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, 2009

                         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 by check mark whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter)  during the  preceding 12 months (or for such shorter  period that
the registrant was required to submit and post such files).

                                    Yes X  No
                                       ---   ---

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definitions of "large accelerated  filer,"  "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Large accelerated filer [ ]                                                     Accelerated filer  [X]
Non-accelerated filer   [ ] (Do not check if a smaller reporting company)       Smaller Reporting Company  [ ]
</TABLE>

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                    Yes    No X
                                       ---   ---

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

On June 11, 2009, the registrant had  outstanding  140,057,453  shares of Common
Stock, par value $.01 per share,  which is the registrant's only class of common
stock.
<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>                                                                                          <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

         Condensed Consolidated Balance Sheets as of April 30, 2009 (Unaudited)
             and October 31, 2008                                                            3

         Condensed Consolidated Statements of Operations (Unaudited) for the six
             months ended April 30, 2009 and 2008                                            4

         Condensed Consolidated Statements of Operations (Unaudited) for the three
             months ended April 30, 2009 and 2008                                            5

         Condensed Consolidated Statement of Shareholder's Equity (Unaudited)
             for the six months ended April 30, 2009                                         6

         Condensed Consolidated Statements of Cash Flows (Unaudited) for the six
             months ended April 30, 2009 and 2008                                            7

         Notes to Condensed Consolidated Financial Statements (Unaudited)                    8 - 24

Item 2.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations.                                                          25 - 38

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.                         38

Item 4.  Controls and Procedures.                                                            38 - 39

PART II.  OTHER INFORMATION

Item 1A. Risk Factors.                                                                       40

Item 6.   Exhibits.                                                                          40

          SIGNATURES                                                                         40
</TABLE>
                                       2
<PAGE>
                          PART I. FINANCIAL INFORMATION
                          -----------------------------

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

                         COPYTELE, INC. AND SUBSIDIARIES
                         -------------------------------
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      -------------------------------------
<TABLE>
<CAPTION>
<S>                                                                   <C>                 <C>
                                                                        (Unaudited)
                                                                      ---------------
                                                                         April 30,          October 31,
                                ASSETS                                     2009                2008*
                                ------                                ---------------     ---------------

CURRENT ASSETS:
   Cash and cash equivalents                                          $    1,291,186      $      478,599
   Short-term investments in certificates of deposit and U.S.
    government securities                                                    749,827           1,442,484
   Accounts receivable, net of allowance for doubtful accounts of
    $223,000                                                                 106,000             103,000
   Inventories                                                               176,087             178,144
   Prepaid expenses and other current assets                                  63,332              54,348
                                                                      ---------------     ---------------
            Total current assets                                           2,386,432           2,256,575

INVESTMENT in U. S. government securities, noncurrent, at amortized
 cost                                                                              -             749,711

INVESTMENT in Videocon Industries Limited global depository receipts,
at fair value                                                              3,260,942           3,619,945

INVESTMENT in Digital Info Security Co. Inc. common stock, at fair
 value                                                                       336,000             841,800

PROPERTY AND EQUIPMENT, net                                                   24,277              29,838

                                                                      ---------------     ---------------
                                                                      $    6,007,651      $    7,497,869
                                                                      ===============     ===============

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

CURRENT LIABILITIES:
   Accounts payable                                                   $      294,251      $      384,896
   Accrued liabilities                                                       161,362              69,364
   Deferred revenue, non-refundable license fee                                    -             313,332
                                                                      ---------------     ---------------
            Total current liabilities                                        455,613             767,592

LOAN PAYABLE TO RELATED PARTY                                              5,000,000           5,000,000

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; 139,037,498 and 132,497,881 shares issued and
    outstanding, respectively                                              1,390,375           1,324,979
   Additional paid-in capital                                            111,654,723         109,348,894
   Loan receivable from related party                                     (5,000,000)         (5,000,000)
   Accumulated deficit                                                   (94,507,202)        (91,788,341)
   Accumulated other comprehensive loss                                  (12,985,858)        (12,155,255)
                                                                      ---------------     ---------------
                                                                             552,038           1,730,277
                                                                      ---------------     ---------------
                                                                      $    6,007,651      $    7,497,869
                                                                      ===============     ===============
</TABLE>

* Derived from audited balance sheet included in our Annual Report on Form 10-K
for the fiscal year ended October 31, 2008.

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

                                       3
<PAGE>
                         COPYTELE, INC. AND SUBSIDIARIES
                         -------------------------------
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
           -----------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                   <C>                 <C>
                                                                           For the Six Months Ended
                                                                                   April 30,
                                                                      -----------------------------------
                                                                           2009                2008
                                                                      ---------------     ---------------
NET REVENUE
    Revenue from sales of encryption products, net                    $       21,540      $      217,580
    Revenue from display engineering services, net                            52,000                   -
    Display technology license fee                                           563,332                   -
                                                                      ---------------     ---------------
             Total net revenue                                               636,872             217,580
                                                                      ---------------     ---------------

COST AND OPERATING EXPENSES
    Cost of encryption products sold                                           5,518              50,170
    Cost of display engineering services                                      18,200                   -
    Research and development expenses                                      1,883,830           2,444,004
    Selling, general and administrative expenses                           1,489,545           2,394,050
                                                                      ---------------     ---------------
             Total cost and operating expenses                             3,397,093           4,888,224
                                                                      ---------------     ---------------

LOSS FROM OPERATIONS                                                      (2,760,221)         (4,670,644)

DIVIDEND INCOME                                                               29,468             130,887

INTEREST INCOME                                                               11,892              13,081
                                                                      ---------------     ---------------

 NET LOSS                                                             $   (2,718,861)     $   (4,526,676)
                                                                      ===============     ===============


PER SHARE INFORMATION:
Net loss per share:
    Basic and Diluted                                                 $        (0.02)     $        (0.04)
                                                                      ===============     ===============

Shares used in computing net loss per share:
    Basic and Diluted                                                    135,546,867         127,984,960
                                                                      ===============     ===============
</TABLE>
   The accompanying notes are an integral part of these condensed statements.

                                       4
<PAGE>
                         COPYTELE, INC. AND SUBSIDIARIES
                         -------------------------------
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
           -----------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                   <C>                 <C>
                                                                          For the Three Months Ended
                                                                                   April 30,
                                                                      -----------------------------------
                                                                           2009                2008
                                                                      ---------------     ---------------
NET REVENUE
    Revenue from sales of encryption products, net                    $       12,750      $      165,355
    Display technology license fee                                           250,000                   -
                                                                      ---------------     ---------------
             Total net revenue                                               262,750             165,355
                                                                      ---------------     ---------------

COST AND OPERATING EXPENSES
    Cost of encryption products sold                                           4,107              37,272
    Research and development expenses                                      1,062,049           1,131,302
    Selling, general and administrative expenses                             574,823             974,893
                                                                      ---------------     ---------------
             Total cost and operating expenses                             1,640,979           2,143,467
                                                                      ---------------     ---------------

LOSS FROM OPERATIONS                                                      (1,378,229)         (1,978,112)

DIVIDEND INCOME                                                               29,468             130,887

INTEREST INCOME                                                                4,610               5,874
                                                                      ---------------     ---------------

 NET LOSS                                                             $   (1,344,151)     $   (1,841,351)
                                                                      ===============     ===============


PER SHARE INFORMATION:
Net loss per share:
    Basic and Diluted                                                 $        (0.01)     $        (0.01)
                                                                      ===============     ===============

Shares used in computing net loss per share:
    Basic and Diluted                                                    137,273,734         129,258,495
                                                                      ===============     ===============
</TABLE>
    The accompanying notes are an integral part of these condensed statements

                                       5
<PAGE>
                         COPYTELE, INC. AND SUBSIDIARIES
                         -------------------------------
            CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
            --------------------------------------------------------
                  FOR THE SIX MONTHS APRIL 30, 2009 (UNAUDITED)
                  ---------------------------------------------
<TABLE>
<CAPTION>
<S>              <C> <C>                 <C>         <C>          <C>          <C>          <C>           <C>           <C>
                                                                                  Loan                    Accumulated
                                                                  Additional   Receivable                    Other         Total
                                              Common Stock          Paid-in       From      Accumulated  Comprehensive Shareholder's
                                           Shares     Par Value     Capital   Related Party   Deficit         Loss        Equity
                                        ------------ ------------ ------------ ------------ ------------- ------------- ------------

BALANCE, October 31, 2008                132,497,881 $  1,324,979 $109,348,894 $(5,000,000) $(91,788,341) $(12,155,255) $ 1,730,277

  Stock option compensation to employees           -            -      400,851           -             -             -      400,851
  Stock option compensation to
   consultants                                     -            -        6,612           -             -             -        6,612
  Common stock issued upon exercise of
   stock options under stock option
   plans                                   2,700,000       27,000      729,600           -             -             -      756,600
  Common stock issued to employees
   pursuant to stock incentive plans       3,722,825       37,228    1,134,686           -             -             -    1,171,914
  Common stock issued to consultants
   pursuant to stock incentive plans         116,792        1,168       34,080           -             -             -       35,248
   Unrealized loss on investment in
    Videocon Industries Limited global
    depository receipts                            -            -            -           -             -      (359,003)    (359,003)
   Unrealized loss on investment in
    Digital Info Security Co., Inc.                -            -            -           -             -      (471,600)    (471,600)
  Net loss                                         -            -            -           -    (2,718,861)            -   (2,718,861)
                                        ------------ ------------ ------------ ------------ ------------- ------------- ------------

BALANCE, April 30, 2009                  139,037,498 $  1,390,375 $111,654,723 $(5,000,000) $(94,507,202) $(12,985,858) $   552,038
                                        ============ ============ ============ ============ ============= ============= ============
</TABLE>
         The accompanying notes are an integral part of this statement.

                                       6
<PAGE>
                         COPYTELE, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
<S>                                                                   <C>                 <C>
                                                                           For the Six Months Ended
                                                                                   April 30,
                                                                      -----------------------------------
                                                                           2009                2008
                                                                      ---------------     ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Payments to suppliers, employees and consultants                   $   (1,530,966)     $   (1,782,720)
   Cash received from encryption and display products and services            70,540              87,080
   Dividend received                                                          29,468             130,887
   Interest received                                                          15,812              13,081
                                                                      ---------------     ---------------
           Net cash used in operating activities                          (1,415,146)         (1,551,672)
                                                                      ---------------     ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Disbursements to acquire Videocon Industries Limited global
    depository receipts                                                            -         (16,200,000)
   Disbursements to acquire short-term investments (certificates of
    deposit And U.S. government securities)                                        -            (441,000)
   Proceeds from maturities of short-term investments (certificates of
    deposit And U.S. government securities)                                1,443,000             400,000
   Proceeds from sale of Digital Info Security Co., Inc. common stock         28,133                   -
   Payments for purchases of property and equipment                                -             (11,322)
                                                                      ---------------     ---------------
           Net cash provided by (used in) investing activities             1,471,133         (16,252,322)
                                                                      ---------------     ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock to Videocon Industries Limited               -          16,200,000
   Issuance of loan receivable from related party                                  -          (5,000,000)
   Proceeds from issuance of loan payable to related party                         -           5,000,000
   Proceeds from exercise of stock options                                   756,600           1,698,605
                                                                      ---------------     ---------------
           Net cash provided by financing activities                         756,600          17,898,605
                                                                      ---------------     ---------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                    812,587              94,611

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             478,599             669,141
                                                                      ---------------     ---------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                            $    1,291,186      $      763,752
                                                                      ===============     ===============


RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
   Net loss                                                           $   (2,718,861)     $   (4,526,676)
   Stock option compensation to employees                                    400,851           1,909,771
   Stock option compensation to consultants                                    6,612             210,282
   Stock awards granted to employees pursuant to stock incentive plans     1,171,914           1,041,017
   Stock awards granted to consultants pursuant to stock incentive
    plans                                                                     35,248              75,153
   Provision for doubtful accounts                                                 -              60,000
   Recovery of slow moving inventory reserve                                    (921)            (16,440)
   Depreciation and amortization                                               5,561               5,000
   Amortized discount on investments (U.S. government securities)               (632)                  -
   Loss on sale of Digital Info Security Co., Inc. common stock                6,067                   -
   Change in operating assets and liabilities:
      Accounts receivable                                                     (3,000)           (130,500)
      Inventories                                                              2,977              12,055
      Prepaid expenses and other current assets                               (8,984)              4,226
      Accounts payable and accrued liabilities                                 1,354            (195,560)
      Deferred revenue                                                      (313,332)                  -
                                                                      ---------------     ---------------
           Net cash used in operating activities                      $   (1,415,146)     $   (1,551,672)
                                                                      ===============     ===============
</TABLE>
   The accompanying notes are an integral part of these condensed statements.

                                       7
<PAGE>
                         COPYTELE, INC. AND SUBSIDIARIES
                         -------------------------------
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              ----------------------------------------------------
                                   (UNAUDITED)
                                   -----------
1.   BUSINESS AND FUNDING
     --------------------

Description of Business and Basis of Presentation
-------------------------------------------------

     Our principal  operations are the development,  production and marketing of
thin,  flat,  low-voltage  phosphor  display  technology  and  the  development,
production and marketing of  multi-functional  encryption  products that provide
information  security for domestic and international  users over virtually every
communications media.

     The condensed  consolidated  financial  statements are unaudited,  and have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP") for interim financial  reporting,  and with
the rules and  regulations of the Securities and Exchange  Commission  regarding
interim  financial  reporting.  Accordingly,  they  do  not  include  all of the
information and footnotes required by US GAAP for complete financial statements.
The information  contained  herein is for the six-month and three-month  periods
ended  April  30,  2009 and  2008.  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.  Certain  prior year  amounts  have been  reclassified  to conform  with
current year presentation.

     The condensed  consolidated  financial  statements  include the accounts of
CopyTele,  Inc. and its wholly owned subsidiaries,  CopyTele  International Ltd.
("CopyTele  International") and CopyTele Marketing Inc. ("CopyTele  Marketing").
CopyTele  International and CopyTele  Marketing were incorporated in the British
Virgin  Islands  in  July  2007  and  September  2007,  respectively.   CopyTele
International  was formed for the  purpose  of holding an  investment  in global
depository   receipts  of  Videocon   Industries   Limited,  an  Indian  company
("Videocon").  As of April  30,  2009,  CopyTele  Marketing  was  inactive.  All
significant intercompany transactions have been eliminated in consolidation.

     On November 1, 2008, we adopted Statement of Financial  Standards  ("SFAS")
No. 157,  "Fair Value  Measurement"  ("SFAS No. 157"),  except for non financial
assets and liabilities  measured at fair value on a non-recurring  basis,  which
will be  effective  for us  November 1, 2009.  SFAS No. 157 defines  fair value,
establishes  a  framework  for  measuring  fair value under  generally  accepted
accounting principles, and expands disclosures about fair value measurements. In
accordance with SFAS No. 157, we have categorized our financial assets, based on
the priority of the inputs to the valuation  technique,  into a three-level fair
value  hierarchy as set forth below.  We do not have any  financial  liabilities
that are  required to be measured  at fair value on a  recurring  basis.  If the
inputs used to measure the financial instruments fall within different levels of
the  hierarchy,  the  categorization  is based on the lowest level input that is
significant to the fair value measurement of the instrument.

                                       8
<PAGE>

     Financial  assets  recorded  in  the  accompanying  condensed  consolidated
balance sheets are categorized  based on the inputs to the valuation  techniques
as follows:

     Level 1 - Financial  assets  whose  values are based on  unadjusted  quoted
     prices for  identical  assets or  liabilities  in an active market which we
     have the ability to access at the measurement date (examples include active
     exchange-traded  equity  securities  and most U.S.  Government  and  agency
     securities).

     Level 2 - Financial assets whose value are based on quoted market prices in
     markets  where  trading  occurs  infrequently  or whose values are based on
     quoted prices of instruments with similar attributes in active markets.  We
     do not currently have any Level 2 financial assets.

     Level 3 - Financial  assets  whose  values are based on prices or valuation
     techniques that require inputs that are both  unobservable  and significant
     to the overall fair value  measurement.  These inputs reflect  management's
     own  assumptions  about the assumptions a market  participant  would use in
     pricing the asset. We do not currently have any Level 3 financial assets.

     As of  April  30,  2009,  our  Level  1  financial  assets  consist  of the
following:

                                                                    Fair Value
                                                                      as of
                                                                  April 30, 2009
                                                                  --------------
     Money market funds - Cash and cash equivalents                 $    109,763
     U.S. government securities - Cash and cash equivalents              999,751
     U.S. government securities - Short-term investments                 749,827
     Videocon Industries Limited global depository receipts            3,260,942
     Digital Info Security Co., Inc. common stock                        336,000


     The  adoption  of SFAS  No.  157  did not  have a  material  effect  on our
consolidated financial statements.  The adoption of the deferred portion of SFAS
No. 157 is not expected to have a material effect on our consolidated  financial
statements.  On November 1, 2008,  we also adopted SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial  Liabilities"  ("SFAS No. 159").  SFAS
No.  159  expands  opportunities  to use fair  value  measurement  in  financial
reporting and permits  entities to choose to measure many financial  instruments
and certain other items at fair value. The adoption of SFAS No. 159 did not have
a material effect on our consolidated financial statements.

     The results of operations for interim periods presented are not necessarily
indicative  of the results  that may be expected  for a full year or any interim
period.  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,
2008, for more extensive disclosures than contained in these condensed financial
statements.

                                       9
<PAGE>

Funding and Management's Plans
------------------------------

     From our inception, we have met our liquidity and capital expenditure needs
primarily  through the proceeds from sales of common stock in our initial public
offering, in private placements,  upon exercise of warrants issued in connection
with the private placements and public offering,  and upon the exercise of stock
options.  In addition,  commencing in the fourth quarter of fiscal 1999, we have
generated cash flows from sales of our  encryption  products and services and in
May 2008 commenced receiving license fees related to our display technology from
Videocon pursuant to the License Agreement (as defined below).

     During the six months  ended  April 30,  2009,  our cash used in  operating
activities  was  approximately  $1,415,000.   This  resulted  from  payments  to
suppliers,  employees and  consultants of  approximately  $1,531,000,  which was
offset by cash of  approximately  $71,000  received from collections of accounts
receivable  related  to sales of  encryption  products  and  display  technology
engineering  services,  approximately  $16,000 of interest  income  received and
approximately  $29,000  of  dividend  income  received.  Our  cash  provided  by
investing   activities   during  the  six  months   ended  April  30,  2009  was
approximately   $1,471,000,   which  resulted  from  $1,443,000   received  upon
maturities of short-term  investments  consisting of certificates of deposit and
U.S. government  securities and approximately  $28,000 received upon the sale of
Digital Info  Security Co. Inc.  common  stock.  Our cash  provided by financing
activities  during  the six  months  ended  April  30,  2009  was  approximately
$757,000,  which resulted from cash received upon the exercise of stock options.
Accordingly,  during the  six-months  ended  April 30,  2009,  our cash and cash
equivalents   increased  by  approximately   $813,000  and  our  short-term  and
non-current   investments  in  certificates  of  deposit  and  U.S.   government
securities  decreased by approximately  $1,442,000.  As a result, our cash, cash
equivalents,  and  investments in  certificates  of deposit and U.S.  government
securities  at  April  30,  2009  decreased  to  approximately  $2,041,000  from
approximately  $2,671,000 at the end of fiscal 2008. Our operating cash accounts
are maintained at  FDIC-insured  banks.  Our bank accounts and  certificates  of
deposit are maintained within FDIC coverage limits.

     Total employee  compensation  expense for the six-month periods ended April
30, 2009 and 2008 was approximately $1,922,000 and $3,287,000, respectively, and
for the  three-month  periods  ended April 30,  2009 and 2008 was  approximately
$938,000 and $1,490,000, respectively. During the six-month ended April 30, 2009
and 2008,  a  significant  portion of  employee  compensation  consisted  of the
issuance of stock and stock  options to employees in lieu of cash  compensation.
We recorded  stock-based  compensation  expense for the six-month  periods ended
April  30,  2009  and  2008  of   approximately   $1,172,000   and   $1,041,000,
respectively,  and for the three-month  periods ended April 30, 2009 and 2008 of
approximately  $578,000 and $484,000,  respectively,  for shares of common stock
issued to  employees.  We  recorded  stock-based  compensation  expense  for the
six-month  periods ended April 30, 2009 and 2008 of  approximately  $401,000 and
$1,910,000,  respectively,  and for the three-month periods ended April 30, 2009
and 2008 of approximately $172,000 and $821,000, respectively,  related to stock
options  granted to employees and  directors.  It is  managements'  intention to
continue to compensate employees by issuing stock or stock options.

     We  believe  that our  existing  cash,  cash  equivalents,  investments  in
certificates of deposit,  investments in U.S. government securities and accounts
receivable,  together  with cash flows  from  expected  sales of our  encryption
products and revenue  relating to our thin, flat,  low-voltage  phosphor display

                                       10
<PAGE>

technology,  including  license  fees and  royalties  from  Videocon,  and other
potential sources of cash flows, will be sufficient to enable us to continue our
marketing,  production,  and research and development  activities.  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.  It
is also  management's  intention to continue to compensate  employees by issuing
stock or stock  options.  We  currently  have no  arrangements  with  respect to
additional financing. There can be no assurance that we will generate sufficient
revenues in the future (through sales, license fees and royalties, or otherwise)
to satisfy our liquidity  requirements  or sustain future  operations,  that our
production  capabilities  will be  adequate,  that  other  products  will not be
produced by other  companies  that will render our  products  obsolete,  or that
other sources of funding would be available, if needed, on favorable terms or at
all. If we cannot obtain such funds if needed, we would need to curtail or cease
some or all of our operations.

Investment in and Related Party Transactions with Videocon Industries Limited
-----------------------------------------------------------------------------

     In November  2007,  we entered  into a  Technology  License  Agreement  (as
amended in May 2008, the "License  Agreement") with Videocon.  Under the License
Agreement, we provide Videocon with a non-transferable, worldwide license of our
technology  for  thin,  flat,  low  voltage  phosphor  displays  (the  "Licensed
Technology"),  for Videocon (or a Videocon  Group company) to produce and market
products,   including  TVs,   incorporating   displays  utilizing  the  Licensed
Technology.  Under the License  Agreement,  we will receive a license fee of $11
million from Videocon, payable in installments over a 27 month period commencing
in May 2008,  and an agreed upon royalty from Videocon based on display sales by
Videocon.  In April 2008, the Indian  Government  approved the License Agreement
and in May 2008,  we  received  the first  installment  of the license fee of $2
million.

     Under the License Agreement,  Videocon, with our assistance,  is to provide
the design and process engineering required to produce display modules, and also
is to provide all tooling and fixtures required for the production  process.  As
part of our assistance to Videocon to produce such display modules, we have been
exchanging  information with Videocon  employees so that they may understand the
CopyTele  technology.  We are  currently  cooperating  with  Videocon to jointly
implement the CopyTele technology prior to production,  to produce prototypes of
such  modules.  Videocon is  utilizing  its display  processing  technology  and
facilities and is producing our display matrix. The matrix is the main component
of our display,  since it contains the  structure  to  accommodate  our electron
emission  technology  and the color  phosphors  that are used to illuminate  our
display.  CopyTele and Videocon are also working together to incorporate another
version of our display technology.  Improvements to the technology,  when and if
available,  are to be  jointly  owned  by  CopyTele  and  Videocon.  Significant
improvements,  as defined in the  License  Agreement,  may result in  additional
compensation to CopyTele.  CopyTele has determined that any  improvements  which
are not significant in nature are inconsequential.

     The  arrangement  with  Videocon  also  provides for each of the parties to
designate an advisor to the other party's Board of Directors. The purpose of the
advisor to the Board of  Directors  is to provide  knowledge to the Board of the
display market and to apprise the Board of developments in this market. CopyTele
believes this to be inconsequential to the operation of the License Agreement.

                                       11
<PAGE>

     Under the  License  Agreement  we continue to have the right to produce and
market products utilizing our technology.  We also continue to have the right to
utilize  Volga Svet Ltd.,  a Russian  display  company that we have been working
with for more than eleven years  ("Volga"),  and an Asian  company that CopyTele
has been working with for more than five years, to produce and market,  products
utilizing  the  Licensed   Technology.   Additional  licenses  of  the  Licensed
Technology  to third  parties  require  the  joint  agreement  of  CopyTele  and
Videocon.

     In November 2007, we also entered into a Share Subscription  Agreement (the
"Subscription  Agreement") with Mars Overseas Limited,  an affiliate of Videocon
("Mars  Overseas").  Under the Subscription  Agreement,  Mars Overseas purchased
20,000,000  shares of our common stock (the  "CopyTele  Shares")  from us for an
aggregate  purchase price of $16,200,000,  which was determined by management to
approximate  fair market value.  The purchase of the CopyTele Shares pursuant to
the Subscription Agreement closed in November 2007.

     Also in November 2007, our wholly-owned  British Virgin Islands subsidiary,
CopyTele  International,  entered into a GDR Purchase  Agreement  (the "Purchase
Agreement")   with  Global  EPC  Ventures  Limited   ("Global"),   for  CopyTele
International to purchase from Global 1,495,845  global  depository  receipts of
Videocon  (the  "Videocon  GDRs"),  acquired by Global on the open market for an
aggregate  purchase price of $16,200,000,  which was determined by management to
approximate fair market value.  Videocon's global depository receipts are listed
on the Luxembourg Stock Exchange.  The purchase of the Videocon GDRs pursuant to
the Purchase Agreement closed in December 2007.

     For the purpose of  effecting a lock up of the  Videocon  GDRs and CopyTele
Shares  (collectively,  the  "Securities")  for a  period  of seven  years,  and
therefore  restricting  both parties from selling or transferring the Securities
during such period,  CopyTele  International  and Mars Overseas entered into two
Loan and Pledge Agreements in November 2007. The Videocon GDRs are to be held as
security  for a loan in principal  amount of  $5,000,000  from Mars  Overseas to
CopyTele  International,  and the CopyTele Shares are similarly held as security
for a loan in principal amount of $5,000,000 from CopyTele International to Mars
Overseas.  The  loans are for a term of seven  years  and do not bear  interest.
Prepayment  of each loan  requires  payment of a premium by the borrower and, in
any event,  the lien on the  Securities  securing  the prepaid  loan will not be
released  until the  seventh  anniversary  of the  closing  of the loans and the
prepaid  amount  would be held in escrow  until such date.  The loan  agreements
required the parties to enter into an escrow  agreement  under which the parties
deposited  the  Securities  with an escrow agent for the term of the loans.  The
loan agreements also provide for customary events of default which may result in
forfeiture  of the  Securities  by the  defaulting  party.  The loan and  escrow
agreements  also provide for the transfer to the  respective  parties,  free and
clear of any encumbrances  under the agreements,  any dividends,  distributions,
rights or other proceeds or benefits  received by the escrow agent in respect of
the Securities. The closing of the loans took place in December 2007.

     We previously  reported the $5,000,000  loan  receivable as an asset on our
condensed consolidated balance sheets at April 30, 2008. During the three months
ended July 31, 2008, it was determined that the loan receivable should have been

                                       12
<PAGE>

reported within shareholders' equity,  because the loan receivable is secured by
the CopyTele Shares and the Subscription Agreement and Loan and Pledge Agreement
were  entered  into  concurrently.  Accordingly,  we have  classified  the  loan
receivable as a contra-equity in the accompanying condensed consolidated balance
sheets. In addition,  we previously reported the issuance of the $5,000,000 loan
receivable as cash used in investing  activities  on our condensed  consolidated
statement of cash flows for the six-month  period ended April 30, 2008.  Because
of the change in classification of the loan receivable, we have also changed the
classification of the loan receivable as cash flows from financing activities in
the accompanying condensed consolidated statement of cash flows.

     Revenue Recognition
     -------------------

     Revenues are recorded when all four of the following  criteria are met: (i)
persuasive  evidence of an  arrangement  exists;  (ii) delivery has occurred and
title has  transferred  or services have been  rendered;  (iii) our price to the
buyer is fixed or determinable; and (iv) collectibility is reasonably assured.

     We have  assessed  the  guidance  of Emerging  Issues Task Force No.  00-21
"Revenue  Arrangements with Multiple  Deliverables"  ("EITF 00-21") to determine
whether  multiple  deliverables  in  our  arrangement  with  Videocon  represent
separate units of accounting. Under the License Agreement,  CopyTele is required
to: (a)  disclose to Videocon  the Licensed  Technology  and provide  reasonable
training of Videocon  personnel;  (b) jointly cooperate with Videocon to produce
prototypes  prior to  production;  and (c)  assist  Videocon  in  preparing  for
production.  CopyTele has determined that these  performance  obligations do not
have value to  Videocon on a  standalone  basis,  as defined in EITF 00-21,  and
accordingly they do not represent separate units of accounting.

     We have established objective and reasonable evidence of fair value for the
royalty to be earned  during the  production  period  based on  analysis  of the
pricing for similar agreements. Accordingly, we have determined that the license
fee of $11 million to be paid during the pre-production  period and royalties on
product sales reflects the  established  fair value for these  deliverables.  We
will  recognize the $11 million  license fee over the  estimated  period that we
expect to provide  cooperation and assistance during the pre-production  period,
limiting the revenue  recognized on a cumulative basis to the aggregate  license
fee payments received from Videocon. We will assess at each reporting period the
progress and assistance provided and will continue to evaluate the period during
which this fee will be recognized.  License fee payments  received from Videocon
which are in excess of the amounts  recognized  as revenue ($-0- as of April 30,
2009 and  approximately  $313,000  as of  October  31,  2008)  are  recorded  as
non-refundable  deferred  revenue  on the  accompanying  condensed  consolidated
balance sheets.

     During the quarter  ended April 30, 2009,  we agreed to reimburse  Videocon
$250,000  for  engineering  services  related to another  version of our display
technology  and we modified the payment terms from Videocon  during the quarter.
The license fee revenue  recognized during the three months ended April 30, 2009
of  $250,000  represented  an  offset  against  amounts  due  Videocon  for  the
aforementioned  engineering services, in lieu of a cash payment. In addition, in
June 2009,  we received a license fee payment from  Videocon of $250,000,  which
was due during the  quarter  ended  April 30,  2009,  pursuant  to the  modified
payment  terms.  This June  payment  will be  included  in license  fee  revenue
recognized  during the three months ending July 31, 2009.  However,  the license
fee of $11 million  remains  payable over the 27 month period  commencing in May
2008, and  Videocon's  obligations  with respect to  production,  and CopyTele's
assistance, under the License Agreement remain unaffected.

                                       13
<PAGE>

     Investment in Videocon
     ----------------------

     Our  investment  in  Videocon  is  classified  as  an   "available-for-sale
security" and reported at fair value,  with unrealized gains and losses excluded
from operations and reported as a component of accumulated  other  comprehensive
loss,  net  of the  related  tax  effects,  in  shareholders'  equity.  Cost  is
determined  using the  specific  identification  method.  The fair  value of the
Videocon  GDRs is based on the price on the  Luxembourg  Stock  Exchange,  which
price is based on the  underlying  price of  Videocon's  equity shares which are
traded on stock  exchanges  in India with  prices  quoted in  rupees.  The cost,
unrealized  loss and fair value of our  investment  in  Videocon as of April 30,
2009 and October 31, 2008, are as follows:

                                 April 30, 2009    October 31, 2008
                                ---------------    ----------------
     Cost                           $16,200,000         $16,200,000
     Unrealized loss                (12,939,058)        (12,580,055)
                                ---------------    ----------------
     Fair Value                      $3,260,942          $3,619,945
                                ===============    ================

     SFAS  No.  115,  "Accounting  for  Certain  Investments  in Debt or  Equity
Securities", requires an evaluation to determine if the decline in fair value of
an  investment  is either  temporary or other than  temporary.  Unless  evidence
exists to support a  realizable  value equal to or greater  than the cost of the
investment, a write-down accounted for as a realized loss should be recorded. We
assess at each  reporting  period our  investment  in Videocon to determine if a
decline that is other than temporary has occurred.  In evaluating the realizable
value of the  investment in Videocon,  we considered  the  requirement  that the
Videocon  GDRs must be held in escrow for seven years from the purchase  closing
date of December  2007 as security  for the loan from Mars  Overseas to CopyTele
International.  Videocon's  financial condition and its future potential in both
its Consumer  Electronics & Home Appliances  segment and its Crude Oil & Natural
Gas segment are also evaluated. Based on our evaluation, we have determined that
the decline in our investment in Videocon is due to the current economic climate
and that  such  decline  is  temporary.  Accordingly,  a  realized  loss was not
recognized  during the  six-months  ended April 30, 2009.  The  unrealized  loss
recognized   during  the  six-months  ended  April  30,  2009  is  reflected  in
accumulated other comprehensive loss in the accompanying  condensed consolidated
statement of shareholder's equity.

2.   STOCK BASED COMPENSATION
     ------------------------

     We  maintain  stock  equity  incentive  plans  under  which  we  may  grant
non-qualified stock options, incentive stock options, stock appreciation rights,
stock  awards,  performance  and  performance-based  awards,  or stock  units to
employees, non-employee directors and consultants.

Stock Option Compensation Expense
---------------------------------

     We account for stock options  granted to employees and directors using SFAS
No. 123 (revised 2004),  "Share-Based  Payment" ("SFAS  No.123R").  We recognize
compensation  expense for stock option awards on a straight-line  basis over the
requisite  service  period of the grant.  We recorded  stock-based  compensation
expense,  related  to  stock  options  granted  to  employees  and  non-employee
directors,  of  approximately  $401,000,  and  $1,910,000  during the  six-month

                                       14
<PAGE>

periods  ended  April 30,  2009 and  2008,  respectively,  and of  approximately
$172,000 and $821,000  during the  three-month  periods ended April 30, 2009 and
2008, respectively,  in accordance with SFAS No. 123R. Such compensation expense
is included in the accompanying  statements of operations in either research and
development  expenses  or  selling,  general  and  administrative  expenses,  as
applicable  based on the functions  performed by such  employees and  directors.
Such stock-based  compensation expense increased both basic and diluted net loss
per share for the  six-month  periods ended April 30, 2009 and 2008 by $0.00 and
$0.01,  respectively,  and for the three-month  periods ended April 30, 2009 and
2008 by $0.00 and $0.01, respectively.

     Included in the  stock-based  compensation  cost  related to stock  options
granted to employees and directors  recorded during the six-months periods ended
April 30, 2009 and 2008 was approximately $25,000, and $-0-,  respectively,  and
during the three-month  periods ended April 30, 2009 and 2008 was  approximately
$7,000  and $-0-,  respectively,  of  expense  related  to the  amortization  of
compensation cost for stock options granted in prior periods but not yet vested.
As  of  April  30,  2009,  there  was  approximately   $10,000  of  unrecognized
compensation cost related to non-vested  share-based  compensation  arrangements
for stock options  granted to employees and  directors,  which is expected to be
amortized during the current fiscal year.

     We also account for stock  options  granted to  consultants  using SFAS No.
123R.  We  recognized  consulting  expense for options  granted to  non-employee
consultants,  during the  six-months  periods ended April 30, 2009, and 2008, of
approximately  $7,000,  and $210,000,  respectively,  and during the three-month
periods  ended April 30, 2009 and April 30, 2008,  of  approximately  $3,000 and
$3,000,  respectively.  Such consulting  expense is included in the accompanying
consolidated  statements  of  operations  in  either  research  and  development
expenses or selling, general and administrative expenses, as applicable based on
the functions  performed by such  consultants.  As of April 30, 2009,  there was
approximately  $7,000 of unrecognized  consulting  expense related to non-vested
share-based compensation  arrangements for stock options granted to consultants,
which is expected to be amortized during the current fiscal year.

Fair Value Determination
------------------------

     In  accordance  with SFAS No.  123R,  we  estimate  the fair value of stock
options granted to employees, non-employee directors and consultants on the date
of grant using the  Black-Scholes  pricing model. We separate the individuals we
grant  stock  options  to into  three  relatively  homogenous  groups,  based on
exercise and post-vesting  employment  termination  behaviors.  To determine the
weighted  average  fair value of stock  options on the date of grant,  we take a
weighted average of the assumptions used for each of these groups. Stock options
we granted  during the six months  ended April 30, 2009  consisted  of awards of
options  with 10-year  terms which vested  immediately.  Stock  options  granted
during the six months  ended April 30, 2008  consisted of awards of options with
10-year terms which vested  either  immediately  or over future  periods of from
three months to three years.

                                       15
<PAGE>

     We  estimated  the fair value of stock option  awards  using the  following
assumptions:
<TABLE>
<CAPTION>
<S>                                            <C>            <C>            <C>            <C>
                                                For the Six Months           For the Three Months
                                                 Ended April 30,               Ended April 30,
                                          ------------------------------------------------------------
                                               2009           2008           2009           2008
                                          -------------- -------------- -------------- --------------
Expected term (in years)                       2.1            3.9            2.0            1.7
Volatility                                     99%            92%            103%           87%
Risk-free interest rate                        .83%          3.44%           1.0%          1.51%
Dividend yield                                  0              0              0              0
Weighted average fair value at grant date     $.014          $0.63          $0.12          $0.33
</TABLE>

     The expected term of stock options  represents the weighted  average period
the stock  options are expected to remain  outstanding.  Because we consider our
options to be "plain  vanilla",  we estimated the expected term using a modified
version  of the  simplified  method  of  calculation,  as  prescribed  by  Staff
Accounting  Bulletin No. 107,  "Share-Based  Payment" ("SAB 107"). This modified
calculation  uses the actual  life for  options  that have been  settled,  and a
uniform  distribution  assumption for the options still  outstanding.  Under SAB
107,  options are  considered  to be "plain  vanilla" if they have the following
basic  characteristics:  granted  "at-the-money";  exercisability is conditioned
upon service  through the vesting date;  termination of service prior to vesting
results in forfeiture; limited exercise period following termination of service;
and options are  non-transferable  and  non-hedgeable.  In  December  2007,  the
Securities  and  Exchange  Commission  ("SEC")  staff  issued  Staff  Accounting
Bulletin No. 110,  "Share-Based Payment" ("SAB 110"). SAB 110 permits the use of
the simplified  method in SAB 107 for employee  option grants after December 31,
2007 for  companies  whose  historical  data  about  their  employees'  exercise
behavior does not provide a reasonable basis for estimating the expected term of
the options.  We have adopted SAB 110 and continued to use the simplified method
to estimate  the expected  term for options  granted  after  December  2007,  as
adequate  historical  experience  is  not  available  to  provide  a  reasonable
estimate.  We intend to continue  applying  the  simplified  method until enough
historical  experience is readily available to provide a reasonable  estimate of
the expected term for employee option grants.

     We estimated  the expected  volatility  of our shares of common stock based
upon the historical volatility of our share price over a period of time equal to
the expected life of the options.

     We  estimated  the  risk-free  interest  rate  based on the  implied  yield
available on the applicable grant date of a U.S. Treasury note with a term equal
to the expected term of the underlying grants.

     We made the dividend  yield  assumption  based on our history of not paying
dividends and our expectation not to pay dividends in the future.

     Under  SFAS No.  123R,  the  amount  of  stock-based  compensation  expense
recognized is based on the portion of the awards that are ultimately expected to
vest.  Accordingly,  we reduce  the fair  value of the stock  option  awards for
expected  forfeitures,   which  are  forfeitures  of  the  unvested  portion  of
surrendered  options. We estimated expected  forfeitures based on our historical
experience.

                                       16
<PAGE>

     We will  reconsider  use of the  Black-Scholes  pricing model if additional
information  becomes  available in the future that indicates another model would
be more appropriate,  or if grants issued in future periods have characteristics
that cannot be reasonably  estimated  using this model. If factors change and we
employ  different  assumptions  in the  application  of SFAS No.  123R in future
periods,  the compensation expense that we record under SFAS No. 123R may differ
significantly from what we have recorded in the current period.

Stock Option Activity
---------------------

     During the  six-month  periods  ended April 30,  2009 and 2008,  we granted
options to purchase  2,710,000  shares and 3,875,000  shares,  respectively,  to
employees,  non-employee  directors and  consultants of common stock at weighted
average exercise prices of $0.28 and $0.98 per share, respectively,  pursuant to
the CopyTele, Inc. 2003 Share Incentive Plan (the "2003 Share Plan"). During the
six-month  periods  ended  April 30,  2009 and 2008,  stock  options to purchase
2,700,000  shares  and  2,094,200  shares,  respectively,  of common  stock were
exercised  with aggregate  proceeds of  approximately  $757,000 and  $1,699,000,
respectively.

Stock Option Plans
------------------

     As of April 30, 2009, we have three stock option plans: the CopyTele,  Inc.
1993  Stock  Option  Plan (the  "1993  Plan"),  the  CopyTele,  Inc.  2000 Share
Incentive  Plan ("2000 Share Plan") and the 2003 Share Plan,  which were adopted
by our Board of  Directors  on April 28,  1993,  May 8, 2000 and April 21, 2003,
respectively.

     Upon approval of the 2000 Share Plan by our  shareholders in July 2000, the
1993  Plan  was  terminated  with  respect  to  the  grant  of  future  options.
Information  regarding  the 1993 Plan for the six months ended April 30, 2009 is
as follows:

                                                          Current
                                                          Weighted
                                                          Average     Aggregate
                                                           Exercise   Intrinsic
                                            Shares     Price Per Share   Value
                                        ----------------------------------------

Shares Under Option at October 31, 2008         779,000     $1.10
  Cancelled                                    (43,000)     $1.31
  Expired                                      (50,000)     $1.31
                                        ---------------
Shares Under Option and Exercisable at
April 30, 2009                                  686,000     $1.07        $-0-
                                        ---------------

                                       17
<PAGE>

     The following table summarizes  information about stock options outstanding
under the 1993 Plan as of April 30, 2009:

                          Options Outstanding and Exercisable
     --------------------------------------------------------------------------
                                                   Weighted
                                                   Average
                                                  Remaining        Weighted
             Range of               Number       Contractual       Average
          Exercise Prices        Outstanding         Life       Exercise Price
     -------------------------- --------------- --------------- ---------------

          $0.84 to $1.00              575,000        0.55            $0.99
          $1.13 to $1.56              111,000        1.05            $1.49

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

     On July 25,  2000,  our  shareholders  approved  the 2000 Share  Plan.  The
maximum  number of shares of common  stock  that may be  granted  was  5,000,000
shares.  On July 6, 2001 and July 16,  2002,  the 2000 Share Plan was amended by
our Board of Directors to increase the maximum  number of shares of common stock
that may be granted to 10,000,000  shares and 15,000,000  shares,  respectively.
These  amendments  were  approved  by our  shareholders  on August 16,  2001 and
September 12, 2002, respectively.  The 2000 Share Plan provides for the grant of
incentive stock options,  nonqualified stock options, stock appreciation rights,
stock  awards,   performance  awards  and  stock  units  to  key  employees  and
consultants of the Company.

     The 2000 Share Plan was administered by the Stock Option Committee  through
June 2004 and since that date has been  administered  by the Board of Directors,
which determines the option price, term and provisions of each option;  however,
the purchase  price of shares  issuable  upon the  exercise of  incentive  stock
options  will not be less than the fair market  value of such shares at the date
of grant and incentive  stock options will not be  exercisable  for more than 10
years.

     Information  regarding  the 2000 Share Plan for the six months  ended April
30, 2009 is as follows:

<TABLE>
<CAPTION>
                                                                               Current Weighted         Aggregate
                                                                               Average Exercise         Intrinsic
                                                               Shares           Price Per Share           Value
                                                               ------           ---------------           -----
<S>                                                        <C>                       <C>                    <C>
Shares Under Option at October 31, 2008                        1,772,466             $0.79
  Exercised                                                            -             $-0-
                                                           -------------
Shares Under Option and Exercisable at
  April 30, 2009                                               1,772,466             $0.79                  $-0-
                                                           -------------
</TABLE>

                                       18
<PAGE>

     The following table summarizes  information about stock options outstanding
under the 2000 Share Plan as of April 30, 2009:

                               Options Outstanding
     -------------------------------------------------------------------------
                                                  Weighted
                                                   Average
                                                  Remaining       Weighted
             Range of              Number        Contractual      Average
         Exercise Prices         Outstanding        Life       Exercise Price
     ------------------------- ---------------- -------------- ---------------

              $0.40                  445,000        2.39            $0.40
              $0.69                  505,466        1.67            $0.69
          $0.94 - $1.09              822,000        1.42            $1.06

     The  exercise  price with respect to all of the options  granted  under the
2000 Share Plan since its  inception  was equal to the fair market  value of the
underlying  common stock at the grant date. As of April 30, 2009,  21,508 shares
were available for future grants under the 2000 Share Plan.

     The 2003 Share Plan provides for the grant of  nonqualified  stock options,
stock appreciation rights,  stock awards,  performance awards and stock units to
key employees and  consultants  of the Company.  The maximum number of shares of
common stock  available  for issuance  under the 2003 Share Plan  initially  was
15,000,000  shares.  On October 8, 2004,  February 9, 2006,  August 22, 2007 and
December  3,  2008,  the 2003  Plan was  amended  by our Board of  Directors  to
increase  the  maximum  number of shares of common  stock that may be granted to
30,000,000 shares,  45,000,000 shares,  55,000,000 shares, and 70,000,000 shares
respectively.  Current  and  future  non-employee  directors  are  automatically
granted  nonqualified  stock  options to purchase  60,000 shares of common stock
upon their  initial  election to the Board of Directors  and at the time of each
subsequent  annual meeting of our  shareholders at which they are elected to the
Board of  Directors.  The 2003 Share Plan was  administered  by the Stock Option
Committee  through  June 2004 and since that date has been  administered  by the
Board of Directors,  which  determines the option price,  term and provisions of
each option.

     Information  regarding  the 2003 Share Plan for the six months  ended April
30, 2009 is as follows:

<TABLE>
<CAPTION>
                                                                               Current Weighted        Aggregate
                                                                               Average Exercise        Intrinsic
                                                               Shares          Price Per Share           Value
                                                               ------          ---------------           -----
<S>                                                          <C>                    <C>                  <C>
Shares Under Option at October 31, 2008                      17,217,045             $0.79
  Granted                                                     2,710,000             $0.28
  Exercised                                                  (2,700,000)            $0.28
  Cancelled                                                  (1,200,000)            $0.91
                                                          -------------
Shares Under Option at April 30, 2009                        16,027,045             $0.78                $24,800
                                                          -------------
Options Exercisable at April 30, 2009                        15,917,045             $0.78                $24,800
                                                          -------------
</TABLE>

                                       19
<PAGE>

     The following table summarizes  information about stock options outstanding
under the 2003 Share Plan as of April 30, 2009:

<TABLE>
<CAPTION>
                                   Options Outstanding                              Options Exercisable
                      ------------------------------------------------- ---------------------------------------------
                                            Weighted
                                             Average        Weighted                       Weighted       Weighted
                                            Remaining       Average                        Average         Average
      Range of             Number          Contractual      Exercise       Number         Remaining       Exercise
   Exercise Prices       Outstanding          Life           Price       Exercisable   Contractual Life     Price
 -------------------- ------------------ ---------------- ------------- -------------- ----------------- ------------
<S> <C>     <C>           <C>                 <C>              <C>          <C>              <C>              <C>
    $0.25 - $0.65         5,005,970           5.65             $0.54        5,005,970        5.65             $0.54
    $0.70 - $0.84         5,251,075           7.38             $0.79        5,141,075        7.41             $0.79
    $0.86 - $1.46         5,770,000           6.71             $0.99        5,770,000        6.71             $0.99
</TABLE>

     The  exercise  price with respect to all of the options  granted  under the
2003 Share Plan since its  inception  was equal to the fair market  value of the
underlying  common  stock at the grant date.  As of April 30,  2009,  12,083,104
shares were available for future grants under the 2003 Share Plan.

Stock Grants
------------

     We account for stock grants to  employees  and  consultants  based on their
grant date fair value.  During the  six-month  periods  ended April 30, 2009 and
2008, we issued  3,722,825  shares and 954,875 shares,  respectively,  of common
stock to certain  employees for services  rendered,  principally in lieu of cash
compensation,  pursuant to the 2003 Share Plan. We recorded compensation expense
for the  six-month  periods  ended  April 30,  2009 and 2008,  of  approximately
$1,172,000 and $1,041,000,  respectively,  and for the three-month periods ended
April 30, 2009 and 2008, of approximately  $578,000 and $484,000,  respectively,
for the shares of common stock  issued to  employees.  In  addition,  during the
six-month  periods ended April 30, 2009 and 2008, we issued  116,792  shares and
62,306  shares,  respectively,  of  common  stock to  consultants  for  services
rendered pursuant to the 2003 Share Plan. We recorded consulting expense for the
six-month  periods  ended April 30, 2009 and 2008 of  approximately  $35,000 and
$75,000,  respectively, and for the three-month periods ended April 30, 2009 and
2008 of  approximately  $34,000  and  $15,000,  respectively,  for the shares of
common stock issued to consultants.

3.       CONCENTRATION OF CREDIT RISK
         ----------------------------

     Financial  instruments that  potentially  subject us to  concentrations  of
credit  risk  consist  principally  of  accounts  receivable  from  sales in the
ordinary  course of business.  Management  reviews our accounts  receivable  for
potential   doubtful   accounts  and   maintains  an  allowance   for  estimated
uncollectible amounts.  Generally,  no collateral is received from customers for
our accounts receivable. During the six months ended April 2009, one customer in
the Display Technology Segment represented 88% of total net revenue.  During the
six months ended April 30, 2008,  one  customer in the  Encryption  Products and
Services  Segment  represented 60% of total net revenue.  At April 30, 2009, one
customer in the Encryption  Products and Services Segment represented 97% of net
accounts  receivable.  At October  31,  2008,  one  customer  in the  Encryption
Products and Services Segment represented 100% of net accounts receivable.

                                       20
<PAGE>

4. SHORT-TERM INVESTMENTS AND INVESTMENT IN U.S. GOVERNMENT SECURITIES
   -------------------------------------------------------------------

     At April 30, 2009 and October 31, 2008, we had marketable  securities  that
were classified as  "held-to-maturity  securities" and were carried at amortized
costs. Held-to-maturity securities consist of the following:

                                                     April 30,   October 31,
                                                       2009         2008
                                                    ----------   ----------
     Current:
       U.S. Government securities                   $  749,827   $  999,484
       Certificates of deposit                              --      443,000
                                                    ----------   ----------
     Total current held-to-maturity securities      $  749,827   $1,442,484
                                                    ==========   ==========

     Noncurrent:
       U.S. Government securities                   $       --   $  749,711
                                                    ----------   ----------
     Total noncurrent held-to-maturity securities   $       --   $  749,711
                                                    ==========   ==========

     Total held-to-maturity securities              $  749,827   $2,192,195
                                                    ==========   ==========

     At April 30, 2009 and October 31, 2008,  the length of time until  maturity
of current  held-to-maturity  securities was less than twelve months. At October
31,  2008,  the length of time until  maturity  of  noncurrent  held-to-maturity
securities  was fifteen  months.  At April 30, 2009,  and October 31, 2008,  the
estimated fair value of each  investment  approximated  its amortized cost, and,
therefore, there were no significant unrecognized holding gains or losses.

5. INVESTMENT IN AND RELATED PARTY TRANSACTIONS WITH DIGITAL INFO SECURITY CO.,
   ----------------------------------------------------------------------------
   INC.
   ----

     In February  2006,  we entered  into a Software  License  and  Distribution
Agreement (the "DISC License Agreement") to license to Digital Info Security Co.
Inc.  ("DISC"),  an encryption system that integrates our encryption  technology
into DISC's  e-mail  services.  The DISC License  Agreement  expired in February
2009.  Concurrently  with entering into the DISC License Agreement with DISC, we
acquired a minority interest in DISC by exchanging 100,000  unregistered  shares
of our common stock for 5,000,000 shares of DISC's common stock. In May and July
2006,  we  purchased  an  additional  1,000,000  shares  and  1,200,000  shares,
respectively,   of  DISC's  common  stock  for  $50,000  and  $60,000  in  cash,
respectively.  In November 2006, we acquired an additional  5,000,000  shares of
DISC's  common stock in exchange for 300,000  unregistered  shares of our common
stock.

     During the six months ended April 30,  2009,  we sold  1,000,000  shares of
DISC's common stock for  approximately  $28,000 and recorded a loss on such sale
of  approximately  $6,000.  As of April 30, 2009, we held  11,200,000  shares of
DISC's common stock.  DISC's common stock is not registered under the Securities
Exchange Act of 1934,  but is quoted on the Pink Sheets.  Based on the number of
DISC  shares  outstanding  as set  forth in DISC's  September  30,  2008  public
financial  report,  the most  recent  available,  as of April  30,  2009 we held
approximately 11% of the outstanding common stock of DISC.

                                       21
<PAGE>

     Our  investment in DISC is classified as an  "available-for-sale  security"
and  reported at fair value,  with  unrealized  gains and losses  excluded  from
operations and reported as a component of accumulated other  comprehensive loss,
net of the related tax effects,  in  shareholders'  equity.  Cost is  determined
using the specific  identification method. The fair value of DISC's common stock
is based on the closing price on the Pink Sheets.  The cost,  unrealized  (loss)
gain and fair value of our  investment  in DISC as of April 30, 2009 and October
31, 2008, are as follows:

                                       April 30, 2009      October 31, 2008
                                      -----------------    -----------------
       Cost                             $  382,800           $    417,000
       Unrealized (loss) gain              (46,800)               424,800
                                        -----------          ------------
       Fair Value                       $  336,000           $    841,800
                                        ===========          ============

6.       INVENTORIES
         -----------

     Inventories consist of the following as of:

                                    April 30, 2009      October 31, 2008
                                   -----------------    ------------------
       Component parts               $     69,345         $      67,853
       Work-in-process                      4,840                 5,079
       Finished products                  101,902               105,212
                                     ------------         -------------
                                     $    176,087         $     178,144
                                     ============         =============

7. NET LOSS PER SHARE OF COMMON STOCK
   ----------------------------------

     In  accordance  with SFAS No. 128,  "Earnings  Per Share" ("SFAS No. 128"),
basic net loss per common share  ("Basic  EPS") is computed by dividing net loss
by the weighted  average number of common shares  outstanding.  Diluted net loss
per  common  share  ("Diluted  EPS") is  computed  by  dividing  net loss by the
weighted  average number of common shares and dilutive common share  equivalents
and  convertible  securities  then  outstanding.  Diluted  EPS for  all  periods
presented  is the same as Basic EPS,  as the  inclusion  of the effect of common
share  equivalents then  outstanding  would be  anti-dilutive.  For this reason,
excluded from the  calculation of Diluted EPS for the six- month and three-month
periods  ended April 30,  2009 and 2008,  were  options to  purchase  18,485,511
shares and 20,018,511 shares, respectively.

8.       EFFECT OF RECENTLY ISSUED PRONOUNCEMENTS
         ----------------------------------------

     In December  2007, the FASB issued SFAS No. 141 (revised  2007),  "Business
Combinations"  ("SFAS No. 141R"),  which changes how an entity  accounts for the
acquisition of a business.  When effective,  SFAS No. 141R will replace existing
SFAS No. 141, "Business  Combinations"  ("SFAS No. 141"), in its entirety.  SFAS
No. 141R carries  forward the existing  requirements to account for all business
combinations using the acquisition method (formerly called the purchase method).
In general,  SFAS No. 141R will require  acquisition-date fair value measurement
of  identifiable  assets  acquired,   liabilities  assumed,  and  noncontrolling
interest  in the  acquired  entity.  SFAS No.  141R will  eliminate  the current
cost-based  purchase  method under SFAS No. 141.  SFAS No. 141R is effective for
fiscal years and interim periods within those fiscal years beginning on or after
December  15,  2008.  The  adoption of SFAS No.  141R is not  expected to have a
material effect on our consolidated financial statements.

                                       22
<PAGE>

     In December 2007, the FASB issued SFAS No. 160,  "Noncontrolling  Interests
in  Consolidated  Financial  Statements,  an amendment of ARB No. 51" ("SFAS No.
160").  SFAS No. 160  establishes  accounting  and  reporting  standards for the
noncontrolling  interests  in a  subsidiary  and  for the  deconsolidation  of a
subsidiary.  SFAS No. 160 is  effective  for fiscal  years and  interim  periods
within those fiscal years  beginning on or after December 15, 2008. The adoption
of SFAS No. 160 is not  expected to have a material  effect on our  consolidated
financial statements.

     In May 2009, the FASB issued SFAS No. 165,  "Subsequent  Events" ("SFAS No.
165").  SFAS No. 165 establishes  accounting and reporting  standards for events
that occur  after the balance  sheet date but before  financial  statements  are
issued or are available to be issued. SFAS No. 165 is effective for fiscal years
and interim  periods ending after June 15, 2009. The adoption of SFAS No. 165 is
not expected to have a material effect on our consolidated financial statements.

9.       INCOME TAXES
         ------------

     We file Federal and New York State income tax returns. Due to net operating
losses,  the  statute of  limitations  remains  open since the fiscal year ended
October 31, 1994.  We account for interest and  penalties  related to income tax
matters in selling, general and administrative expenses.

     On November 1, 2007, we adopted FIN 48. FIN 48 clarifies the accounting for
uncertainties   in  income  taxes   recognized  in  an  enterprise's   financial
statements.  There  were no  unrecognized  tax  benefits  as of the  date of our
adoption  of FIN 48 and its  adoption  did not  have a  material  effect  on our
financial statements.

10.      SEGMENT INFORMATION
         -------------------

     We follow the provisions of SFAS No. 131, "Disclosures about Segments of an
Enterprise  and Related  Information"  ("SFAS No.  131").  Reportable  operating
segments are determined based on management's approach. The management approach,
as  defined  by SFAS No.  131,  is based  on the way  that the  chief  operating
decision-maker  organizes the segments within an enterprise for making operating
decisions  and  assessing  performance.  While our  results  of  operations  are
primarily reviewed on a consolidated  basis, the chief operating  decision-maker
also manages the  enterprise in two segments:  (i) Display  Technology  and (ii)
Encryption  Products and Services.  The following  represents selected financial
information  for our segments for the  six-month and  three-month  periods ended
April 30, 2009 and 2008:

                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                     Display               Encryption
                  Segment Data                      Technology             Products and                Total
                                                                             Services
  ---------------------------------------------- ------------------      ------------------      -------------------
<S>                                              <C>                     <C>                      <C>
  Six Months Ended April 30, 2009:
     Net revenue                                 $   615,332             $    21,540              $   636,872
     Net loss                                     (1,003,642)             (1,715,219)              (2,718,861)

  Six Months Ended April 30, 2008:
     Net revenue                                 $         -             $   217,580              $   217,580
     Net loss                                     (2,551,223)             (1,975,453)              (4,526,676)
<CAPTION>
                                                     Display               Encryption
                  Segment Data                      Technology             Products and                Total
                                                                             Services
  ---------------------------------------------- ------------------      ------------------      -------------------
<S>                                              <C>                     <C>                      <C>
  Three Months Ended April 30, 2009:
     Net revenue                                 $   250,000             $   12,750              $   262,750
     Net loss                                       (595,834)               (748,317)              (1,344,151)

  Three Months Ended April 30, 2008:
     Net revenue                                 $         -              $  165,355              $   165,355
     Net loss                                     (1,054,950)               (786,401)              (1,841,351)
</TABLE>

                                       24
<PAGE>

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

GENERAL
-------

     Our principal  operations are the development,  production and marketing of
thin,  flat,  low-voltage  phosphor  display  technology  and  the  development,
production and marketing of  multi-functional  encryption  products that provide
information  security for domestic and international  users over virtually every
communications media.

     We have  pioneered the basic  development of an innovative new type of flat
panel display  technology,  which is brighter,  has higher contrast and consumes
less power than our prior display technology.  This new proprietary display is a
color  phosphor based display  having a unique lower voltage  electron  emission
system to excite the color phosphors. As with our prior display technology,  the
new  technology  emits light to display  color  images,  such as movies from DVD
players. In addition, we are also developing another version of our new type low
voltage  and low power  display  having a  different  matrix  configuration  and
phosphor excitation system.  These new type of displays are expected to be lower
in cost than our prior displays.

     In November  2007,  we entered  into a  Technology  License  Agreement  (as
amended,  the "License  Agreement") with Videocon  Industries Limited, an Indian
company  ("Videocon").  Under the License Agreement,  we provide Videocon with a
non-transferable,  worldwide  license  of our  technology  for thin,  flat,  low
voltage  phosphor  displays  (the  "Licensed  Technology"),  for  Videocon (or a
Videocon  Group  company)  to  produce  and  market  products,   including  TVs,
incorporating  displays  utilizing  the Licensed  Technology.  Under the License
Agreement,  we will receive a license fee of $11 million from Videocon,  payable
in installments  over a 27 month period and an agreed upon royalty from Videocon
based on  display  sales by  Videocon.  In April  2008,  the  Indian  Government
approved  the  License  Agreement  and  in  May  2008,  we  received  the  first
installment of the license fee of $2 million.

     Videocon  Industries Limited is the flagship company of the Videocon Group,
one of India's leading  business  houses.  Videocon Group is a fully  integrated
consumer electronics and home appliances enterprise with backward integration in
plasma panel,  CRT glass,  color picture tubes and other key  components for the
consumer  electronics,  home appliances and components  industries.  The company
also operates in the oil & gas sector.  The Videocon Group has sales and service
networks throughout India and operates facilities in Europe and elsewhere in the
world.

     CopyTele and Videocon are working together to implement our technology into
production  display  modules.  The  display  modules  consist of our low voltage
phosphor  displays,  the attached  associated  driver  circuits,  and controller
circuits. Under the License Agreement,  Videocon, with assistance from CopyTele,
is to provide  the design  and  process  engineering  required  to produce  such
display  modules,  and also is to provide all tooling and fixtures  required for
the  production  process.  Videocon  has a group of  qualified  and  experienced
personnel  assigned to this  program.  As part of our  assistance to Videocon to
produce such display modules,  we are providing  technical support to Videocon's
technical team. We are also cooperating  with Videocon to jointly  implement the
CopyTele  technology prior to production to produce  prototypes of such modules.
Videocon is  utilizing  its display  processing  technology  and  facilities  to
continue to produce our display  matrix,  and has  improved  performance  of the
matrix.  The matrix is the main component of our display,  since it contains the
structure  to  accommodate  our  electron  emission  technology  and  the  color
phosphors  that are used to  illuminate  our display.  CopyTele and Videocon are
also working together to incorporate  another version of our display technology.
Improvements to the technology are to be jointly owned by CopyTele and Videocon.

                                       25
<PAGE>

     Under the  License  Agreement  we continue to have the right to produce and
market products utilizing the Licensed Technology.  We also continue to have the
right to utilize  Volga Svet Ltd., a Russian  display  company that we have been
working with for more than eleven  years  ("Volga"),  and an Asian  company that
CopyTele has been working with for more than five years,  to produce and market,
products utilizing the Licensed Technology.  Additional licenses of the Licensed
Technology  to third  parties  require  the  joint  agreement  of  CopyTele  and
Videocon.

     In connection with the License  Agreement,  Videocon and CopyTele have each
appointed  one senior  advisor to the other's  board of directors to advise with
respect to strategic planning and technology in the display field.

     At the same time as we entered into the License Agreement,  we entered into
a Share  Subscription  Agreement with an affiliate of Videocon ("Mars Overseas")
for Mars  Overseas  to purchase  20,000,000  shares of our common  stock,  and a
subsidiary of ours,  CopyTele  International  Ltd.  ("CopyTele  International"),
entered into a GDR Purchase  Agreement to purchase  1,495,845 global  depository
receipts  ("GDRs") of Videocon.  Both  transactions  were completed in our first
fiscal  quarter  of  fiscal  2008.  See  Note  1 to the  Condensed  Consolidated
Financial Statements.

     Our new technology  improves on our prior carbon  nanotube and  proprietary
low  voltage  color  phosphor  display  technology.  We have  developed  various
engineering models using such prior technology, which demonstrated the display's
ability  to show  movies  from DVD  players by  controlling  the  brightness  of
selected individual pixels. The carbon nanotubes,  which are supplied to us by a
U.S.  company,  require a low voltage for electron  emission  and are  extremely
small -  approximately  10,000 times thinner than the width of a human hair. The
5.5 inch (diagonal) display we developed has 960 x 234 pixels and utilizes a new
memory-based  active  matrix  thin  film  technology  with each  pixel  phosphor
activated by electrons emitted by a proprietary  carbon nanotube network located
approximately 10 microns (1/10th of a human hair) from the pixels.  As a result,
each pixel phosphor  brightness is controlled  using a maximum of only 40 volts.
The carbon  nanotubes and proprietary  color phosphors are precisely  placed and
separated utilizing our proprietary nanotube and phosphor deposition technology.
We have developed a process of maintaining  uniform carbon  nanotube  deposition
independent of phosphor deposition. We have also developed a method of enhancing
nanotube electron emission to increase the brightness of this type of display.

     Some other characteristics of our display technology are as follows:

     o    We have developed a proprietary system which allows us to evacuate our
          display; to rapidly vacuum seal it at a low temperature to accommodate
          the matrix;  and to create  lithographic  type spacers to assemble our
          display utilizing only 0.7mm glass. We thus obtain a display thickness
          of approximately  1/16th of an inch, thinner than LCD (liquid crystal)
          and PDP (plasma) displays.

                                       26
<PAGE>

     o    The display matrix, phosphor excitation system, and drivers are all on
          one substrate.

     o    Our  display  is able to select  and  change  the  brightness  of each
          individual  pixel,  requiring  only 40 volts on each pixel phosphor to
          change the brightness from black to white.  This compares to thousands
          of volts required for other video phosphor based displays, which leads
          to inherent breakdowns and short life.

     o    Our display has no  backlight.  Because  power is only consumed when a
          pixel is turned on, low power is needed to activate the whole display.
          The  display  requires  less  power  than an  LCD.  This  lower  power
          consumption could  potentially allow use of rechargeable  batteries to
          operate TV products for wireless  applications  and extend the battery
          operation time for portable devices.

     o    The same basic display  technology  could  potentially  be utilized in
          various size applications, from hand-held to TV size displays.

     o    Our  proprietary  matrix  structures  can be produced by existing mass
          production TFT (thin film  technology) LCD facilities,  or portions of
          these facilities.

     o    Our display eliminates display flicker.

     o    Our display has an  approximately  1,000 times faster  video  response
          time than an LCD, and matches the response  time of a cathode ray tube
          (CRT).

     o    Our display can be viewed with high contrast over  approximately a 180
          degree viewing angle, in both the horizontal and vertical  directions,
          which exceeds the viewing angle of LCDs.

     o    Also like CRTs, our display is capable of operating over a temperature
          range (-40(degree)C to 85(degree)C) which exceeds the range over which
          LCDs can operate, especially under cold temperature conditions.

     We believe our displays could  potentially have a cost similar to a CRT and
thus less than  current  LCD or PDP  displays  (our  display  does not contain a
backlight,  or color filter or polarizer,  which represent a substantial portion
of the cost of an LCD).

     We  are  also  further   developing   our  patented   extremely  low  power
non-phosphor  passive display  technologies  for use in portable  devices.  This
includes  providing  higher  contrast and response times and color  capabilities
without use of higher cost TFT based technology. This technology supplements our
phosphor based technology for certain portable applications.

     We have also  continued to pursue our  encryption  business of landline and
wireless telephone systems and networks. We have sought encryption opportunities
in both the commercial and government security markets.

     Our  government  market has been  primarily  handled by The Boeing  Company
("Boeing")  and its large  distributors  of the Thuraya  satellite  phones.  The
Thuraya  Satellite  Network has grown as a  communications  provider  due to its
geographic  coverage,  quality of service and cost  effective  usage.  The third
Thuraya Geo-mobile satellite was successfully launched in January 2008, allowing
Thuraya to embark on expansion plans to provide its mobile satellite services in
the Asia-Pacific region.

                                       27
<PAGE>

     Our three year  agreement with Boeing  continued  into fiscal 2009.  Boeing
distributes 13 of our products, including our DCS-1400D (docker voice encryption
device),  USS-900T  (satellite fax encryption  device),  USS-900TL  (landline to
satellite  fax  encryption  device),   USS-900WF  (satellite  and  cellular  fax
encryption  device),   USS-900WFL   (landline  to  satellite  and  cellular  fax
encryption  device)  and  USS-900TC   (satellite  fax  encryption  to  computer)
products, which were specifically designed for the Thuraya network. Boeing sells
these products under the brand name of Thuraya.

     We are continuing to promote our Thuraya encryption solutions through other
Thuraya  developers and resellers in addition to Boeing. We offer a full line of
voice, fax and data encryption  products that secure these  communications,  and
our  products  are  being  used by  government  agencies,  military,  as well as
domestic and international  non-governmental  organizations (NGOs) in the Middle
East, Europe, Far East and Africa.

     Asia Pacific  Satellite  Industries  ("APSI") has  manufactured new Thuraya
handsets and docking units that allow satellite communications both outdoors and
indoors.  CopyTele has created devices  allowing  customers to easily set up and
engage  in  secure  communications  over the  Thuraya  network  compatible  with
landline telephone  systems.  APSI's FDU-3500 docking unit for its SO-2510 phone
allows for outdoor and indoor  operation of the  satellite  phone on the Thuraya
network.  Our PA-3500 and  PA-3500T  products  allow  compatibility  between our
DCS-1200, DCS-1400 and USS-900T encryption devices and the APSI FDU-3500 docking
unit and SO-2510  phone.  Together with APSI,  we have  continued to develop the
DCS-2500  integrated  encryption  system,  which is  designed  for  convenience,
portability and easy of use with the Thuraya phone.

     Our products provide secure  communications  with many different  satellite
phones,  including  the Thuraya  7100/7101/SO-2510  handheld  terminal  ("HHT"),
Globalstar GSP-1600 HHT, Telit SAT-550/600 HHT,  Globalstar  GSP-2800/2900 fixed
phone,  Iridium  9500/9505/9505A  HHT,  Inmarsat  M4 and Mini "M" HHT units from
Thrane & Thrane and Nera. Through the use of our products,  encrypted  satellite
communications   are  available  for  many  Thuraya  docking  units,   including
Teknobil's Next Thuraya Docker, Thuraya's Fixed Docking Adapter, APSI's FDU-2500
and FDU-3500 Fixed Docking Units,  and Sattrans's  SAT-OFFICE Fixed Docking Unit
and SAT-VDA  Hands-Free Car Kit. We are in consultation  with specialists of the
Inmarsat BGAN system and the new Iridium  satellite phone  developing  compliant
encryption solutions that offer new opportunity and an increased customer base.

     We have added Voice over Internet Protocol (VoIP) functions to the DCS-1200
for corporate utilization over popular new telephone systems.

     We continue  to seek  opportunities  to market our  products  for  securing
landline and  wireless  voice and fax  communications.  Our USS-900 and specific
Thuraya products are being evaluated for use by a Middle Eastern  government and
an African government for encrypting voice and fax  communications.  Also, a Far
Eastern  government  is in the process of  determining  the system  requirements
necessary to encrypt voice  communications  utilizing our USS-900,  DCS-1200 and
DCS-1400 products.

                                       28
<PAGE>

     Our  operations  and  the  achievement  of  our  objectives  in  marketing,
production,  and research and  development  are dependent  upon an adequate cash
flow.  Accordingly,   in  monitoring  our  financial  position  and  results  of
operations,  particular  attention  is  given to cash  and  accounts  receivable
balances and cash flows from operations.  Since our initial public offering, our
cash flows have been  primarily  generated  through the sales of common stock in
private  placements and upon exercise of stock options.  Since 1999 we have also
generated cash flows from sales of our encryption products and services.  We are
continuing to direct our encryption  marketing  efforts to opportunities in both
the commercial and government  security markets and have recently  uncovered new
opportunities  to market products to Middle Eastern and Far Eastern  governments
to secure voice and fax communications.  In addition, in fiscal 2008, we entered
into the License Agreement with Videocon and in May 2008, we commenced receiving
from Videocon license fees related to our display technology.

CRITICAL ACCOUNTING POLICES
---------------------------

     Our  financial  statements  are  prepared  in  conformity  with  accounting
principles  generally accepted in the United States of America.  As such, we are
required to make certain  estimates,  judgments and assumptions  that management
believes are reasonable  based upon the information  available.  These estimates
and  assumptions  affect the reported  amounts of assets and liabilities and the
disclosure of contingent  assets and  liabilities  at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods.

     We  believe  the  following  critical  accounting  polices  affect the more
significant  judgments and estimates  used in the  preparation  of our financial
statements.  For  additional  discussion on the  application  of these and other
accounting polices, refer to the financial statements and notes thereto included
in our Annual Report on Form 10-K for the year ended October 31, 2008.

Revenue Recognition
-------------------

     Revenues are recorded when all four of the following  criteria are met: (i)
persuasive  evidence of an  arrangement  exists;  (ii) delivery has occurred and
title has  transferred  or services have been  rendered;  (iii) our price to the
buyer is fixed or determinable; and (iv) collectibility is reasonably assured.

     We have  assessed  the  guidance  of Emerging  Issues Task Force No.  00-21
"Revenue  Arrangements with Multiple  Deliverables"  ("EITF 00-21") to determine
whether  multiple  deliverables  in  our  arrangement  with  Videocon  represent
separate units of accounting. Under the License Agreement,  CopyTele is required
to: (a)  disclose to Videocon  the Licensed  Technology  and provide  reasonable
training of Videocon  personnel;  (b) jointly cooperate with Videocon to produce
prototypes  prior to  production;  and (c)  assist  Videocon  in  preparing  for
production.  CopyTele has determined that these  performance  obligations do not
have value to  Videocon on a  standalone  basis,  as defined in EITF 00-21,  and
accordingly they do not represent separate units of accounting.

                                       29
<PAGE>

     We have established objective and reasonable evidence of fair value for the
royalty to be earned  during the  production  period  based on  analysis  of the
pricing for similar agreements. Accordingly, we have determined that the license
fee of $11 million to be paid during the pre-production  period and royalties on
product sales reflects the  established  fair value for these  deliverables.  We
will  recognize the $11 million  license fee over the  estimated  period that we
expect to provide  cooperation and assistance during the pre-production  period,
limiting the revenue  recognized on a cumulative basis to the aggregate  license
fee payments received from Videocon. We will assess at each reporting period the
progress and assistance provided and will continue to evaluate the period during
which this fee will be recognized.  License fee payments  received from Videocon
which are in excess of the amounts  recognized  as revenue ($-0- as of April 30,
2009 and  approximately  $313,000  as of  October  31,  2008)  are  recorded  as
non-refundable  deferred  revenue  on the  accompanying  condensed  consolidated
balance sheets.

     During the quarter  ended April 30, 2009,  we agreed to reimburse  Videocon
$250,000  for  engineering  services  related to another  version of our display
technology  and we modified the payment terms from Videocon  during the quarter.
The license fee revenue  recognized during the three months ended April 30, 2009
of  $250,000  represented  an  offset  against  amounts  due  Videocon  for  the
aforementioned  engineering services, in lieu of a cash payment. In addition, in
June 2009,  we received a license fee payment from  Videocon of $250,000,  which
was due during the  quarter  ended  April 30,  2009,  pursuant  to the  modified
payment  terms.  This June  payment  will be  included  in license  fee  revenue
recognized  during the three months ending July 31, 2009.  However,  the license
fee of $11 million  remains  payable over the 27 month period  commencing in May
2008, and  Videocon's  obligations  with respect to  production,  and CopyTele's
assistance, under the License Agreement remain unaffected.

Investment Securities
---------------------

     We  classify  our   investment   securities  in  one  of  two   categories:
available-for-sale  or  held-to-maturity.   Available-for-sale   securities  are
recorded at fair  value.  Unrealized  gains and  losses,  net of the related tax
effect,  on  available-for-sale  securities  are excluded  from earnings and are
reported as a component of accumulated other  comprehensive  income (loss) until
realized.  Realized  gains  and  losses  from  the  sale  of  available-for-sale
securities are determined on a specific  identification basis.  Held-to-maturity
securities,  which are investment securities that the company has the intent and
ability to hold to maturity,  are carried at amortized cost. The amortization of
premiums and accretion of discounts  are recorded on the level yield  (interest)
method,  over the period from the date of purchase  to  maturity.  When sales do
occur, gains and losses are recognized at the time of sale and the determination
of cost of  securities  sold is based upon the specific  identification  method.
Dividend and interest income are recognized when earned.

     We monitor  the value of our  investments  for  indicators  of  impairment,
including  changes  in  market  conditions  and  the  operating  results  of the
underlying  investment  that may result in the inability to recover the carrying
value of the  investment.  We will  record an  impairment  charge if and when we
believe  any such  investment  has  experienced  a  decline  that is other  than
temporary.

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

     Inventories are stated at the lower of cost, including material,  labor and
overhead, determined on a first-in, first-out basis, or market, which represents
our best estimate of market value. We regularly review  inventory  quantities on
hand,  particularly  finished  goods,  and  record a  provision  for  excess and
obsolete  inventory based  primarily on forecasts of future product demand.  Our
net loss is directly  affected by management's  estimate of the realizability of
inventories.  To date,  sales of our products  have been  limited.  Accordingly,
there can be no  assurance  that we will not be  required  to reduce the selling
price of our inventory below our current carrying value in the future.

                                       30
<PAGE>

Stock Based Compensation
------------------------

     We  account  for  stock  options   granted  to  employees,   directors  and
consultants  using Financial  Accounting  Standards Board Statement of Financial
Accounting  Standards No. 123 (revised 2004),  "Share-Based  Payment" ("SFAS No.
123R").  We  recognize  compensation  expense  for  stock  option  awards  on  a
straight-line  basis over the requisite service period of the grant. We recorded
stock-based  compensation expense, related to stock options granted to employees
and non-employee  directors, of approximately $401,000 and $1,910,000 during the
six-month  periods  ended  April  30,  2009  and  2008,  respectively,   and  of
approximately  $172,000 and $821,000 during the three-month  periods ended April
30, 2009 and 2008,  respectively,  in  accordance  with SFAS 123R.  We recognize
consulting expense for options granted to non-employee  consultants,  during the
six-month  periods  ended April 30, 2009 and 2008, of  approximately  $7,000 and
$210,000,  respectively, and during the three-month periods ended April 30, 2009
and 2008, of approximately  $3,000 and $3,000,  respectively.  See Note 2 to the
Condensed Consolidated Financial Statements for additional information.

     Determining the appropriate fair value model and calculating the fair value
of  stock-based  awards  requires  judgment,  including  estimating  stock price
volatility,  forfeiture rates and expected life. If factors change and we employ
different assumptions in the application of SFAS No. 123R in future periods, the
compensation expense that we record under SFAS No. 123R may differ significantly
from what we have recorded in the current period.

RESULTS OF OPERATIONS
---------------------

Six months ended April 30, 2009 compared with six months ended April 30, 2008
-----------------------------------------------------------------------------

     Net Revenue

     Net revenue  increased  by  approximately  $419,000 in the six months ended
April 30, 2009, to approximately $637,000, as compared to approximately $218,000
in the  comparable  prior-year  period.  Revenue  recognized  during the current
period included display technology license fees related to the License Agreement
with Videocon of approximately  $563,000,  as compared to none in the comparable
prior-year period and revenue from display  technology  engineering  services of
$52,000,  as compared to none in the comparable  prior-year  period. The revenue
from display technology  engineering services resulted from engineering services
billed  to  Volga.  Revenue  from  sales of  encryption  products  decreased  by
approximately  $196,000 in the six months ended April 30, 2009, to approximately
$22,000,  as compared to  approximately  $218,000 in the  comparable  prior-year
period.  Our encryption  revenue has been limited and is sensitive to individual
large transactions.

     Cost of Encryption Products Sold

     The cost of encryption products sold decreased by approximately  $44,000 in
the six months ended April 30, 2009,  to  approximately  $6,000,  as compared to
approximately  $50,000 in the comparable prior-year period. The decrease in cost
of encryption products sold was primarily due to a decrease in unit shipments of
encryption products.

                                       31
<PAGE>

     Cost of Display Engineering Services

     The cost of display engineering services increased to approximately $18,000
in the six months  ended April 30, 2009,  as compared to none in the  comparable
prior year period, as there was no revenue from display engineering  services in
the prior year period.

     Research and Development Expenses

     Research and development  expenses  decreased by approximately  $560,000 in
the  six  months  ended  April  30,  2009,  to  approximately  $1,884,000,  from
approximately  $2,444,000 in the comparable  prior-year  period. The decrease in
research and development  expenses was principally due to a decrease in employee
stock option compensation expense of approximately $831,000, which resulted from
a decrease  in the  number of options  granted  and a  decrease  in the  weighed
average fair value at grant dates, a decrease in consultant stock option expense
of  approximately  $44,000,  offset  by an  increase  in  outside  research  and
development  expense of approximately  $175,000,  which primarily  resulted from
engineering  services  performed by Videocon  related to another  version of our
display  technology,  an increase in employee  compensation  and related  costs,
other than stock option expense, of approximately $96,000, an increase in travel
expense of  approximately  $44,000,  and an increase in engineering  supplies of
approximately $33,000.

     Selling, General and Administrative Expenses

     Selling,  general and  administrative  expenses  decreased by approximately
$904,000 to  approximately  $1,490,000  in the six months  ended April 30, 2009,
from approximately  $2,394,000 in the comparable prior-year period. The decrease
in  selling,  general  and  administrative  expenses  was  principally  due to a
decrease  in  employee  stock  option  compensation   expense  of  approximately
$678,000,  which resulted from a decrease in the number of options granted and a
decrease  in the  weighed  average  fair value at grant  dates,  a  decrease  in
consultant stock option expense of approximately  $159,000, a decrease in travel
expense of approximately  $63,000,  and a decrease in the provision for doubtful
accounts of approximately $60,000.

     Dividend Income

     Dividend income, which was received in connection with the Videocon GDRs we
acquired in December 2007, decreased by approximately  $102,000 to approximately
$29,000  in the six months  ended  April 30,  2009,  compared  to  approximately
$131,000 in the comparable  prior-year  period.  The decrease in dividend income
was due to a reduction by Videocon of dividends paid.

     Interest Income

     Interest income was approximately $12,000 in the six months ended April 30,
2009, compared to approximately $13,000 in the comparable prior-year period. The
interest  income earned on the additional  funds available for investment on the
current period was offset by a reduction in prevailing interest rates.

                                       32
<PAGE>

Three months ended April 30, 2009 compared with three months ended April 30,
----------------------------------------------------------------------------
2008
----

     Net Revenue

     Net revenue  increased by  approximately  $98,000 in the three months ended
April 30, 2009, to approximately $263,000, as compared to approximately $165,000
in the  comparable  prior-year  period.  Revenue  recognized  during the current
period included display technology license fees related to the License Agreement
with  Videocon of  $250,000,  as compared to none in the  comparable  prior-year
period.  Revenue from sales of encryption  products  decreased by  approximately
$152,000 in the three months ended April 30, 2009, to approximately  $13,000, as
compared to  approximately  $165,000 in the comparable  prior-year  period.  Our
encryption  revenue  has been  limited  and is  sensitive  to  individual  large
transactions.

     Cost of Encryption Products Sold

     The cost of encryption products sold decreased by approximately  $33,000 in
the three months ended April 30, 2009, to approximately  $4,000,  as compared to
approximately  $37,000 in the comparable prior-year period. The decrease in cost
of encryption products sold was primarily due to a decrease in unit shipments of
encryption products.

     Research and Development Expenses

     Research and development expenses decreased by approximately $69,000 in the
three  months  ended  April  30,  2009,  to   approximately   $1,062,000,   from
approximately  $1,131,000 in the comparable  prior-year  period. The decrease in
research and development  expenses was principally due to a decrease in employee
stock option compensation expense of approximately $335,000, which resulted from
a decrease in the weighed  average fair value of options at grant  dates,  and a
decrease in patent  related  expenses  of  approximately  $30,000,  offset by an
increase in outside research and development expense of approximately  $191,000,
which primarily resulted from engineering services performed by Videocon related
to  another  version  of  our  display  technology,   an  increase  in  employee
compensation   and  related  costs,   other  than  stock  option   expense,   of
approximately  $67,000, and an increase in engineering supplies of approximately
$31,000.

     Selling, General and Administrative Expenses

     Selling,  general and  administrative  expenses  decreased by approximately
$400,000 to  approximately  $575,000 in the three  months  ended April 30, 2009,
from approximately $975,000 in the comparable prior-year period. The decrease in
selling,  general and administrative  expenses was principally due to a decrease
in employee stock option compensation expense of approximately  $314,000,  which
resulted  from a decrease in the weighed  average fair value of options at grant
dates, a decrease in travel expense of approximately  $58,000, and a decrease in
professional  fees of approximately  $40,000,  offset by an increase in employee
compensation   and  related  costs,   other  than  stock  option   expense,   of
approximately $30,000.

     Dividend Income

     Dividend income, which was received in connection with the Videocon GDRs we
acquired in December 2007, decreased by approximately  $102,000 to approximately
$29,000 in the three  months  ended April 30,  2009,  compared to  approximately
$131,000 in the comparable  prior-year  period.  The decrease in dividend income
was due to a reduction by Videocon of dividends paid.

                                       33
<PAGE>

     Interest Income

     Interest  income was  approximately  $5,000 in the three months ended April
30, 2009, compared to approximately $6,000 in the comparable  prior-year period.
The interest  income earned on the additional  funds available for investment on
the current period was offset by a reduction in prevailing interest rates.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     From our inception, we have met our liquidity and capital expenditure needs
primarily  through the proceeds from sales of common stock in our initial public
offering, in private placements,  upon exercise of warrants issued in connection
with the private placements and public offering,  and upon the exercise of stock
options.  In addition,  commencing in the fourth quarter of fiscal 1999, we have
generated cash flows from sales of our  encryption  products and in May 2008, we
commenced receiving license fees related to our display technology from Videocon
pursuant to the License Agreement.

     During the six months  ended  April 30,  2009,  our cash used in  operating
activities  was  approximately  $1,415,000.   This  resulted  from  payments  to
suppliers,  employees and  consultants of  approximately  $1,531,000,  which was
offset by cash of  approximately  $71,000  received from collections of accounts
receivable  related  to sales of  encryption  products  and  display  technology
engineering  services,  approximately  $16,000 of interest  income  received and
approximately  $29,000  of  dividend  income  received.  Our  cash  provided  by
investing   activities   during  the  six  months   ended  April  30,  2009  was
approximately   $1,471,000,   which  resulted  from  $1,443,000   received  upon
maturities of short-term  investments  consisting of certificates of deposit and
U.S. government  securities and approximately  $28,000 received upon the sale of
Digital Info  Security Co. Inc.  common  stock.  Our cash  provided by financing
activities  during  the six  months  ended  April  30,  2009  was  approximately
$757,000,  which resulted from cash received upon the exercise of stock options.
Accordingly,  during the  six-months  ended  April 30,  2009,  our cash and cash
equivalents   increased  by  approximately   $813,000  and  our  short-term  and
non-current   investments  in  certificates  of  deposit  and  U.S.   government
securities  decreased by approximately  $1,442,000.  As a result, our cash, cash
equivalents,  and  investments in  certificates  of deposit and U.S.  government
securities  at  April  30,  2009  decreased  to  approximately  $2,041,000  from
approximately  $2,671,000 at the end of fiscal 2008. Our operating cash accounts
are maintained at  FDIC-insured  banks.  Our bank accounts and  certificates  of
deposit are maintained within FDIC coverage limits.

     Net accounts  receivable  increased  by $3,000 from  $103,000 at the end of
fiscal 2008 to $106,000 at April 30,  2009,  as a result the timing of receipts.
Inventories  decreased by approximately  $2,000 from  approximately  $178,000 at
October 31, 2008 to  approximately  $176,000 at April 30,  2009,  primarily as a
result of the  timing of  shipments  and  production  schedules.  Investment  in
Videocon is recorded at fair value and decreased to approximately  $3,261,000 at
April 30,  2009 from  $3,620,000  at the end of fiscal  2008,  as a result of an
increase in  unrealized  loss of  approximately  $359,000  during the six months
ended April 30, 2009. Investment in DISC is recorded at fair value and decreased
to  $336,000 at April 30, 2009 from  $842,000  at the end of fiscal  2008,  as a
result of a decrease  in the price of the DISC  common  stock on the Pink Sheets
during the six months ended April 30, 2009 and the sale of  1,000,000  shares of
DISC common stock with a cost of  approximately  $34,000.  Accounts  payable and
accrued  liabilities   increased  by  approximately  $2,000  from  approximately
$454,000 at the end of fiscal 2008 to approximately  $456,000 at April 30, 2009,
as a result the timing of payments.  Deferred revenue decreased to $-0- at April
30, 2009 from $313,000 at the end of fiscal 2008, as a result of the license fee
revenue recognized during the six months ended April 30, 2009.

                                       34
<PAGE>

     Working  capital at April 30, 2009  increased to  approximately  $1,931,000
from  approximately  $1,489,000 at the end of fiscal 2008.  Our working  capital
includes inventory of approximately  $176,000 at April 30, 2009.  Management has
recorded our  inventory at the lower of cost or our current best estimate of net
realizable value. To date, sales of our products have been limited. Accordingly,
there can be no  assurance  that we will not be  required  to reduce the selling
price of our inventory below our current carrying value.

     Total employee  compensation  expense for the six-month periods ended April
30, 2009 and 2008 was approximately $1,922,000 and $3,287,000, respectively, and
for the  three-month  periods  ended April 30,  2009 and 2008 was  approximately
$938,000 and $1,490,000,  respectively. During the six-month periods ended April
30, 2009 and 2008, a significant portion of employee  compensation  consisted of
the  issuance  of  stock  and  stock  options  to  employees  in  lieu  of  cash
compensation.  During the  six-month  periods  ended April 30, 2009 and 2008, we
issued  3,722,825  shares and 954,875 shares,  respectively,  of common stock to
certain employees for services rendered.  We recorded  stock-based  compensation
expense for the six-month periods ended April 30, 2009 and 2008 of approximately
$1,172,000 and $1,041,000,  respectively,  and for the three-month periods ended
April 30, 2009 and 2008 of  approximately  $578,000 and $484,000,  respectively,
for  shares of  common  stock  issued  to  employees.  We  recorded  stock-based
compensation  expense for the six-month periods ended April 30, 2009 and 2008 of
approximately  $401,000 and  $1,910,000,  respectively,  and for the three-month
periods  ended April 30, 2009 and 2008 of  approximately  $172,000 and $821,000,
respectively, related to stock options granted to employees and directors. It is
managements'  intention to continue to compensate  employees by issuing stock or
stock options.

     In addition, during the six-month periods ended April 30, 2009 and 2008, we
issued  116,792  shares  and 62,306  shares,  respectively,  of common  stock to
non-employee  consultants for services rendered.  We recorded consulting expense
for the six-month periods ended April 30, 2009 and 2008 of approximately $35,000
and $75,000,  respectively, and for the three-month periods ended April 30, 2009
and 2008 of  approximately  $34,000  and  $15,000,  respectively,  for shares of
common stock issued to consultants.  In addition, we recorded consulting expense
for stock  options  granted to  non-employee  consultants,  during the six-month
periods  ended April 30, 2009 and 2008,  of  approximately  $7,000 and $210,000,
respectively,  and during the three-month periods ended April 30, 2009 and 2008,
of  approximately  $3,000  and  $3,000,  respectively.  It is also  managements'
intention  to  continue  to  compensate  consultants  by issuing  stock or stock
options.

     During the six-month  periods ended April 30, 2009 and 2008,  stock options
to purchase 2,700,000 shares and 2,094,200 shares, respectively, of common stock
were exercised with aggregate proceeds of approximately $757,000 and $1,699,000,
respectively.

                                       35
<PAGE>

     During the six months ended April 30, 2008, we issued  20,000,000 shares of
our common stock to an affiliate of Videocon for an aggregate  purchase price of
$16,200,000 and we purchased  1,495,845  Videocon GDRs for an aggregate purchase
price of  $16,200,000.  In April 2009 and April 2008,  we received  dividends of
approximately $29,000 and $131,000,  respectively, on the Videocon GDRs we hold.
While  the  Videocon  GDRs are held as  security  for the loan  payable  to Mars
Overseas,  the  agreement  governing  such  loan  provides  that any  dividends,
distributions,  rights or other  proceeds or benefits in respect of the Videocon
GDRs  shall be  promptly  transferred  to us free and clear of any  encumbrances
under the agreements.

     We  believe  that our  existing  cash,  cash  equivalents,  investments  in
certificates of deposit,  investments in U.S. government securities and accounts
receivable,  together  with cash flows  from  expected  sales of our  encryption
products and revenue  relating to our thin, flat,  low-voltage  phosphor display
technology,  including  license  fees and  royalties  from  Videocon,  and other
potential sources of cash flows, will be sufficient to enable us to continue our
marketing,  production,  and research and development  activities.  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.  It
is also  management's  intention to continue to compensate  employees by issuing
stock or stock  options.  We  currently  have no  arrangements  with  respect to
additional financing. There can be no assurance that we will generate sufficient
revenues in the future (through sales, license fees and royalties, or otherwise)
to satisfy our liquidity  requirements  or sustain future  operations,  that our
production  capabilities  will be  adequate,  that  other  products  will not be
produced by other  companies  that will render our  products  obsolete,  or that
other sources of funding would be available, if needed, on favorable terms or at
all. If we cannot obtain such funds if needed, we would need to curtail or cease
some or all of our operations.

     We are seeking to improve our liquidity  through increased sales or license
of products and technology. In an effort to generate sales, we have marketed our
encryption products directly to U.S. and international distributors, dealers and
original  equipment  manufacturers  that market our  encryption  products and to
end-users.  In fiscal 2008, we entered into the License Agreement with Videocon.
Under the License  Agreement,  we will receive a license fee of $11 million from
Videocon,  payable in  installments  over a 27 month  period and an agreed  upon
royalty from Videocon based on display sales by Videocon.  During the six months
ended  April 30,  2009,  we have  recognized  revenue  from sales of  encryption
products of approximately  $22,000,  revenue from display technology engineering
services  of  $52,000  and  revenue  from  display  technology  license  fee  of
approximately $563,000.

                                       36
<PAGE>

     The following table presents our expected cash requirements for contractual
obligations outstanding as of April 30, 2009:

<TABLE>
<CAPTION>
                                                             Payments Due by Period
                             ----------------------------------------------------------------------------------------
                                 Less
  Contractual                    than             1-3              4-5              After
  Obligations                   1 year           years            years            5 years               Total
  -----------------------    -------------    -------------    ------------    ----------------    ------------------
<S>                          <C>              <C>              <C>             <C>                 <C>
  Noncancelable
  Operating Leases           $   291,000      $  478,000       $                      -            $     769,000

  Loan Payable                      -                -                  -      $   5,000,000       $   5,000,000
                             -------------    -------------    ------------    ----------------    ------------------

  Total Contractual
  Cash Obligations           $   291,000      $  478,000       $        -      $   5,000,000       $   5,769,000
                             =============    =============    ============    ================    ==================
</TABLE>

EFFECT OF RECENTLY ISSUED PRONOUNCEMENTS
----------------------------------------

     In December  2007, the FASB issued SFAS No. 141 (revised  2007),  "Business
Combinations"  ("SFAS No. 141R"),  which changes how an entity  accounts for the
acquisition of a business.  When effective,  SFAS No. 141R will replace existing
SFAS No. 141, "Business  Combinations"  ("SFAS No. 141"), in its entirety.  SFAS
No. 141R carries  forward the existing  requirements to account for all business
combinations using the acquisition method (formerly called the purchase method).
In general,  SFAS No. 141R will require  acquisition-date fair value measurement
of  identifiable  assets  acquired,   liabilities  assumed,  and  noncontrolling
interest  in the  acquired  entity.  SFAS No.  141R will  eliminate  the current
cost-based  purchase  method under SFAS No. 141.  SFAS No. 141R is effective for
fiscal years and interim periods within those fiscal years beginning on or after
December  15,  2008.  The  adoption of SFAS No.  141R is not  expected to have a
material effect on our consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160,  "Noncontrolling  Interests
in  Consolidated  Financial  Statements,  an amendment of ARB No. 51" ("SFAS No.
160").  SFAS No. 160  establishes  accounting  and  reporting  standards for the
noncontrolling  interests  in a  subsidiary  and  for the  deconsolidation  of a
subsidiary.  SFAS No. 160 is  effective  for fiscal  years and  interim  periods
within those fiscal years  beginning on or after December 15, 2008. The adoption
of SFAS No. 160 is not  expected to have a material  effect on our  consolidated
financial statements.

     In May 2009, the FASB issued SFAS No. 165,  "Subsequent  Events" ("SFAS No.
165").  SFAS No. 165 establishes  accounting and reporting  standards for events
that occur  after the balance  sheet date but before  financial  statements  are
issued or are available to be issued. SFAS No. 165 is effective for fiscal years
and interim  periods ending after June 15, 2009. The adoption of SFAS No. 165 is
not expected to have a material effect on our consolidated financial statements.

                                       37
<PAGE>

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 Part II, Item 1A - "Risk
Factors" below and Note 1 to the Condensed  Consolidated  Financial  Statements.
You should read this  discussion  and analysis  along with our Annual  Report on
Form 10-K for the year ended  October  31, 2008 and the  condensed  consolidated
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.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
         -----------------------------------------------------------

     As of April 30,  2009,  we had  invested  a portion  of our cash on hand in
short-term, fixed rate and highly liquid instruments that have historically been
reinvested  when  they  mature  throughout  the  year.   Although  our  existing
short-term  instruments  are not  considered  at risk with respect to changes in
interest  rates or markets  for these  instruments,  our rate of return on these
securities could be affected at the time of reinvestment, if any.

     At April 30,  2009,  our  investment  in Videocon  GDRs is recorded at fair
value of approximately  $3,261,000 including an unrealized loss of approximately
$12,939,000  and has exposure to price risk. The fair value of the Videocon GDRs
is based on the underlying price of Videocon's equity shares which are traded on
stock  exchanges in India with prices  quoted in rupees.  Accordingly,  the fair
value of the Videocon GDRs is subject to price risk and foreign  exchange  risk.
The  potential  loss in fair value  resulting  from a  hypothetical  10% adverse
change in prices of Videocon  equity shares quoted by Indian stock exchanges and
in  foreign   currency   exchange  rates,  as  of  April  30,  2009  amounts  to
approximately $326,000.

     Our  investment  in DISC common stock at April 30, 2009 is recorded at fair
value $336,000 including an unrealized loss of $47,000 and has exposure to price
risk. DISC's common stock is not registered under the Securities Exchange Act of
1934,  but is quoted on the Pink Sheets.  Accordingly,  the fair value of DISC's
common  stock is  subject  to  price  risk.  The  potential  loss in fair  value
resulting from a hypothetical 10% adverse change in price of this investment, as
of April 30, 2009 amounts to approximately $34,000.

Item 4.  Controls and Procedures.
         ------------------------

     We  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation  of our  management  including our Chairman of the Board and Chief
Executive Officer and our Vice President - Finance and Chief Financial  Officer,
of the effectiveness of the design and operation of our disclosure  controls and
procedures  pursuant to Rule 13-15(b) of the Securities Exchange Act of 1934, as
amended.  Based  upon  that  evaluation,  our  Chairman  of the  Board and Chief
Executive  Officer and our Vice President - Finance and Chief Financial  Officer
concluded  that our  disclosure  controls and procedures are effective as of the
end of the period covered by this report.

                                       38
<PAGE>

     There was no change in our internal control over financial reporting during
the quarter ended April 30, 2009 that has materially affected,  or is reasonably
likely to materially affect, our internal control over financial reporting.

                                       39
<PAGE>

                           PART II. OTHER INFORMATION
                           --------------------------

Item 1A.  Risk Factors.
          -------------

     There  have  been no  material  changes  in our  risk  factors  from  those
disclosed in our Annual Report on Form 10-K for the year ended October 31, 2008.

Item 6.  Exhibits.
         ---------

          31.1 Certification of Chief Executive Officer, pursuant to Section 302
          of the Sarbanes-Oxley Act of 2002, dated June 17, 2009.

          31.2 Certification of Chief Financial Officer, pursuant to Section 302
          of the Sarbanes-Oxley Act of 2002, dated June 17, 2009.

          32.1 Statement of Chief Executive Officer, pursuant to Section 1350 of
          Title 18 of the United States Code, dated June 17, 2009.

          32.2 Statement of Chief Financial Officer, pursuant to Section 1350 of
          Title 18 of the United States Code, dated June 17, 2009.


                                   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 and
                                            Chief Executive Officer
June 17, 2009                               (Principal Executive Officer)



                                        By: /s/ Henry P. Herms
                                            -------------------
                                            Henry P. Herms
                                            Vice President - Finance and
                                            Chief Financial Officer (Principal
June 17, 2009                               Financial and Accounting Officer)