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, 2005

                         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  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                                Yes __X__ No ___



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

On June 7, 2005,  the  registrant had  outstanding  88,860,668  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>

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.
<S>                                                                                <C>
          Condensed Balance Sheets as of April 30, 2005 (Unaudited) and
             October 31, 2004                                                        3

         Condensed Statements of Operations (Unaudited) for the six months
            ended April 30, 2005 and 2004                                            4

         Condensed Statements of Operations (Unaudited) for the three months
            ended April 30, 2005 and 2004                                            5

          Condensed Statements of Cash Flows (Unaudited) for the six months
            ended April 30, 2005 and 2004                                            6

         Notes to Condensed Financial Statements (Unaudited)                    7 - 13

Item 2.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations.                                            14 - 27
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.                28

Item 4.  Controls and Procedures.                                                   28


PART II.  OTHER INFORMATION

Item 6.   Exhibits.                                                                 28

          SIGNATURES                                                                29

                                       2
</TABLE>


<PAGE>





                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                                 COPYTELE, INC.
                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                        (Unaudited)
                                                                                        ------------
                                                                                          April 30,              October 31,
                                         ASSETS                                             2005                    2004*
                                         ------                                         ------------             ------------
CURRENT ASSETS:
<S>                                                                                     <C>                      <C>
   Cash and cash equivalents                                                            $    640,622             $  1,002,777
   Short-term investments                                                                    395,964                     --
   Accounts receivable, net of allowance for doubtful accounts of $149,455                    21,153                   63,460
   Other receivables, net of allowance for doubtful accounts of $100,171 and
      $108,793, respectively                                                                  77,627                   84,308
   Inventories                                                                               877,239                  999,429
   Prepaid expenses and other current assets                                                  16,536                  122,482
                                                                                        ------------             ------------
                        Total current assets                                               2,029,141                2,272,456

PROPERTY AND EQUIPMENT, net                                                                   33,042                   38,085

OTHER ASSETS                                                                                   5,509                    5,509
                                                                                        ------------             ------------
                                                                                        $  2,067,692             $  2,316,050
                                                                                        ============             ============
                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                     $    252,207             $    402,640
   Accrued liabilities                                                                        40,732                   40,480
                                                                                        ------------             ------------
                       Total current liabilities                                             292,939                  443,120

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; 88,533,138 and 85,523,253 shares issued
      and outstanding, respectively                                                          885,331                  855,233
   Additional paid-in capital                                                             71,532,272               69,474,058
   Accumulated deficit                                                                   (70,642,850)             (68,456,361)
                                                                                        ------------             ------------
                                                                                           1,774,753                1,872,930
                                                                                        ------------             ------------
                                                                                        $  2,067,692             $  2,316,050
                                                                                        ============             ============
</TABLE>



*    Derived from audited  balance  sheet  included in our Annual Report on Form
     10-K for the fiscal year ended October 31, 2004.

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



                                       3
<PAGE>






                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                      For the Six Months Ended
                                                                 -------------------------------------
                                                                               April 30,
                                                                 -------------------------------------
                                                                     2005                      2004
                                                                 ------------             ------------


<S>                                                              <C>                      <C>
REVENUE                                                          $    259,300             $    140,804

COST OF REVENUE                                                       200,431                   46,298
                                                                 ------------             ------------
         Gross profit                                                  58,869                   94,506
                                                                 ------------             ------------
OPERATING EXPENSES
         Research and development expenses                          1,239,888                  991,179
         Selling, general and administrative expenses               1,011,742                  609,549
                                                                 ------------             ------------
                  Total operating expenses                          2,251,630                1,600,728
                                                                 ------------             ------------
LOSS FROM OPERATIONS                                               (2,192,761)              (1,506,222)

INTEREST INCOME                                                         6,272                    1,968
                                                                 ------------             ------------
NET LOSS                                                         $ (2,186,489)            $ (1,504,254)
                                                                 ============             ============
PER SHARE INFORMATION:
Net loss per share:
         Basic and Diluted                                       $      (0.03)            $      (0.02)
                                                                 ============             ============
Shares used in computing net loss per share:
         Basic and Diluted                                         86,742,842               81,382,989
                                                                 ============             ============
</TABLE>




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




                                       4
<PAGE>






                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>
                                                                      For the Three Months Ended
                                                                 -------------------------------------
                                                                               April 30,
                                                                 -------------------------------------
                                                                     2005                      2004
                                                                 ------------             ------------
<S>                                                              <C>                      <C>
REVENUE                                                          $     46,709             $    101,804

COST OF REVENUE                                                       135,858                   31,699
                                                                 ------------             ------------
         Gross profit (loss)                                          (89,149)                  70,105
                                                                 ------------             ------------
OPERATING EXPENSES
         Research and development expenses                            649,935                  506,636
         Selling, general and administrative expenses                 445,471                  259,388
                                                                 ------------             ------------
                  Total operating expenses                          1,095,406                  766,024
                                                                 ------------             ------------
LOSS FROM OPERATIONS                                               (1,184,555)                (695,919)

INTEREST INCOME                                                         4,560                    1,019
                                                                 ------------             ------------
NET LOSS                                                         $ (1,179,995)            $   (694,900)
                                                                 ============             ============
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                                         87,341,635               82,167,680
                                                                 ============             ============
</TABLE>




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


                                       5
<PAGE>




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


<TABLE>
<CAPTION>
                                                                                      For the Six Months Ended
                                                                                 -------------------------------------
                                                                                               April 30,
                                                                                 -------------------------------------
                                                                                     2005                      2004
                                                                                 ------------             ------------
<S>                                                                              <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Payments to suppliers, employees and  consultants                              $(1,184,067)            $  (646,345)
   Cash received from customers                                                       316,910                 211,609
   Interest received                                                                    6,272                   1,968
                                                                                  -----------             -----------
           Net cash used in operating activities                                     (860,885)               (432,768)
                                                                                  -----------             -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of short-term investments (certificates of deposit)                     (395,964)                     --
   Purchases of property and equipment                                                 (2,256)                 (6,074)
                                                                                  -----------             -----------
           Net cash used in investing activities                                     (398,220)                 (6,074)
                                                                                  -----------             -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options                                            896,950                 658,590
                                                                                  -----------             -----------
           Net cash provided by financing activities                                  896,950                 658,590
                                                                                  -----------             -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                 (362,155)                219,748

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                    1,002,777               1,023,531
                                                                                  -----------             -----------
CASH AND CASH EQUIVALENTS AT  END OF PERIOD                                       $   640,622             $ 1,243,279
                                                                                  ===========             ===========
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
   Net loss                                                                       $(2,186,489)            $(1,504,254)
   Stock option compensation to consultants                                            44,609                  17,136
   Stock awards granted to employees and consultants pursuant to stock
      incentive plans                                                               1,031,381                 947,881
   Restricted stock issued for services rendered                                      115,372                    --
   Recovery of doubtful accounts                                                       (8,622)                (52,772)
   Provision for slow-moving inventory                                                125,000                    --
   Depreciation and amortization                                                        7,299                  10,691
   Change in operating assets and liabilities:
      Accounts receivable and other receivables                                        57,610                  76,635
      Inventories                                                                      (2,810)                (19,309)
      Prepaid expenses and other current assets                                       105,946                  24,689
      Other assets                                                                       --                       500
      Accounts payable and  accrued liabilities                                      (150,181)                 66,035
                                                                                  -----------             -----------
           Net cash used in operating activities                                  $  (860,885)            $  (432,768)
                                                                                  ===========             ===========
</TABLE>


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



                                       6
<PAGE>


                                 COPYTELE, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                   (UNAUDITED)


1. NATURE AND DEVELOPMENT OF BUSINESS AND FUNDING

Organization and Basis of Presentation

         CopyTele,  Inc. was  incorporated  on November 5, 1982.  Our  principal
operations are the  development,  production  and marketing of  multi-functional
hardware  and  software  based  encryption  products  that  provide  information
security  for   domestic   and   international   users  over   virtually   every
communications media and the development, production and marketing of thin, high
brightness, flat panel video displays.

         The  condensed  financial  statements  have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
("US GAAP") for 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, 2005 and 2004. In management's  opinion, all
adjustments   (consisting  only  of  normal  recurring  adjustments   considered
necessary for a fair presentation of the results of operations for such periods)
have been included herein.

         The  results of  operations  for interim  periods  may not  necessarily
reflect  the results of  operations  for a full year.  Reference  is made to the
audited financial  statements and notes thereto included in our Annual Report on
Form 10-K for the  fiscal  year  ended  October  31,  2004,  for more  extensive
disclosures than contained in these condensed financial statements.

Products

         We currently have 18 different  products in our line of  hardware-based
encryption  solutions.  Our encryption products are  multi-functional,  hardware
based digital  encryption  systems that provide  high-grade  voice, fax and data
encryption using either the Citadel(TM) CCX encryption cryptographic chip (which
is  manufactured  by the Harris  Corporation) or the Triple DES or AES algorithm
(algorithms  available  in the  public  domain  which  are  used  by  many  U.S.
government agencies). In addition, we have developed two software-based security
products,  one of which  uses  either the  Triple  DES or the AES  algorithm  to
encrypt data files and e-mail  attachments in both desktop and laptop  computers
utilizing  Microsoft  Windows  operating  systems,  and the  other of which  can
encrypt voice and data in cellular and satellite phones, scanners, and printers.
We sell our encryption  products  directly to end-users and through  dealers and
distributors.



                                       7
<PAGE>

         We are  also  continuing  our  research  and  development  work  on our
electron  emission  display ("Flat CRT")  technology.  We have been developing a
Flat CRT display  based on our thin film  technology  ("TFT") and have  produced
Flat CRT displays containing TFT color matrix structures.

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.  Commencing in the fourth quarter of fiscal 1999, we
began to generate cash flows from sales of our encryption products.

         During the six months ended April 30, 2005,  our  operating  activities
used  approximately  $861,000 in cash. This resulted from payments to suppliers,
employees and consultants of approximately $1,184,000,  which was offset by cash
of  approximately  $317,000  received from  collections  of accounts  receivable
related to sales of  encryption  products and  approximately  $6,000 of interest
income received.  In addition, we received  approximately  $897,000 in cash upon
the exercise of stock  options,  invested  approximately  $396,000 in short-term
investments  consisting of certificates  of deposit and purchased  approximately
$2,000 of equipment.  As a result,  our cash and cash  equivalents  at April 30,
2005 decreased to approximately  $641,000 from  approximately  $1,003,000 at the
end of fiscal 2004 and  short-term  investments  consisting of  certificates  of
deposit increased to approximately $396,000 at April 30, 2005 from $0 at the end
of fiscal 2004.

         We  believe  that  our  existing  cash,  cash  equivalents,  short-term
investments  and accounts  receivable,  together  with cash flows from  expected
sales of  encryption  products  and flat  panel  displays,  and other  potential
sources of cash flows,  will be sufficient to enable us to continue in operation
until at least the end of the second quarter of fiscal 2006. We anticipate that,
thereafter,  we  will  require  additional  funds  to  continue  our  marketing,
production, and research and development activities, and we will require outside
funding if cash  generated  from  operations  is  insufficient  to  satisfy  our
liquidity  requirements.  However, our projections of future cash needs and cash
flows may differ  from  actual  results.  If  current  cash and cash that may be
generated   from   operations   are   insufficient   to  satisfy  our  liquidity
requirements,  we may seek to sell debt or equity securities or to obtain a line
of credit  prior to the second  quarter of fiscal 2006.  The sale of  additional
equity   securities  or  convertible  debt  could  result  in  dilution  to  our
stockholders.  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 or otherwise) to improve our liquidity 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.

         The auditor's report on our financial statements as of October 31, 2004
states that the net loss incurred  during the year ended  October 31, 2004,  our
accumulated  deficit as of that date, and the other factors  described in Note 1
to the Financial  Statements  included in our Annual Report on Form 10-K for the
year ended  October  31,  2004,  raise  substantial  doubt  about our ability to
continue as a going concern.  The auditor's  report on our financial  statements
for the year ended October 31, 2003 contained a similar statement. Our financial
statements  have been prepared  assuming we will continue as a going concern and
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

                                       8
<PAGE>

2. STOCK-BASED COMPENSATION

         Financial  Accounting  Standards Board ("FASB")  Statement of Financial
Accounting   Standards   ("SFAS")   No.   148,   "Accounting   for   Stock-Based
Compensation-Transition  and Disclosure" ("SFAS No. 148"),  addresses  financial
accounting  and  reporting  for  recording  expenses for the fair value of stock
options.  SFAS No. 148 requires  prominent  disclosures in financial  statements
about the effects of stock-based  compensation and provides  alternative methods
of  transition  for a voluntary  change to fair value based method of accounting
for stock-based employee compensation.  SFAS No. 123 "Accounting for Stock Based
Compensation"  ("SFAS No.  123")  encourages  but does not require  companies to
record  compensation cost for stock-based  employee  compensation  plans at fair
value. We account for stock options granted to employees and directors using the
intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion
No. 25  "Accounting  for Stock Issued to  Employees"  ("APB Opinion No. 25") and
comply  with  the  disclosure  provisions  of SFAS No.  123 and  SFAS  No.  148.
Compensation  cost for  stock  options  issued to  employees  and  directors  is
measured as the excess,  if any, of the quoted  market price of our stock at the
date of grant over the amount an employee  or  director  must pay to acquire the
stock.  In  accordance  with APB  Opinion  No.  25, we have not  recognized  any
compensation  cost, as all option  grants to employees  and directors  have been
made at the fair market value of our stock on the date of grant.

         Had  compensation  cost for stock  options  granted  to  employees  and
directors been  determined at fair value,  consistent with SFAS No. 123, our net
loss and net loss per share  would  have  increased  to the  following  adjusted
amounts:

<TABLE>
<CAPTION>
                                                 For the Six Months Ended                        For the Three Months Ended
                                                         April 30,                                        April 30,
                                            ------------------------------------            -----------------------------------
                                                2005                    2004                   2005                    2004
                                            -----------             -----------             -----------             -----------
<S>                                         <C>                     <C>                     <C>                     <C>
Net loss as reported                        $(2,186,489)            $(1,504,254)            $(1,179,995)            $  (694,900)
Add: Total stock-based employee
    compensation expense, determined
    under fair value based method, for
    all awards, net of related tax effect    (1,730,134)               (362,043)             (1,403,518)               (177,920)
                                            ------------             -----------             -----------             ------------
Net loss as adjusted                        $(3,916,623)            $(1,866,297)            $(2,583,513)            $  (872,820)
                                            ============             ===========             ===========             ===========
Net loss per share, basic and diluted:
    As reported                                   (0.03)                  (0.02)                  (0.01)                  (0.01)
    As adjusted                                   (0.05)                  (0.02)                  (0.03)                  (0.01)

</TABLE>

         The fair value of each option  grant is  estimated at the date of grant
using the  Black-Scholes  option pricing model.  The following  weighted-average
assumptions  were used for grants during the six months ended April 30, 2005 and
2004: risk free interest rates of 3.39% and 2.00%;  expected  dividend yields of
0% for both periods;  expected lives of 2.50 years and 2.44 years;  and expected
stock price  volatility  of 110% and 120%.  The  weighted  average fair value of
options  granted  under SFAS No. 123 for the six months ended April 30, 2005 and
2004 was $0.42 and $0.29.

                                       9
<PAGE>

         During the six-month  periods ended April 30, 2005 and 2004, we granted
to employees and consultants  options to purchase 4,175,000 shares and 1,320,000
shares,  respectively,  pursuant to the CopyTele, Inc. 2003 Share Incentive Plan
(the "2003 Share Plan").  During the six-month  periods ended April 30, 2005 and
2004,  stock  options  to  purchase   1,288,800  shares  and  1,438,500  shares,
respectively,  were exercised, with aggregate proceeds of approximately $897,000
and $659,000, respectively.

         We account for options  granted to non-employee  consultants  using the
fair  value  method  required  by  SFAS  No.  123.   Compensation   expense  for
consultants,  recognized  during the six-month  periods ended April 30, 2005 and
2004,  was  approximately  $45,000  and  $17,000,  respectively,  and during the
three-month periods ended April 30, 2005 and 2004, was approximately $40,000 and
$17,000,  respectively.  Such compensation  expense was recognized in accordance
with Emerging Issues Task Force Issue No. 00-08, "Accounting by a Grantee for an
Equity  Instrument  to be  Received  in  Conjunction  with  Providing  Goods  or
Services" and No. 96-18  "Accounting for Equity  Instruments  That Are Issued to
Other Than Employees for Acquiring,  or in  Conjunction  with Selling,  Goods or
Services,"  and is  included  in either  research  and  development  expenses or
selling, general and administrative expenses, as applicable, in the accompanying
statements of operations.

         During the  six-month  periods ended April 30, 2005 and 2004, we issued
1,512,085 shares and 1,498,665 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, 2005 and 2004 of approximately  $1,009,000 and
$712,000, respectively, and for the three-month periods ended April 30, 2005 and
2004 of  approximately  $561,000 and $381,000,  respectively,  for the shares of
common stock issued to  employees.  In addition,  during the  six-month  periods
ended  April 30, 2005 and 2004,  we issued  30,000  shares and  520,835  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,  2005  and  2004  of   approximately   $22,000  and  $236,000,
respectively,  and for the three-month  periods ended April 30, 2005 and 2004 of
approximately $9,000 and $109,000,  respectively, for the shares of common stock
issued to consultants.

         As of April 30, 2005, 6,889,044 shares and 25,773 shares, respectively,
were  available  for future  grants under the 2003 Share Plan and the  CopyTele,
Inc. 2000 Share Incentive Plan.

          During the six-month  period ended April 30, 2005,  we issued  179,000
shares of restricted  common stock to our outside legal counsel in  satisfaction
of  outstanding  bills for  services  rendered  in the  amount of  approximately
$115,000.

          In December  2004, the FASB issued SFAS No.  123(R),  "Accounting  for
Stock-Based  Compensation"  ("SFAS No.  123(R)").  SFAS No.  123(R)  establishes
standards for the accounting for  transactions in which an entity  exchanges its
equity  instruments for goods or services.  This Statement  focuses primarily on
accounting  for  transactions  in which an entity obtains  employee  services in
share-based payment  transactions.  SFAS No. 123(R) requires that the fair value
of such  equity  instruments  be  recognized  as an  expense  in the  historical
financial  statements as services are performed.  Prior to SFAS No. 123(R), only
certain pro forma  disclosures  of fair value were  required.  The provisions of
this Statement were effective for the first interim  reporting  period beginning
after June 15, 2005.  In April 2005,  the  Securities  and  Exchange  Commission
announced a deferral of the  effective  date of SFAS No.  123(R) until the first
interim reporting period of the first fiscal year beginning after June 15. 2005.
Accordingly,  we will adopt SFAS No. 123(R)  commencing  with the quarter ending
January 31, 2006. We are currently evaluating the impact of SFAS No. 123(R). The
adoption  of SFAS No.  123(R)  is  expected  to have a  material  effect  on our
financial statements.

                                       10
<PAGE>

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  and
other receivables for potential doubtful accounts and maintains an allowance for
estimated  uncollectible  amounts.  Generally,  no  collateral  is received from
customers for our accounts  receivable.  At April 30, 2005, two customers in the
Encryption Products and Services Segment represented 76% and 24%,  respectively,
of net accounts receivable. At October 31, 2004, two customers in the Encryption
Products and Services  Segment  represented  48% and 44%,  respectively,  of net
accounts receivable. During the six months ended April 30, 2005, one customer in
the  Encryption  Products  and  Services  Segment  represented  83% of total net
revenues.  During the six months  ended  April 30,  2004,  one  customer  in the
Encryption Products and Services Segment represented 66% of total net revenues.

4. SHORT-TERM INVESTMENTS

         Short-term investments represent  certificates of deposits,  carried at
amortized cost,  with maturities of less than twelve months.  The fair values of
the certificates of deposits,  including  accrued  interest,  approximate  their
carrying value due to their short maturities.

5. OTHER RECEIVABLES

         In May and June  2002,  we  received  restricted  common  stock  from a
customer in connection with an outstanding  accounts receivable of approximately
$323,000 and anticipated  settling this accounts receivable through the ultimate
sale of the  common  stock.  This  customer  has  agreed  with  us to  cure  any
deficiency  between  the  proceeds  from the sale of the  common  stock  and the
balance of the  outstanding  accounts  receivable.  In addition,  the customer's
principal  shareholder has personally agreed to cure any deficiency in the event
that the  customer  defaults on its  agreement  to cure such  deficiency,  up to
$292,000.  During the six months  ended April 30,  2005,  we received  aggregate
proceeds  of  approximately  $15,000  from the sale of a portion  of the  common
stock.  As of April 30,  2005,  we hold  200,000  shares of such  common  stock,
subject to no restrictions,  with a fair value of approximately  $60,000, and we
intend to sell the  remaining  portion  of such  stock  during  the next  twelve
months. This receivable is stated at management's estimate of its net realizable
value.


                                       11
<PAGE>

6.       INVENTORIES

         Inventories consist of the following as of:

<TABLE>
<CAPTION>
                                                                        April 30,      October 31,
                                                                          2005            2004
                                                                       ----------      -----------
<S>                                                                    <C>             <C>
             Component parts                                           $  269,109      $ 304,862
             Work-in-process                                               59,606        114,075
             Finished products                                            548,524        580,492
                                                                       ----------      ---------
                                                                       $  877,239      $ 999,429
                                                                       ==========      =========
</TABLE>

7. NET INCOME (LOSS) PER SHARE OF COMMON STOCK

         We comply with the  provisions  of SFAS No. 128,  "Earnings  Per Share"
("SFAS No. 128").  In accordance  with SFAS No. 128, basic net income (loss) per
common  share  ("Basic  EPS") is computed by dividing  net income  (loss) by the
weighted average number of common shares outstanding.  Diluted net income (loss)
per common share  ("Diluted  EPS") is computed by dividing net income  (loss) by
the  weighted  average  number  of  common  shares  and  dilutive  common  share
equivalents and convertible  securities  then  outstanding.  Diluted EPS for all
periods  presented  is the same as Basic EPS, as the  inclusion of the effect of
common stock  equivalents  then  outstanding  would be  anti-dilutive.  For this
reason,  excluded from the calculation of Diluted EPS for the six-month  periods
ended April 30, 2005 and 2004,  were options to purchase  20,505,246  shares and
14,879,546 shares, respectively.

8. 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)  Flat-panel  display 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, 2005 and 2004:


<TABLE>
<CAPTION>
                                                                         Encryption Products
               Segment Data                     Flat-Panel Display           and Services                 Total
-------------------------------------------    ---------------------     ----------------------    -----------------
<S>                                             <C>                        <C>                     <C>
Six Months Ended April 30, 2005:
   Revenue                                       $            -            $      259,300             $   259,300
   Net loss                                             (948,120)              (1,238,369)             (2,186,489)

Six Months Ended April 30, 2004:
   Revenue                                       $            -            $      140,804             $   140,804
   Net loss                                             (737,345)                (766,909)             (1,504,254)

</TABLE>

                                       12
<PAGE>

<TABLE>
<CAPTION>

                                                                         Encryption Products
               Segment Data                     Flat-Panel Display           and Services                 Total
-------------------------------------------    ---------------------     ----------------------    -----------------
<S>                                             <C>                       <C>                       <C>
Three Months Ended April 30, 2005:
   Revenue                                       $            -            $       46,709             $    46,709
   Net loss                                             (430,881)                (749,114)             (1,179,995)

Three Months Ended April 30, 2004:
   Revenue                                       $            -            $      101,804             $   101,804
   Net loss                                             (299,277)                (395,623)               (694,900)
</TABLE>



                                       13
<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 multi-functional hardware and software based encryption products that provide
information  security for domestic and international  users over virtually every
communications media and the development, production and marketing of thin, high
brightness, flat panel video displays ("Flat CRT").

         We currently have 18 different  products in our line of  hardware-based
encryption  solutions.  Our encryption products are  multi-functional,  hardware
based digital  encryption  systems that provide  high-grade  voice, fax and data
encryption using either the Citadel(TM) CCX encryption cryptographic chip (which
is  manufactured  by the Harris  Corporation) or the Triple DES or AES algorithm
(algorithms  available  in the  public  domain  which  are  used  by  many  U.S.
government agencies). In addition, we have developed two software-based security
products,  one of which  uses  either the  Triple  DES or the AES  algorithm  to
encrypt data files and e-mail  attachments in both desktop and laptop  computers
utilizing  Microsoft  Windows  operating  systems,  and the  other of which  can
encrypt voice and data in cellular and satellite phones, scanners, and printers.
We sell our encryption  products  directly to end-users and through  dealers and
distributors.

         We have developed  modifications of our standard  products for specific
applications.  We have developed and are producing several products for use with
the satellite  communications  network of Thuraya  Satellite  Telecommunications
Company  ("Thuraya"),   a  network  built  by  Boeing  Satellite  Systems,  Inc.
("Boeing") that provides  communication in Europe,  Africa,  Russia,  the Middle
East and Asia.  Our products can encrypt  voice  communication,  using a compact
encrypted module attached to the Thuraya handset, and automatically  encrypt fax
communications  over the Thuraya  network.  Our products thus enable the Thuraya
network to provide  encrypted  communications  between  satellite  phones,  from
satellite  phones  to  desk-based   phones,   or  between   desk-based   phones.
Additionally, we have developed three products to provide satellite and cellular
fax encryption between fax machines and between computers and fax machines.

         In April 2004, we entered into an agreement  with Boeing to provide our
encryption  products for use over the Thuraya  network.  Under a September  2004
modification to the agreement,  Boeing is the exclusive  distributor of eight of
our products.

         In connection with Boeing becoming the exclusive distributor of some of
our products, Boeing authorized us to use its name on our website.  Accordingly,
customers  desiring to purchase such products can find  authorized  Boeing sales
information on the "Encryption  Products" page of our website.  In January 2005,
Boeing introduced,  demonstrated and began marketing our encryption  products to
more  than  100  Thuraya  service  providers.   We  assisted  Boeing  with  such
demonstrations.  The products  introduced  included two new encryption  products
that we are selling to Boeing, the Thuraya DCS-1400 for voice encryption and the
Thuraya  USS-900T for fax encryption  between fax machines.  We recently started
selling to Boeing the  USS-900TC,  which  provides  satellite  and  cellular fax
encryption between computers and fax machines.  These products contain the brand
name of Thuraya and their operating controls are in the Arabic language.


                                       14
<PAGE>

         We have also  developed a method for encrypting  Short Message  Service
("SMS"), an inexpensive text message communication protocol that is used in many
cellular and  satellite  phones.  We will utilize  this  encryption  solution in
conjunction with the Thuraya handsets.

         Our wireless  encryption  products are providing secure  communications
with many different  satellite phones,  including the Thuraya 7100/7101 handheld
terminal ("HHT"),  Globalstar  GPS-1600 HHT, Telit  SAT-550/600 HHT,  Globalstar
GPS-2800/2900  fixed phone,  Iridium 9500/9505 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
Teknobli's Next Thuraya Docker,  Thuraya Fixed Docking Adapter,  APsi's FDU-2500
Fixed  Docking  Unit,  Sattrans'  SAT-OFFICE  Fixed  Docking  Unit  and  SAT-VDA
Hands-Free Car Kit.

         We also have  developed  modifications  of our standard  equipment  for
other applications.  We have provided modifications of our hardware and software
encryption  solutions to several large  organizations  which are  evaluating our
products in connection with their security  requirements.  We are supplying to a
major U.S. defense contractor our USS-900AF  automatic fax encryption product to
secure its worldwide fax  communication.  We have entered into an agreement with
another major U.S.  company and supplied an initial proof of concept  encryption
solution utilizing another of our products that has been configured to interface
with  that  company's  satellite  global  positioning  system  ("GPS")  and data
communication fleet management network.

         We have  supplied  another  major U.S.  company our  USS-900AF  and our
DCS-1700 products. The DCS-1700 secures data links between scanners and printers
in multi-functional  products.  That company is in the process of evaluating the
market  potential  for these  products  for the  health  care  industry.  We are
providing  the DCS-1700 to another  major U.S.  company to secure the data links
between the scanners and servers in their multi-functional products. We are also
marketing   the  DCS-1700  to  other  major   companies  to  meet  the  security
requirements of their products.

         We are also  continuing our research and  development  work on our Flat
CRT electron  emission display  technology.  We have provided our model CTVD-101
Flat CRT  display  to a  potential  customer  for  evaluation  of the  display's
performance  in a product  which must operate  over a wide  ambient  temperature
range in an outdoor  environment.  After successfully  testing our display,  the
customer ordered a seed quantity of modules  containing our display,  to replace
liquid  crystal  display  ("LCD")  modules in our  customer's  product.  We have
initially  supplied the customer  with model  CTVD-101  displays.  To be able to
supply  large  quantities  of  displays  to this  customer  and other  potential
customers,  however,  we are planning to produce our CTVD-201 and CTVD-202  Flat
CRT displays,  which are based on our more current thin film technology ("TFT"),
rather than the  CTVD-101.  We are  planning to replace  the  CTVD-101  displays
previously  provided to our customer with CTVD-201  displays for our  customer's
evaluation.

                                       15
<PAGE>

         We entered  into an  agreement,  in June 2004,  with an Asian  company,
which  currently  mass produces TFT LCDs, to jointly  produce  prototypes of two
modified TFT color matrix pixel structures for our Flat CRT display based on our
high  brightness  technology.  The  two  color  matrix  structures,   which  are
components of our displays, are a 7-inch (diagonal) with 1440 x 234 pixels and a
5.5 inch  (diagonal)  with 960 x 234  pixels.  As part of our TFT  color  matrix
design, each pixel contains memory to achieve high brightness at video rates. We
have funded the  development of these  prototypes,  and may enter into a further
agreement  for  commercial  production of the  structures or the complete  color
displays. The company has agreed to produce such structures only for us.

         We have developed,  with the assistance of Volga Svet Ltd. ("Volga"), a
Russian display company that we have been working with for over seven years, our
Model CTVD-201 and Model CTVD-202 displays, which contain the modified TFT color
matrix  structures we received under our agreement  with the Asian company.  The
Model CTVD-201  display is a 5.5 inch (diagonal)  monochrome  display with 320 x
234 pixels and the Model  CTVD-202 is a 5.5 inch  (diagonal)  color display with
960 x 234 pixels.  We are also  completing the assembly of a 7.0 inch (diagonal)
prototype color display containing the modified TFT color matrix structures with
1,440 x 234 pixels.  The Asian company has supplied  several  hundred of the TFT
color matrix  structures  for the CTVD-201 and  CTVD-202.  We are  producing the
CTVD-201 and CTVD-202 displays which contain these matrix structures to evaluate
the performance and reliability of our displays.

         We  have   successfully   tested  our  display  modules  under  various
environmental conditions. This included subjecting our display modules to shock,
vibration,  and operating  temperatures from -40(degree)C to +85(degree).  Also,
our display  modules are capable of operating  under both sunlight and nighttime
conditions.  As  a  result,  we  believe  that  our  display  modules  can  meet
performance  requirements to both outdoor and indoor applications.  We have also
successfully  reduced the operating voltage  requirements of our display modules
to further  improve  the  reliability  and extend  the life  performance  of our
displays.  We are  continuing  to  obtain  further  performance  data to  insure
reliable operation within the limits of our specifications.

         We  recently  exhibited  our  Flat  CRT  display  at  the  Society  for
Information Display International Symposium, Seminar and Exhibition, the premier
international  gathering of scientists,  engineers,  manufacturers and users for
the  discussion,  presentation,  viewing and exhibiting of  information  display
technology with more than 250 exhibits.  We demonstrated our 5.5 inch (diagonal)
display with 320 x 234 pixels and our 5.0 inch (diagonal) display with 320 x 240
pixels to  scientists,  engineers,  manufacturers  and users  from more than one
hundred companies and government agencies. We have been requested by many of the
organizations to meet for further discussions.

         Also, we have modified the color matrix  structures to incorporate chip
on glass  ("COG")  technology  which will be utilized  for  production  of these
displays. As part of our reliability evaluation,  we are using both the CTVD-201
and CTVD-202  color Flat CRT displays.  Upon the completion of our evaluation of
the  structures,  we  believe  that  Volga  will  be able to  supply  a  limited
production capability. We anticipate utilizing either the Asian company or other
TFT LCD  production  companies to mass produce the display for potential  users.
However,  we have not yet entered into any  agreement for such  production,  and
there can be no assurance that we can do so on commercially  acceptable terms or
at all.

                                       16
<PAGE>

         To activate the red, green and blue phosphors contained in the modified
TFT color  matrix  pixel  structure  in our  displays,  we are using our current
electron  emission  technology and are developing a new electron emission system
using nanotube technology in cooperation with a U.S. company. The new technology
consists of a unique array of low voltage  controllable  nanotubes  for electron
emission.  These  nanotubes are extremely small carbon  elements,  approximately
2,500 times thinner than the width of a human hair,  that emit  electrons  under
controllable conditions.  In cooperation with that company, we are continuing to
produce  experimental   nanotube  design   configurations  to  meet  our  design
requirements.  We have  the  exclusive  right  to use  this  company's  nanotube
technology for display applications.

         There  can be no  assurance  that  we can  produce  commercial  quality
displays,  that we can produce such displays in commercial  quantities,  that we
can  successfully  market our  displays,  or of the revenue we might derive from
sales of our displays.

         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.  We also generate cash
flows from sales of our encryption products.  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.  We have also been working with several
large  organizations  to  provide  them  with  both our  hardware  and  software
encryption  solutions  for them to  evaluate  whether the  solutions  meet their
security requirements and have begun supplying several major U.S. companies with
our  encryption  products.  We have also begun to market  our flat  panel  video
display products to potential  purchasers for incorporation into their products.
We anticipate  that current cash on hand,  cash generated from  operations,  and
cash  generated  from the exercise of employee  options will be adequate to fund
our operations at least through the end of the second quarter of fiscal 2006.


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, 2004.

                                       17
<PAGE>


Revenue Recognition

         Sales

                  Revenues  from  sales  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.

         Sales Returns and Allowances

                  Revenues are recorded net of estimated sales returns.

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.  During  the  three-month  period  ended  April 30, 2005, we  recorded a
provision  for  slow-moving  inventory  of  $125,000.  Our net income  (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.

Stock Based Compensation

         We account for stock options  granted to employees and directors  using
the  intrinsic  value method  prescribed in APB Opinion No. 25  "Accounting  for
Stock Issued to Employees" and comply with the disclosure  provision of SFAS No.
123 "Accounting for Stock Based  Compensation"  and SFAS No. 148 "Accounting for
Stock Based  Compensation - Transition and Disclosure,  an amendment of SFAS No.
123". If we were to include the cost of employee  stock option  compensation  in
the financial statements, our net loss for the six-month periods ended April 30,
2005 and 2004 would have  increased by  approximately  $1,730,000  and $362,000,
respectively,  and for the  three-month  periods  ended  April 30, 2005 and 2004
would have increased by  approximately  $1,404,000  and $178,000,  respectively,
based on the fair value of the stock options granted to employees.  See "-Impact
of Recent Accounting Pronouncements."



                                       18
<PAGE>




RESULTS OF OPERATIONS

Six months ended April 30, 2005 compared with six months ended April 30, 2004

         Sales

         Revenue.  Revenue from sales increased by approximately $118,000 in the
six-month period ended April 30, 2005, to approximately $259,000, as compared to
approximately  $141,000 in the comparable  prior-year period. All revenue during
both periods was from  encryption  products and services.  The increase in sales
was principally due to an increase in unit sales of our encryption products. Our
encryption  sales  have been  limited  and are  sensitive  to  individual  large
transactions  which can vary from period to period.  We believe  that changes in
sales between periods  generally  represent the nature of the early stage of our
product and sales channel development.


         Gross  Profit.  Gross  profit  from sales of  encryption  products  and
services decreased by approximately  $36,000 in the six-month period ended April
30, 2005, to approximately  $59,000, as compared to approximately $95,000 in the
comparable  prior-year period. Gross profit as a percent of revenue decreased to
approximately  23% in the six-month  period ended April 30, 2005, as compared to
approximately  67% in the comparable  prior-year  period.  The decrease in gross
profit and gross profit as a percent of revenue is  primarily  the result of the
provision  for  slow-moving  inventory of $125,000  recorded in the  three-month
period  ended  April 30,  2005,  offset by an  increase  in revenue  during such
period.  Because  of the  limited  number  of  transactions  during  each of the
periods, gross profit percentages are sensitive to individual transactions.


         Research and Development Expenses

         Research and development  expenses increased by approximately  $249,000
in the six-month period ended April 30, 2005, to approximately $1,240,000,  from
approximately  $991,000 in the  comparable  prior-year  period.  The increase in
research and development expenses was principally due to an increase in employee
compensation and related costs of approximately  $248,000,  primarily  resulting
from the grant of employee bonuses.

         Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased by approximately
$402,000 to  approximately  $1,012,000 in the  six-month  period ended April 30,
2005,  from  approximately  $610,000 in the comparable  prior-year  period.  The
increase in selling,  general and administrative expenses was principally due to
an  increase  in  professional  fees of  approximately  $230,000,  approximately
$50,000 of which was incurred with respect to a theft by a former  employee (see
"-Investigation  and Recovery Efforts  Regarding  Misappropriated  Funds" in our
Annual  Report on Form 10-K for the fiscal  year ended  October  31,  2004),  an
increase in employee  compensation and related costs of  approximately  $80,000,
the recovery in the prior year of previously  reserved  amounts of approximately
$53,000  and  an  increase  in  stock  option  compensation  to  consultants  of
approximately $27,000.


                                       19
<PAGE>

         Interest Income

         Interest  income was  approximately  $6,000 in  six-month  period ended
April 30, 2005,  compared to approximately  $4,000 in the comparable  prior-year
period. The increase in interest income was the result of an increase in average
funds available for investment and an increase in prevailing interest rates.

Three  months  ended April 30, 2005  compared  with three months ended April 30,
2004

         Sales

         Revenue.  Revenue from sales decreased by approximately  $55,000 in the
three-month period ended April 30, 2005, to approximately  $47,000,  as compared
to  approximately  $102,000 in the  comparable  prior-year  period.  All revenue
during both periods was from encryption  products and services.  The decrease in
sales was principally due to a decrease in unit sales of our encryption products
related to customer  procurement  delays. Our encryption sales have been limited
and are sensitive to individual large transactions which can vary from period to
period. We believe that changes in sales between periods generally represent the
nature of the early stage of our product and sales channel development.


          Gross Profit  (loss).  Gross profit from sales of encryption  products
and services decreased by approximately $159,000 in the three-month period ended
April 30,  2005,  to a loss of  approximately  $89,000,  as  compared to a gross
profit  of  approximately  $70,000  in the  comparable  prior-year  period.  The
decrease  gross profit is primarily the result of the provision for  slow-moving
inventory of $125,000  recorded in the three-month  period ended April 30, 2005.
Gross profit as a percent of revenue in the  three-month  period ended April 30,
2004 was  approximately  69%.  Gross  profit  as a  percent  of  revenue  in the
three-month  period  ended  April  30,  2005 is not  meaningful  due to the loss
recorded during the period. Because of the limited number of transactions during
each of the  periods,  gross profit  percentages  are  sensitive  to  individual
transactions.


         Research and Development Expenses

         Research and development  expenses increased by approximately  $143,000
in the three-month period ended April 30, 2005, to approximately  $650,000, from
approximately  $507,000 in the  comparable  prior-year  period.  The increase in
research and development expenses was principally due to an increase in employee
compensation and related costs of approximately  $133,000,  primarily  resulting
from the grant of employee bonuses.

         Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased by approximately
$186,000 to  approximately  $445,000 in the  three-month  period ended April 30,
2005,  from  approximately  $259,000 in the comparable  prior-year  period.  The
increase in selling,  general and administrative expenses was principally due to
an increase in professional fees of approximately  $63,000,  the recovery in the
prior year of  previously  reserved  amounts  of  approximately  $53,000  and an
increase in employee compensation and related costs of approximately $39,000.

                                       20
<PAGE>

         Interest Income

         Interest income was  approximately  $5,000 in three-month  period ended
April 30, 2005,  compared to approximately  $1,000 in the comparable  prior-year
period. The increase in interest income was the result of an increase in average
funds available for investment and an increase in prevailing interest rates.


LIQUIDITY AND CAPITAL RESOURCES

         From our inception  through June 2001, we met our liquidity and capital
expenditure  needs primarily  through the proceeds from sales of common stock in
our initial public offering,  in private  placements,  upon exercise of warrants
issued in connection with the private  placements and public offering,  and upon
the exercise of stock options.  Commencing in the fourth quarter of fiscal 1999,
we also began to generate cash from sales of our encryption products,  and, from
June  2001 to  January  2002,  we  received  development  payments  from  Futaba
Corporation of Japan.

         During the six months ended April 30, 2005,  our  operating  activities
used  approximately  $861,000 in cash. This resulted from payments to suppliers,
employees and consultants of approximately $1,184,000,  which was offset by cash
of  approximately  $317,000  received from  collections  of accounts  receivable
related to sales of  encryption  products and  approximately  $6,000 of interest
income received.  In addition, we received  approximately  $897,000 in cash upon
the exercise of stock  options,  invested  approximately  $396,000 in short-term
investments  consisting of certificates  of deposit and purchased  approximately
$2,000 of equipment.  As a result,  our cash and cash  equivalents  at April 30,
2005 decreased to approximately  $641,000 from  approximately  $1,003,000 at the
end of fiscal 2004 and  short-term  investments  consisting of  certificates  of
deposit increased to approximately $396,000 at April 30, 2005 from $0 at the end
of fiscal 2004.

         Accounts   receivable   decreased   by   approximately   $42,000   from
approximately  $63,000 at the end of fiscal 2004 and by  approximately  $183,000
from  approximately  $204,000 at January 31, 2005, to  approximately  $21,000 at
April 30, 2005. The decrease in accounts receivable is a result of the timing of
collections,  in  particular  a large  account  receivable  at January  31, 2005
related to our largest  customer  that was  collected  in February  2005.  Other
receivables  decreased by approximately $6,000 from approximately $84,000 at the
end of fiscal 2004 to  approximately  $78,000 at April 30, 2005. The decrease in
other receivables is a result of proceeds received of approximately $15,000 from
the sale of a portion of the common  stock  received  from a customer  to settle
such customer's accounts receivable,  offset by a reduction of the allowance for
doubtful accounts related to this accounts  receivable of approximately  $9,000.
Inventories  decreased  approximately  $122,000 from  approximately  $999,000 at
October 31, 2004 to approximately $877,000 at April 30, 2005, as a result of the
timing of shipments,  production  schedules  and the  provision for  slow-moving
inventory of $125,000  recorded  during the  three-month  period ended April 30,
2005.  Prepaid  expenses and other  current  assets  decreased by  approximately
$106,000 from approximately  $122,000 at the end of fiscal 2004 to approximately
$16,000 at April 30, 2005. The decrease in prepaid  expenses and other assets is
primarily  due to the receipt of a receivable  of  approximately  $100,000  from
insurance companies related to a theft by a former employee (see "-Investigation
and Recovery Efforts  Regarding  Misappropriated  Funds" in our Annual Report on
Form 10-K for the fiscal year ended  October  31,  2004).  Accounts  payable and
accrued  liabilities  decreased by  approximately  $150,000  from  approximately
$443,000 at the end of fiscal 2004 to approximately  $293,000 at April 30, 2005,
as a result of the issuance of restricted  common stock to settle a liability of
approximately $115,000 and the timing of payments.

                                       21
<PAGE>

         As a result  of these  changes,  working  capital  at  April  30,  2005
decreased to approximately  $1,736,000 from approximately  $1,829,000 at the end
of fiscal 2004.

         Our working capital  includes  inventory  of approximately  $877,000 at
April 30, 2005.  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.

         During the  six-month  periods ended April 30, 2005 and 2004, we issued
shares of common stock to certain employees for services  rendered,  principally
in lieu of cash compensation. We recorded compensation expense for the six-month
periods ended April 30, 2005 and 2004 of approximately  $1,009,000 and $712,000,
respectively,  and for the three-month  periods ended April 30, 2005 and 2004 of
approximately  $561,000  and  $381,000,  respectively,  for the shares of common
stock issued to employees.  In addition during the six-month periods ended April
30, 2005 and 2004, we issued shares of common stock to consultants  for services
rendered.  We recorded  consulting expense for the six-month periods ended April
30, 2005 and 2004 of approximately $22,000 and $236,000,  respectively,  and for
the three-month  periods ended April 30, 2005 and 2004 of  approximately  $9,000
and  $109,000,   respectively,   for  the  shares  of  common  stock  issued  to
consultants.  During the three-month period ended April 30, 2005, we also issued
179,000  shares of  restricted  common  stock to our  outside  legal  counsel in
satisfaction  of  outstanding  bills  for  services  rendered  in the  amount of
approximately $115,000.

         The auditor's report on our financial statements as of October 31, 2004
states that the net loss incurred  during the year ended  October 31, 2004,  our
accumulated  deficit as of that date, and the other factors  described in Note 1
to the Financial  Statements  included in our Annual Report on Form 10-K for the
year ended  October  31,  2004,  raise  substantial  doubt  about our ability to
continue as a going concern.  The auditor's  report on our financial  statements
for the year ended October 31, 2003 contained a similar statement. Our financial
statements  have been prepared  assuming we will continue as a going concern and
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

         We  believe  that  our  existing  cash,  cash  equivalents,  short-term
investments  and accounts  receivable,  together  with cash flows from  expected
sales of  encryption  products  and flat  panel  displays,  and other  potential
sources of cash flows,  will be sufficient to enable us to continue in operation
until at least the end of the second quarter of fiscal 2006. We anticipate that,
thereafter,  we  will  require  additional  funds  to  continue  our  marketing,
production, and research and development activities, and we will require outside
funding if cash  generated  from  operations  is  insufficient  to  satisfy  our
liquidity  requirements.  However, our projections of future cash needs and cash
flows may differ  from  actual  results.  If  current  cash and cash that may be
generated   from   operations   are   insufficient   to  satisfy  our  liquidity
requirements,  we may seek to sell debt or equity securities or to obtain a line
of credit  prior to the second  quarter of fiscal 2006.  The sale of  additional
equity   securities  or  convertible  debt  could  result  in  dilution  to  our
stockholders.  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 or otherwise) to improve our liquidity 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.


                                       22
<PAGE>

         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.  We have been working with several large
organizations  to provide them with both our  hardware  and software  encryption
solutions  for them to  evaluate  whether  the  solutions  meet  their  security
requirements  and have begun  supplying  several major U.S.  companies  with our
encryption  products.  We have also begun to market our flat panel video display
products to potential  purchasers for incorporation into their products.  During
the six months ended April 30, 2005,  we have  recognized  revenue from sales of
encryption products of approximately $259,000.

         The  following  table  presents  our  expected  cash  requirements  for
contractual obligations outstanding as of April 30, 2005:

<TABLE>
<CAPTION>
                                                   Payments Due by Period
                                            ---------------------------------------
                                 Less
Contractual Obligations          than           1-3            4-5          After
                                 1 year         years         years        5 years        Total
----------------------------    --------    -----------     --------     ----------      --------
<S>                             <C>         <C>             <C>          <C>            <C>
Consulting
Agreement                       $ 70,000              -                                  $ 70,000
                                                                   -              -
Noncancelable Operating                                                                  $280,000
Leases                          $258,000    $    22,000
                                                                   -              -
                                --------    -----------     --------     ----------      --------
Total Contractual
Cash Obligations                $328,000    $    22,000            -              -      $350,000
                                ========    ===========     ========     ==========      ========
</TABLE>


IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In December  2004,  the FASB issued SFAS No.  123(R),  "Accounting  for
Stock-Based  Compensation"  ("SFAS No.  123(R)").  SFAS No.  123(R)  establishes
standards for the accounting for  transactions in which an entity  exchanges its
equity  instruments for goods or services.  This Statement  focuses primarily on
accounting  for  transactions  in which an entity obtains  employee  services in
share-based payment  transactions.  SFAS No. 123(R) requires that the fair value
of such  equity  instruments  be  recognized  as an  expense  in the  historical
financial  statements as services are performed.  Prior to SFAS No. 123(R), only
certain pro forma  disclosures  of fair value were  required.  The provisions of
this Statement were effective for the first interim  reporting  period beginning
after June 15, 2005.  In April 2005,  the  Securities  and  Exchange  Commission
announced a deferral of the  effective  date of SFAS No.  123(R) until the first
interim reporting period of the first fiscal year beginning after June 15. 2005.
Accordingly,  we will adopt SFAS No. 123(R)  commencing  with the quarter ending
January 31, 2006. We are currently evaluating the impact of SFAS No. 123(R). The
adoption  of SFAS No.  123(R)  is  expected  to have a  material  effect  on our
financial statements.

                                       23
<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  "General  Risks  and
Uncertainties"  below and Note 1 to Condensed Financial  Statements.  You should
read this  discussion and analysis along with our Annual Report on Form 10-K for
the year ended October 31, 2004 and the condensed financial  statements included
in this  Report.  We undertake no  obligation  to publicly  update or revise any
forward-looking  statements,  whether  as a result  of new  information,  future
events  or   otherwise.   You  are   cautioned   not  to  unduly  rely  on  such
forward-looking  statements when  evaluating the  information  presented in this
Report.


GENERAL RISKS AND UNCERTAINTIES

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

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

         We have had net losses and negative cash flows from  operations in each
year since our inception and in the six months ended April 30, 2005,  and we may
continue to incur substantial  losses and experience  substantial  negative cash
flows from  operations.  We have  incurred  substantial  costs and  expenses  in
developing our encryption and flat panel display technologies and in our efforts
to produce  commercially  marketable products  incorporating our technology.  We
have had limited  sales of products to support  our  operations  from  inception
through  April 30,  2005.  We have set forth below our net losses,  research and
development  expenses and net cash used in operations for the six-month  periods
ended April 30, 2005 and 2004,  and for the fiscal years ended  October 31, 2004
and 2003:


                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                             (Unaudited)
                                                          Six Months Ended                  Fiscal Years Ended
                                                              April 30,                         October 31,
                                                   --------------------------------    ---------------------------
                                                        2005            2004                2004           2003
                                                   ------------     -----------        -----------     -----------
<S>                                                 <C>             <C>                <C>             <C>
Net loss                                            $ 2,186,489     $ 1,504,254        $ 3,360,655     $ 3,114,411
Research and development expenses                   $ 1,239,888     $   991,179        $ 2,164,427     $ 1,807,742
Net cash used in operations                         $   860,885     $   432,768        $ 1,205,122     $   958,501
</TABLE>


o        We may need additional funding in the future which may not be available
         on acceptable  terms and, if  available,  may result in dilution to our
         stockholders,  and our  auditors  have issued a "going  concern"  audit
         opinion.

         We anticipate  that, if cash generated from  operations is insufficient
to satisfy our requirements,  we will require additional funding to continue our
research and  development  activities  and market our  products.  The  auditor's
report on our  financial  statements  as of October 31, 2004 states that the net
loss incurred during the year ended October 31, 2004, our accumulated deficit as
of that  date,  and  the  other  factors  described  in Note 1 to the  Financial
Statements included in our Annual Report on Form 10-K for the year ended October
31,  2004,  raise  substantial  doubt  about our  ability to continue as a going
concern.  The auditor's  report on our financial  statements  for the year ended
October 31, 2003 contained a similar  statement.  Our financial  statements have
been  prepared  assuming we will  continue as a going concern and do not include
any adjustments that might result from the outcome of this uncertainty.

         We believe that our existing  cash and  accounts  receivable,  together
with cash  flows  from  expected  sales of  encryption  products  and flat panel
displays,  and other  potential  sources of cash flows,  will be  sufficient  to
enable us to continue in operation  until at least the end of the second quarter
of fiscal 2006. We anticipate that, thereafter, we will require additional funds
to continue marketing,  production, and research and development activities, and
we  will  require   outside   funding  if  cash  generated  from  operations  is
insufficient to satisfy our liquidity requirements.  However, our projections of
future cash needs and cash flows may differ from actual results. If current cash
and cash that may be generated from  operations are  insufficient to satisfy our
liquidity  requirements,  we may seek to sell  debt or equity  securities  or to
obtain a line of credit prior to the second  quarter of fiscal 2006. The sale of
additional equity securities or convertible debt could result in dilution to our
stockholders.  We can give  you no  assurance  that we will be able to  generate
adequate funds from operations,  that funds will be available to us from debt or
equity financings or that, if available, we will be able to obtain such funds on
favorable terms and conditions.  We currently have no arrangements  with respect
to additional financing.


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


                                       25
<PAGE>

         We are  engaged  in two  principal  operations:  (i)  the  development,
production and marketing of thin  high-brightness  flat panel video displays and
(ii) 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 only recently  started to
produce monochrome versions of our  high-brightness  flat panel displays and our
encryption  products are only in their initial stages of commercial  production.
Our  investments in research and development  are  considerable.  Our ability to
generate  sufficient  revenues  to support  our  operations  in the future or to
generate profits will depend upon numerous factors, many of which are beyond our
control, including:

     o    our ability to  successfully  market our line of thin  high-brightness
          flat panel video displays and encryption products;
     o    the  capability  of Volga to produce thin  high-brightness  monochrome
          video displays and supply them to us;
     o    our ability to jointly  develop  with Volga and  produce a  full-color
          video display;
     o    our  ability  to  develop  and  produce  displays  using  controllable
          nanotubes and modified TFT technology;
     o    our production capabilities and those of our suppliers as required for
          the production of our encryption products;
     o    long-term performance of our products;
     o    the capability of our dealers and  distributors to adequately  service
          our encryption products;
     o    our ability to maintain an  acceptable  pricing level to end-users for
          both our encryption and display products;
     o    the ability of suppliers to meet our requirements and schedule;
     o    our  ability  to   successfully   develop  other  new  products  under
          development;
     o    rapidly changing consumer preferences;
     o    the possible development of competitive products that could render our
          products obsolete or unmarketable;
     o    our future  negotiations with Volga with respect to payments and other
          arrangements under our Joint Cooperation Agreement with Volga.

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

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

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

                                       26
<PAGE>

o    The small size of our  accounting  and financial  staff has exposed us, and
     may expose us in the future, to risks relating to our internal control, and
     may limit our growth.

         The small size of our accounting and financial  staff has exposed us to
risks relating to our internal control over financial reporting.  In particular,
as  discussed in our Annual  Report on Form 10-K for the year ended  October 31,
2004 under Item 9A,  Controls and  Procedures,  in December  2004, we discovered
that an employee  in our  accounting  staff had  defrauded  us of  approximately
$189,000 (of which  approximately  $4,000 we believe was replaced) during fiscal
2004 and the first month of fiscal  2005 and  approximately  $28,000  during the
period  from  fiscal  2001  through   fiscal  2003.   While  we  have  recovered
approximately  $110,000 of such loss  through  insurance  proceeds and will seek
additional recoveries from other parties, and we have taken steps to improve our
internal  controls  to prevent  such  activity  in the  future,  there can be no
assurance that our controls and procedures  will prevent all errors or fraud, or
that any future such losses  would be insured or otherwise  recoverable.  We may
need to recruit  additional staff to improve our internal controls or to support
growth of our business,  the costs of which would reduce the funds available for
research and development and marketing activities.

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

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

o    Our common  stock is subject to the SEC's  penny stock rules which may make
     our shares more difficult to sell.

         Our stock fits the definition of a penny stock. The SEC rules regarding
penny  stocks may have the effect of  reducing  trading  activity  in our common
stock and making it more  difficult for  investors to sell.  The rules require a
broker to deliver a risk  disclosure  document that provides  information  about
penny  stocks and the nature and level of risks in the penny stock  market.  The
broker  must also give bid and  offer  quotations  and  broker  and  salesperson
compensation information to the customer orally or in writing prior to effecting
a transaction and in writing with the confirmation. The SEC rules also require a
broker  to make a  special  written  determination  that  the  penny  stock is a
suitable  investment  for the  purchaser  and  receive the  purchaser's  written
agreement  to  the  transaction  before  completion  of the  transaction.  These
requirements  may result in a lower trading volume of our common stock and lower
trading prices.

                                       27
<PAGE>


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

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


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.

         There was no change in our internal  control over  financial  reporting
during the  quarter  ended April 30, 2005 that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                                  PART II. OTHER INFORMATION


Item 6.  Exhibits.

     31.1 Certification of Chief Executive  Officer,  pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002, dated June 9, 2005.

     31.2 Certification of Chief Financial  Officer,  pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002, dated June 9, 2005.

     32.1 Statement  of Chief  Executive  Officer,  pursuant to Section  1350 of
          Title 18 of the United States Code, dated June 9, 2005.

     32.2 Statement  of Chief  Financial  Officer,  pursuant to Section  1350 of
          Title 18 of the United States Code, dated June 9, 2005.




                                       28
<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.


                                 By: /s/ Denis A. Krusos
                                 ------------------------------------
                                 Denis A. Krusos
                                 Chairman of the Board,
                                 Chief Executive Officer
June 9, 2005                     (Principal Executive Officer)



                                 By: /s/ Henry P. Herms
                                 ------------------------------------
                                 Henry P. Herms
                                 Vice President - Finance and
                                 Chief Financial Officer (Principal
June 9, 2005                     Financial and Accounting Officer)



                                       29