10.8                Amendment No. 2 to the CopyTele,  Inc. 1993 Stock
                             Option Plan, adopted on May 10, 1996 and approved
                             by shareholders on July 24, 1996.

(j)      10.9                Contract  Granting  Land-Use  Rights,   dated
                             October  11,  1995,  between  the  Land
                             Administration Bureau Songjiang County and Shanghai
                             CopyTele Electronics Co., Ltd.

(k)      10.10               Agreement dated March 3, 1999 between Harris
                             Corporation and CopyTele, Inc.

(l)      10.11               Stock Subscription  Agreement Dated April 27, 1999
                             including form of Warrant,  between CopyTele, Inc.
                             and Lewis H. Titterton.

(m)      10.12               Agreement  dated July  28,1999,  between  CopyTele,
                             Inc.  and Harris Corporation, RF Communications

(n)      10.13               Stock Subscription Agreement Dated August 30, 1999
                             including form of Warrant,  between CopyTele, Inc.
                             and Lewis H. Titterton.

(n)      21                  List of Significant Subsidiaries.

(n)      23.1                Consent of Arthur Andersen LLP.

(n)      27                  Financial Data Schedule.

(n)      99.1                Financial Statements of Shanghai CopyTele
                             Electronics Co., Ltd.

                                       35
<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 8-K dated March 28, 1995.
(g)      Incorporated by reference to Form S-8 (Registration No. 33-62381) dated
         September 6, 1995.
(h)      Incorporated by reference to Form 10-K for the fiscal year ended
         October 31, 1995.
(i)      Incorporated by reference to Form 10-Q for the fiscal quarter ended
         April 30, 1996.
(j)      Incorporated by reference to Form 10-Q for the fiscal quarter ended
         January 31, 1997.
(k)      Incorporated by reference to Form 10-Q for the fiscal quarter ended
         January 31, 1999.
(l)      Incorporated by reference to Form 10-Q for the fiscal quarter ended
         April 30, 1999.
(m)      Incorporated by reference to Form 8-K dated July 28, 1999
(n)      Filed herewith.


                                       36
<PAGE>


                                 COPYTELE, INC.
                                 --------------
                         (Development Stage Enterprise)
                         ------------------------------
                          INDEX TO FINANCIAL STATEMENTS
                          -----------------------------
                                OCTOBER 31, 1999
                                ----------------

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

Balance Sheets as of October 31, 1999 and 1998                                                                    F-2

Statements of Operations  for each of the three fiscal years in the period ended
   October 31, 1999 and for the period from inception (November 5, 1982) to

   October 31, 1999                                                                                               F-3

Statements of  Shareholders'  Equity for the period from inception  (November 5,
   1982) to October  31, 1983 and for each of the  sixteen  fiscal  years in the
   period ended

   October 31, 1999                                                                                            F-4 - F-8

Statements of Cash Flows for each of the three  fiscal years in the period ended
   October 31, 1999 and for the period from inception (November 5, 1982) to

   October 31, 1999                                                                                               F-9

Notes to Financial Statements                                                                                 F-10 - F-20

Report of Independent Public Accountants on Schedule                                                             F-21

</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, 1999 and 1998,
and the  related  statements  of  operations  and cash flows for the each of the
three fiscal years in the period ended  October 31, 1999 and for the period from
inception  (November  5,  1982) to  October  31,  1999,  and the  statements  of
shareholder's equity for the period from inception (November 5, 1982) to October
31, 1983 and for each of the sixteen  fiscal years in the period  ended  October
31, 1999.  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  generally   accepted  auditing
standards.  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, 1999 and 1998,  and the results of their  operations  and its cash flows for
each of the three fiscal years in the period ended  October 31, 1999 and for the
period from inception to October 31, 1999 in conformity with generally  accepted
accounting principles.

                                                          /s/ARTHUR ANDERSEN LLP

Melville, New York
January 27, 2000

                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                                 COPYTELE, INC.
                                 --------------
                         (Development Stage Enterprise)
                         ------------------------------
                                 BALANCE SHEETS
                                 --------------

                                                                                                  October 31,       October 31,
                                            ASSETS                                                    1999              1998
                                            ------                                                    ----              ----
<S>                                                                                              <C>            <C>
CURRENT ASSETS:
   Cash (including cash equivalents and interest bearing accounts of $1,531,254 and
     $5,363,522, respectively)                                                                     $ 1,587,830       $ 5,406,017
   Marketable securities                                                                               488,038             -
   Inventory                                                                                         4,538,608         2,719,215
   Prepaid expenses and other current assets (including amounts due from Joint Venture of
     approximately $862,000 and $825,000, respectively)                                                929,099           908,639
                                                                                                --------------    --------------
                Total current assets                                                                 7,543,575         9,033,871

PROPERTY AND EQUIPMENT (net of accumulated depreciation
   and amortization of $1,627,012 and $1,351,778, respectively)                                        531,155           766,106

INVESTMENT IN JOINT VENTURE (Notes 1 and 3)                                                               -              345,947

AMOUNTS DUE FROM JOINT VENTURE, net (Note 1)                                                              -            3,091,628

OTHER ASSETS                                                                                            26,814            97,420

DEFERRED TAX BENEFITS (net of valuation allowance of $33,026,000 and $30,910,000,
   respectively)                                                                                          -                 -
                                                                                                --------------    --------------
                                                                                                $    8,101,544    $   13,334,972
                                                                                                ==============    ==============


                             LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable (including amounts due to Joint Venture of approximately $862,000 and
     $662,000, respectively)                                                                    $    1,546,494    $    1,392,321
   Accrued liabilities                                                                                 270,273            81,738
                                                                                                --------------    --------------
                Total current liabilities                                                            1,816,767         1,474,059

COMMITMENTS AND CONTINGENCIES (Note 5)

SHAREHOLDERS' EQUITY:
   Preferred stock, par value $100 per share; authorized 500,000 shares; no shares outstanding            -                 -
   Common stock, par value $.01 per share; authorized 240,000,000 shares; issued and
     outstanding 60,057,376 and 57,871,176 shares, respectively                                        600,574           578,712
   Additional paid-in capital                                                                       55,844,128        52,977,110
   Deficit accumulated during the development stage                                                (50,159,925)      (41,694,909)
                                                                                                --------------    ---------------
                                                                                                     6,284,777        11,860,913
                                                                                                --------------    --------------
                                                                                                $    8,101,544    $   13,334,972
                                                                                                ==============    ==============


The accompanying notes are an integral part of these balance sheets.
</TABLE>

                                      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
                                                               1999               1998               1997           October 31, 1999
                                                               ----               ----               ----           ----------------
<S>                                                       <C>              <C>             <C>                    <C>
SALES                                                    $     46,877       $      -           $      -           $      46,877
COST OF SALES                                                  37,304              -                  -                  37,304
                                                         ---------------     ---------------    ---------------  -------------------
         Gross profit                                           9,573              -                  -                   9,573
                                                         ---------------     ---------------    ---------------  -------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
  (including research and development
   expenses of approximately
   $3,163,000, $3,926,000, $3,642,000
   and $31,474,000, respectively)                            8,284,717           7,231,557          6,378,368          53,874,851
                                                        ---------------     ---------------    ---------------   -------------------
LOSS FROM AND IMPAIRMENT OF INVESTMENT
   IN JOINT VENTURE (Notes 1 and 3)                           345,947             377,219            335,391           1,225,000
                                                        ---------------     ---------------    ---------------   -------------------

INTEREST INCOME                                               156,075             472,822            913,184           4,930,353
                                                        ---------------     ---------------    ---------------   -------------------

NET (LOSS)                                               $ (8,465,016)      $  (7,135,954)      $ (5,800,575)     $ (  50,159,925)
                                                        ===============     ===============    ===============    ==================

NET (LOSS) PER SHARE OF COMMON STOCK:
  Basic and Diluted                                     $       (.14)      $        (.12)      $       (.10)       $       (1.06)
                                                        ===============     ==============     ==============     ==================

WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING:
  Basic and Diluted                                        58,792,745          57,865,834         57,667,787            47,362,777
                                                        ===============     ===============    ===============   ===================


</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>



                                 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 SIXTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 1999
  -----------------------------------------------------------------------------




                                                                                                                    Accumulated
                                                                                                                       Deficit
                                                                           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) for the period                                                -              -                -            (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) for the period                                                -              -                -            (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) for the period                                                -              -                -            (1,806,696)
                                                                     ------------    -----------     ------------   --------------

BALANCE, October 31, 1986                                               8,580,000         85,800        7,281,166       (6,071,388)



</TABLE>
                                                                       Continued

                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                                 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 SIXTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 1999
  -----------------------------------------------------------------------------

                                    Continued
                                    ---------




                                                                                                                       Accumulated
                                                                                                                         Deficit
                                                                            Common Stock               Additional       During the
                                                                      -------------- ---------------    Paid-in        Development
                                                                         Shares        Par Value        Capital           Stage
                                                                         ------        ---------        -------           -----
<S>                                                                     <C>             <C>             <C>              <C>
  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) for the period                                                -              -               -             (1,401,736)
                                                                      -----------    -----------     -----------     -------------

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) for the period                                                -              -               -             (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) for the period                                                -              -               -             (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) for the period                                                -              -               -             (1,111,413)
                                                                      -----------    -----------     -----------     -------------

BALANCE, October 31, 1990                                              11,460,255        114,603      15,012,543       (11,003,357)


                                                                                                                          Continued
</TABLE>
                                      F-5
<PAGE>
<TABLE>
<CAPTION>


                                 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 SIXTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 1999
  -----------------------------------------------------------------------------

                                    Continued
                                    ---------




                                                                                                                     Accumulated
                                                                                                                       Deficit
                                                                           Common Stock               Additional      During the
                                                                    --------------- ---------------    Paid-in       Development
                                                                        Shares        Par Value        Capital           Stage
                                                                        ------        ---------        -------           -----
<S>                                                                <C>                <C>            <C>          <C>
  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) for the period                                               -               -               -           (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) for the period                                               -               -               -           (1,827,356)
                                                                    ------------    ------------    ------------    ------------

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) for the period                                               -               -               -           (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) for the period                                               -               -               -           (3,427,517)
                                                                    ------------    ------------    ------------    ------------

BALANCE, October 31, 1994                                             24,837,403         248,374      26,487,930     (20,321,071)




                                                                                                                          Continued
</TABLE>

                                      F-6
<PAGE>
<TABLE>
<CAPTION>

                                 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 SIXTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 1999
  -----------------------------------------------------------------------------


                                    Continued
                                    ---------




                                                                                                                        Accumulated
                                                                                                                          Deficit
                                                                            Common Stock               Additional        During the
                                                                      --------------- --------------     Paid-in        Development
                                                                          Shares        Par Value        Capital           Stage
                                                                          ------        ---------        -------           -----
<S>                                                                     <C>             <C>          <C>                <C>
  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) for the period                                                 -               -              -             (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) for the period                                                 -               -              -             (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
    plan                                                                    -               -             (11,705)            -
  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) for the period                                                 -               -              -             (5,800,575)
                                                                      ------------    ------------   ------------     --------------

BALANCE, October 31, 1997                                               57,861,176         578,612     52,759,485       (34,558,955)


                                                                                                                        Continued
</TABLE>

                                 F-7
<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 SIXTEEN FISCAL YEARS IN THE PERIOD ENDED OCTOBER 31, 1999
  -----------------------------------------------------------------------------

                                    Continued
                                    ---------

<TABLE>
<CAPTION>



                                                                                                                       Accumulated
                                                                                                                          Deficit
                                                                             Common Stock                Additional      During the
                                                                       --------------- ---------------    Paid-in       Development
                                                                           Shares        Par Value        Capital          Stage
                                                                           ------        ---------        -------          -----
<S>                                                                     <C>             <C>              <C>            <C>
  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) for the period                                                  -               -               -           (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
    January 15, 1999 and August 3, 1999                                     886,200           8,862       1,343,868           -
  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) for the period                                                  -               -               -           (8,465,016)
                                                                       ------------    ------------    ------------   --------------

BALANCE, October 31, 1999                                                60,057,376    $    600,574    $ 55,844,128   $ (50,159,925)
                                                                       ============    ============    ============   ==============


</TABLE>

(A) Reflects  cumulative  effect on all share data prior to splits  described in
Note 4.

The accompanying notes are an integral part of these statements.

                                      F-8
<PAGE>
<TABLE>
<CAPTION>



                                 COPYTELE, INC.
                                 --------------
                         (Development Stage Enterprise)
                         ------------------------------
                            STATEMENTS OF CASH FLOWS
                            ------------------------



                                                                                                                     For the Period
                                                                                      For the Fiscal                 from Inception
                                                                                  Year Ended October 31,           (November 5,1982)
                                                                    --------------- --------------- --------------         to
                                                                        1999            1998           1997        October 31, 1999
                                                                        ----            ----           ----        ----------------
<S>                                                                     <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Payments to suppliers, employees and consultants                   $ (6,314,512)   $ (8,249,844)   $ (11,089,765)   $ (55,761,854)
  Cash received from customers                                             46,877          -                -                46,877
  Interest received                                                       150,539         513,633          917,696        4,920,835
                                                                      ------------    ------------    -------------  ---------------
         Net cash (used in) operating activities                       (6,117,096)     (7,736,211)     (10,172,069)     (50,794,142)
                                                                     ------------    ------------    -------------   ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for purchases of property and equipment                        (40,283)       (185,876)        (448,288)      (2,023,442)
  Disbursements to acquire certificates of deposit and
    marketable securities                                                (488,038)         -              (970,808)     (13,534,037)
  Proceeds from maturities of investments                                  -              970,808           -            13,045,999
  Investment made in Joint Venture                                         -               -                -            (1,225,000)
                                                                     ------------    ------------    -------------  ---------------
         Net cash (used in) provided by investing activities             (528,321)        784,932       (1,419,096)      (3,736,480)
                                                                     ------------    ------------    -------------  ---------------

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                                   1,352,730          28,125        1,754,444       37,061,213
  Proceeds from sale of common stock in private placements              1,474,500          -                -             1,474,500
  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                      2,827,230          28,125        1,754,444       56,118,452
                                                                     ------------    ------------    -------------  ---------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                                                                       (3,818,187)     (6,923,154)      (9,836,721)       1,587,830

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                        5,406,017      12,329,171       22,165,892           -
                                                                     ------------    ------------    -------------      ----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $  1,587,830    $  5,406,017    $  12,329,171    $   1,587,830
                                                                     ============    ============    =============    =============

RECONCILIATION OF NET (LOSS) TO NET CASH
  (USED IN) OPERATING ACTIVITIES:
   Net (loss)                                                        $ (8,465,016)   $ (7,135,954)   $  (5,800,575)   $ (50,159,925)
   Stock option compensation to consultants                                61,650         189,600           -               251,250
   Loss from Joint Venture                                                260,775         377,219          335,391        1,139,828
   Depreciation and amortization                                          275,234         288,829          257,315        1,642,670
   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          (26,365)          -
   Increase in inventory                                               (1,819,393)     (2,587,717)        (131,498)      (4,538,608)
   (Increase) decrease in prepaid expenses and other current assets       (20,460)      3,831,751       (4,312,667)        (929,099)
   Decrease (increase) in long-term amount due from joint venture       1,684,167      (3,091,628)          -            (1,407,461)
   (Increase) decrease in other assets                                     70,606          21,746          108,476          (26,814)
   Increase (decrease) in accounts payable and accrued liabilities        342,708         343,578         (602,146)       1,741,384
                                                                     ------------    ------------    -------------   ---------------
         Net cash (used in) operating activities                     $ (6,117,096)   $ (7,736,211)   $ (10,172,069)   $ (50,794,142)
                                                                     =============   =============    ============== ===============

</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-9
<PAGE>




                                 COPYTELE, INC.
                                 --------------
                         (Development Stage Enterprise)
                         ------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                                OCTOBER 31, 1999
                                ----------------

(1)      Nature of business and funding:
         -------------------------------

         Organization
         ------------

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 and  telecommunications
products under the Cryptele(TM)  brand name. The first  encryption  products the
Company has  produced  under the  Cryptele(TM)  brand name  product line are the
USS-900 (Universal Secure System) and the SCS-700 (Secure Communication 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 SCS-700 combines the USS-900 with a modified version
of the Magicom(R)  2000, the Company's  first  developed  product,  to provide a
secure telephone-based multi-functional  telecommunications system incorporating
the Company's  E-Paper(TM)  Flat Panel Display  technology.  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.

Shanghai  CopyTele  Electronics  Co., Ltd. (the "Joint  Venture" or "SCE"),  the
Company's 55% owned joint venture in Shanghai, China, was established in 1995 to
produce and market Magicom (R) 2000 for the Company.

         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 2000 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  $6,117,000 in cash during fiscal
1999. As of October 31, 1999, working capital included approximately  $2,076,000
of  cash  and  marketable   securities  and   approximately   $955,000  (net  of
approximately  $862,000 due to SCE) 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
fiscal 2000, after giving effect to certain reductions in operating expenses, as
necessary.  As of January 27, 2000, the Company had approximately  $2,000,000 in
cash and marketable  securities.  This balance  reflects,  in part, the proceeds
from both the exercise of stock options and private  placement stock sales,  and
non-refundable sales of products.

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.  There  can be no  assurance  that any of these  plans  will
materialize at terms that will be favorable to the Company.

The Company has had limited sales to dealers,  distributors  and end-users since
its inception,  and during fiscal 1999 has recognized  revenue of  approximately
$47,000 on fiscal 1999 sales.  Despite the foregoing,  there can be no assurance
that the Company will generate significant revenues in the future (through sales
or  otherwise),  that the Company  will have  sufficient  revenues to generate a
profit, or that other products will not be produced by other companies that will
render the products of the Company obsolete.

The National Association of Securities Dealers,  Inc. ("NASD") 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 8).

                                      F-10
<PAGE>
         Realizability of Assets
         -----------------------

During the fiscal  year ended  October  31,  1999,  the  Company  increased  its
inventory to  approximately  $4,539,000 to prepare for the  distribution  of its
products.  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  Magicom(R)  2000  units as  packaged  in the
SCS-700,  and the USS-900.  To date,  sales of the  Company's  product have been
limited.  Accordingly,  there can be no  assurance  that the Company will not be
required to further reduce the selling price of its inventory  below its current
carrying value in order to accomplish the Company's business strategies.

Inaddition,  the Company's advances to SCE have funded the purchase of inventory
components  to  manufacture  the  Magicom(R)  2000.  Due to the  uncertainty  of
realizing  the amounts due from SCE, the Company has reserved for  approximately
$1,407,000  of this  amount,  which is shown net in the  accompanying  financial
statements.

Inaccordance with Statement of Financial  Accounting Standards ("SFAS") No. 121,
"Impairment of Long-Lived  Assets and for Long-Lived  Assets to be Disposed of,"
the  Company  has  recognized  a  permanent  impairment  charge in the amount of
$85,172 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.

         Product Development
         -------------------

The Company has received 204 patents, including those from the United States and
certain foreign patent offices, expiring at various dates between 2005 and 2017.
At the present time,  additional patent applications are pending with the United
States and certain foreign patent offices.  The foregoing patents are related to
the design,  structure and methods of  construction  of the 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 new
applications  for its  encryption  products.  The  Company  also has filed or is
planning to file patent applications for its solid state,  optical and thin film
video color flat panel display technologies currently under development, for its
coated particles, its USS-900 technology and for its simplified E-Paper(TM) Flat
Panel  Display.  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 and SCE 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.

During 1995,  the Company  signed a joint venture  contract (the "Joint  Venture
Contract") to form a joint venture in Shanghai,  China with a 20-year  duration.
With this  agreement,  SCE was  formed  with the  Company  owning a 55% share in
capital,  profits  and  losses.  The  remaining  45% is  owned  by  two  Chinese
companies.  Reference is made to Note 3 for a further discussion  regarding SCE.
Pursuant to a certain Technology License Agreement entered into on the same date
as the  Joint  Venture  Contract,  the  Company  has  licensed  its  flat  panel
application  technology to SCE for exclusive use in China. The Company is solely
authorized  to market  Joint  Venture  products  outside  of  China.  Additional
capitalization,  if necessary,  may be financed  through a combination  of third
party borrowings and equity investments contributed by the Company and its Joint
Venture partners in proportion to their respective equity interests and on terms
to be agreed upon.

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,  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 obtain adequate supplies of substrates for the SCS-700, 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.
                                      F-11
<PAGE>

(2)  Summary of significant accounting policies:
     -------------------------------------------

         Revenue recognition-
         --------------------

The Company recognizes  revenue upon final customer  acceptance of its delivered
product.  At the present time,  the Company  defines final  customer  acceptance
based upon the non-refundable payment of its product sales.

         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
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, 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,  1999.  Accrued  interest  income  related  to these
investments  are included in earnings for the year ended October 31, 1999. As of
October 31, 1998, the Company held no marketable securities.

         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.

         Research and development costs-
         -------------------------------

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

                                      F-12
<PAGE>
         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.

         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.

         Recent accounting pronouncements-
         ---------------------------------

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, 1999  (subsequently  amended by SFAS No. 137, to be effective for
all fiscal years beginning after June 15, 2000) 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 generally  accepted
accounting principles 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 the current
year presentation.

                                      F-13
<PAGE>
(3)  Investment in Joint Venture:
     ----------------------------

Due to the  uncertainty  of  realizability  of its  investment,  the Company has
recognized in fiscal 1999 a permanent impairment charge of approximately $85,000
against the carrying value of this investment. Any additional investments in SCE
by the Company will be directly expensed to the statement of operations.

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

The Company has  contributed  an  aggregate  of  $1,225,000  in cash to SCE, and
technology  that has been valued for purposes of the Joint  Venture at $700,000.
SCE does not reflect the $700,000 in technology as an asset or equity investment
in the condensed financial  statements presented below. The other parties to the
Joint Venture have contributed cash aggregating $1,575,000.

<TABLE>
<CAPTION>

Condensed financial  information for SCE as of October 31, 1999 and 1998 and for
the three years ended October 31, 1999, is as follows:

                                    Condensed Balance Sheets                                  1999              1998
                                    ------------------------                                  ----              ----
         <S>                                                                             <C>            <C>
          Cash                                                                           $      17,793    $      51,760
          Due from CopyTele, Inc.                                                              861,611          661,592
          Inventories                                                                        1,574,315        3,568,202
          Other current assets                                                                   5,812           68,581
          Land occupancy rights, net of amortization; fixed assets, net of
            depreciation, and other non-current  assets                                      1,928,121        2,105,583
                                                                                         -------------    -------------
                   Total Assets                                                          $   4,387,652    $   6,455,718
                                                                                         =============    =============

          Short-term loans                                                               $   1,080,268    $     999,316
          Accounts payable and accrued liabilities                                             310,726          338,052
          Due to CopyTele, Inc.                                                              2,269,072        3,916,628
          Capital                                                                              727,586        1,201,722
                                                                                         -------------    -------------
                   Total Liabilities and Capital                                         $   4,387,652    $   6,455,718
                                                                                         =============    =============

                      Condensed Statements of Operations                     1999             1998              1997
                      ----------------------------------                     ----             ----              ----

          Net Sales                                                    $        -        $      -         $      -
          Operating (Loss)                                                  (399,781)         (629,578)        (599,299)
          Other (Expense)                                                    (74,355)          (56,275)         (10,503)
                                                                       --------------    -------------    -------------
                   Net (Loss)                                          $    (474,136)    $    (685,853)   $    (609,802)
                                                                       ==============    =============    =============

</TABLE>
The  short-term  loans from a Chinese  bank bear  interest at floating  rates of
approximately  5.86% to 7.13% per annum at October  31,  1999.  These loans will
mature in February  2000 and April 2000 and are  secured by a land-use  contract
and  building  owned by SCE.  An  additional  short-term  loan of  approximately
$120,000  was obtained in November  1998,  bearing a floating  interest  rate of
approximately  5.86% and maturing in May 2000,  of which  approximately  $80,000
remains outstanding as of October 31, 1999.

The cumulative net loss incurred by SCE since its inception  (April 10, 1995) is
$(2,072,414).

                                      F-14
<PAGE>
(4) Shareholders' Equity:
    ---------------------

         Sales of common stock and issuance of warrants-
         -----------------------------------------------

On April 30, 1999,  the Company  sold 400,000  shares of its common stock in two
private  placements at a price of $1.50 per share,  or an aggregate of $600,000,
of which 300,000  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  400,000  shares of  common  stock at an
exercise price of $1.50 per share, which expire on April 30, 2001.

On  September 8, 1999,  the Company  sold 900,000  shares of common stock in six
private  placements at a price of $1.00 per share,  or an aggregate of $900,000,
of which 200,000  shares were sold to a director of the Company.  In conjunction
with the sales of common stock,  the Company issued warrants to purchase 900,000
shares of common stock at an exercise price of $1.00 per share,  which expire on
September 8, 2001.

As of October 31, 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 two stock  option  plans:  the 1987 Stock Option Plan (the "1987
Plan"),  adopted by the Board of Directors on April 1, 1987,  and the  CopyTele,
Inc. 1993 Stock Option Plan (the "1993 Plan"), adopted by the Board of Directors
on April 28, 1993.

                                      F-15
<PAGE>
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 Accounting Principles Board ("APB")Opinion No. 25, "Accounting for
Stock Issued to Employees."  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     For the Year Ended    For the Year Ended
                                                        October 31, 1999       October 31, 1998       October 31, 1997
                                                        ----------------       ----------------       ----------------
        <S>                                             <C>                     <C>                     <C>
           Basic and Diluted

           Net (Loss):              As Reported            $    (8,465,016)       $    (7,135,954)       $    (5,800,575)
                                    Pro Forma              $   (10,560,690)       $   (11,041,940)       $   (15,706,850)

           Basic and Diluted

           Net (Loss) Per Share:    As Reported                  $(.14)                 $(.12)                   $(.10)
                                    Pro Forma                    $(.18)                 $(.19)                   $(.27)

</TABLE>
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,  1999 and 1998  was  $61,650  and
$189,600,  respectively,  was  measured at the vesting  date upon the  Company's
determination of performance  commitment achievement and is included in selling,
general  and   administrative   expenses  on  the  accompanying   statements  of
operations. No such costs were incurred in the year ended October 31, 1997.

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,  1999  and  1998,
respectively: risk free interest rates of 5.50%; expected dividend yields of 0%;
expected lives of 3.53 and 3.23 years;  and expected  stock price  volatility of
78% and 69%. The  weighted-average  fair value of options granted under SFAS No.
123 for the  years  ended  October  31,  1999  and  1998 was  $1.46  and  $1.47,
respectively.

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-16
<PAGE>

Information  regarding  the 1987 Plan for the three years ended October 31, 1999
is as follows:
<TABLE>
<CAPTION>


                                                                                                          Current Weighted
                                                                                                          Average Exercise
                                                                                         Shares           Price Per Share
           <S>                                                                          <C>                   <C>
             Shares Under Option at October 31, 1996                                       754,360               $4.75
               Exercised                                                                   (68,200)              $2.93
                                                                                    --------------
             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
                                                                                    ==============

</TABLE>
The following table summarizes information about stock options outstanding under
the 1987 Plan as of October 31, 1999:
<TABLE>
<CAPTION>

                                            Options Outstanding                               Options Exercisable
                          ---------------------------------------------------------   ---------------------------
                                Number          Weighted Average         Weighted           Number           Weighted
                             Outstanding           remaining              Average         Exercisable         Average
        Exercise Prices      at 10/31/99        Contractual Life      Exercise Price      at 10/31/99     Exercise Price
        ---------------      -----------        ----------------      --------------      -----------     --------------
           <S>                 <C>                   <C>                  <C>             <C>                  <C>
             $3.09               120,000               0.04                  3.09            120,000             3.09
             $4.25                 6,800               1.79                  4.25              6,800             4.25
             $5.63               454,000               4.32                  5.63            454,000             5.63

</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, 1999, 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 was  amended as of May 3, 1995 and May 10,  1996 to,  among  other  things,
increase  the  number of shares of the  Company's  common  stock  available  for
issuance thereunder from 6,000,000 to 20,000,000,  after giving consideration to
the  two-for-one  stock  split  in  1996.  Incentive  stock  options  and  stock
appreciation  rights may be granted to key  employees,  and  nonqualified  stock
options  and stock  appreciation  rights  may be granted  to key  employees  and
consultants of the Company.  As amended,  nonqualified stock options to purchase
40,000  shares of common  stock  will be  granted  annually  to each  re-elected
non-employee  director of the Company  and 20,000  shares to each newly  elected
non-employee  director.  The  1993  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>
Information  regarding  the 1993 Plan for the three years ended October 31, 1999
is as follows:
<TABLE>
<CAPTION>


                                                                                                    Current Weighted
                                                                                                    Average Exercise
                                                                                  Shares             Price Per Share
              <S>                                                             <C>                       <C>
                Shares Under Option at October 31, 1996                           9,174,860               $5.32
                  Granted                                                         2,905,500               $4.73
                  Exercised                                                        (274,500)              $3.87
                  Canceled                                                         (265,500)              $5.87
                                                                               ------------
                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
                                                                                 ----------
                Options Exercisable at October 31, 1999                          12,424,160               $4.44
                                                                                 ==========

</TABLE>
The following table summarizes information about stock options outstanding under
the 1993 Plan as of October 31, 1999:
<TABLE>
<CAPTION>

                                            Options Outstanding                                 Options Exercisable
                                            --------------------                               ---------------------


                                                     Weighted
                                   Number             Average            Weighted            Number            Weighted
               Range of         Outstanding          remaining            Average          Exercisable          Average
           Exercise Prices      at 10/31/99      Contractual Life     Exercise Price       at 10/31/99      Exercise Price
           ---------------      -----------      ----------------     --------------       -----------      --------------

          <S>                   <C>                  <C>                 <C>               <C>                 <C>
            $1.31 to $3.38         5,203,800            6.98                $2.49             4,376,800          $2.70

            $3.63 to $5.75         5,631,360            6.14                $4.75             5,631,360          $4.75

            $6.38 to $6.88         2,416,000            4.36                $6.78             2,416,000          $6.78

</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.  As of October 31,  1999,  783,000
options were available for future grants under the 1993 Plan.

In December  1998,  the Company  cancelled  and  reissued  1,566,500  options to
purchase  the  Company's  common  stock  pursuant to the 1993 Plan,  at the then
current fair market value.

During the period from  November 1, 1999 through  January 27,  2000,  there were
cancellations  of 750,200  options under the 1993 Plan. The Company also granted
an additional  1,490,000 options to purchase the Company's common stock pursuant
to the 1993 Plan during the period from  November  1, 1999  through  January 27,
2000.

From  November 1, 1999  through  January 27, 2000,  options to purchase  640,000
shares of the Company's  common stock were exercised for an aggregate  amount of
approximatly $540,000.

                                      F-18
<PAGE>
(5) Commitments and contingencies:
    ------------------------------
         Leases-
         -------
The Company  leases space at its  principal  location for office and  laboratory
research  facilities.  The current lease is for approximately 11,200 square feet
and  expires  on  November  30,  2001.   The  lease  contains  base  rentals  of
approximately  $201,000 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,  2000.  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  expires on June 30, 2001 and is
non-renewable. The base rent for the remaining term is approximately $56,000 per
annum.

In October 1996, the Company entered into a lease for approximately 2,000 square
feet of office and  laboratory  space near its principle  offices.  In May 1997,
this lease was modified to add an  additional  facility of  approximately  5,000
square  feet of  rental  space and to extend  the  lease to June 30,  2000.  The
modified  lease  provided for escalating  base rents of  approximately  $46,000,
$48,000 and $50,000,  respectively, for each year beginning July 1, 1997, and an
escalation clause for increases in certain operating costs.

Rent expense for the years ended October 31, 1999, 1998, 1997 and for the period
from  inception  (November  5,  1982) to October  31,  1999,  was  approximately
$313,000, $287,000, $269,000 and $2,424,000, respectively.

(6) 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
$137,000,  $123,000 and $102,000 and $805,000 for the fiscal years ended October
31,  1999,  1998,  1997 and for the  period  from the  inception  of the plan to
October 31, 1999, respectively, has been accrued and funded on a current basis.

(7) Income taxes:
    -------------
At October  31,  1999,  the Company  had tax net  operating  loss and tax credit
carryforwards  of  approximately   $72,210,000  and  $1,635,000,   respectively,
available,  within  statutory limits (expiring at various dates between 2000 and
2019), to offset any future regular Federal  corporate  taxable income and taxes
payable. The principle  differences between the net loss for financial statement
purposes and the tax net operating loss  attributable  to the year ended October
31,  1999,  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  $63,706,000  and  $124,000,  respectively,  at October 31,  1999,
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
2000 and 2014 and the tax credit carryforwards expire between 2000 and 2009.

Deferred  tax  benefits at October 31, 1999 and 1998,  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 $33,026,000 and $30,910,000, respectively.

During the period from  inception  (November 5, 1982) to October 31,  1999,  the
Company incurred no Federal and no material State income taxes.

                                      F-19
<PAGE>

(8) 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-20


<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 filing and have issued
our report thereon dated January 27, 2000. 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 our 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.

                                                         /S/ ARTHUR ANDERSEN LLP




Melville, New York
January 27, 2000

                                      F-21
<PAGE>
SCHEDULE II
-----------

                                  COPYTELE, INC
                                  -------------
                        VALUATION AND QUALIFYING ACCOUNTS
                        ---------------------------------
                        (rounded to the nearest thousand)
                        ---------------------------------
                   YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
                   -------------------------------------------
<TABLE>
<CAPTION>

<S>             <C>                        <C>                          <C>                       <C>
------------------------------------------------------------------------------------------------------------------
   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
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------

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

       1998
       ----
Reserve on amounts due
from Joint Venture      $  -                      $   -                       $   -                   $     -
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------

        1997
        ----
Reserve on amounts due
from Joint Venture      $  -                      $   -                       $   -                   $     -
--------------------------------------------------------------------------------------------------------------------

</TABLE>

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

                                      F-22
<PAGE>