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 July 31, 1998
                                 --------------

  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
        Huntington Station, NY                                11746
--------------------------------------------------------------------------------
(Address of principal executive offices)                    (Zip Code)


                                 (516) 549-5900
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.


                                    Yes X    No
                                       ---     ---




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

Number of shares of common stock,  par value 
$.01 per share, outstanding as of September 8, 1998:         57,871,176 shares
                                                             -----------------


<PAGE>








                              TABLE OF CONTENTS
                              -----------------


Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Balance Sheets (Unaudited) as of July 31, 1998 and October 
         31, 1997

         Condensed  Statements  of  Operations  (Unaudited)  for the nine months
         ended July 31, 1998 and July 31, 1997, and for the period from November
         5, 1982 (Inception) through July 31, 1998

         Condensed  Statements  of Operations  (Unaudited)  for the three months
         ended July 31, 1998 and July 31, 1997

         Condensed Statement of Shareholders'  Equity (Unaudited) for the period
         from November 5, 1982 (Inception) through July 31, 1998

         Condensed  Statements  of Cash Flows  (Unaudited)  for the nine  months
         ended July 31, 1998 and July 31, 1997, and for the period from November
         5, 1982 (Inception) through July 31, 1998

         Condensed  Statements  of Cash Flows  (Unaudited)  for the three months
         ended July 31, 1998 and July 31, 1997

         Notes to Condensed Financial Statements (Unaudited)

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

Part II. OTHER INFORMATION

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

Item 6.  Exhibits and Reports on Form 8-K

         Signatures

















                                       2
<PAGE>



                         Part I - FINANCIAL INFORMATION
                         ------------------------------

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

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


                                                   July 31,         October 31,
                                                     1998               1997
                                                 ------------      -------------

                              ASSETS 
                              ------ 

CURRENT ASSETS:
 Cash (including cash equivalents and interest
  bearing accounts of $6,047,401 and
  $11,977,526, respectively)                      $ 6,146,683       $12,329,171
 Marketable securities, at amortized cost             989,105           997,173
 Accrued interest receivable                           12,458            18,429
 Inventory                                          1,841,330           131,498
 Prepaid expenses and other current assets 
  (including amounts due from Joint Venture of 
   approximately $4,653,000 and $4,304,000, 
   respectively)                                    4,713,113         4,721,961
                                                   -----------       -----------
                                                   13,702,689        18,198,232


PROPERTY AND EQUIPMENT (net of accumulated 
  depreciation and amortization of $1,282,633 
  and $1,062,949, respectively)                       817,100           947,643
INVESTMENT IN JOINT VENTURE (Note  2)                 421,620           723,166
OTHER ASSETS                                          104,556           119,166
DEFERRED TAX BENEFITS (net of valuation 
  allowance of $30,522,000 and $28,295,000, 
  respectively)                                        -                   -
                                                  ------------      ------------
                                                  $15,045,965       $19,988,207
                                                  ============      ============
                                                  

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

CURRENT LIABILITIES:
  Accounts payable and accrued liabilities        $ 1,420,704       $ 1,209,065
                                                  ------------      ------------

SHAREHOLDERS' EQUITY:
Preferred stock, par value $100 per share; 
  authorized 500,000 shares; no shares
  outstanding                                          -                  -
Common stock, par value $.01 per share;
  authorized 240,000,000 shares; 57,871,176
  and 57,861,176  shares outstanding                  578,712           578,612
Additional paid-in capital                         53,042,510        52,759,485
Accumulated (deficit)during development stage     (39,995,961)      (34,558,955)
                                                 -------------    --------------
                                                   13,625,261        18,779,142
                                                 -------------    --------------
                                                  $15,045,965       $19,988,207
                                                 =============    ==============


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



                                       3
<PAGE>


<TABLE>
<CAPTION>


                                                             COPYTELE, INC.
                                                             --------------
                                                       (Development Stage Enterprise)
                                                       ------------------------------
                                               CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
                                               ----------------------------------------------

                                                                                                                     For the period 
                                                                                                                      from November
                                                                     For the nine months                                  5, 1982
                                                                        ended July 31,                                  (inception) 
                                                           ------------------------------------------                     through
                                                                 1998                      1997                       July 31, 1998
                                                            --------------            ---------------               ----------------

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

SALES                                                           $ -                        $ -                             $ -
                                                            --------------             --------------                ---------------


SELLING, GENERAL AND 
  ADMINISTRATIVE EXPENSES,     
  (including research and
  development expenses of 
  approximately $3,032,000, 
  $2,835,000 and $27,417,000,                                                          
  respectively)                                                 5,530,414                   4,935,838                    43,888,991
                                                            --------------             ---------------               ---------------

LOSS FROM JOINT VENTURE                                           301,546                     245,348                       803,380
                                                            --------------             ---------------               ---------------

INTEREST INCOME                                                   394,954                     732,218                     4,696,410
                                                            --------------             ---------------               ---------------


NET (LOSS)                                                    ($5,437,006)                ($4,448,968)                 ($39,995,961)
                                                            ==============             ===============               ===============


NET (LOSS) PER SHARE OF COMMON 
  STOCK                                                            ($0.09)                     ($0.08)                       ($0.86)
                                                            ==============             ===============               ===============
                                                            


WEIGHTED AVERAGE NUMBER OF SHARES 
  OUTSTANDING                                                  57,864,033                  57,614,211                    46,468,154
                                                           ===============             ===============               ===============
                                                  
</TABLE>


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





                                       4
<PAGE>




                                 COPYTELE, INC.
                                 --------------
                         (Development Stage Enterprise)
                         ------------------------------
                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
                 ----------------------------------------------

                              
                                               For the three months
                                                  ended July 31,
                                    --------------------------------------------
                                          1998                         1997
                                    ---------------             ----------------


SALES                                     $ -                         $ -
                                    

SELLING, GENERAL AND  
ADMINISTRATIVE   EXPENSES,   
(including research and                                                         
development expenses of                                                   
approximately $926,000 and                                                    
$814,000, respectively)                  1,697,141                    1,598,042
                                    ---------------             ----------------

LOSS FROM JOINT VENTURE                     94,165                       87,435 
                                    ---------------             ----------------
                                                  

INTEREST INCOME                            106,187                      217,934
                                    ---------------             ----------------


NET (LOSS)                             ($1,685,119)                 ($1,467,543)
                                    ===============             ================


NET (LOSS) PER SHARE OF COMMON 
STOCK                                       ($0.03)                      ($0.03)
                                    ===============             ================

WEIGHTED AVERAGE NUMBER OF 
SHARES OUTSTANDING                      57,869,654                   57,768,861
                                    ===============             ================

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




                                       5
<PAGE>

<TABLE>
<CAPTION>


                                              COPYTELE, INC.
                                              --------------
                                        (Development Stage Enterprise)
                                        ------------------------------
                                  CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
                                  -------------------------------------------
               FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION) THROUGH JULY 31, 1998 (UNAUDITED)
               ----------------------------------------------------------------------------------


                                                                                                                        Accumulated
                                                                                                                         (Deficit)
                                                                                                   Additional              During
                                                                         Common Stock               Paid-in             Development
                                                                      Shares      Par Value         Capital                Stage
                                                                   --------------------------    -------------       ---------------
<S>                                                            <C>              <C>           <C>                   <C>    

BALANCE, November 5, 1982 (inception)                             $   -         $      -        $       -              $     -
Sale of common stock, at par, 
  to incorporators on November 8,  1982                            1,470,000         14,700             -                    -
Sale of common stock, at $.10 per share,  
  primarily to officers and employees 
  from November 9, 1982 to November 30, 1982                         390,000          3,900           35,100                 -
Sale of common stock, at $2 per share, in 
  private offering from  January 24, 1983                            
  to March 28, 1983                                                  250,000          2,500          497,500                 -
Sale of common stock, at $10 per share, 
  in public offering on October 6, 1983, 
  net of underwriting discounts of $1 per share                      690,000          6,900        6,203,100                 -
Sale of 60,000 warrants to representative 
  of underwriters, at $.001 each, in 
  conjunction with public offering                                      -               -                 60                 -
Costs incurred in conjunction with 
  private and public offerings                                          -               -           (362,030)                -
Common stock issued, at $12 per share, 
  upon exercise of 57,200 warrants from 
  February 5, 1985 to October 16, 1985,                               
  net of registration costs                                           57,200            572          630,845                 -
Proceeds from sales of common stock by 
  individuals from January 29, 1985 to 
  October 4, 1985 under agreements with 
  the Company, net of costs incurred by the Company                      -              -            298,745                 -
Restatement as of October 31, 1985 for 
  three-for-one stock split                                        5,714,400         57,144          (57,144)                -
Common stock issued, at $4 per share, 
  upon exercise of 2,800 warrants in December 1985                     8,400             84           33,516                 -
Sale of common stock, at market, to 
  officers on January 9, 1987 and April 22, 1987 
  and to members of their immediate families                         
  on July 28, 1987                                                    67,350            674          861,726                 -
Restatement as of July 31, 1987 for 
  five-for-four stock split                                        2,161,735         21,617          (21,617)                -
Fractional share payments in conjunction 
  with five-for-four stock split                                         -              -             (1,345)                -
Sale of common stock, at market, to 
  members of officers' immediate  families 
  from September 10,1987 to December 4, 1990 
  and to officers on October 29, 1987                                 
  and February 26, 1989                                              628,040          6,280        6,124,031                 -
Sale of common stock, at market, to 
  senior level personnel on February 26, 1989                         29,850            299          499,689                 -
                                                                                                                        
                                                                                                                         Continued
</TABLE>


                                       6
<PAGE>

<TABLE>
<CAPTION>


                                             COPYTELE, INC.
                                             --------------
                                     (Development Stage Enterprise)
                                     ------------------------------
                               CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
                               -------------------------------------------
              FOR THE PERIOD FROM NOVEMBER 5, 1982 (INCEPTION) THROUGH JULY 31, 1998 (UNAUDITED)
              ----------------------------------------------------------------------------------


                                                Continued
                                                ---------

                                                                                                                        Accumulated
                                                                                                                         (Deficit)
                                                                                                  Additional               During
                                                                      Common Stock                Paid-in               Development
                                                                 Shares          Par Value        Capital                  Stage
                                                            --------------------------------     -------------       ---------------
<S>                                                      <C>                <C>                 <C>                   <C>   

Sale of common stock, at market, to 
  unrelated party on February 26, 1989 
 amended on March 10, 1989                                       35,820                358           599,627                 -
Restatement as of January 31, 1991 
  for two-for-one stock split                                11,502,795            115,028          (115,028)                -
Sale of common stock, at market, to 
  members of officers' immediate 
  families from April 26, 1991 to                               
  October 27, 1992                                              261,453              2,615         2,788,311                 -
Common stock issued upon exercise of 
  warrants by members of officers' 
  immediate families on various                     
  dates from September 1993 through 
  March 1996                                                    579,800              5,798         2,651,462                 -
Common stock issued upon exercise of 
  stock options from December 16, 1992                      
  to June 12, 1996                                            4,535,340             45,353        28,197,223                 -
Restatement as of June 17, 1996 
  for two-for-one stock split                                28,382,183            283,822          (283,822)                -
Common stock issued upon exercise of 
  warrants by members of officers' 
  immediate families on various                
  dates in July and October, 1996,                          
  and March 1997                                                206,610              2,066         1,062,167                 -
Common stock issued upon exercise of 
  stock options from July 8, 1996 to 
  May 15, 1998 under stock option plans,                        
  net of  registration costs                                    885,200              8,852         3,070,544                 -
Common stock issued upon purchase of                                                                                
  equipment                                                      15,000                150            74,850                 -
Stock options granted to consultants                               -                   -             255,000                 -
Accumulated (deficit) during development stage                     -                   -                -               (39,995,961)
                                                            -------------       -------------    -------------      ----------------
BALANCE, July 31, 1998                                       57,871,176           $578,712       $53,042,510           ($39,995,961)
                                                            =============       =============    =============      ================

</TABLE>

The accompanying notes to condensed financial statements are an integral part of
this statement.



                                       7
<PAGE>

<TABLE>
<CAPTION>



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

                                                                                                                     For the period
                                                                          For the nine                               from  November
                                                                          months ended                                   5, 1982
                                                                            July 31,                                   (inception) 
                                                              ------------------------------------------                 through
                                                                    1998                      1997                    July 31, 1998
                                                              ----------------           ---------------            ----------------
<S>                                                          <C>                      <C>                         <C>   

CASH FLOWS FROM OPERATING ACTIVITIES:
Payments to suppliers, employees and
  consultants                                                    ($6,513,801)              ($8,210,504)                ($47,711,299)
Interest received                                                    410,654                   742,373                    4,667,316
                                                              ----------------           ---------------            ----------------
Net cash (used in) operating activities                           (6,103,147)               (7,468,131)                 (43,043,983)
                                                              ----------------           ---------------            ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and
  equipment                                                         (105,805)                 (426,407)                  (1,903,087)
Disbursements to acquire certificates 
  of deposit and marketable securities                              (972,469)                     -                     (14,018,468)
Proceeds from maturities of investments                              970,808                      -                      13,045,999
Investment made in Joint Venture                                        -                         -                      (1,225,000)
                                                              ----------------           ---------------           -----------------
Net cash (used in) investing activities                             (107,466)                 (426,407)                  (4,100,556)
                                                              ----------------           ---------------           -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock and 
  warrants, net of underwriting discounts 
  of $690,000 related to initial public 
  offering in October 1983                                              -                         -                      17,647,369
Proceeds from exercise of stock 
  options and warrants, net of registration                         
  disbursements                                                       28,125                 1,539,570                   35,708,483
Proceeds from sales of common stock by
  individuals under agreements with the
  Company, net of disbursements made by 
  the Company                                                           -                         -                         298,745
Disbursements made in conjunction with 
  sales of stock                                                        -                         -                        (362,030)
Fractional share payments in conjunction 
  with stock split                                                      -                         -                          (1,345)
                                                              ----------------          ----------------           -----------------
Net cash provided by financing activities                             28,125                 1,539,570                   53,291,222
                                                              ----------------          ----------------           -----------------
NET (DECREASE) INCREASE IN CASH AND 
  CASH EQUIVALENTS                                                (6,182,488)               (6,354,968)                   6,146,683

CASH AND CASH EQUIVALENTS AT BEGINNING 
  OF PERIOD                                                       12,329,171                22,165,892                        -
                                                              ----------------          ----------------           -----------------
CASH AND CASH EQUIVALENTS AT END OF
  PERIOD                                                          $6,146,683               $15,810,924                   $6,146,683
                                                              ================          ================           =================
                                                                                                                          
                                                                                                                        Continued
</TABLE>


                                       8
<PAGE>


<TABLE>
<CAPTION>

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

                                                Continued
                                                ---------

                                                                                                            
                                                                                                                For the period 
                                                                         For the nine                            from November
                                                                         months ended                               5, 1982
                                                          ----------------------------------------                  through
                                                               1998                      1997                    July 31, 1998
                                                          --------------            --------------            ------------------
<S>                                                   <C>                        <C>                         <C>    

RECONCILIATION OF NET (LOSS) TO NET 
  CASH (USED IN) OPERATING ACTIVITIES:
Net (loss)                                                 ($5,437,006)              ($4,448,968)                 ($39,995,961)
Stock options granted to consultants                           255,000                     -                           255,000
Pro-rata share of Joint Venture 
  losses                                                       301,546                   245,348                       803,380
Depreciation and amortization                                  219,684                   183,960                     1,298,291
Decrease (Increase) in accrued interest
  receivable                                                     5,971                    10,155                       (12,458)
(Increase) in inventory                                     (1,709,832)                     -                       (1,841,330)
Amortization of discount on
  marketable securities                                          9,729                      -                          (16,636)
Decrease (Increase) in prepaid expenses  
  and other current assets                                       8,848                (3,327,967)                   (4,713,113)
Decrease (Increase) in other assets                             14,610                    60,369                      (104,556)
Increase (Decrease)  in accounts payable     
  and accrued liabilities related to   
  operating activities                                         228,303                  (191,028)                    1,283,400
                                                          ---------------           ---------------            -----------------
Net cash (used in) operating activities                    ($6,103,147)              ($7,468,131)                 ($43,043,983)
                                                          ===============           ===============            =================

</TABLE>

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




                                       9
<PAGE>



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

                                                  For the three months
                                                     ended July 31,
                                            ------------------------------------

                                                 1998                   1997
                                            --------------         -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Payments to suppliers, employees 
  and consultants                             ($1,914,301)          ($2,931,241)
Interest received                                  91,007               187,566
                                            --------------         -------------
Net cash (used in) operating activities        (1,823,294)           (2,743,675)
                                            --------------         -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and
  equipment                                       (15,477)              (62,217)
                                            --------------         -------------
Net cash (used in) investing activities           (15,477)              (62,217)
                                            --------------         -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock 
  options and warrants, net                             
  of registration disbursements                    28,125               141,126
                                            --------------         -------------
Net cash provided by financing activities          28,125               141,126
                                            ---------------        -------------

NET (DECREASE)  IN CASH AND CASH 
 EQUIVALENTS                                   (1,810,646)           (2,664,766)

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                             7,957,329           18,475,690
                                            ---------------        -------------

CASH AND CASH EQUIVALENTS AT END OF      
 PERIOD                                         $6,146,683          $15,810,924
                                            ===============        =============


RECONCILIATION OF NET (LOSS) TO NET 
CASH (USED IN) OPERATING ACTIVITIES:
Net (loss)                                     ($1,685,119)         ($1,467,543)
Stock options granted to consultants                75,300                 -
Pro-rata share of Joint Venture 
  losses                                            94,165               87,435
Depreciation and amortization                       72,749               60,631
(Increase) in accrued interest receivable           (1,636)             (30,368)
(Increase) in inventory                         (1,102,208)                -
Amortization of discount on
  marketable securities                            (13,544)                -
Decrease (Increase) in prepaid expenses and  
  other current assets                             430,959           (1,563,431)
Decrease (Increase) in other assets                    321              (17,317)
Increase in accounts payable and accrued 
  liabilities related to operating 
  activities                                       305,719              186,918
                                             ==============        =============
Net cash (used in) operating activities        ($1,823,294)         ($2,743,675)
                                             ==============        =============

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



                                       10
<PAGE>




                                 COPYTELE, INC.
                                 --------------
                         (Development Stage Enterprise)
                         ------------------------------
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     ---------------------------------------
                            JULY 31, 1998 (UNAUDITED)
                            -------------------------

(1) Summary of significant accounting policies and other disclosures:
    -----------------------------------------------------------------

CopyTele, Inc. (the "Company"), which was incorporated on November 5, 1982, is a
development stage enterprise whose principal activities include the development,
production    and    marketing   of   a   telephone    based    multi-functional
telecommunications  product, called MAGICOM(R) 2000, incorporating the Company's
ultra-high  resolution   E-Paper(TM)  flat  panel  display  technology  and  the
operations of Shanghai  CopyTele  Electronics  Co., Ltd. (the "Joint Venture" or
"SCE"),  the Company's 55% owned joint venture in Shanghai,  China with Shanghai
Instrumentation  and  Electronics  Holding Group  Company  ("SIEC") and Shanghai
International  Trade and Developing Corp.  ("SIT"). As a result of an assignment
by Shanghai Electronic Components Corp., SIEC has acquired a 30% interest in SCE
and SIT's interest increased to 15%. The Company also is continuing its research
and development activities for ultra-high resolution video and color solid state
optical (reflective) and thin film (emissive) flat panel displays.

Reference is made to the October 31, 1997 audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1997, for more extensive  disclosures  than contained in these
condensed financial statements.

The Company is producing its telephone based multi-functional telecommunications
product, called MAGICOM(R) 2000, incorporating the Company's flat panel display,
called E-Paper(TM),  and associated proprietary hardware and software technology
and  marketing  the  product   through  its  United  States  and   international
distributor/dealer  network. The Company has also developed, in conjunction with
a Japanese company,  a small portable printer called MAGIC PRINTER.  The printer
is being  produced for the Company by the Japanese  company  which is also being
marketed through the Company's  marketing  network,  including in China, for use
with MAGICOM(R) 2000 or in conjunction  with personal or laptop  computers.  The
success  and  profitability  of the  Company's  products  will  depend upon many
factors,  including  those normally  associated  with any new product.  See Safe
Harbor  Statement  Under the Private  Securities  Litigation  Reform Act of 1995
contained in  Management's  Discussion  and Analysis of Financial  Condition and
Results  of  Operations  for  discussions   regarding   uncertainties  that  may
significantly  affect the results of  operations,  future  liquidity and capital
resources.

The information contained herein for the nine and three month periods ended July
31, 1998 and 1997 and for the period from November 5, 1982  (inception)  through
July 31, 1998 is unaudited,  but in the opinion of the Company,  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.
The results of operations for interim  periods may not  necessarily  reflect the
annual operations of the Company.

In March 1997,  the FASB issued  Statement  of  Financial  Accounting  Standards
("SFAS") No. 128, "Earnings Per Share". This statement establishes standards for
computing and presenting earnings per share ("EPS"),  replacing the presentation
of currently required primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of operations. Under
this new  standard,  Basic EPS is  computed  based on  weighted  average  shares
outstanding and excludes any potential dilution;  Diluted EPS reflects potential
dilution from the exercise or conversion of securities  into common stock and is
similar to the currently  required  fully diluted EPS. SFAS 128 is effective for
financial  statements  issued  for  periods  ending  after  December  15,  1997,
including  interim  periods.  The net loss per share  reported by the Company is
only Basic EPS,  as the impact of any  common  stock  equivalents  would have an
anti-dilutive  effect due to the net loss incurred in the period.  The impact of
the  adoption of this  statement  was not  material to  previously  reported EPS
amounts.

The  amounts  due  from  the  Joint  Venture  of  approximately  $4,653,000  and
$4,304,000, respectively, on the accompanying Condensed Balance Sheets represent
parts inventory,  such as the flat panel assembly  components,  purchased by the
Company  on  behalf  of SCE  which are  incorporated  into the  MAGICOM(R)  2000
product.

                                       11
<PAGE>

(2) Investment in Joint Venture:
    ----------------------------

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

Condensed  Balance  Sheets for SCE at July 31,  1998 and  October  31,  1997 and
Condensed  Statements  of  Operations  for the nine month periods ended July 31,
1998 and 1997 are as follows:

                              Condensed Balance Sheets
                              ------------------------
                                     (Unaudited)
                                             
                                                 July 31,          October 31, 
                                                   1998               1997      
                                             ---------------    ----------------
        Cash                                  $     66,931       $     135,890
        Inventories                              4,490,828           4,830,461
        Other current assets                       598,874              31,988
        Land occupancy rights, net 
          of amortization; fixed assets,                    
          net of depreciation and other                                         
          non-current  assets                     2,185,211          2,197,169
                                             ---------------    ----------------
             Total Assets                      $  7,341,844      $   7,195,508
                                             ===============    ================

        Short term loans                       $    999,278      $     500,012
        Accounts payable and accrued 
          liabilities                               350,360            504,269
        Due to CopyTele, Inc.                     4,652,897          4,303,652
        Capital                                   1,339,309          1,887,575
                                             ---------------    ----------------
            Total Liabilities and Capital      $  7,341,844      $   7,195,508
                                             ===============    ================

                        
                               Condensed Statements of Operations
                              ----------------------------------
                                        (Unaudited) 
                                                  
                                                    For the nine months ended
                                                 -------------------------------
                                                  July 31,           July 31,
                                                    1998               1997
                                                 -----------      --------------

        Net Sales                                 $     -          $     -
        Operating (Loss)                           (513,365)          (440,470)
        Other Income (Expense)                      (34,901)            (5,618)
                                                 ------------      -------------
                 Net (Loss)                       ($548,266)         ($446,088)
                                                 ============      =============

The short-term loans from a Chinese bank bear interest at floating rates,  which
are currently,  approximately  7.69% and 8.64% per annum  adjustable  quarterly.
These loans were  extended in February  and April 1998 and will mature  February
1999 and April  1999,  respectively.  These  loans  are  secured  by a  land-use
contract and building owned by SCE.

Included in accounts  payable and accrued  liabilities  at October 31, 1997,  is
$372,000 of advances  paid by the Company  towards the purchase of products from
SCE. No such advances were outstanding at July 31, 1998.

Included in other current  assets at July 31, 1998, is $538,000 of payments owed
by the Company  towards the purchase of products from SCE. No such payments were
owed at October 31, 1997.

The cumulative net loss incurred by SCE since its inception on April 10, 1995 is
$1,460,691.


                                       12
<PAGE>

(3) Stock option plans:
    -------------------

The Company has two stock option  plans,  the Stock Option Plan,  adopted by the
Board of Directors on April 1, 1987 (the "1987 Plan"),  and the  CopyTele,  Inc.
1993 Stock Option Plan, adopted by the Board of Directors on April 28, 1993 (the
"1993 Plan").

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

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

                                      For the Nine Months    For the Nine Months
                                      Ended July 31, 1998    Ended July 31, 1997
                                      -------------------    -------------------

          Net Loss:       As Reported     ($5,437,006)           ($4,448,968)
                          Pro Forma       ($8,209,527)          ($12,802,621)

          Net Loss
          Per Share:      As Reported          ($0.09)                ($0.08)
                          Pro Forma            ($0.14)                ($0.22)

Options  granted  to  non-employee  consultants  are  accounted  for  using  the
fair-value method required by SFAS No. 123. Compensation expense for consultants
recognized  in the nine months ended July 31, 1998 was  approximately  $255,000,
and is included in general and  administrative  expenses  for the period with an
offset to Additional  Paid-In  Capital.  No such costs were incurred in the nine
month period ended July 31, 1997.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions  used for grants for the nine  months  ended July 31, 1998 and 1997,
respectively:  risk free interest  rates of 5.50% and 5.60%;  expected  dividend
yields of 0%;  expected  lives of 2.86 and 2.56 years;  and expected stock price
volatility's  of 69%. The weighted  average fair value of options  granted under
SFAS No. 123 for the nine  months  ended July 31,  1998 and 1997 are $1.39 and 
$1.66, respectively.

                                       13
<PAGE>

During the period from  November 1, 1997 to July 31,  1998,  there were no stock
options exercised, granted, canceled or expired under the 1987 Plan. At July 31,
1998,  686,160  shares  were under  option,  all of which are  exercisable.  The
current weighted average exercise price per share is $4.93.

The  exercise  price with respect to all of the options  granted  under the 1987
Plan  from its  inception  was at least  equal to the fair  market  value of the
underlying common stock on the date of grant. Upon the approval of the 1993 Plan
by the Company's  shareholders  in July 1993, the 1987 Plan was terminated  with
respect to the grant of future options.

From August 1, 1998  through  September  8, 1998,  37,600  options  expired at a
weighted average exercise price of $4.02 per share pursuant to the 1987 Plan.

The 1993 Plan was  amended as of May 3, 1995 and May 10,  1996 to,  among  other
things,  increase the number of shares of the Company's  Common Stock  available
for  issuance  pursuant to grants  thereunder  from 6 million to 20 million,  as
adjusted  for the  two-for-one  stock split  declared  in May 1996.  Information
regarding  the 1993 Plan from  October 31, 1997 to July 31, 1998 is presented in
the table and narrative below:

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

  Shares Under Option at October 31, 1997        11,540,360           $5.19
     Granted                                      2,758,000           $2.82
     Canceled                                      (370,000)          $5.12
     Exercised                                      (10,000)          $2.81
     Expired                                        (40,000)          $8.50
                                               --------------          
     Shares Under Option at July 31, 1998        13,878,360           $4.72
                                               ==============
     Options Exercisable at July 31, 1998        12,435,360           $5.00
                                               ==============

The  exercise  price with respect to all of the options  granted  under the 1993
Plan  from its  inception  was at least  equal to the fair  market  value of the
underlying  common stock on the grant date. At July 31, 1998,  1,042,000 options
were available for future grants under the 1993 Plan.

From August 1, 1998 through  September  8, 1998,  144,000  options  expired at a
weighted average exercise price of $5.51 per share pursuant to the 1993 Plan.

As of September 8, 1998,  12,291,360 of the options to purchase shares of Common
Stock granted and outstanding under the 1993 Plan were exercisable.

(4) Warrants to purchase common stock:
    ----------------------------------

Warrants  previously  issued by the  Company  were  primarily  to members of the
immediate families of its Chairman of the Board and its President in conjunction
with the sale of its Common Stock.  The exercise price of each warrant was equal
to at least the fair market value of the underlying  common stock on the date of
issuance  of  such  warrant.   At  October  31,  1997,  after   adjustments  for
anti-dilution  provisions  and all  applicable  stock splits,  there were 96,000
shares covered by warrants with a weighted  average  exercise price of $5.07 per
share.  During the period from November 1, 1997 to July 31, 1998, these warrants
expired; therefore at July 31, 1998, there were no shares covered by warrants.



                                       14
<PAGE>



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

Safe Harbor  Statement  Under the Private  Securities  Litigation  Reform Act of
--------------------------------------------------------------------------------
1995. 
-----
Certain  statements  in this  Quarterly  Report on Form  10-Q  constitute
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown  risks,  uncertainties  and other  factors  which  may cause the  actual
results,  performance or achievements of the Company to be materially  different
from any future  results,  performance or  achievements  expressed or implied by
such  forward-looking  statements.  Such  factors  include,  among  others,  the
following:  production  capability  by SCE of  MAGICOM(R)  2000 and the Japanese
supplier of MAGIC PRINTER,  respectively;  long-term product performance and the
capability of the Company,  SCE, its  distributors and its dealers to adequately
service  the  Company's  products;  the ability of  distributors  and dealers to
market their contracted quantities of the Company's products in their respective
territories;  the ability of the Company and SCE to obtain all required  foreign
governmental  approvals;  the  volatility of foreign  currency  exchange  rates;
political  and economic  stability in targeted  marketing  territories;  and the
possible  development  of  competitive  products that could render the Company's
product  obsolete or  unmarketable.  See  "Business" and Note 1 to the Company's
Financial  Statements  contained in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1997 for discussions  regarding  uncertainties
that may  significantly  affect the results of operations,  future liquidity and
capital resources.

         General
         -------

The Company is a development  stage enterprise that was incorporated on November
5, 1982.  The Company is  producing  its  products and selling them to end-users
through its  distributor/dealer  network.  Limited sales to end-users  have been
made to date by the distributors  and dealers.  The Company has deferred revenue
recognition  on these  sales  to  distributors  and  dealers  pending  sustained
acceptance  of its products by the  end-users.  Prior to these limited sales the
Company  had no  revenues  from  sales  to  support  its  operations  since  its
inception.   The  Company's   principal   activities  include  the  development,
production    and    marketing   of   a   telephone    based    multi-functional
telecommunications  product, called MAGICOM(R) 2000, incorporating the Company's
ultra-high  resolution   E-Paper(TM)  Flat  Panel  Display  technology  and  the
operations  of SCE, the  Company's  55% owned joint  venture in Shanghai,  China
which is accounted  for under the equity  method of  accounting.  The Company is
also marketing a small  portable  printer called MAGIC PRINTER and is continuing
its research and  development  activities  for ultra-high  resolution  video and
color solid  state  optical  (reflective)  and thin film  (emissive)  flat panel
displays.  There can be no assurance,  however,  that the  Company's  efforts in
these areas will be successful. There is also no assurance that the Company will
generate  significant  revenues in the future,  will have sufficient revenues to
generate  profit or that other products will not be produced by other  companies
that will render the products of the Company or SCE obsolete or unmarketable.

The Company announced in July of 1998 that its previously announced  discussions
with SIEC advanced to the stage of the signing of an Agreement in Principle. The
Agreement in Principle provides for an investment in each other's company with a
view to sharing the  benefits  that may result from the  co-development  of high
technology products and the international  co-marketing of SIEC's industrial and
consumer electronics.  Under the Agreement in Principle, an Investment Agreement
would be entered  into  whereby  the Company  would  issue to SIEC 11.5  million
shares  of  its  Common  Stock,  representing  slightly  less  than  20%  of the
approximately 58 million shares currently  outstanding.  In return,  the Company
would receive an approximately 20% ownership  interest in SIEC subject to mutual
agreement as to the fair value in relation to the value of the  Company's  stock
issued to SIEC. The exact  ownership  interest to be issued to the Company would
be  determined  after  negotiations  over  the  final  terms  of the  Investment
Agreement.  The Agreement in Principle also provides the basis for  establishing
co-development and co-marketing agreements.

The  Agreement in Principle may be terminated by either party at any time and is
subject to a number of conditions, including the execution and delivery of final
agreements satisfactory to the companies, principally an Investment Agreement, a
Co-development  Agreement  and  a  Co-Marketing  Agreement,  and  obtaining  all
necessary governmental  approvals.  There can be no assurance that the companies
will be able to arrive at mutually acceptable agreements or obtain the requisite
final governmental approvals.                                       

In reviewing  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations,  reference is made to the Company's  condensed  financial
statements and the notes thereto.

                                       15
<PAGE>

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

Selling, general and administrative  expenses,  excluding the loss from SCE, for
the nine month  periods  ended July 31,  1998 and 1997  increased  approximately
$594,000   to   approximately   $5,530,000   in  the  fiscal  1998  period  from
approximately  $4,936,000  in the fiscal 1997 period.  Included in these amounts
are  research,  development  and  tooling  costs,  as well as  normal  operating
expenses,  of  approximately  $3,032,000  and $2,835,000 for the fiscal 1998 and
1997  periods,  respectively.  Selling,  general  and  administrative  expenses,
excluding the loss from SCE, for the three month periods ended July 31, 1998 and
1997 increased  approximately $99,000 to approximately  $1,697,000 in the fiscal
1998 period from approximately $1,598,000 in the fiscal 1997 period. Included in
these amounts are research,  development  and tooling  costs,  as well as normal
operating expenses,  of approximately  $926,000 and $814,000 for the fiscal 1998
and 1997 periods,  respectively.  From November 5, 1982 (inception) through July
31, 1998, selling, general and administrative expenses,  excluding the loss from
SCE, were  approximately  $43,889,000  including  approximately  $27,417,000 for
research, development and tooling costs, as well as normal operating expenses.

Increases in expenses for employee  compensation  related cost, costs associated
with stock  based  compensation  to  consultants,  travel  costs and to a lesser
extent,  communication costs and rents occurred in both the nine and three month
comparable periods.  Employee  compensation related cost increased in the fiscal
1998  periods  over the  comparable  fiscal  1997  periods as a result of hiring
additional  marketing  and  engineering  personnel.   Marketing  related  costs,
including  travel,  increased in the current  periods as higher  travel  related
costs were  incurred in  connection  with meeting with  prospective  dealers and
distributors.  Engineering  supplies  decreased  while research and  development
costs increased in the nine and three month comparable periods.  The decrease in
engineering supplies is primarily as a result of reduced purchases of panels and
chip drivers used for testing and evaluation purposes, and the reduced purchases
of MAGICOM(R) 2000 units from SCE for similar purposes.  The decrease was offset
somewhat by the cost to implement engineering changes to MAGICOM(R) 2000 and the
related  cost to eliminate  obsolete  components  as a result of these  changes.
Research  and  development  costs  increased  as a result of costs  incurred  in
connection with  development of the Company's  solid state optical  (reflective)
and thin film (emissive) flat panel display  programs.  A charge to earnings was
recorded  for  inventory  valuation  in order to bring it in line  with  current
estimates  and to  reflect  a  lower  selling  price  to  selected  dealers  and
distributors in order to stimulate sales.

Professional  fees  increased  during the nine month fiscal 1998 period over the
comparable  fiscal  1997  period  as a result of  higher  legal  and  accounting
expenses associated with the Joint Venture and the Company's potential agreement
with SIEC.  Professional  fees for the  comparable  three  months  periods  were
approximately the same. A non-cash expense of approximately $255,000 was charged
to  earnings   during  the  nine  month  fiscal  1998  period  for  stock  based
compensation to consultants with an offset to Additional Paid-In Capital.  There
was no such charge for the 1997 period.

The Company's portion of SCE's loss increased during the nine month period ended
July  31,  1998  by  approximately   $57,000  to  approximately   $302,000  from
approximately $245,000 in the fiscal 1997 period. The increase was the result of
manufacturing  costs being absorbed over a limited quantity of product produced,
costs incurred in connection  with the  implementation  of a quality  management
program and initial  marketing  costs. The loss increased during the three month
period ended July 31,1998 by approximately $7,000 to approximately  $94,000 from
approximately $87,000 in the fiscal 1997 period.

While there are no formal  agreements,  the Company's  Chairman of the Board and
its  President  have  waived  salary  and  related   pension   benefits  for  an
undetermined  period of time commencing  November 1985. Four other  individuals,
including  an officer and three  senior level  personnel,  then  employed at the
Company,  waived salary and related  pension  benefits from January 1987 through
December 1990.  While there are no formal  agreements,  commencing  January 1991
these individuals waived such rights for an undetermined period of time and they
did not receive salary or related pension  benefits  through  December 1992. The
Company's  Chairman  of the Board,  its  President  and the three  senior  level
personnel  continued  to waive such  rights  commencing  in January  1993 for an
undetermined  period of time.  Since February  1993, one additional  employee is
also currently waiving such salary and benefit rights for an undetermined period
of time.

                                       16
<PAGE>

Interest income decreased by approximately $337,000 and $112,000 during the nine
and three  months  ended July 31, 1998 as compared to the same  periods in 1997.
The decreases  resulted  primarily from a significant  decrease in average funds
available for investment offset slightly by an increase in interest rates. Funds
available for  investment  during the nine month periods ended July 31, 1998 and
1997, on a monthly weighted  average basis,  were  approximately  $9,492,000 and
$18,600,000,  respectively.  For the three month periods ended July 31, 1998 and
1997, funds available for investment,  on a monthly weighted average basis, were
approximately   $7,621,000  and   $16,506,000,   respectively.   The  investment
instruments  selected by the  Company are  principally  money  market  accounts,
commercial paper and treasury bills.

The Company does not anticipate any material  costs,  problems or  uncertainties
associated  with the Year 2000 computer  issue at this time but will continue to
monitor the issue as the Year 2000 approaches.

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

Since its inception,  the Company has met its liquidity and capital  expenditure
needs  primarily  from the  proceeds of sales of its common stock in its initial
public  offering,  in private  placements,  upon exercise of warrants  issued in
connection with the private placements and public offering, upon the exercise of
stock options  pursuant to the 1987 Plan and the 1993 Plan and recently from the
limited sales of its products.

Working  capital  decreased  by  approximately   $4,707,000  from  approximately
$16,989,000  at October 31, 1997 to  approximately  $12,282,000 at July 31, 1998
primarily as a result of the loss incurred for the period.

SCE required an initial  aggregate  capital  investment of  $3,500,000  from the
parties  to the joint  venture.  The Joint  Venture  Agreement  contemplates  an
additional  $3,500,000  investment,  which may be borrowed from banks,  of which
approximately  $1,000,000 has been borrowed to date. The Company has contributed
$1,225,000 in cash, and  technology  valued for the purposes of SCE at $700,000,
and the other parties have  contributed  $1,575,000 in cash to SCE. (See Notes 1
and  2 to  the  Company's  condensed  financial  statements.)  SCE  may  require
additional  capitalization  of up to a total of $25 million,  depending upon the
nature and extent of its business activities.

The Company believes that without taking into  consideration  potential revenues
from  sales of  MAGICOM(R)  2000 it will have  sufficient  funds  into the first
quarter of fiscal 2000 to maintain  its present  level of  development  efforts.
This includes,  among other things,  the collection of the amounts due from SCE,
but  excludes  cash  expenditures  that  may  be  required  with  the  potential
transaction  with SIEC. The amounts due from SCE are primarily  costs related to
the  purchase  of  components  for SCE's use in  MAGICOM(R)  2000  units.  It is
expected,  although there is no assurance,  that SCE will pay the Company during
the current year through the sales of units and financing  from banks,  although
the amounts due may increase before repayment  begins.  Sales of units by SCE to
the Company may result in an increase in the  Company's  inventory  before being
sold by the Company in the ordinary course of business.

The Company's estimated funding capacity indicated above assumes, although there
is no assurance,  that the waiver of salary and pension benefits by the Chairman
of the Board,  the  President  and senior level  personnel  will  continue.  The
Company anticipates that it may require additional funds in order to participate
in SCE following its initial capital  contributions and to continue its research
and development activities.

                                       17
<PAGE>

The Company currently has no plans with respect to additional  financing.  There
can be no assurance that adequate funds will be available to the Company or SCE,
including any future capital contributions, if any, beyond the Company's initial
capital  contributions of $1,225,000 to SCE, or that, if available,  the Company
or SCE will be able to obtain such funds on favorable terms and conditions.


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


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

At the Company's  Annual  Meeting of  Shareholders  held on July 29, 1998,  five
directors  were elected and the selection of Arthur  Andersen  LLP,  independent
public  accountants,  to audit the  financial  statements of the Company for the
fiscal year ending October 31, 1998 was ratified.  The following is a tabulation
of the voting with respect to the foregoing matters:


         (a)     Election of Directors -

                       Nominee                  For              Withheld
                       -------                  ---              --------

                  Denis A. Krusos           52,496,627          1,483,097
                  Frank J. DiSanto          52,509,627          1,470,097
                  John R. Shonnard          52,448,577          1,531,147
                  George P. Larounis        52,513,377          1,466,347
                  Gerald J. Bentivegna      52,514,177          1,465,547


          (b)  Ratification  of selection of Arthur  Andersen LLP as Independent
                Auditors for the Fiscal Year Ending October 31, 1998:

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

                      53,118,049               711,318            150,357




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

                  (a)      Exhibits
                           --------

                           27 - Financial Data Schedule

                  (b)      Reports on Form 8-K.
                           --------------------

                           No  reports  on Form 8-K were  filed for the  Company
                           during the quarter ended July 31, 1998.




                                       18
<PAGE>




                                   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.



                                              DENIS A. KRUSOS
                                              ---------------------------------
                                              Denis A. Krusos
                                              Chairman of the Board,
                                              Chief Executive Officer
                                              and Director (Principal Executive
September 14, 1998                            Officer)

                                              FRANK J. DISANTO
                                              ---------------------------------
                                              Frank J. DiSanto
September 14, 1998                            President and Director

                                              GERALD J. BENTIVEGNA
                                              ---------------------------------
                                              Gerald J. Bentivegna
                                              Vice President - Finance,
                                              Chief Financial Officer and
                                              Director (Principal Financial
September 14, 1998                            and Accounting Officer)




                                       19
<PAGE>