SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended April 30, 2002

                         Commission file number 0-11254


                                 COPYTELE, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                Delaware                                11-2622630
--------------------------------------------------------------------------------
   (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                  Identification no.)

          900 Walt Whitman Road
             Melville, NY                                  11747
--------------------------------------------------------------------------------
(Address of principal executive offices)                (Zip Code)


                                 (631) 549-5900
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

On June 10, 2002, the registrant had outstanding 68,230,685 shares of Common
Stock, par value $.01 per share, which is the registrant's only class of common
stock.
<PAGE>

                                TABLE OF CONTENTS


Part I.  - FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Balance Sheets as of April 30, 2002 (Unaudited) and
         October 31, 2001

         Condensed Statements of Operations (Unaudited) for the six months
         ended April 30, 2002 and 2001

         Condensed Statements of Operations (Unaudited) for the three months
         ended April 30, 2002 and 2001

         Condensed Statements of Cash Flows (Unaudited) for the six months
         ended April 30, 2002 and 2001

         Notes to Condensed Financial Statements (Unaudited)

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

Part II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

         Signatures

                                       2
<PAGE>

                         Part I - FINANCIAL INFORMATION



Item 1. Financial Statements.
        ---------------------


INFORMATION WITH RESPECT  TO FINANCIAL STATEMENTS

This quarterly report includes financial statements which have not been reviewed
by an independent public accountant under Rule 10-01(d) of Regulation S-X
pursuant to the relief granted to former auditing clients of Arthur Andersen LLP
in SEC Release No. 34-45589. We expect that our new independent public
accountant, Grant Thornton LLP, will complete the quarterly review required by
Rule 10-01(d) of Regulation S-X. If, upon completion of the review, there is a
change in financial statements contained in this quarterly report, we will amend
this report to present the reviewed financial statements, and we will discuss in
the amended report any material changes from the unreviewed financial statements
contained in this report. Otherwise, we will state in our first quarterly report
following completion of such review that the unreviewed financial statements
contained in this report have subsequently been reviewed by an accountant other
than Arthur Andersen LLP and that there were no material changes as a result of
that review.


                                       3

<PAGE>


<TABLE>
<CAPTION>

                                 COPYTELE, INC.
                            CONDENSED BALANCE SHEETS


                                                                                             (Unaudited)
                                                                                              April 30,            October 31,
                                         ASSETS                                                 2002                  2001
                                         ------
                                                                                          ------------------    ------------------

CURRENT ASSETS:
<S>                                                                                         <C>                   <C>
   Cash and cash equivalents                                                                $  2,142,053          $  1,316,860
   Accounts receivable, net of allowance for doubtful accounts of
      $110,000 and $240,000, respectively                                                        507,469               536,391
   Inventories                                                                                 1,601,398             1,589,350
   Prepaid expenses and other current assets                                                     193,745               136,902
                                                                                          ------------------    ------------------
                        Total current assets                                                   4,444,665             3,579,503

PROPERTY AND EQUIPMENT, net                                                                      103,399               119,487

OTHER ASSETS                                                                                   2,832,539             2,863,413
                                                                                          ------------------    ------------------
                                                                                            $  7,380,603          $  6,562,403
                                                                                          ==================    ==================

                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                         $    410,214          $    816,011
   Accrued liabilities                                                                            41,062                38,199
   Deferred revenue                                                                            1,083,667             1,541,667
                                                                                          ------------------    ------------------
                       Total current liabilities                                               1,534,943             2,395,877

SHAREHOLDERS' EQUITY:
   Preferred stock, par value $100 per share; 500,000 shares authorized;
      no shares issued or outstanding                                                                  -                     -
   Common stock, par value $.01 per share; 240,000,000 shares
      authorized; 68,010,010 and 66,521,100 shares issued
      and outstanding, respectively                                                              680,100               665,211

   Additional paid-in capital                                                                 62,903,781            62,197,370
   Accumulated deficit                                                                       (57,738,221)          (58,696,055)
                                                                                          ------------------    ------------------
                                                                                               5,845,660             4,166,526

                                                                                          ------------------    ------------------
                                                                                            $  7,380,603          $  6,562,403
                                                                                          ==================    ==================

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

                                       4
<PAGE>

<TABLE>
<CAPTION>

                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


                                                                                                For the six months ended
                                                                                                       April 30,
                                                                                         ---------------------------------------
                                                                                               2002                  2001
                                                                                         -----------------     -----------------
<S>                                                                                        <C>                  <C>
REVENUES                                                                                   $   3,894,164        $      423,305

COST OF REVENUES                                                                               1,254,107               168,466
                                                                                         ---------------       ---------------
         Gross profit                                                                          2,640,057               254,839

RESEARCH AND DEVELOPMENT EXPENSES                                                                693,691             1,115,036

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                                   1,003,039             1,068,236
                                                                                         ---------------       ---------------

         Income (loss) from operations                                                           943,327            (1,928,433)

INTEREST INCOME                                                                                   14,507                10,217
                                                                                         ---------------       ---------------

         Net income (loss)                                                                 $     957,834         $  (1,918,216)
                                                                                         ===============       ===============

PER SHARE INFORMATION:

Net income (loss) per share:
         Basic                                                                             $        0.01         $       (0.03)
                                                                                         =================     =================
         Diluted                                                                           $        0.01         $       (0.03)
                                                                                         =================     =================

Shares used in computing net income (loss) per share:

         Basic                                                                                67,305,726            63,602,490
                                                                                         =================     =================
         Diluted                                                                              67,586,003            63,602,490
                                                                                         =================     =================

The accompanying notes are an integral part of these condensed statements.

</TABLE>

                                       5

<PAGE>

<TABLE>
<CAPTION>

                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                                                               For the three months ended
                                                                                                       April 30,
                                                                                         ---------------------------------------
                                                                                               2002                  2001
                                                                                         -----------------     -----------------

<S>                                                                                        <C>                    <C>
REVENUES                                                                                   $   2,616,975          $     245,014

COST OF REVENUES                                                                                 827,831                 94,216
                                                                                         -----------------     -----------------

         Gross profit                                                                          1,789,144                150,798

RESEARCH AND DEVELOPMENT EXPENSES                                                                400,280                481,566

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                                     501,243                459,667
                                                                                         -----------------     -----------------

         Income (loss) from operations                                                           887,621               (790,435)

INTEREST INCOME                                                                                    9,906                  2,355
                                                                                         -----------------     -----------------

         Net income (loss)                                                                 $     897,527        $      (788,080)
                                                                                         =================     =================

PER SHARE INFORMATION:

Net income (loss) per share:
         Basic                                                                             $        0.01        $         (0.01)
                                                                                         =================     =================
         Diluted                                                                           $        0.01        $         (0.01)
                                                                                         =================     =================

Shares used in computing net income (loss) per share:
         Basic                                                                                67,672,917             63,994,320
                                                                                         =================     =================
         Diluted                                                                              67,914,500             63,994,320
                                                                                         =================     =================


The accompanying notes are an integral part of these condensed statements.
</TABLE>

                                       6
 <PAGE>


<TABLE>
<CAPTION>

                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)


                                                                                                    For the six months ended
                                                                                                           April 30,
                                                                                             ---------------------------------------
                                                                                                   2002                  2001
                                                                                             ------------------    -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                             <C>                   <C>
   Payments to suppliers, employees and  consultants                                            $(2,681,487)          $(2,092,266)
   Cash received from customers                                                                     525,086               310,287
   Cash received from collaborative agreements                                                    3,000,000                     -
   Interest received                                                                                 14,505                10,217
                                                                                             ------------------    -----------------
           Net cash provided by (used in) operating activities                                      858,104            (1,771,762)
                                                                                             ------------------    -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Payments for purchases of property and equipment                                                 (32,911)               (3,071)
   Proceeds from maturities of investments                                                                -                96,873
                                                                                             ------------------    -----------------
           Net cash (used in) provided by investing activities                                      (32,911)               93,802
                                                                                             ------------------    -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options, net of registration costs                                     -               701,780
                                                                                             ------------------    -----------------
           Net cash provided by financing activities                                                      -               701,780
                                                                                             ------------------    -----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                825,193              (976,180)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                  1,316,860             1,134,045
                                                                                             ------------------    -----------------

CASH AND CASH EQUIVALENTS AT  END OF PERIOD                                                     $ 2,142,053          $    157,865
                                                                                             ==================    =================

RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:

   Net income (loss)                                                                            $   957,834          $ (1,918,216)
   Stock option compensation to consultants                                                               -               102,919
   Stock awards granted to employees and consultants pursuant to stock
      incentive plans                                                                               721,301               177,369
   Stock issued to consultants for services rendered                                                      -                 3,000
   Provision for doubtful accounts                                                                  (60,000)                    -
   Depreciation and amortization                                                                     48,998               110,895
   Change in operating assets and liabilities:
      Accounts receivable                                                                            88,922              (113,018)
      Inventories                                                                                   (12,048)                8,710
      Prepaid expenses and other current assets                                                     (56,843)               45,942
      Other assets                                                                                   30,874                   874
      Accounts payable and  accrued liabilities                                                    (402,934)             (190,237)
      Deferred revenue                                                                             (458,000)                    -
                                                                                             -----------------     -----------------
           Net cash provided by (used in) operating activities                                  $   858,104          $ (1,771,762)
                                                                                             =================     =================


The accompanying notes are an integral part of these condensed statements.
</TABLE>

                                       7

<PAGE>

                                 COPYTELE, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                           April 30, 2002 (UNAUDITED)


(1)      Nature and Development of Business and Other Disclosures

Organization and Development of Business

CopyTele, Inc. was incorporated on November 5, 1982 and was a development stage
enterprise from inception through our fiscal year ended October 31, 2001. In the
quarter ended January 31, 2002, we met the Statement of Financial Accounting
Standards ("SFAS") No. 7 requirements to no longer present our financial
statements as a development stage enterprise.

Our principal operations include the development, production and marketing of
multi-functional encryption products that provide information security for
domestic and international users over virtually every communications media and
the development of a full-color video display.

Our line of encryption products presently includes the USS-900 (Universal Secure
System), the DSS-1000 (Digital Security System), the DCS-1200 and DSC-1400
(Digital Cellular/Satellite), the STS-1500 (Secure Teleconferencing System) and
the ULP-1 (Ultimate Laptop Privacy). These encryption products are
multi-functional, hardware-based digital encryption systems that provide
high-grade encryption using either the Citadel(TM) CCX encryption cryptographic
chip (which is manufactured by the Harris Corporation) or the Triple DES or the
new Advanced Encryption Standard ("AES") algorithm (algorithms available in the
public domain which are used by many U.S. government agencies). We are
continuing our research and development activities for additional encryption
products.

We are also continuing our research and development activities with respect to
flat panel display technologies, including our thin flat video color display
("Field Emission Display" or "FED") and our ultra-high resolution charged
particle E-Paper(TM) flat panel display. Using our planar edge emission
technology, we have developed engineering operational models of a 3-inch
(diagonal) full-color video Field Emission Display with 160 x 170 pixels. We
believe that smaller and larger displays can be made with this technology.

We had been developing our Field Emission Display technology with Futaba
Corporation ("Futaba") pursuant to the Joint Cooperation Agreement for Field
Emission Displays (the "Futaba Agreement") which we entered into with Futaba in
June 2001 for the purpose of jointly developing and commercializing a full-color
video display utilizing our Field Emission Display technology. After extensive
negotiations, we were unable to reach agreement with Futaba with respect to the
terms of continuing our joint efforts to develop and commercialize our Field
Emission Display technology, and on June 4, 2002 we received notification from
Futaba terminating the Futaba Agreement. We are now evaluating our options for
further developing and commercializing our technology.

                                       8
<PAGE>

In June 2001, we received the initial $2,500,000 payment provided for by the
Futaba Agreement for the first phase of development ("Phase I") of a prototype
for a 320 x 240 pixel, 5-inch diagonal display. During Phase I, which was
contractually defined as a one-year period, we were primarily responsible for
developing prototypes of the display and providing the required fabrication, to
enable Futaba to utilize its know-how and production facilities for the possible
mass production of the display. The Futaba Agreement further provided for
negotiations between the parties during the first six months of the Futaba
Agreement regarding potential additional payments to us for partial compensation
for use of our technology developed prior to entering into the Futaba Agreement.
In accordance with this provision, in January 2002, we received an additional
payment of $3,000,000 relating to Phase I.

Additionally, in May 2001, we entered into an agreement with Volga Svet, Ltd.
("Volga") for certain development efforts in connection with the FED technology.
Under this agreement, we agreed to pay Volga the sum of $180,000 per quarter for
its development work during the first year of the Volga Agreement, which has
been paid in full as of April 30, 2002. In connection with the additional
$3,000,000 payment received from Futaba, we entered into a letter agreement,
effective as of February 1, 2002, to pay Volga a total of $750,000 (payable
during the three months ended April 30, 2002 and July 31, 2002, in the amounts
of $450,000 and $300,000, respectively) to continue development under Phase I of
the Futaba Agreement. As of June 10, 2002, all of such amounts have been paid.

Funding and Management's Plans

From our inception through June 2001, we have met our liquidity and capital
expenditure needs primarily through the proceeds from sales of common stock in
our initial public offering, in private placements, upon exercise of warrants
issued in connection with the private placements and public offering, and upon
the exercise of stock options. Commencing in the fourth quarter of fiscal 1999,
we also began to generate cash from sales of our encryption products, and,
commencing in June 2001, we began to receive development payments from Futaba
under the Futaba Agreement.

During the six months ended April 30, 2002, our operating activities provided
approximately $858,000 in cash. This resulted primarily from $3,000,000 in
payments received from Futaba and cash of approximately $525,000 received from
collections of accounts receivable related to sales of encryption products,
which was offset by payments to suppliers, employees and consultants of
approximately $2,681,000. As a result, our cash and cash equivalents at April
30, 2002 increased to approximately $2,142,000 from approximately $1,317,000 at
the end of fiscal 2001. We believe that our existing cash and net accounts
receivable, together with cash flows from future sales of encryption products
and other potential sources of cash flows, will be sufficient to enable us to
continue in operation until at least the end of the second quarter of fiscal
2003.

We are seeking to improve our liquidity through increased sales or license of
products and technology and may also seek to improve our liquidity through sales
of debt or equity securities. Despite the foregoing, there can be no assurance
that we will generate significant revenues in the future (through sales or
otherwise) to improve our liquidity, that we will generate sufficient revenues
to sustain future operations and/or profitability, that we will be able to
expand our current distributor/dealer network, that production capabilities will
be adequate, or that other products will not be produced by other companies that
will render our products obsolete, or that other sources of funding would be
available, if needed, at terms that we would deem favorable.

                                       9
<PAGE>

Our common stock is listed on The Nasdaq National Market. To maintain that
listing, Nasdaq requires, among other things, that our stock maintain a minimum
closing bid price of at least $1 per share and we maintain either stockholders'
equity of at least $10,000,000 or net tangible assets of at least $4,000,000.
Commencing November 1, 2002, we will be required to comply with the $10,000,000
stockholders' equity requirement. The closing bid price of our common stock on
June 10, 2002, was $0.59, and the bid price has been below $1 since February 12,
2001. On May 16, 2002, Nasdaq notified us that, as a result of such failure to
meet the bid price standard, our common stock is subject to delisting from The
Nasdaq National Market. We have requested a hearing before a Nasdaq Listings
Qualification Panel to review this decision. During the appeal process, our
securities will remain listed on The Nasdaq National Market. If we are not
successful in our appeal, we can apply for transfer of our listing to The Nasdaq
SmallCap Market if we meet its continued listing standards, including
stockholders' equity of $2,500,000. The Nasdaq SmallCap Market also requires a
$1 bid price, but provides 90 additional calendar days (or until August 13,
2002) to regain compliance (which period may be extended for an additional 180
calendar days if we meet the initial listing standards, including stockholders'
equity of $5,000,000, or market capitalization of $50,000,000, or net income in
the last completed fiscal year of $750,000). A delisting of our common stock
could have an adverse effect on the market price and liquidity of our common
stock.

Basis of Presentation

The condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. The
information contained herein is for the six and three month periods ended April
30, 2002 and 2001. In management's opinion, all adjustments (consisting only of
normal recurring adjustments considered necessary for a fair presentation of the
results of operations for such periods) have been included herein.

The results of operations for interim periods may not necessarily reflect the
results of operations for a full year. Reference is made to the audited
financial statements and notes thereto included in our Annual Report on Form
10-K for the fiscal year ended October 31, 2001, for more extensive disclosures
than contained in these condensed financial statements.

Realizability of Assets

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

Management believes our other assets, which consist principally of commercial
trade barter credits (see Note 2), will be realized through future usage in
accordance with our original utilization plan, and accordingly are properly
valued as of April 30, 2002. We will continue to assess that utilization plan on
a quarterly basis. Our ability to utilize all of our available barter credit
under our plan is

                                       10
<PAGE>

dependent upon significant growth in our product sales or revenues from the
license of our products.

Product Development

The success and profitability of our products will depend upon many factors,
many of which are beyond our control. These factors include our ability to
market our products; long-term product performance; the ability of our dealers
and distributors to adequately service our products; our ability to maintain an
acceptable pricing level to our customers; the ability of suppliers to meet our
requirements and schedule; our ability to successfully develop new products;
rapidly changing consumer preferences; and the possible development of
competitive products that could render our products obsolete or unmarketable.

Revenue Recognition

We recognize revenues from product sales, net of sales returns, and
collaborative agreements in accordance with Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements," or other specific authoritative
literature, as applicable, as follows:

         Product Sales

         Revenues from product sales are recorded when all four of the following
         criteria are met:
         (i) persuasive evidence of an arrangement exists; (ii) delivery has
         occurred or services have been rendered; (iii) our price to the buyer
         is fixed or determinable; and (iv) collectibility is reasonably
         assured. Consequently, revenues from product sales are generally
         recognized at the time products are shipped and title has passed to
         customers.

         Collaborative Agreement

         The initial $2.5 million payment from Futaba under the Futaba Agreement
         is being recognized ratably over Phase I, the period of our commitment
         under this portion of the contract. The $3 million payment received
         from Futaba under the Futaba Agreement during the three months ended
         January 31, 2002 is being recognized ratably over the remaining term of
         Phase I.

         Sales Returns and Allowances

         Revenues are recorded net of sales returns. There were no sales returns
         during the six and three month periods ended April 30, 2002 and 2001.
         Based upon a specific review and in accordance with our contractual
         return policy, management believes that no reserve for anticipated
         sales returns is required as of April 30, 2002.

         Deferred Revenue

         Payments received from Futaba under the Futaba Agreement which are in
         excess of the amounts recognized as revenue (approximately $1,084,000
         as of April 30, 2002) are recorded as deferred revenue on the
         accompanying condensed balance sheet and are expected to be recognized
         as revenue during the three month period ended July 31, 2002.

                                       11
<PAGE>

Other Assets

Other assets consist primarily of a barter credit asset, which we will realize
through future redemption of barter credits to be applied toward advertising and
purchase discounts (Note 2). In accordance with SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," we continually evaluate the carrying amount of this asset for any potential
impairment. Based on this evaluation, management believes that there is no
impairment as of April 30, 2002.

Use of Estimates

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

Reclassifications

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

(2) Barter Transaction

In August 2000, we entered into a nonmonetary barter transaction in which we
sold $3,000,000 of certain inventory in exchange for an equal value of
commercial trade credits. In accordance with APB No. 29, "Accounting for
Non-Monetary Transactions," we recognized no gain or loss on the transaction as
it was management's opinion that this exchange was effected at fair market
value. These trade credits ($2,820,000 as of April 30, 2002 - Note 1), which are
recorded as other assets on the accompanying condensed balance sheet, may be
redeemed to reduce the cost of advertising as well as other products and
services. As is typical of such arrangements, to utilize barter credits we must
pay a certain percentage of the advertising or other expense in cash. We
evaluate the ultimate realizability of these commercial trade credits based on a
plan of usage relative to our various products. Based on our current plan, we
believe that a portion of the credits will be utilized in fiscal 2002 and the
remaining credits will be utilized through fiscal 2006.

(3) Shareholders' Equity

Stock Incentive Plans

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

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. We have chosen to continue to account for
stock-based employee compensation using the intrinsic value method prescribed in
APB No. 25. Compensation cost for stock options is measured as the

                                       12
<PAGE>

excess, if any, of the quoted market price of our stock at the date of
grant over the amount an employee must pay to acquire the stock. In accordance
with APB Opinion No. 25, we have not recognized any compensation cost, as all
option grants to employees have been made at the fair market value of our stock
on the date of grant.

We account for options granted to non-employee consultants using the fair value
method required by SFAS No. 123. Such compensation expense for consultant's
options in the six month periods ended April 30, 2002 and 2001, was
approximately $0 and $103,000, respectively, and in the three month periods
ended April 30, 2002 and 2001, was $0 and $0, respectively. Such compensation
expense was recognized in accordance with Emerging Issues Task Force Issue No.
00-08, "Accounting by a Grantee for an Equity Instrument to be Received in
Conjunction with Providing Goods or Services" and No. 96-18 "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," and is included in selling,
general and administrative expenses in the accompanying condensed statements of
operations.

During the six month period ended April 30, 2002, we granted options to purchase
59,000 shares and stock awards of 1,488,910 shares, all pursuant to the 2000
Share Plan. As of April 30, 2002, options to purchase 14,904,746 shares were
outstanding, of which stock options to purchase 14,785,746 shares were
exercisable, pursuant to our stock incentive plans.

(4) Net Income (Loss) Per Share of Common Stock

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

The following table provides a reconciliation of information used in calculating
the per share amounts:
<TABLE>
<CAPTION>


                                                            Six months ended                     Three months ended
                                                               April 30,                              April 30,
                                                    ---------------------------------      --------------------------------
                                                         2002             2001                  2002            2001
                                                         ----             ----                  ----            ----
Numerator:
<S>                                                    <C>           <C>                    <C>           <C>
   Net income (loss)-Basic                             $ 957,834     $ (1,918,216)          $  897,527    $  (788,080)
   Net income (loss)-Diluted                           $ 957,834     $ (1,918,216)          $  897,527    $  (788,080)

Denominator:
   Shares-Basic                                       67,305,726       63,602,490           67,672,917     63,994,320
   Effect of dilutive stock options                      280,277                -              241,583              -
   Shares-Dilutive                                    67,586,003       63,602,490           67,914,500     63,994,320

Net income (loss) per share:
   Basic                                               $    0.01     $      (0.03)          $     0.01    $     (0.01)
   Dilutive                                            $    0.01     $      (0.03)          $     0.01    $     (0.01)
</TABLE>

                                       13
<PAGE>

In the six and three month periods ended April 30, 2002, options to purchase
13,417,246 and 13,408,996 shares of common stock, respectively, were outstanding
but were not included in the computation of Diluted EPS because the options'
exercise prices were greater than the average market price of the common shares.
In the six and three month periods ended April 30, 2001, Diluted EPS is the same
as Basic EPS, as the inclusion of the impact of common stock equivalents then
outstanding would be anti-dilutive.

                                       14
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial
                      Condition and Results of Operations.


Forward-Looking Statements

Information included in this Quarterly Report on Form 10-Q may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are not statements of
historical facts, but rather reflect our current expectations concerning future
events and results. We generally use the words "believes," "expects," "intends,"
"plans," "anticipates," "likely," "will" and similar expressions to identify
forward-looking statements. Such forward-looking statements, including those
concerning our expectations, involve risks, uncertainties and other factors,
some of which are beyond our control, which may cause our actual results,
performance or achievements, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. These risks, uncertainties and factors include,
but are not limited to, those factors set forth in "General Risks and
Uncertainties" below and Note 1 to Condensed Financial Statements. You should
read the following discussion and analysis along with our Annual Report on Form
10-K for the year ended October 31, 2001 and the condensed financial statements
included in this Report. We undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information presented in this
Report.


GENERAL

We were a development stage enterprise from inception through our fiscal year
ended October 31, 2001. In the quarter ended January 31, 2002, we met the
Statement of Financial Accounting Standards No. 7 requirements to no longer
present our financial statements as a development stage enterprise.

Our principal operations include the development, production and marketing of
multi-functional encryption products that provide information security for
domestic and international users over virtually every communications media and
the development of a full-color video display.

Our line of encryption products presently includes the USS-900, the DSS-1000,
the DCS-1200, the DCS-1400, the STS-1500 and the ULP-1. These encryption
products are multi-functional, hardware-based digital encryption systems that
provide high-grade encryption using either the Citadel(TM) CCX encryption
cryptographic chip (which is manufactured by the Harris Corporation) or the
Triple DES or the new Advanced Encryption Standard ("AES") algorithm (algorithms
available in the public domain which are used by many U.S. government agencies).
We are continuing our research and development activities for additional
encryption products.

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

                                       15
<PAGE>

We are also continuing our research and development activities with respect to
flat panel display technologies, including our thin flat video color display
("Field Emission Display" or "FED") and our ultra-high resolution charged
particle E-Paper(TM) flat panel display. Using our planar edge emission
technology, we have developed engineering operational models of a 3-inch
(diagonal) full-color video Field Emission Display with 160 x 170 pixels. We
believe that our display:

     --   can be  produced  in a variety  of sizes,  permitting  its use for any
          application from hand-held to HDTV devices;

     --   can function in a broad environmental range, similar to a CRT;

     --   has low power consumption requirements;

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

     --   has high brightness with full color video capability.

We had been developing our Field Emission Display technology with Futaba
Corporation ("Futaba") pursuant to the Joint Cooperation Agreement for Field
Emission Displays (the "Futaba Agreement") which we entered into with Futaba in
June 2001 for the purpose of jointly developing and commercializing a full-color
video display utilizing our Field Emission Display technology. After extensive
negotiations, we were unable to reach agreement with Futaba with respect to the
terms of continuing our joint efforts to develop and commercialize our Field
Emission Display technology, and on June 4, 2002 we received notification from
Futaba terminating the Futaba Agreement. Additionally, in May 2001, we entered
into an agreement (the "Volga Agreement") with Volga Svet, Ltd. ("Volga") for
certain development efforts in connection with the FED technology. We are now
evaluating our options for further developing and commercializing our
technology.


RESULTS OF OPERATIONS

Six months ended April 30, 2002 compared with six months ended April 30, 2001

Product Sales

         Revenues

Revenues from product sales increased by approximately $13,000, to approximately
$436,000, in the six month period ended April 30, 2002, from approximately
$423,000 in the comparable prior-year period. The increase resulted from an
increase in sales of Magicom products of approximately $99,000 (from
approximately $1,000 in the six month period ended April 30, 2001 to
approximately $100,000 in the six month period ended April 30, 2002), offset by
a decline in sales of other products of approximately $86,000 (from
approximately $422,000 in the six month period ended April 30, 2001 to
approximately $336,000 in the six month period ended April 30, 2002). All
product sales are encryption products. We discontinued production of Magicom
products in fiscal 2000, but continue to sell our remaining inventory. All
Magicom sales during the six month period ended April 30, 2002 were made at our
inventory carrying value. Our product sales have been limited and are sensitive
to individual large transactions. We believe that changes in product sales

                                       16
<PAGE>

between periods generally represents the nature of the early stage of our
product and sales channel development.

         Gross Profit

Gross profit from product sales decreased by approximately $43,000 in the six
months ended April 30, 2002, to approximately $212,000, compared to
approximately $255,000 in the comparable prior-year period. Product sales gross
profit as a percentage of sales decreased to approximately 49% in the six month
period ended April 30, 2002, compared to approximately 60% in the comparable
prior-year period. The decrease in product sales gross profit as a percentage of
sales resulted primarily from the increase noted above in the portion of current
period sales consisting of Magicom products, as compared to the prior-year
period. Because we have discontinued the Magicom products, we have reduced our
selling prices for those products from our original pricing, and accordingly our
gross profit on sales of the Magicom products is significantly lower than for
our other products.

Collaborative Agreement

         Revenues

We recognized collaborative agreement revenues of approximately $3,458,000 under
the Futaba Agreement in the six months ended April 30, 2002, as compared to no
such revenues in the comparable period-year period. We recognize payments
received from Futaba as income ratably over Phase I of the Futaba Agreement;
accordingly, additional revenue from payments received from Futaba is expected
to be recognized in the three month period ended July 31, 2002, in the amount of
approximately $1,084,000. As Futaba has given notice terminating the Futaba
Agreement, we will not receive any further revenue under the Futaba Agreement
after the July 31, 2002 period.

         Gross Profit

Gross profit from collaborative agreement was approximately $2,428,000 in the
six month period ended April 30, 2002 as a result of revenues recognized under
the Futaba Agreement, as compared to no such gross profit in the comparable
prior year period. Gross profit from collaborative agreement in the six month
period ended April 30, 2002 is net of cost of revenues of approximately
$1,030,000 consisting of research and development costs relating to FED
technology. Research and development costs relating to FED technology were
included in research and development expenses in the prior-year period.

Research and Development Expenses

Research and development expenses decreased approximately $421,000 to
approximately $694,000 for the six months ended April 30, 2002, from
approximately $1,115,000 for the comparable prior-year period. The decrease in
research and development expenses reflects the classification as costs of
revenues of development efforts related to FED technology in the six months
ended April 30, 2002, rather than research and development expenses as in the
prior-year period. In addition, outside R&D costs were reduced by approximately
$33,000, non-employee consultant expense was

                                       17
<PAGE>

reduced by approximately $54,000, and employee compensation and related costs
were reduced by approximately $130,000.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by approximately $65,000
to approximately $1,003,000 for the six month period ended April 30, 2002 from
approximately $1,068,000 for the comparable prior-year period. The decrease in
selling, general and administrative expenses reflects favorable collection
experience resulting in the recovery of a previously recorded bad debt charge of
$60,000 and a reduction in non-employee consultant expense of approximately
$104,000, offset by an increase in professional fees of approximately $51,000,
an increase in employee compensation and related costs of approximately $15,000,
and an increase in advertising expense of approximately $16,000.

Interest Income

Interest income increased by approximately $5,000 to approximately $15,000 in
the six months ended April 30, 2002 as compared to approximately $10,000 in the
comparable period in the prior-year, primarily as a result of an increase in
average funds available for investment offset by a reduction in prevailing
interest rates.

Three months ended April 30, 2002 compared with three months ended April 30,
2001

Product Sales

         Revenues

Revenues from product sales decreased by approximately $53,000, to approximately
$192,000, in the three month period ended April 30, 2002, from approximately
$245,000 in the comparable prior-year period. The decrease in products sales was
due to lower unit sales. Our product sales have been limited and are sensitive
to individual large transactions, and a reduction in the number of such
transactions resulted in lower unit sales.

         Gross Profit

Gross profit decreased by approximately $22,000 in the three months ended April
30, 2002, to approximately $129,000, compared to approximately $151,000 in the
comparable prior-year period. Gross profit as a percentage of sales increased to
approximately 67% in the three month period ended April 30, 2002, compared to
approximately 62% in the comparable prior-year period. The increase in product
sales gross profit as a percentage of sales resulted primarily from normal
pricing variations.

Collaborative Agreement

         Revenues

We recognized collaborative agreement revenues of approximately $2,425,000 under
the Futaba Agreement in the three months ended April 30, 2002, as compared to no
such revenues in the

                                       18
<PAGE>

comparable period-year period. We recognize payments received from Futaba as
income ratably over Phase I of the Futaba Agreement.

         Gross Profit

Gross profit from collaborative agreement was approximately $1,660,000 in the
three month period ended April 30, 2002 as a result of revenues recognized under
the Futaba Agreement, as compared to no such gross profit in the comparable
prior-year period. Gross profit from collaborative agreement in the three month
period ended April 30, 2002 is net of cost of revenues of approximately $765,000
consisting of research and development costs relating to FED technology.
Research and development costs relating to FED technology were included in
research and development expenses in the prior-year period.

Research and Development Expenses

Research and development expenses decreased approximately $82,000 to
approximately $400,000 for the three months ended April 30, 2002, from
approximately $482,000 for the comparable prior-year period. The decrease in
research and development expenses reflects the classification as costs of
revenues of development efforts related to FED technology, rather than research
and development expense as in the prior-year period. In addition, patent related
costs increased by approximately $48,000, offset by a reduction in employee
compensation and related costs of approximately $28,000.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by approximately $41,000
to approximately $501,000 for the three month period ended January 31, 2002 from
approximately $460,000 for the three month period ended April 30, 2001. The
increase in selling, general and administrative expenses reflects an increase in
professional fees of approximately $37,000 and advertising expense of
approximately $7,000.

Interest Income

Interest income increased by approximately $8,000 to approximately $10,000 in
the three months ended April 30, 2002 as compared to approximately $2,000 in the
comparable period in the prior-year, primarily as a result of an increase in
average funds available for investment offset by a reduction in prevailing
interest rates.


LIQUIDITY AND CAPITAL RESOURCES

In June 2001, we received the initial $2,500,000 payment provided for by the
Futaba Agreement for the first phase of development of a prototype for a 320 x
240 pixel, 5-inch diagonal display having numerous advanced features, including
wide viewing angle, low power consumption, high-resolution and an ultra-bright
screen. The Futaba Agreement further provided for negotiations between the
parties regarding additional compensation to us for the use of our technology
developed prior to entering into the Futaba Agreement. In January 2002, Futaba
paid us an additional $3,000,000 as partial compensation for the use of this
technology.

                                       19

<PAGE>

We agreed to pay Volga the sum of $180,000 per quarter for its development work
during the first year of the Volga Agreement, which has been paid in full as of
April 30, 2002. Volga is required to grant us licenses for background
technology, and for technology developed under the Volga Agreement, upon the
payment of amounts to be negotiated between the parties, which may include the
payment of royalties based on sales of products resulting from the development
activities under the Volga Agreement. We entered into a letter agreement with
Volga, effective as of February 1, 2002, to pay Volga a total of $750,000 in
connection with the $3,000,000 we received from Futaba in January 2002. The
$750,000 was payable in installments over a five-month period ending in June
2002. As of June 10, 2002, all such amounts have been paid. The funds received
by Volga are required to be used primarily for research and development and for
purchasing facilities and production areas for FED technology.

From our inception through June 2001, we met our liquidity and capital
expenditure needs primarily through the proceeds from sales of common stock in
our initial public offering, in private placements, upon exercise of warrants
issued in connection with the private placements and public offering, and upon
the exercise of stock options. Commencing in the fourth quarter of fiscal 1999,
we also began to generate cash from sales of our encryption products, and,
commencing in June 2001, we began to receive development payments from Futaba
under the Futaba Agreement.

During the six months ended April 30, 2002, our operating activities provided
approximately $858,000 in cash. This resulted primarily from $3,000,000 in
payments received from Futaba and cash of approximately $525,000 received from
sales of encryption products, which was offset by payments to suppliers,
employees and consultants of approximately $2,681,000. As a result, our cash and
cash equivalents at April 30, 2002 increased to approximately $2,142,000 from
approximately $1,317,000 at the end of fiscal 2001.

Accounts receivable decreased by approximately $29,000 from approximately
$536,000 at the end of fiscal 2001 to approximately $507,000 at April 30, 2002,
as a result of the timing of collections offset by the reduction in the
allowance for doubtful accounts. Inventories increased approximately $12,000
from approximately $1,589,000 at October 31, 2001 to approximately $1,601,000 at
April 30, 2002, as a result of the timing of shipments and production schedules.
Prepaid expenses and other assets increased by approximately $57,000 from
approximately $137,000 at the end of fiscal 2001 to approximately $194,000 at
April 30, 2002, primarily as a result of the timing of payments of prepaid items
such as insurance and membership fees. Accounts payable and accrued liabilities
decreased by approximately $403,000 from approximately $854,000 at the end of
fiscal 2001 to approximately $451,000 at April 30, 2002, as a result of the
decrease in operating expenses and the timing of payments. We recognize the cash
received from Futaba as income ratably over Phase I; accordingly, deferred
revenue represents the portion not yet recognized as income. Deferred revenue
decreased by approximately $458,000 from approximately $1,542,000 at October 31,
2001 to approximately $1,084,000 at April 30, 2002.

As a result of these changes, working capital at April 30, 2002 increased to
approximately $2,910,000 from approximately $1,184,000 at the end of fiscal
2001.

Our working capital includes inventory of approximately $1,601,000. Management
has recorded our inventory at the lower of cost or our current best estimate of
net realizable value. To date, sales

                                       20

                                       2
<PAGE>

of our products have been limited. Accordingly, there can be no assurance that
we will not be required to reduce the selling price of our inventory below our
current carrying value.

Management believes its other assets, which consist principally of commercial
trade barter credits, will be realized through future usage in accordance with
our original utilization plan, and accordingly are properly valued as of April
30, 2002. We will continue to assess that utilization plan on a quarterly basis.

In addition to the current liabilities recorded on our balance sheet, we are
subject to various contractual commitments, including payments to Volga during
the three month period ended July 31, 2002 of approximately $300,000. Our plans
and expectations for our working capital needs also assume that our Chairman of
the Board, President and other senior level personnel will continue to perform
services without cash compensation or pension benefits. There can be no
assurance that such personnel will continue to provide such services without
such compensation.

We believe that our existing cash and net accounts receivable, together with
cash flows from future sales of encryption products and other potential sources
of cash flows, will be sufficient to enable us to continue in operation until at
least the end of the second quarter of fiscal 2003. We anticipate that,
thereafter, we will require additional funds to continue our marketing and
research and development activities, and we will require outside funding if cash
generated from operations is insufficient to satisfy our liquidity requirements.
However, our projections of future cash needs and cash flows may differ from
actual results. If current cash and cash that may be generated from operations
are insufficient to satisfy our liquidity requirements, we may seek to sell debt
or equity securities or to obtain a line of credit. The sale of additional
equity securities or convertible debt could result in 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.

We are seeking to improve our liquidity through increased sales or license of
products and technology. In an effort to generate sales, we have marketed our
encryption products directly to U.S. and international distributors, dealers and
original equipment manufacturers who market our encryption products on a
non-exclusive basis. During the six months ended April 30, 2002, we have
recognized revenues from product sales of approximately $436,000 and revenues in
connection with the Futaba Agreement of approximately $3,458,000.

Our common stock is listed on The Nasdaq National Market. To maintain that
listing, Nasdaq requires, among other things, that our stock maintain a minimum
closing bid price of at least $1 per share and we maintain either stockholders'
equity of at least $10,000,000 or net tangible assets of at least $4,000,000.
Commencing November 1, 2002, we will be required to comply with the $10,000,000
stockholders' equity requirement. The closing bid price of our common stock on
June 10, 2002, was $0.59, and the bid price has been below $1 since February 12,
2001. On May 16, 2002, Nasdaq notified us that, as a result of such failure to
meet the bid price standard, our common stock is subject to delisting from The
Nasdaq National Market. We have requested a hearing before a Nasdaq Listings
Qualification Panel to review this decision. During the appeal process, our
securities will remain listed on The Nasdaq National Market. If we are not
successful in our appeal, we can apply for transfer of our listing to The Nasdaq
SmallCap Market if we meet its continued listing standards, including
stockholders' equity of $2,500,000. The Nasdaq SmallCap

                                       21

                                       3
<PAGE>

Market also requires a $1 bid price, but provides 90 additional calendar
days (or until August 13, 2002) to regain compliance (which period may be
extended for an additional 180 calendar days if we meet the initial listing
standards, including stockholders' equity of $5,000,000, or market
capitalization of $50,000,000, or net income in the last completed fiscal year
of $750,000). A delisting of our common stock could have an adverse effect on
the market price and liquidity of our common stock.


GENERAL RISKS AND UNCERTAINTIES

Our business involves a high degree of risk and uncertainty, including, but not
limited to, the following risks and uncertainties:

-- In prior periods we had experienced significant net losses and negative cash
   flows from operations and they may occur again.

Although we had a net profit for the six month period ended April 30, 2002, in
prior periods we had net losses and negative cash flows from operations. We may
incur substantial losses and experience substantial negative cash flows from
operations in the future. Our net profit for the six month period ended April
30, 2002 resulted largely from payments from Futaba under the Futaba Agreement.
We will continue through June 2002 to recognize as income portions of the
payments from Futaba. The Futaba Agreement terminated in June 2002, and it is
likely that we will again incur substantial net losses.

We have incurred substantial costs and expenses in developing our encryption and
flat panel display technologies and in our efforts to produce commercially
marketable products incorporating our technology. We have had limited sales of
products to support our operations from inception through April 30, 2002. We
have set forth below our net income (losses), research and development expenses
and net cash provided by (used in) operations for the fiscal years ended October
31, 2001 and 2000, and the six month periods ended April 30, 2002 and 2001:

<TABLE>
<CAPTION>

                                                                                                (Unaudited)
                                                          Fiscal Years Ended                 Six Months Ended
                                                              October 31,                        April 30,
                                                     ------------------------------    ------------------------------
                                                          2001           2000               2002           2001
                                                          ----           ----               ----           ----
<S>                                                  <C>             <C>               <C>            <C>
Net (loss) income                                    $(3,571,957)    $(4,964,173)      $   957,834    $(1,918,216)
Research and development                             $ 2,325,000     $ 2,732,000       $   693,691    $ 1,115,036
Net cash (used in) provided by operations            $  (717,845)    $(4,840,578)      $   858,104    $(1,771,762)
</TABLE>

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

We anticipate that, if cash generated from operations is insufficient to satisfy
our requirements, we will require additional funding to continue our research
and development activities, market our products and satisfy the
continued-listing standards for the Nasdaq Stock Market. We believe that our
existing cash and net accounts receivable, together with cash flows from sales
of encryption products and other potential sources of cash flows, will be
sufficient to enable us to continue in operation until at least the end of the
second quarter of fiscal 2003. We anticipate that, thereafter,

                                       22

                                       4
<PAGE>

we will require additional funds to continue our marketing and research and
development activities, and we will require outside funding if cash generated
from operations is insufficient to satisfy our liquidity requirements. However,
our projections of future cash needs and cash flows may differ from actual
results. If current cash and cash that may be generated from operations are
insufficient to satisfy our liquidity requirements, we may seek to sell debt or
equity securities or to obtain a line of credit. The sale of additional equity
securities or convertible debt could result in 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.

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

We are engaged in two principal operations: (i) developing, manufacturing and
marketing encryption products for voice, fax, and data communications and (ii)
with Volga, developing an advanced flat panel video display technology. Our
encryption products are only in their initial stages of commercial production
and our flat panel display technology is still in the research and development
stage. Our investments in research and development are considerable. Our ability
to generate sufficient revenues to support our operations in the future or to
generate profits will depend upon numerous factors, many of which are beyond our
control, including:

     --   our ability to successfully market our line of encryption products;
     --   our production capabilities and those of our suppliers as required for
          the production of our encryption products;
     --   long-term  product  performance  and the capability of our dealers and
          distributors to adequately service our products;
     --   our ability to maintain an  acceptable  pricing level to end-users for
          our products;
     --   the ability of suppliers to meet our requirements and schedule;
     --   our  ability  to   successfully   develop  our  new   products   under
          development;
     --   rapidly changing consumer preferences;
     --   the possible development of competitive products that could render our
          products obsolete or unmarketable;
     --   our  ability to further  develop and to  commercialize  our flat panel
          display   technology  in  light  of  the  termination  of  the  Futaba
          Agreement;
     --   our ability to jointly  develop with Volga a full-color  video display
          that can be successfully  marketed; and
     --   our future  negotiations with Volga with respect to payments and other
          arrangements under the Volga Agreement.

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

                                       23

<PAGE>

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

Our future success is dependent on our ability to hire, retain and motivate
highly qualified personnel. In particular, our success depends on the continued
efforts of our Chief Executive Officer, Denis A. Krusos, and our President,
Frank J. DiSanto, who founded our company in 1982 and are engaged in the
management and operations of our business, including all aspects of the
development, production and marketing of our encryption products and flat panel
display technology. In addition, Messrs. Krusos and DiSanto, as well as our
other skilled management and technical personnel, are important to our future
business and financial arrangements. The loss of the services of any such
persons could have a material adverse effect on our business and operating
results.

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

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

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

To maintain our listing on The Nasdaq National Market, Nasdaq requires, among
other things, that our stock maintain a minimum closing bid price of at least $1
per share and we maintain either stockholders' equity of at least $10,000,000 or
net tangible assets of at least $4,000,000. Commencing November 1, 2002, we will
be required to comply with the $10,000,000 stockholders' equity requirement. The
closing bid price of our common stock on June 10, 2002, was $0.59, and the bid
price has been below $1 since February 12, 2001. On May 16, 2002, Nasdaq
notified us that, as a result of such failure to meet the bid price standard,
our common stock is subject to delisting from The Nasdaq National Market. We
have requested a hearing before a Nasdaq Listings Qualification Panel to review
this decision. During the appeal process, our securities will remain listed on
The Nasdaq National Market. If we are not successful in our appeal, we can apply
for transfer of our listing to The Nasdaq SmallCap Market if we meet its
continued listing standards, including stockholders' equity of $2,500,000. The
Nasdaq SmallCap Market also requires a $1 bid price, but provides 90 additional
calendar days (or until August 13, 2002) to regain compliance (which period may
be extended for an additional 180 calendar days if we meet the initial listing
standards, including stockholders' equity of $5,000,000, or market
capitalization of $50,000,000, or net income in the last completed fiscal year
of $750,000). A delisting of our common stock could have an adverse effect on
the market price and liquidity of our common stock.

                                       24

<PAGE>

                           PART II - OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K.

          (a)     Exhibits

                  None.

          (b)     Reports on Form 8-K

                  No current report on Form 8-K was filed for the Company during
                  the quarter ended April 30, 2002.


                                   SIGNATURES

Pursuant to the requirements 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,
                                    Chief Executive Officer
June 14, 2002                       (Principal Executive Officer)

                                    By:/s/ Frank J. DiSanto
                                    ----------------------------------
                                    Frank J. DiSanto
June 14, 2002                       President

                                    By:/s/ Henry P. Herms
                                    ----------------------------------
                                    Henry P. Herms
                                    Vice President - Finance and
                                    Chief Financial Officer  (Principal
June 14, 2002                       Financial and Accounting Officer)

                                       25