UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K/A
(Amendment No. 1)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2009
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
 
Commission file number:  0-11254

COPYTELE, INC.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
11-2622630
 (State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 

900 Walt Whitman Road
Melville, NY  11747
(631) 549-5900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [_]   No [X]
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes [_]   No [X]
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]   No  [_]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [_]   No [_]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer  [_]
Accelerated filer  [_]
 
 
Non-accelerated filer  [X]  (Do not check if a smaller reporting company)
Smaller reporting company  [_]
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes [_]   No [X]
 
Aggregate market value of the voting stock (which consists solely of shares of Common Stock) held by non-affiliates of the registrant as of April 30, 2009 (the last business day of the registrant’s most recently completed second fiscal quarter), computed by reference to the closing sale price of the registrant’s Common Stock on the Over-the-Counter Bulletin Board on such date ($0.29 ): $33,998,452
 
On March 5, 2010, the registrant had outstanding 146,587,131 shares of Common Stock, par value $.01 per share, which is the registrant’s only class of common stock.
 


DOCUMENTS INCORPORATED BY REFERENCE:
NONE
 
 
 

 
 
TABLE OF CONTENTS

 
Page
3
   
PART I
 
   
4
13
   
PART II
 
   
18
   
PART III
 
   
33
40
42
   
PART IV
 
   
42
 
 
2

 
 
EXPLANATORY NOTE
 
CopyTele, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Amendment”) to amend the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2009, which was originally filed with the Securities and Exchange Commission (the “SEC”) on January 29, 2010 (the “Original Filing”).  We are filing this Amendment to respond to certain comments received from the staff of the SEC.  Except for changes to those specific sections incorporated herein, this Amendment does not reflect events occurring after the Original Filing and does not modify or update the disclosure therein in any way.  Accordingly, this Amendment should be read in conjunction with the other filings of the Company made with the SEC subsequent to the Original Filing, including any amendments to those filings.

Currently dated certifications from our Chief Executive Officer and Chief Financial Officer have been included as exhibits to this Amendment as required by applicable SEC rules.
 
 
3

 
 
PART I
 
Item 1.              Business.
 
Forward-Looking Statements

Information included in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results.  We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “will” and similar expressions to identify forward-looking statements.  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 this Annual Report on Form 10-K under “Item 1A. – Risk Factors” below.  Except as required by applicable law, including the securities laws of the United States, 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 Annual Report on Form 10-K.


Overview
 
As used herein, “we,” “us,” “our,” the “Company” or “CopyTele” means CopyTele, Inc. unless otherwise indicated.  Our principal operations include the development, production and marketing of thin, flat, low-voltage phosphor display technology, the development of thin, flat, low-power passive display technology and the development, production and marketing of multi-functional encryption products that provide information security for domestic and international users over virtually every communications media.

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

In November 2007, we entered into a Technology License Agreement (as amended, the “License Agreement”) with Videocon Industries Limited, an Indian company (“Videocon”).  Under the License Agreement, we provide Videocon with a non-transferable, worldwide license of our technology for thin, flat, low voltage phosphor displays (the “Licensed Technology”), for Videocon (or a Videocon Group company) to produce and market products, including TVs, incorporating displays utilizing the Licensed Technology.  Under the License Agreement, we are scheduled to receive a license fee of $11 million from Videocon, payable in installments over a 27 month period, which commenced in May 2008, and an agreed upon royalty from Videocon based on display sales by Videocon.  In April 2008, the government of India approved the License Agreement.  As of October 31, 2009, we have received aggregate license fee payments of $2,600,000.  The payment terms from Videocon were modified during the second quarter of fiscal year 2009 and again during the first quarter of fiscal year 2010.  The modifications were made to allow Videocon’s payments to be more closely aligned with the progress being made towards the optimization of the display performance, although the total amount of the payments did not change.  Future modifications of the timing of payments from Videocon could occur that might materially affect in which future periods revenues from Videocon are recognized and which could delay the payment of the license fee beyond the 27 month period.
 
 
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Videocon is the flagship company of the Videocon Group, one of India’s leading business houses.  Videocon Group is a fully integrated consumer electronics and home appliances enterprise with backward integration in plasma panel, CRT glass, color picture tubes and other key components for the consumer electronics, home appliances and components industries.  Videocon Group also operates in the oil & gas sector. The Videocon Group has sales and service networks throughout India and operates facilities in Europe and elsewhere in the world.
 
We are working with Videocon to implement our technology into production display modules.  The display modules consist of our low voltage phosphor displays, the attached associated driver circuits, and controller circuits.  Under the License Agreement, Videocon, with our assistance, is to provide the design and process engineering required to produce such display modules and also provide all tooling and fixtures required for the production process.  Videocon has a group of qualified and experienced personnel assigned to this program.  As part of our assistance to Videocon to produce such display modules, we are providing technical support to Videocon’s technical team.  We are also cooperating with Videocon to jointly implement our technology prior to production to produce prototypes of such modules.  Videocon is utilizing its display processing technology and facilities to continue to produce various configurations of our display matrix to optimize its performance.  The matrix is the main component of our display, since it contains the structure to accommodate our electron emission technology and the color phosphors that are used to illuminate our display.  Improvements to the technology are to be jointly owned by CopyTele and Videocon.

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

In connection with the License Agreement, Videocon and CopyTele each have the right to appoint one senior advisor to the other’s board of directors for the term of the license granted under the License Agreement.  Such appointments are limited to advise with respect to strategic planning and technology in the display field and does not grant such senior advisor any rights with respect to involvement in the overall management or operations of the Company.  While Videocon and CopyTele have made such appointments and the senior advisors from each of the companies are in communications with each other with respect to strategic planning and technology in the display field, the senior advisors have not had any interactions with the other’s board of directors and do not and have not attended any board of director meetings.  Such senior advisors do not presently intend to have any interactions with the other’s board of directors in the future.
 
 
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At the same time as we entered into the License Agreement, we also entered into a Share Subscription Agreement (the “Share Subscription Agreement”) with Mars Overseas Limited, an affiliate of Videocon (“Mars Overseas”).  Under the Share Subscription Agreement, Mars Overseas purchased 20,000,000 unregistered shares of our common stock (the “CopyTele Shares”) from us for an aggregate purchase price of $16,200,000, which was valued based on the actively traded market price of our common stock.  The purchase of the CopyTele Shares pursuant to the Subscription Agreement closed in November 2007.  Also in November 2007, our wholly-owned British Virgin Islands subsidiary, CopyTele International Ltd. (“CopyTele International”), entered into a GDR Purchase Agreement, as amended (the “Purchase Agreement”) with Global EPC Ventures Limited (“Global”), for CopyTele International to purchase from Global 1,495,845 global depository receipts of Videocon (the “Videocon GDRs”), acquired by Global on the Luxembourg Stock Exchange for an aggregate purchase price of $16,200,000.  The price of the Videocon global depository receipts on the Luxembourg Stock Exchange is based on the underlying price of Videocon’s equity shares which are traded on stock exchanges in India with prices quoted in rupees.  The purchase of the Videocon GDRs pursuant to the Purchase Agreement closed in December 2007.  For the purpose of effecting a lock up of the Videocon GDRs and CopyTele Shares (collectively, the “Securities”) for a period of seven years, and therefore restricting both parties from selling or transferring the Securities during such period, CopyTele International and Mars Overseas entered into two Loan and Pledge Agreements in November 2007.  The Videocon GDRs are to be held as security for a loan in the principal amount of $5,000,000 from Mars Overseas to CopyTele International, and the CopyTele Shares are similarly held as security for a loan in the principal amount of $5,000,000 from CopyTele International to Mars Overseas.   The loans are for a term of seven years and do not bear interest.  See Note 1 to the Consolidated Financial Statements.

Our display technology includes a proprietary mixture of specially coated carbon nanotubes and nano materials in combination with our proprietary low voltage color phosphors.  The specially coated carbon nanotubes, which are supplied to us by a U.S. company, and nano materials, require a low voltage for electron emission and are extremely small – approximately 10,000 times thinner than the width of a human hair.  The 5.5 inch (diagonal) display we developed has 960 x 234 pixels and utilizes a new memory-based active matrix thin film technology with each pixel phosphor activated by electrons emitted by a proprietary carbon nanotube network located extremely close from the pixels.  The matrix also has a high pixel field factor to obtain high contrast and low power consumption. As a result, each pixel phosphor brightness is controlled using less than 40 volts.  The carbon nanotubes and proprietary color phosphors are precisely placed and separated utilizing our proprietary nanotube and phosphor deposition technology.  We have developed a process of maintaining uniform carbon nanotube deposition independent of phosphor deposition.  We have also developed a method of enhancing nanotube electron emission to increase the brightness of this type of display.
 
 
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We believe our displays could potentially have a cost similar to a CRT and thus cost less than current LCD or PDP displays partly because our display does not contain a backlight, or color filter or polarizer, which represents a substantial portion of the cost of an LCD.
 
In August 2009, we entered into a development agreement with a U.S. company to provide engineering and implementation support for the development of our patented extremely low power passive monochrome or color display for use in portable devices.  This company has experience in the field involving portions of our display technology.  Our proprietary extremely low power display that we are developing, in conjunction with this U.S. company, incorporates a new micro-matrix substrate.  The display is designed to have bi-stability capability, and uses low power when an image is being created.  Once an image is created, power consumption is negligible.  The display is expected to have both monochrome and or color capability, and operate over wide temperature and environmental conditions.  The display utilizes a single substrate so that it can be extremely thin, rugged and low weight.  This display can be made in any size, is expected to be low cost, and is especially suitable for portable devices, such as, cell phones, I-phones, e-books, and other potential portable devices.  We have jointly formulated display designs and have completed simulation analyses to optimize the display configuration.

With the arrival of the rapidly expanding digital book and news media applications, in August 2009, we entered into an Engagement Agreement with ZQX Advisors, LLC (“ZQX”) to assist us in seeking business opportunities and licenses for our electrophoretic display technology (E-Paper®).  ZQX has an experienced business and legal team to assist us in this area.    Concurrently with entering into the Engagement Agreement, we acquired a 19.5% ownership interest in ZQX in exchange for 800,000 unregistered shares of our common stock and warrants to purchase an additional 500,000 unregistered shares of our common stock, of which warrants to purchase 250,000 shares are exercisable at $0.37 per share and warrants to purchase 250,000 shares are exercisable at $0.555 per share.  The warrants expire in August 2019.

In September 2009, we entered into a Technology License Agreement with Volga to produce and market our thin, flat, low voltage phosphor displays in Russia.  We have been working with Volga for the past 12 years to assist us with our low voltage phosphor displays. As part of our Technology License Agreement with Volga, we expect to receive revenues from Volga, as it is required to purchase the matrix substrate, carbon nanotubes, and associated display electronics from us.

In addition, in September 2009, we entered into a separate agreement with Volga whereby we have obtained a 19.9% ownership interest in Volga in exchange for 150,000 unregistered shares of our common stock.

We continue to pursue opportunities to market our voice, fax and data encryption solutions in commercial and government markets. Our full array of hardware and software products provide security over landline and wireless telephone systems and networks.
 
 
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Our government and international markets are being supported by The Boeing Company (“Boeing”) as well as their large distributors of Thuraya satellite telephones and communication services.  The Thuraya satellite network provides blanket coverage to more than 110 countries in Europe, North, Central Africa and large parts of Southern Africa, the Middle East, Central and South Asia and has grown as a communications provider due to its geographic coverage, quality of service and cost effective usage.

We have developed a full lineup of specialized products for the Thuraya satellite network that we are continuing to promote.  Boeing distributes 13 of our products, including our DCS-1400D (docker voice encryption device), USS-900T (satellite fax encryption device), USS-900TL (landline to satellite fax encryption device), USS-900WF (satellite and cellular fax encryption device), USS-900WFL (landline to satellite and cellular fax encryption device) and USS-900TC (satellite fax encryption to computer) products, which were specifically designed for the Thuraya satellite network.

Our products are being used by government agencies, military, as well as domestic and international non-governmental organizations in the Middle East, Europe, Far East and Africa. Our products are now being evaluated for use by Middle Eastern and Far Eastern governments.

Asia Pacific Satellite Industries (“APSI”) has manufactured new Thuraya handsets and docking units that allow satellite communications both outdoors and indoors.  We have created devices allowing customers to easily set up and engage in secure communications over the Thuraya satellite network compatible with landline telephone systems.  APSI’s FDU-3500 docking unit for its SO-2510 phone allows for outdoor and indoor operation of the satellite phone on the Thuraya satellite network.  Our PA-3500 and PA-3500T products allow compatibility between our DCS-1200, DCS-1400 and USS-900T encryption devices and the APSI FDU-3500 docking unit and SO-2510 phone.

Our products provide secure communications with many different satellite phones, including the Thuraya 7100/7101/SO-2510 handheld terminal (“HHT”), Globalstar GSP-1600 HHT, Telit SAT-550/600 HHT, Globalstar GSP-2800/2900 fixed phone, Iridium 9500/9505/9505A HHT, Inmarsat M4 and Mini “M” HHT units from Thrane & Thrane and Nera.  Through the use of our products, encrypted satellite communications are available for many Thuraya docking units, including Teknobil’s Next Thuraya Docker, Thuraya’s Fixed Docking Adapter, APSI’s FDU-2500 and FDU-3500 Fixed Docking Units, and Sattrans’s SAT-OFFICE Fixed Docking Unit and SAT-VDA Hands-Free Car Kit.

We have designed and developed a breathe of products that provide flexible security performance, whether using any of the many satellite phones or docking units on the market while having the ability of using the same device or compatible device on cellular or landline phones.  We are continuing our consultations with specialists of the Inmarsat BGAN system and the new Iridium USB satellite phone developing compliant encryption solutions that offer new opportunity and an increased customer base.  We continue to seek opportunities to market our products for securing landline and wireless voice and fax communications.  Our specific Thuraya products are being evaluated for use by a Middle Eastern government.  Also, a Far Eastern government is in the process of determining the system requirements necessary to encrypt voice communications utilizing our USS-900, DCS-1200 and DCS-1400 products.
 
 
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We were incorporated on November 5, 1982 under the laws of the State of Delaware.  Our principal executive offices are located at 900 Walt Whitman Road, Melville, New York 11747, our telephone number is 631-549-5900, and our Internet website address is www.copytele.com.   We make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the Securities and Exchange Commission (the “SEC”).

New Technologies Under Development
 
The following new technologies have not been incorporated into commercially marketable products and have not generated any product revenue:
 
Display Technology
 
We are continuing to pursue our efforts to develop new technologies for our color nanotube and E-Paper® displays.  We are continuing to develop another version of our new type low voltage and low power nanotube display having a different matrix configuration and phosphor excitation system.  This new type of display is covered under the license provided to Videocon and is expected to be lower in cost to produce than our prior displays.

Flat Panel Video Display Products
 
Under our License Agreement with Videocon, Videocon (or a Videocon Group company) is to produce products incorporating displays utilizing our technology.  We are working with Videocon to implement our technology into production display modules.  The display modules consist of our low voltage phosphor displays, the attached associated driver circuits, and controller circuits.  Under the License Agreement, Videocon, with our assistance, is to provide the design and process engineering required to produce such display modules and also provide all tooling and fixtures required for the production process.  We are also producing color displays modules, with the assistance of Volga and the Asian company, which incorporate the new type of matrix and phosphor excitation system described above.

Encryption Technology
 
We are continually engaged in the development of additional capabilities for our current product lines as well as the development of new products to meet current and anticipated customer applications. We are further developing encryption products and pursuing commercial security opportunities created by the Health Insurance Portability and Accountability Act (“HIPAA”), the Sarbanes-Oxley Act, the Gramm-Leach-Bliley Act and other corporate governance requirements.
 
 
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Other products under development include the following:

·         
A voice encryption device for integration into the APSI SO-2510 handset that takes advantage of the Thuraya voice network.  This application simplifies the customer’s security configuration while reducing the utilization costs.

·         
Advancing our compatibility with Universal Serial Bus (USB) connected cellular and satellite phones with our DCS-1400 device.  The additional services will expand our wireless compatibility domestically and abroad.

·         
A software based voice encryption solution that is capable of running on new “smart phone” cellular/Voice Over Internet Protocol (VoIP) devices.

Production
 
Encryption Products
 
Our hardware encryption products consist of a printed circuit board populated with electronic components and connectors enclosed in a plastic case.  We design all the hardware, software, packaging and operating manuals for our products.  The four main electronic components – the Citadel™ CCX encryption chip or hardware key generator chip; a digital signal processor; a vocoder; and modems – are contained on a printed circuit board.  We are currently using several U.S.-based electronics-production contractors to procure the printed circuit boards and mount the associated electronics components on the circuit board.  We currently use approximately a dozen primary component and printed circuit-board suppliers and one production assembly contractor.  Given normal lead times, we anticipate having a readily available supply of all electronic components that we require for assembling our encryption products.

Our production contractors produce and visually inspect the completed circuit boards.  We perform final assembly, including installation of the software, by enclosing the completed printed circuit boards into the product and performing functionality testing of all units at our premises at Melville, New York prior to shipment to our customers.  We test our finished products using internally developed product assurance testing procedures.  We currently produce our line of products in quantities to meet marketing requirements.

Marketing and Sales                                           
 
Flat Panel Video Display Products
 
Under our License Agreement with Videocon, Videocon (or a Videocon Group company) is to market the products it produces that incorporate displays utilizing our technology.  We are cooperating with Videocon to implement our display technology for Videocon to produce such products, including TV’s.
 
 
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Encryption Products
 
During the past year we have continued to direct our marketing efforts to participate in the security opportunities created by the U.S. Department of Homeland Security, the Defense Department, and the enactment of laws such as HIPAA, the Sarbanes-Oxley Act, and Gramm-Leach-Bliley Act, which mandate that government and private sector firms provide higher levels of information privacy and security.  We are working on applications involving our encryption technology that offer simple, straight-forward compliance measures for these laws.

Our distributors market our line of encryption products to domestic and international commercial and government customers.  These products include voice, fax and data devices on a non-exclusive basis.  We are also supported by international Thuraya service providers to distribute our encryption equipment abroad.  The launch of the third Thuraya Geo-mobile satellite in January 2008 allowed Thuraya to embark on major expansion plans to provide their mobile satellite services in the Asia-Pacific region, potentially opening new markets for CopyTele security solutions that are designed for the Thuraya network.

In addition, we presently use a network of distributors in the security field and original equipment manufacturers which market our encryption products on a non-exclusive basis.  These distributors, along with our internal marketing group, have sold and marketed our encryption products to multinational corporations, U.S. and foreign governments and local and federal law enforcement agencies.

We continue to provide training and technical support to our customers and to our distributors and dealers.

Customers
 
During fiscal year 2009, we recognized approximately $913,000 in net revenue from Videocon, representing approximately 95% of net revenue in our Display Technology Segment and approximately 87% of our total net revenue.  During fiscal year 2008, we recognized approximately $1,687,000 in net revenue in our Display Technology Segment from Videocon (constituting all of the revenue in such segment), representing approximately 82% of our total net revenue.  During fiscal year 2007, we recognized $240,000 in net revenue from Digital Info Security Co. Inc. (“DISC”), representing approximately 49% of our total net revenue, and approximately $143,000 in net revenue from Delta Bridge, Inc, representing approximately 29% of total net revenue.  All net revenue during fiscal year 2007 was in our Encryption Products and Services Segment.

Competition
 
The market for encryption products and flat panel displays worldwide is highly competitive and subject to technological changes.  Although successful product and systems development is not necessarily dependent on substantial financial resources, most of our competitors are larger than us and possess financial, research, service support, marketing, manufacturing and other resources significantly greater than ours.
 
 
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There are several other companies that sell hardware and/or software encryption products and there are many large companies that sell flat panel displays.  We believe, however, that the technology contained in our encryption products and our flat panel displays have features that distinguish them from the products being sold by our competitors.  The encryption security and flat panel display markets are likely to be characterized by rapid advances in technology and the continuing introduction of new products that could render our products obsolete or non-competitive.  We can give no assurances that we will be able to compete successfully in the market for our encryption products and our flat panel displays.

Patents
 
We have received patents from the United States and certain foreign patent offices, expiring at various dates between 2010 and 2027.  We have also filed or are planning to file patent applications for our video and E-Paper® displays, and encryption technologies.

We can give no assurances that patents will be issued for any of our pending applications.  In addition, we can give no assurances that any patents held or obtained will sufficiently protect us against our competitors.  We are not aware that any of our encryption products are infringing upon the patents of others.  We cannot provide any assurances, however, that other products developed by us, if any, will not infringe upon the patents of others, or that we will not have to obtain licenses under the patents of others, although we are not aware of any such infringement at this time.

We believe that the foregoing patents are significant to our future operations.

Research and Development
 
Research and development expenses were approximately $4,116,000, $4,127,000, and $3,404,000 for the fiscal years ended October 31, 2009, 2008 and 2007, respectively.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and our Consolidated Financial Statements.

Employees and Consultants
 
We had 20 employees and 14 consultants as of October 31, 2009.  Eighteen of these individuals, including our Chairman of the Board and Chief Executive Officer, are engaged in research and development.  Their backgrounds include expertise in physics, chemistry, optics and electronics.  Six individuals are engaged in marketing and the remaining individuals are engaged in administrative and financial functions for us.  None of our employees is represented by a labor organization or union.

Financial Information About Segments and Geographical Areas
 
See our Consolidated Financial Statements.
 
 
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Item 1A.              Risk Factors.
 
Our business involves a high degree of risk and uncertainty, including the following risks and uncertainties:

·
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 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 October 31, 2009.  We have set forth below our net losses, research and development expenses and net cash used in operations for the three fiscal years ended October 31, 2009, 2008 and 2007:

   
Fiscal Years Ended October 31,
 
   
2009
   
2008
   
2007
 
Net loss
  $ 16,489,015     $ 5,821,604     $ 5,458,218  
Research and development expenses
    4,116,200       4,127,393       3,403,943  
Net cash used in operations
    2,501,566       901,868       2,396,859  

·
We may need additional funding in the future which may not be available on acceptable terms and, if available, may result in dilution to our stockholders.
 
We anticipate that, if cash generated from operations is insufficient to satisfy our requirements, we will require additional funding to continue our research and development activities and market our products.  We believe that our existing cash, cash equivalents, investments in U.S. government securities and accounts receivable, together with cash flows from expected sales of our encryption products and revenue relating to our thin, flat, low-voltage phosphor display technology, including license fees and royalties from Videocon, and other potential sources of cash flows, will be sufficient to enable us to continue our marketing, production, and research and development activities.  However, our projections of future cash needs and cash flows may differ from actual results.  If current cash and cash that may be generated from operations are insufficient to satisfy our liquidity requirements, we may seek to sell debt or equity securities or to obtain a line of credit.  The sale of additional equity securities or convertible debt could result in dilution to our stockholders.  It is also management’s intention to continue to compensate employees by issuing stock or stock options.  We currently have no arrangements with respect to additional financing.  We can give no assurances that we will generate sufficient revenues in the future (through sales, license fees and royalties, or otherwise) to satisfy our liquidity requirements or sustain future operations, that our production capabilities will be adequate, that other products will not be produced by other companies that will render our products obsolete, or that other sources of funding would be available, if needed, on favorable terms or at all.  If we cannot obtain such funding if needed, we would need to curtail or cease some or all of our operations.
 
 
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·
We may not generate sufficient revenue to support our operations in the future or to generate profits.
 
Our principal operations include the development, production and marketing of thin, flat, low-voltage phosphor display technology, the development of thin, flat, low-power passive display technology and the development, production and marketing of multi-functional encryption products that provide information security for domestic and international users over virtually every communications media.  In May 2008, we began receiving license fees related to our display technology from Videocon pursuant to the License Agreement.  The License Agreement provides for payment of additional license fees over the next fiscal year as well as the payment of certain royalties based on sales of products containing our display technology.  However, we can give no assurances that thereafter we will receive any license or similar fees relating to our display technology or that we will receive any royalty payments from Videocon.  In addition, our arrangements with Videocon involve counterparty risk.  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, but not limited to:
 
·  
Our and Videocon’s ability to implement our technology for Videocon to produce and market products containing our displays.
·  
The capability of Volga, with whom we have been working for twelve years, to produce color and monochrome displays and supply them to us.
·  
Our ability to successfully market our line of encryption products.
·  
Our production capabilities and those of our suppliers as required for the production of our encryption products.
·  
Long-term performance of our products.
·  
The capability of our dealers and distributors to adequately service our encryption products.
·  
Our ability to maintain an acceptable pricing level to end-users for both our encryption and display products.
·  
The ability of suppliers to meet our and Videocon’s requirements and schedule.
·  
Our ability to successfully develop other new products under development, including our thin, flat, low-power passive display technology.
·  
Rapidly changing consumer preferences.
·  
The possible development of competitive products that could render our products obsolete or unmarketable.
·  
Our future negotiations with Volga with respect to payments and other arrangements with Volga.
·  
Our ability to successfully implement and commercialize our E-Paper® display  technology.

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 fiscal year may not be indicative of future operating results.  You should not rely on year-to-year comparisons of results of operations as an indication of our future performance.
 
 
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·  
The loss of Videocon as a customer could materially and adversely affect our results of operations and financial condition.

Approximately 95% of our net revenue in our Display Technology Segment and approximately 87% of our total net revenue during fiscal year 2009 and all of our net revenue in our Display Technology Segment and approximately 82% of our total net revenue during fiscal year 2008 came from Videocon.  The loss of Videocon as a customer could have a material adverse effect on our results of operations or financial condition. We may not be able to maintain our customer relationship with Videocon or Videocon may delay performance under, or fail to comply with, the payment terms of the License Agreement, all of which could materially and adversely affect our results of operations or financial condition. Any reduction in the amount of revenue that we derive from Videocon, without an offsetting increase in new sales to other customers, could have a material adverse effect on our operating results.

·  
Future modifications of the timing of payments of our license agreement with Videocon could occur that might materially affect which future periods in which revenues are recognized.

Under the License Agreement, we are scheduled to receive a license fee of $11 million from Videocon, payable in installments over a 27 month period, which commenced in May 2008.  The payment terms from Videocon were modified during the second quarter of fiscal year 2009 and first quarter of fiscal year 2010.  The modifications were made to allow the timing of Videocon’s payments to be more closely aligned with the progress being made towards the optimization of the display performance, although the total amount of the payments did not change.  Future modifications of the timing of payments from Videocon could occur that might materially affect in which future periods revenues from Videocon are recognized and which could delay the payment of the license fee beyond the 27 month period.

·  
A substantial portion of our business is with Videocon, a company governed by the laws of India and accordingly, we are faced with the inherent risks of doing business in a foreign country.
 
There are risks inherent in doing business in a foreign country.  Risks of doing business with a foreign company could materially and adversely affect our results of operations and financial condition.  These risks include, but are not limited to, unpredictable changes in or application of taxation regulations, foreign exchange controls, uncertain or unpredictable political, legal and economic environments and invalidity of government  approvals.  The occurrence of one or more of these events or a change in existing policy could have a material adverse effect on our cash flows, earnings, results of operations, and financial condition. These risks may limit or disrupt our operations, restrict the movement of funds or impair contract rights.
 
In addition, the License Agreement with Videocon provides that it is governed by the law of India and accordingly, in the event of a dispute regarding the License Agreement with Videocon, it may be necessary for us to resolve such dispute in India or another foreign country, where we would be faced with unfamiliar laws and procedures.  The resolution of disputes in foreign countries can be costly and time consuming, similar to the situation in the United States.  However, in a foreign country, we face the additional burden of understanding unfamiliar laws and procedures.  We may not be entitled to a jury trial, as we might be in the United States.  Further, to litigate or arbitrate in a foreign country, we would be faced with the necessity of hiring lawyers and other professionals who are familiar with the foreign laws.  For these reasons, we may incur unforeseen expenses if we are forced to resolve a dispute in India or any other foreign country.
 
 
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·
Our arrangements with Videocon involve market risks.
 
At the same time as we entered into the License Agreement, we entered into the Share Subscription Agreement with Mars Overseas, to purchase 20,000,000 unregistered shares of our common stock (the “CopyTele Shares”), and a subsidiary of ours, CopyTele International, entered into a GDR Purchase Agreement to purchase 1,495,845 GDRs of Videocon (the “Videocon GDRs”).  The value of the Videocon GDRs owned by us depends upon, among other things, the value of Videocon’s securities in its home market of India, as well as exchange rates between the U.S. dollar and Indian rupee (the currency in which Videocon’s securities are traded in its home market). The value of the Videocon GDRs declined substantially in fiscal year 2008 and while it has partially recovered in fiscal year 2009, we recorded an other than temporary impairment.  We can give no assurances that the value of the Videocon GDRs will not decline in the future and future write downs may occur.
 
In addition, for the purpose of effecting a lock up of the Videocon GDRs and CopyTele Shares (collectively, the “Securities”) for a period of seven years, and therefore restricting both parties from selling or transferring the Securities during such period, CopyTele International and Mars Overseas entered into two Loan and Pledge Agreements.  The Videocon GDRs are to be held as security for a loan in the principal amount of $5,000,000 from Mars Overseas to CopyTele International, and the CopyTele Shares are similarly held as security for a loan in the principal amount of $5,000,000 from CopyTele International to Mars Overseas.   The loans are for a term of seven years and do not bear interest.  The loan agreements also provide for customary events of default which may result in forfeiture of the Securities by the defaulting party.  We can give no assurances that the respective parties receiving such loans will not default on such loans.
 
·
Our arrangements with Volga involve liquidity and market risks.
 
At the same time as we entered into the Technology License Agreement with Volga, we acquired a 19.9% ownership interest in Volga in exchange for 150,000 unregistered shares of our common stock.  The Volga shares are not publicly traded and there is no assurance that we will be able to sell the shares at an acceptable price, if at all.
 
 
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·
We are dependent upon a few key employees 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, who is 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, Mr. Krusos, as well as our other skilled management and technical personnel, are important to our future business and financial arrangements.  We do not have an employment agreement with, nor do we maintain “key person” life insurance on, Mr. Krusos.  The loss of the services of any such persons could have a material adverse effect on our business and operating results.

·  
A substantial portion of the Company’s material products have not been incorporated into commercially marketable products, have not generated any product revenue and may not generate product revenue in the future.

With the exception of our Encryption Products, all of the Company’s products have not been incorporated into commercially marketable products, have not generated any revenue from commercial productions (other than license fees) and may never be commercialized.  Even if commercialized, the Company’s products may not be commercially successful because consumers may not accept the Company’s products or third parties may develop superior technology or have proprietary rights that preclude the Company from marketing its products.

·
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.

·
Our common stock is subject to the SEC’s penny stock rules which may make our shares more difficult to sell.
 
Our common stock fits the definition of a penny stock and therefore is subject to the rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks.  These SEC rules may have the effect of reducing trading activity in our common stock making it more difficult for investors to sell their shares.  The SEC rules require a broker or dealer proposing to effect a transaction in a penny stock to deliver the customer a risk disclosure document that provides certain information prescribed by the SEC, including, but not limited to, the nature and level of risks in the penny stock market.  The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction.  In addition, the SEC rules also require a broker or dealer 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.  The existence of these SEC rules may result in a lower trading volume of our common stock and lower trading prices.
 
 
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·
We have not paid, nor do we anticipate paying, any cash dividends in the future.

We have never paid cash dividends and do not anticipate paying any cash dividends in the foreseeable future.  Payment of dividends on our common stock is within the discretion of our Board of Directors and will depend upon our future earnings, capital requirements, financial condition and other relevant factors.  We have no plan to declare any cash dividends in the foreseeable future.  It is anticipated that earnings, if any, which may be generated from future operations will be used to finance our continued operations.
 
 
PART II
 
Item 7.              Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Forward-Looking Statements
 
Information included in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  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 this Annual Report on Form 10-K under “Item 1A. – Risk Factors” above.  Except as required by applicable law, including the securities laws of the United States, 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 Annual Report on Form 10-K.

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

We have developed an innovative new type of flat panel display technology, which is brighter, has higher contrast and consumes less power than our prior display technology.  This new proprietary display is a color phosphor based display having a unique lower voltage electron emission system to excite the color phosphors.  As with our prior display technology, the new technology emits light to display color images, such as movies from DVD players.  In addition, we are also developing another version of our new type low voltage and low power display having a different matrix configuration and phosphor excitation system.  These new type of displays are expected to be lower in cost than our prior displays.
 
 
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In November 2007, we entered into a Technology License Agreement (as amended, the “License Agreement”) with Videocon Industries Limited, an Indian company (“Videocon”).  Under the License Agreement, we provide Videocon with a non-transferable, worldwide license of our technology for thin, flat, low voltage phosphor displays (the “Licensed Technology”), for Videocon (or a Videocon Group company) to produce and market products, including TVs, incorporating displays utilizing the Licensed Technology.  Under the License Agreement, we are scheduled to receive a license fee of $11 million from Videocon, payable in installments over a 27 month period, which commenced in May 2008, and an agreed upon royalty from Videocon based on display sales by Videocon.  In April 2008, the government of India approved the License Agreement.  As of October 31, 2009, we have received aggregate license fee payments of $2,600,000.  The payment terms from Videocon were modified during the second quarter of fiscal year 2009 and again during the first quarter of fiscal year 2010.  The modifications were made to allow Videocon’s payments to be more closely aligned with the progress being made towards the optimization of the display performance, although the total amount of the payments did not change.  Future modifications of the timing of payments from Videocon could occur that might materially affect in which future periods revenues from Videocon are recognized and which could delay the payment of the license fee beyond the 27 month period.

Videocon is the flagship company of the Videocon Group, one of India’s leading business houses.  Videocon Group is a fully integrated consumer electronics and home appliances enterprise with backward integration in plasma panel, CRT glass, color picture tubes and other key components for the consumer electronics, home appliances and components industries.  Videocon Group also operates in the oil & gas sector. The Videocon Group has sales and service networks throughout India and operates facilities in Europe and elsewhere in the world.
 
We are working with Videocon to implement our technology into production display modules.  The display modules consist of our low-voltage phosphor displays, the attached associated driver circuits, and controller circuits.  Under the License Agreement, Videocon, with our assistance, is to provide the design and process engineering required to produce such display modules and also provide all tooling and fixtures required for the production process.  Videocon has a group of qualified and experienced personnel assigned to this program.  As part of our assistance to Videocon to produce such display modules, we are providing technical support to Videocon’s technical team.  We are also cooperating with Videocon to jointly implement our technology prior to production to produce prototypes of such modules.  Videocon is utilizing its display processing technology and facilities to continue to produce various configurations of our display matrix to optimize its performance.  The matrix is the main component of our display, since it contains the structure to accommodate our electron emission technology and the color phosphors that are used to illuminate our display.  Improvements to the technology are to be jointly owned by CopyTele and Videocon.
 
 
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Under the License Agreement we continue to have the right to produce and market products utilizing the Licensed Technology.  We also continue to have the right to utilize Volga Svet Ltd., a Russian corporation (“Volga”), with whom we have been working with for more than twelve years, and an Asian company, with whom we have been working with for more than six years, to produce and market, products utilizing the Licensed Technology.  Additional licenses of the Licensed Technology to third parties require the joint agreement of CopyTele and Videocon.

In connection with the License Agreement, Videocon and CopyTele each have the right to appoint one senior advisor to the other’s board of directors for the term of the license granted under the License Agreement.  Such appointments are limited to advise with respect to strategic planning and technology in the display field and does not grant such senior advisor any rights with respect to involvement in the overall management or operations of the Company.  While Videocon and CopyTele have made such appointments and the senior advisors from each of the companies are in communications with each other with respect to strategic planning and technology in the display field, the senior advisors have not had any interactions with the other’s board of directors and do not and have not attended any board of director meetings.  Such senior advisors do not presently intend to have any interactions with the other’s board of directors in the future.

At the same time as we entered into the License Agreement, we also entered into a Share Subscription Agreement (the “Share Subscription Agreement”) with Mars Overseas Limited, an affiliate of Videocon (“Mars Overseas”).  Under the Share Subscription Agreement, Mars Overseas purchased 20,000,000 unregistered shares of our common stock (the “CopyTele Shares”) from us for an aggregate purchase price of $16,200,000, which was valued based on the actively traded market price of our common stock.  The purchase of the CopyTele Shares pursuant to the Subscription Agreement closed in November 2007.  Also in November 2007, our wholly-owned British Virgin Islands subsidiary, CopyTele International Ltd. (“CopyTele International”), entered into a GDR Purchase Agreement, as amended (the “Purchase Agreement”) with Global EPC Ventures Limited (“Global”), for CopyTele International to purchase from Global 1,495,845 global depository receipts of Videocon (the “Videocon GDRs”), acquired by Global on the Luxembourg Stock Exchange for an aggregate purchase price of $16,200,000.  The price of the Videocon global depository receipts on the Luxembourg Stock Exchange is based on the underlying price of Videocon’s equity shares which are traded on stock exchanges in India with prices quoted in rupees.  The purchase of the Videocon GDRs pursuant to the Purchase Agreement closed in December 2007.  For the purpose of effecting a lock up of the Videocon GDRs and CopyTele Shares (collectively, the “Securities”) for a period of seven years, and therefore restricting both parties from selling or transferring the Securities during such period, CopyTele International and Mars Overseas entered into two Loan and Pledge Agreements in November 2007.  The Videocon GDRs are to be held as security for a loan in the principal amount of $5,000,000 from Mars Overseas to CopyTele International, and the CopyTele Shares are similarly held as security for a loan in the principal amount of $5,000,000 from CopyTele International to Mars Overseas.   The loans are for a term of seven years and do not bear interest.  See Note 1 to the Consolidated Financial Statements.
 
 
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The loan receivable from Mars Overseas is classified as a contra-equity under Shareholders’ Equity in the accompanying consolidated balance sheet, because the loan receivable is secured by the CopyTele Shares and the Share Subscription Agreement and Loan and Pledge Agreement were entered into concurrently.  See Note 1 to the Consolidated Financial Statements.  Our sale of the CopyTele Shares to Mars Overseas and our purchase of the Videocon GDRs had the combined effect, as of the date of closing, of increasing (a) our net assets by $11 million, as our $16 million investment in Videocon GDRs (at market value at the time of the investment was made) was offset by our $5 million loan payable to related party (Mars Overseas) and (b) our shareholders’ equity by approximately $11 million, as the $16 million of proceeds received from the sale of our common stock to Mars Oversea was offset by the $5 million receivable from a related party (Mars Overseas).   We carry our investment in the Videocon GDRs, at fair value, based on the price on the Luxembourg Stock Exchange, which price is based on the underlying price of Videocon’s equity shares which are traded on stock exchanges in India with prices quoted in rupees.   Based upon the duration and the continuing magnitude of the market price decline in Videocon’s equity shares, we recorded a write-down of this investment of approximately $9,095,000 which reduced the carrying value of the Videocon GDRs to $7,105,000 as of October 31, 2009.  We can give no assurance that we will not record an additional impairment charge or what value, if any that we will realize from the sale of the Videocon GDRs should we choose to sell the Videocon GDR when the seven year lock-up expires.  However, as we used the proceeds received from the sale of our shares to Mars Overseas to acquire the Videocon GDR, such transaction did not have an effect on our liquidity or cash resources. In addition, the primary purpose of the transaction was to establish cross-equity ownership with the entities with whom we do business, which our management believes is an effective tool to foster collaboration and to allow our Company to benefit economically should the entities with whom we do business be successful in commercializing our products.
 
Our display technology includes a proprietary mixture of specially coated carbon nanotubes and nano materials in combination with our proprietary low voltage color phosphors.  The specially coated carbon nanotubes, which are supplied to us by a U.S. company, and nano materials, require a low voltage for electron emission and are extremely small – approximately 10,000 times thinner than the width of a human hair.  The 5.5 inch (diagonal) display we developed has 960 x 234 pixels and utilizes a new memory-based active matrix thin film technology with each pixel phosphor activated by electrons emitted by a proprietary carbon nanotube network located extremely close from the pixels.  The matrix also has a high pixel field factor to obtain high contrast and low power consumption. As a result, each pixel phosphor brightness is controlled using less than 40 volts.  The carbon nanotubes and proprietary color phosphors are precisely placed and separated utilizing our proprietary nanotube and phosphor deposition technology.  We have developed a process of maintaining uniform carbon nanotube deposition independent of phosphor deposition.  We have also developed a method of enhancing nanotube electron emission to increase the brightness of this type of display.
 
We believe our displays could potentially have a cost similar to a CRT and thus cost less than current LCD or PDP displays partly because our display does not contain a backlight, or color filter or polarizer, which represents a substantial portion of the cost of an LCD.
 
 
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In August 2009, we entered into a development agreement with a U.S. company to provide engineering and implementation support for the development of our patented extremely low power passive monochrome or color display for use in portable devices.  This company has experience in the field involving portions of our display technology.  Our proprietary extremely low power display that we are developing, in conjunction with the U.S. company, incorporates a new micro-matrix substrate.  The display is designed to have bi-stability capability, and uses low power when an image is being created.  Once an image is created, power consumption is negligible.  The display is expected to have both monochrome and or color capability, and operate over wide temperature and environmental conditions.  The display utilizes a single substrate so that it can be extremely thin, rugged and low weight.  This display can be made any size, is expected to be low cost, and is especially suitable for portable devices, such as, cell phones, I-phones, and e-books, and other potential portable devices.  We have jointly formulated display designs and have completed simulation analyses to optimize the display configuration.

With the arrival of the rapidly expanding digital book and news media applications, in August 2009, we entered into an Engagement Agreement with ZQX Advisors, LLC (“ZQX”) to assist us in seeking business opportunities and licenses for our electrophoretic display technology (E-Paper®).  ZQX has an experienced business and legal team to assist us in this area.    Concurrently with entering into the Engagement Agreement, we acquired a 19.5% ownership interest in ZQX in exchange for 800,000 unregistered shares of our common stock and warrants to purchase an additional 500,000 unregistered shares of our common stock, of which warrants to purchase 250,000 shares are exercisable at $0.37 per share and warrants to purchase 250,000 shares are exercisable at $0.555 per share.  The warrants expire in August 2019.

In September 2009, we entered into a Technology License Agreement with Volga to produce and market our thin, flat, low voltage phosphor displays in Russia.  We have been working with Volga for the past 12 years to assist us with our low voltage phosphor displays. As part of our Technology License Agreement with Volga, we anticipate receiving revenues from Volga, as it is required to purchase the matrix substrate, carbon nanotubes, and associated display electronics from us.

In addition, in September 2009, we entered into a separate agreement with Volga whereby we have obtained a 19.9% ownership interest in Volga in exchange for 150,000 unregistered shares of our common stock.

We continue to pursue opportunities to market our voice, fax and data encryption solutions in commercial and government markets.  Our full array of hardware and software products provide security over landline and wireless telephone systems and networks.
 
Our operations and the achievement of our objectives in marketing, production, and research and development are dependent upon an adequate cash flow.  Accordingly, in monitoring our financial position and results of operations, particular attention is given to cash and accounts receivable balances and cash flows from operations.  Since our initial public offering, our cash flows have been primarily generated through the sales of common stock in private placements and upon exercise of stock options.  Since 1999 we have also generated cash flows from sales of our encryption products and services.  We are continuing to direct our encryption marketing efforts to opportunities in both the commercial and government security markets and have recently uncovered new opportunities to market products to Middle Eastern and Far Eastern governments to secure voice and fax communications.  In addition, in fiscal year 2008, we entered into the License Agreement with Videocon and in May 2008, we began receiving from Videocon license fees related to our display technology.
 
 
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In reviewing Management’s Discussion and Analysis of Financial Condition and Results of Operations, you should refer to our Consolidated Financial Statements and the notes related thereto.
 
Critical Accounting Policies
 
Our consolidated 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 consolidated 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 consolidated financial statements.
 
Revenue Recognition
 
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.
 
We have assessed the revenue guidance of Accounting Standards Codification (“ASC”) 605-25 “Multiple-Element Arrangements” (“ASC 605-25”) to determine whether multiple deliverables in our arrangement with Videocon represent separate units of accounting.  Under the License Agreement, CopyTele is required to: (a) disclose to Videocon the Licensed Technology and provide reasonable training by Videocon personnel; (b) jointly cooperate with Videocon to produce prototypes prior to production; and (c) assist Videocon in preparing for production.  CopyTele has determined that these performance obligations do not have value to Videocon on a standalone basis, as defined in ASC 605-25, and accordingly they do not represent separate units of accounting.

We have established objective and reasonable evidence of fair value for the royalty to be earned during the production period based on analysis of the pricing for similar agreements.  Accordingly, we have determined that the license fee of $11 million to be paid during the pre-production period and royalties on product sales reflects the established fair value for these deliverables.  We expect to recognize the $11 million license fee over the estimated period that we expect to provide cooperation and assistance during the pre-production period, limiting the revenue recognized on a cumulative basis to the aggregate license fee payments received from Videocon.  We will assess at each reporting period the progress and assistance provided and will continue to evaluate the period during which this fee will be recognized.  On this basis, we have recognized license fee revenue during the fiscal years ended October 31, 2009 and 2008 of  approximately $913,000 and $1,687,000, respectively.  License fee payments received from Videocon which are in excess of the amounts recognized as revenue ($-0- as of October 31, 2009, and approximately $313,000 as of October 31, 2008) are recorded as deferred revenue on the accompanying consolidatedbalance sheet.
 
 
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Investment Securities
 
We classify our investment securities in one of two categories: available-for-sale or held-to-maturity.  Available-for-sale securities are recorded at fair value.  Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized.  Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.  Held-to-maturity securities, which are investment securities that we have the intent and ability to hold to maturity, are carried at amortized cost.  The amortization of premiums and accretion of discounts are recorded on the level yield (interest) method, over the period from the date of purchase to maturity.  When sales do occur, gains and losses are recognized at the time of sale and the determination of cost of securities sold is based upon the specific identification method.  Dividend and interest income are recognized when earned.
 
We monitor the value of our investments for indicators of impairment, including changes in market conditions and the operating results of the underlying investment that may result in the inability to recover the carrying value of the investment.  During the fourth quarter of fiscal year 2009, we determined that there was an other than temporary impairment in both our Videocon and DISC investments.  See Note 4 to the Consolidated Financial Statements for further discussion.  We will record an additional impairment charge if and when we believe any such investment has experienced an additional decline that is other than temporary.
 
Accounts Receivable
 
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts.  Management reviews our accounts receivable for potential doubtful accounts and maintains an allowance for estimated uncollectible amounts.  Accounts receivable are written off when we determine that they become uncollectible.
 
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.  To date, sales of our products have been limited.  Accordingly, we can give no assurance that we will not be required to reduce the selling price of our inventory below our current carrying value.
 
 
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Stock-Based Compensation
 
We account for stock options granted to employees and directors using the accounting guidance included in ASC 718 “Stock Compensation” (“ASC 718”).  We recognize compensation expense for stock option awards on a straight-line basis over the requisite service period of the grant.  We recorded stock-based compensation expense, related to stock options granted to employees and non-employee directors, of approximately $2,418,000, $2,614,000 and $1,081,000 during fiscal years ended October 31, 2009, 2008 and 2007, respectively, in accordance with ASC 718.  We account for stock options granted to consultants using the accounting guidance under ASC 505-50 “Equity-Based Payments to Non-Employees”.   See Note 2 to the Consolidated Financial Statements for additional information.

Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life.  If factors change and we employ different assumptions in the application of ASC 718 in future periods, the compensation expense that we record under ASC 718 may differ significantly from what we have recorded in the current period.

Results of Operations
 
Fiscal Year Ended October 31, 2009 Compared to Fiscal Year Ended October 31, 2008
 
Net Revenue
 
Net revenue decreased by approximately $1,007,000 in fiscal year 2009, to approximately $1,056,000, as compared to approximately $2,063,000 in fiscal year 2008.  Revenue from display technology license fees related to the License Agreement with Videocon decreased by approximately $773,000 in fiscal year 2009, to approximately $913,000 based on our modification to the Videocon contract payment terms, as compared to approximately $1,687,000 in fiscal year 2008.  Revenue in fiscal year 2009 included revenue from display technology engineering services of $52,000, as compared to none in fiscal year 2008.  The revenue from display technology engineering services resulted from engineering services billed to Volga.  Revenue from sales of encryption products decreased by approximately $286,000 in fiscal year 2009, to approximately $90,000, as compared to approximately $376,000 in fiscal year 2008.  The decrease in sales from encryption products was due to a decrease in unit shipments.  Our encryption revenue has been limited and is sensitive to individual large transactions.
 
Cost of Encryption Products Sold
 
The cost of encryption products sold decreased by approximately $49,000 in fiscal year 2009, to approximately $47,000, as compared to approximately $96,000 in fiscal year 2008.  The cost of encryption products sold in fiscal  year 2009 includes a provision for excess inventory of approximately $20,000.  The cost of encryption products shipped in fiscal year 2009 decreased to approximately $27,000, as compared to approximately $96,000 in fiscal year 2008, due to a decrease in unit shipments of encryption products.
 
 
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Cost of Display Engineering  Services
 
The cost of display engineering services increased to approximately $18,000 in fiscal year 2009, as compared to none in the comparable prior year period, as there was no revenue from display engineering services in the prior year period.

Research and Development Expenses
 
Research and development expenses decreased by approximately $11,000 in fiscal year 2009, to approximately $4,116,000, from approximately $4,127,000 in fiscal year 2008.  The decrease in research and development expenses was principally due to a decrease in employee stock option compensation expense of approximately $261,000, which primarily resulted from a decrease in the weighed average fair value at grant dates, a decrease in patent-related expenses of approximately $86,000, a decrease in consultant stock option expense of approximately $45,000, offset by an increase in outside research and development expense of approximately $266,000, which primarily resulted from engineering services performed by Videocon related to another version of our display technology, and an increase in employee compensation and related costs, other than stock option expense, of approximately $108,000.

Selling, General and Administrative Expenses
 
Selling, general and administrative expenses increased by approximately $364,000 to approximately $4,194,000 in fiscal year 2009, from approximately $3,830,000 in fiscal year 2008.  The increase in selling, general and administrative expenses was principally due to an increase in consulting services of approximately $321,000, the increase in consulting fees was primarily related to ZQX, an increase in legal and accounting fees of approximately $99,000, an increase in employee stock option compensation expense of approximately $65,000, an increase in employee compensation and related costs, other than stock option expense, of approximately $142,000, and a loss on the sale of DISC stock of approximately $34,000, offset by a decrease in consultant stock option expense of approximately $159,000, a decrease in the provision for doubtful accounts of $120,000, from $223,000 in fiscal year 2008 to $103,000 in fiscal year 2009, and a decrease in travel expense of approximately $43,000.

Dividend Income

Dividend income, which was received in connection with the Videocon GDRs we acquired in December 2007, decreased by approximately $102,000 to approximately $29,000 in fiscal year 2009, compared to approximately $131,000 in fiscal year 2008.  The decrease in dividend income was due to a reduction by Videocon of dividends paid.

Interest Income
 
Interest income was approximately $21,000 in fiscal year 2009, compared to approximately $37,000 in fiscal year 2008.  The decrease in interest income was primarily the result of a reduction in short term interest rates.
 
 
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Fiscal Year Ended October 31, 2008 Compared to Fiscal Year Ended October 31, 2007
 
Net Revenue
 
Net revenue increased by approximately $1,576,000 in fiscal year 2008, to approximately $2,063,000, as compared to approximately $487,000 in fiscal year 2007.  Revenue recognized during fiscal year 2008 included display technology license fees related to the License Agreement with Videocon of approximately $1,687,000 compared to none in fiscal year 2007.  Revenue from sales of encryption products increased by approximately $129,000 in fiscal year 2008, to approximately $376,000, as compared to approximately $247,000 in fiscal year 2007.  The increase in revenue from encryption products sold was primarily due to an increase in unit shipments.  Revenue from encryption services decreased from $240,000 in fiscal year 2007 to none in fiscal year 2008.  The revenue from encryption services in the prior year period resulted from engineering services billed to DISC.  Our encryption revenue has been limited and is sensitive to individual large transactions.
 
Cost of Encryption Products Sold
 
The cost of encryption products sold increased by approximately $22,000 in fiscal year 2008, to approximately $96,000, as compared to approximately $74,000 in fiscal year 2007.  The increase in cost of encryption products sold was primarily due to an increase in unit shipments of encryption products as well as a reduction of cost of products sold in fiscal year 2008 of approximately $19,000 resulting from the sale during fiscal year 2008 of inventory for which a provision for excess inventory of that amount was recorded in prior periods.

Cost of Encryption Services
 
The cost of encryption services decreased from $86,000 in fiscal year 2007 to none in fiscal year 2008 as there was no revenue from encryption services.

Research and Development Expenses
 
Research and development expenses increased by approximately $723,000 in fiscal year 2008, to approximately $4,127,000, from approximately $3,404,000 in fiscal year 2007.  The increase in research and development expenses was principally due to an increase in employee stock option compensation expense of approximately $878,000, offset by a decrease in outside research and development expense of approximately $55,000, a decrease in patent-related expenses of approximately $41,000, a decrease in employee compensation and related costs, other than stock option expense, of approximately $34,000, and a decrease in outside engineering services of approximately $32,000.

Selling, General and Administrative Expenses
 
Selling, general and administrative expenses increased by approximately $1,415,000 to approximately $3,830,000 in fiscal year 2008, from approximately $2,415,000 in fiscal year 2007.  The increase in selling, general and administrative expenses was principally due to an increase in employee stock option compensation expense of approximately $655,000, an increase in consultant stock option compensation expense of approximately $172,000, an increase in the provision for doubtful accounts of $223,000 of which $120,000 related to an accounts receivable from DISC, an increase in employee compensation and related costs, other than stock option expense, of approximately $90,000, an increase in legal and accounting fees of approximately $86,000, an increase in shareholder relations expense of approximately $72,000, an increase in travel expense of approximately $49,000, and an increase in consulting expense, other than consultant stock option compensation expense, of approximately $41,000.
 
 
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Dividend Income

Dividend income, which was received in connection with the Videocon GDRs we acquired in December 2007, was approximately $131,000 in fiscal year 2008.  We received no dividend income in fiscal year 2007.

Interest Income
 
Interest income was approximately $37,000 in fiscal year 2008, compared to approximately $34,000 in fiscal year 2007.  The interest income earned on the additional funds available for investment on the current period was offset by a reduction in prevailing interest rates.

Liquidity and Capital Resources
 
Since 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 our initial public offering, and upon the exercise of stock options.  In addition, commencing in the fourth quarter of fiscal year 1999, we have generated limited cash flows from sales of our encryption products and in May 2008 began receiving license fees related to our display technology from Videocon pursuant to the License Agreement.
 
During fiscal year 2009, our cash used in operating activities was approximately $2,502,000.  This resulted from payments to suppliers, employees and consultants of approximately $3,047,000, which was offset by cash of approximately $142,000 received from collections of accounts receivable related to sales of products and services, cash received from display technology licensing fees of $350,000, approximately $29,000 of dividend income received and approximately $25,000 of interest income received.  Our cash provided by investing activities during fiscal year 2009 was approximately $1,502,000, which resulted from purchases of short-term investments consisting of certificates of deposit and U.S. government securities of approximately $2,899,000 and purchases of approximately $2,000 of equipment, offset by approximately $4,343,000 received upon maturities of short-term investments consisting of certificates of deposit and U.S. government securities and approximately $60,000 received upon the sale of DISC common stock.  Our cash provided by financing activities during fiscal year 2009 was approximately $1,972,000, which resulted from cash received upon the exercise of stock options.  As a result, our cash, cash equivalents, and investments in certificates of deposit and U.S. government securities at October 31, 2009 decreased to approximately $2,201,000 from approximately $2,671,000 at the end of fiscal year 2008.
 
 
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Net accounts receivable decreased by $102,000, from $103,000 at the end of fiscal year 2008 to $750 at October 31, 2009.  The decrease is primarily the result of a provision for doubtful accounts in fiscal year 2009 of $103,000 and a decrease in sales of encryption products.  Inventories decreased by approximately $45,000 from approximately $178,000 at October 31, 2008 to approximately $133,000 at October 31, 2009.  The decrease in inventory was primarily a result of a provision for excess inventory of approximately $20,000 recorded in fiscal year 2009 and the timing of shipments and production schedules.  Investment in U.S. government securities, noncurrent, decreased from approximately $750,000 at October 31, 2008 to zero at October 31, 2009, as a result of the maturity of this investment.  Investment in Videocon is recorded at fair value and increased to approximately $7,105,000 at October 31, 2009 from approximately $3,620,000 at the end of fiscal year 2008, as a result of an increase in the underlying price of Videocon’s equity shares which are traded on the stock exchanges in India.  Investment in DISC is recorded at fair value and decreased by $644,000 as a result of a reduction in the price of DISC common shares, which are traded on the over the counter market (and quoted on the Pink Sheets), and our sale of 2,770,000 shares of the 12,200,000 shares of DISC common stock we held at October 31, 2008.  Investment in Volga increased to approximately $128,000 at October 31, 2009 from zero at October 31, 2008, as a result of the investment in Volga during fiscal year 2009.  Accounts payable and accrued liabilities decreased by approximately $58,000 from approximately $454,000 at the end of fiscal year 2008 to approximately $396,000 at October 31, 2009, as a result the timing of payments.  Deferred revenue decreased to zero at October 31, 2009 from approximately $313,000 at October 31, 2008, as a result of such amount being recognized as a technology license fee during fiscal year 2009.  Loan payable, which is due in December 2014, remained at $5,000,000 at October 31, 2009 and 2008.  Loan receivable, which is classified as a contra-equity in the accompanying consolidatedbalance sheet and is due in December 2014, remained at $5,000,000 at October 31, 2009 and 2008.  As a result of these changes, working capital at October 31, 2009 increased to approximately $2,000,000 from approximately $1,489,000 at October 31,  2008.
 
Our working capital includes inventory of approximately $133,000 and $178,000 at October 31, 2009 and 2008, respectively.  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, we can give no assurances that we will not be required to reduce the selling price of our inventory below our current carrying value.

During the quarter ended April 30, 2009, we modified the payment terms from Videocon and we agreed to reimburse Videocon $250,000 for engineering services related to another version of our display technology.   The license fee revenue recognized during the three months ended April 30, 2009 of $250,000 represented an offset against amounts due to Videocon for the aforementioned engineering services, in lieu of a cash payment.  In addition, in June 2009, we received a license fee payment from Videocon of $250,000, which was due during the quarter ended April 30, 2009 pursuant to the modified payment terms, which was recognized as license fee revenue during the three months ended July 31, 2009.  In August 2009, we received an additional license fee payment from Videocon of $100,000, which was due during the quarter ended July 31, 2009 pursuant to the modified payment terms, which was recognized as revenue during the three months ended October 31, 2009.  We further modified the payment terms from Videocon during the first quarter of fiscal year 2010 for amounts that were due during that quarter.  The modifications were made to allow Videocon’s payments to be more closely aligned with the progress being made towards the optimization of the display performance.  While we have modified the timing of license fee payments to be received from Videocon, the total license fee of $11 million remains payable over the 27 month period, which commenced in May 2008.  Videocon’s obligations with respect to the pre-production phase, and our assistance, under the License Agreement remain unaffected.
 
 
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Total employee compensation expense during fiscal years 2009, 2008 and 2007 was approximately $5,219,000, $5,164,000 and $3,661,000, respectively.  During fiscal years 2009, 2008 and 2007, a significant portion of employee compensation consisted of the issuance of stock and stock options to employees in lieu of cash compensation.  We recorded compensation expense for fiscal years ended October 31, 2009, 2008 and 2007 of approximately $2,099,000, $1,877,000 and $1,735,000, respectively, for shares of common stock issued to employees.  We recorded approximately $2,418,000, $2,614,000 and $1,081,000 of stock-based compensation expense, related to stock options granted to employees and directors, during fiscal years ended October 31, 2009, 2008 and 2007, respectively.  It is management’s intention to continue to compensate employees by issuing stock or stock options.

In addition, during fiscal years 2009, 2008 and 2007, we issued shares of common stock to consultants for services rendered.  We recorded consulting expense for fiscal years ended October 31, 2009, 2008 and 2007 of approximately $48,000, $95,000 and $182,000, respectively, for shares of common stock issued to consultants.  In addition, during fiscal years 2009, 2008 and 2007, we recorded approximately $13,000, $217,000 and $-0-, respectively, of consulting expense for stock options granted to consultants.  It is management’s intention to also continue to compensate consultants by issuing stock or stock options to the extent that our consultants do not require cash payments.

During fiscal year 2009, in exchange for a 19.5% ownership interest in ZQX we issued 800,000 unregistered shares of common stock together with warrants to purchase an additional 500,000 unregistered shares of common stock to ZQX, of which (a) warrants to purchase 250,000 shares of common stock are exercisable at $0.37 per share, and (b) warrants to purchase the remaining 250,000 shares are exercisable at $0.555 per share.  The warrants are exercisable at any time after August 19, 2010 and expire on August 19, 2019.  In addition, we issued 150,000 unregistered shares of common stock during fiscal year 2009 to Volga in exchange for a 19.9% ownership interest in Volga.  During fiscal year 2008, we issued 20,000,000 unregistered shares of our common stock to Mars Overseas an affiliate of Videocon for an aggregate purchase price of $16,200,000 and we purchased 1,495,845 Videocon GDRs for an aggregate purchase price of $16,200,000.  In April 2009, we received a dividend of approximately $29,000 on the Videocon GDRs we hold.  While the Videocon GDRs are held as security for the loan payable to Mars Overseas, the agreement governing such loan provides that any dividends, distributions, rights or other proceeds or benefits with respect to the Videocon GDRs shall be promptly transferred to us free and clear of any encumbrances under the agreements.  See “- General” above in the Item 7 for additional information on the transactions in which we acquired the Videocon GDRs.
 
 
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We believe that our existing cash, cash equivalents, and investments in U.S. government securities, together with cash flows from expected sales of our encryption products and revenue relating to our thin, flat, low-voltage phosphor display technology, including license fees and royalties from Videocon, and other potential sources of cash flows, will be sufficient to enable us to continue our marketing, production, and research and development activities for at least 12 months.  However, our projections of future cash needs and cash flows may differ from actual results.  If current cash and cash that may be generated from operations are insufficient to satisfy our liquidity requirements, we may seek to sell debt or equity securities or to obtain a line of credit.  The sale of additional equity securities or convertible debt could result in dilution to our stockholders.  It is also management’s intention to continue to compensate employees and consultants by issuing stock or stock options.  We currently have no arrangements with respect to additional financing.  We can give no assurances that we will generate sufficient revenues in the future (through sales, license fees and royalties, or otherwise) to satisfy our liquidity requirements or sustain future operations, that our production capabilities will be adequate, that other products will not be produced by other companies that will render our products obsolete, or that other sources of funding would be available, if needed, on favorable terms or at all.  If we cannot obtain such funding if needed, we would need to curtail or cease some or all of our operations.
 
We are seeking to improve our liquidity through increased sales or license of products and technology.  In an effort to generate sales, we have marketed our encryption products directly to U.S. and international distributors, dealers and original equipment manufacturers that market our encryption products and to end-users.  In fiscal year 2008, we entered into the License Agreement with Videocon.  During fiscal year 2009, we have recognized revenue from sales of encryption products of approximately $90,000, revenue from display engineering services of $52,000 and display technology license fees of approximately $913,000.

Contractual Obligations
 
The following table presents our expected cash requirements for contractual obligations outstanding as of October 31, 2009:
 
   
Payments Due by Period
 
 
Contractual Obligations
 
Less
than
1 year
   
1-3
years
   
4-5
years
   
After
5 years
   
 
Total
 
                               
Consulting Agreement
  $ 128,000        -        -        -     $ 128,000  
                                         
Noncancelable Operating Leases
  $ 296,000     $ 330,000        -        -     $ 626,000  
                                         
Total Contractual Cash Obligations
  $ 424,000     $ 330,000        -        -     $ 754,000  
 
 
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Off-Balance Sheet Arrangements
 
We have no variable interest entities or other off-balance sheet obligation arrangements.

Effect of Recent Accounting Pronouncements
 
In December 2007, the Financial Accounting Standards Board (“FASB”) issued updated guidance for accounting for business combinations, which is included in ASC 805 “Business Combinations” (“ASC 805”).  The updated guidance better represents the economic value of a business combination transaction.  The changes to be effected with the new guidance include, but are not limited to: (1) acquisition costs will be recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition will be considered part of the liabilities acquired measured at their fair value and all other contingencies will be part of the liabilities acquired measured at their fair value only if it is more likely than not that they meet the definition of a liability; (3) contingent consideration based on the outcome of future events will be recognized and measured at the time of the acquisition; (4) business combinations achieved in stages (step acquisitions) will need to recognize the identifiable assets and liabilities, as well as noncontrolling interests, in the acquiree, at the full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree) will require that excess to be recognized as a gain attributable to the acquirer.  In April 2009, the FASB amended the guidance related to contingencies in a business combinations, which is included in ASC 805-20 “Identifiable Assets and Liabilities, and Any Noncontrolling Interest”.  The amendment changes the provisions in ASC 805 for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations.  It further eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria in the updated business combinations guidance and instead carries forward most of the provisions of the previous business combinations guidance for acquired contingencies.  ASC 805 is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008.  The adoption of ASC 805 is not expected to have a material effect on our accompanying consolidated financial statements.

Effective May 1, 2009, we adopted the FASB guidance on interim disclosures about fair value of financial instruments.  The updated guidance requires entities to include disclosures regarding the fair value of financial instruments and methods and significant assumptions used to estimate the fair value in their interim financial statements.  There were no changes to the required annual disclosures.  The fair value guidance regarding the interim disclosures about fair value of financial instruments and the fair value option for financial assets and liabilities is included in ASC 825 “Financial Instruments”.  See Note 2, “Summary of Significant Accounting Policies - Fair Value Measurements,” for the required annual disclosures. Additionally, effective November 1, 2008, we adopted the FASB guidance regarding the fair value option for financial assets and liabilities, which permits entities to measure eligible financial instruments at fair value.  As we did not elect the fair value option for its financial instruments (other than those already measured at fair value in accordance with ASC 820) (as defined in Note 2, “Summary of Significant Accounting Policies – Fair Value Measurements”)), the adoption of this guidance did not have an impact on our accompanying consolidated financial statements.
 
 
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Effective May 1, 2009, we adopted the new FASB guidance on recognition and presentation of other-than-temporary impairments.  The guidance amends the requirements for recognizing other-than-temporarily impaired debt securities and revises the existing impairment model for such securities by modifying the current intent and ability indicator in determining whether a debt security is other-than-temporary impaired.  This guidance is included in ASC 320 “Investments” (“ASC 320”).  It also modifies the presentation of other-than-temporary impairment losses and increases the frequency of and expands required disclosures about other-than-temporary impairment for debt and equity securities.  The adoption of this guidance did not have a material effect on our accompanying consolidated financial statements.

Effective July 31, 2009, we adopted the new FASB guidance on subsequent events, which is included in ASC 855 “Subsequent Events”.  The objective of this guidance is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  This statement introduces the concept of financial statements being available to be issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date.  The adoption of this guidance did not have a material effect on our accompanying consolidated financial statements.
 
 
PART III
 
Item 11.              Executive Compensation.
 
Compensation Discussion and Analysis
 
The following discusses our executive compensation philosophy, decisions and practices for fiscal year 2009.  As a small company with only 20 employees and a small management team, we have implemented a simple and modest compensation structure based on our overall goal to ensure that the total compensation paid to our executives is fair, reasonable and competitive.  Our Board of Directors deems such a simple, less formula-based compensation structure advisable and consistent with the Company’s overall compensation objectives and philosophies.  Accordingly, the method of compensation decision-making actually employed by the Company does not lend itself to extensive analytical and quantitative analysis, but rather is based on the business judgment of the Company’s Chief Executive Officer and our Board of Directors as described in more detail below.

Philosophy and Objectives
 
Our philosophy towards executive compensation is to create both short-term and long-term incentives based on the following principles:

·  
Total compensation opportunities should be competitive.  We believe that our overall compensation program should be competitive so that we can attract, motivate and retain highly qualified executives.
 
 
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·  
Total compensation should be related to our performance. We believe that our executives’ total compensation should be linked to achieving specified financial objectives which we believe will create stockholder value.

·  
Total compensation should be related to executive’s performance.  We believe that our executives’ total compensation should reward individual performance achievements and encourage individual contributions to achieve better performance.

·  
Equity awards help executives think like stockholders.  We believe that our executives’ total compensation should have an equity component because stock based equity awards help reinforce the executive’s long-term interest in our overall performance and thereby align the interests of the executive with the interests of our stockholders.

Role of our Board of Directors
 
Our Board of Directors is primarily responsible for determining executive compensation and employee benefit plans.  Our Board of Directors evaluates the performance of our Chief Executive Officer, Mr. Denis A. Krusos, directly.  Mr. Krusos is not present during the Board of Directors deliberations as to his compensation.

With respect to senior management other than Mr. Krusos, Mr. Krusos participates in the decision-making by making recommendations to the Board of Directors. After informal discussion regarding such recommendations, the Board of Directors vote on any recommended compensation changes.  Our Board of Directors do not utilize any particular formula in determining any compensation changes but instead exercises its business judgment in view of our overall compensation philosophy and objectives.

Elements of Executive Compensation
 
Our executive compensation consists primarily of two elements: (1) base salary and (2) stock options under our stock equity incentive plans.  Our Board of Directors do not follow a specific set of guidelines or formulas in determining the amount and mix of compensation elements.  We seek to reward shorter-term performance through base salary and longer-term performance through stock options granted under our stock equity incentive plans.
 
Base Salary
 
In setting salaries for fiscal year 2009, the Board of Directors considered several factors to help evaluate the reasonableness and competitiveness of the Company’s base salaries.  The Board of Directors initially determines base salary for each executive based on the executive’s salary for the prior fiscal year.  The Board of Directors then considers the level of job responsibilities, the executive’s experience and tenor and the executive’s performance in helping the Company achieve certain goals, including (i) development of its flat panel technology, (ii) making business arrangements for licensing its technology, (iii) development of encryption products and (iv) making business arrangements to license and market its encryption products.  The Board of Directors give no specific weight to any of the above factors so it is not possible to provide a complete qualitative and quantitative discussion linking the Company’s compensation objectives and policies with the actual salaries paid to our executives.
 
 
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Because the market for talented executives is extremely competitive, the Board of Directors also considers, from time to time, the form and amount of compensation paid to executives of other companies, compiled from publicly available information.  While the Company takes into account competitive market data, it does not target a specific benchmark for compensation from the other companies whose compensation it reviews.  To maintain flexibility, the Company also does not target base salary at any particular percent of total compensation.  While the Board of Directors can engage compensation consultants to assist with this task, the Board of Directors did not retain any third party consultants or engaged in any formal comparison of compensation of the Company to compensation at other companies during fiscal year 2009.    Individual base salaries are reviewed annually.

In setting base salaries for fiscal year 2009, our Board of Directors decided to maintain the base salary for fiscal year 2009 for each of the persons who were “named executive officers” at the same level as their fiscal year 2008 base salary. In making such determination, the Board of Directors did not utilize any particular formula but instead exercised its business judgment in view of its overall compensation philosophy and objectives.

Equity Based Incentives
 
Our use of equity compensation is driven by our goal of aligning the long-term interests of our executives with our overall performance and the interests of our stockholders.  The Board of Directors believes it is important to provide our senior management with stock-based incentive compensation that increases in value in direct correlation with improvement in the performance of our common stock.  The fundamental philosophy is to link the amount of compensation for an executive to his or her contribution to the Company’s success in achieving financial and other objectives.  Equity incentives are not set at any particular percentage of total compensation.

In general, we grant stock options under stock equity incentive plans to directors, officers, and other employees upon commencement of their employment with us and periodically thereafter.  We generally grant stock options at regularly scheduled Board meetings.  The option awards are granted at an exercise price equal to the closing price of common stock on the grant date (the date the grant is approved.)  Options for directors and officers generally vest on the date of grant or after a 6 or 12 month period following the grant date, provided the directors or officers remain employed on the vesting date, so that such compensation is at risk of forfeiture based on the directors or officers’ continued service with us.

As with other elements of executive compensation, the determination of stock options granted were not based on complex or extensive quantitative or qualitative factors that lend themselves to substantive disclosure.  Instead, the awards granted in fiscal year 2009 were based primarily on the business judgment of the Board of Directors.
 
 
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The stock equity incentive plans also provide for the award of restricted stock, although such awards have not been used in any material respect.  No restricted stock was awarded during fiscal year 2009.

Other Benefits
 
We provide our executives with customary, board-based benefits that are provided to all employees, including medical insurance, life, and disability insurance.  We also provide our executives with certain perquisites which are not a significant element of executive compensation.

Policy on Ownership of Stock and Options
 
We do not have any policy regarding levels of equity ownership (stock or options) by our executive officers or directors.

Policy on Deductibility of Compensation
 
Section 162(m) of the Internal Revenue Code limits the deductibility of compensation in excess of $1 million paid to certain executive officers named in the proxy statement, unless certain requirements are met.  To maintain flexibility in compensating executive officers in a manner designed to aid in retention and promote varying corporate performance objectives, the Board of Directors has not adopted a policy of meeting the Section 162(m) requirements.

Compensation Committee Interlocks and Insider Participation
 
As disclosed above, the Board of Directors is primarily responsible for overseeing our compensation and employee benefit plans and practices.  We do not have a compensation committee or other Board committee that performs equivalent functions.  During the last fiscal year, no officer or employee of the Company (other than officers who are also directors of the Company), nor any former officer of the Company, participated in deliberations of the Company’s Board of Directors concerning executive compensation.

Board of Directors Report on Executive Compensation
 
We have reviewed and discussed the above “Compensation Discussion and Analysis” with management.  Based upon this review and discussion, we have recommended that the “Compensation Discussion and Analysis” be included in this Annual Report on Form 10-K.

Denis A Krusos
Henry P. Herms
George P. Larounis

Executive Compensation
 
The following table sets forth certain information for fiscal year ended October 31, 2009, with respect to compensation awarded to, earned by or paid to our Chief Executive Officer and our Chief Financial Officer (the “Named Executive Officers”).  No other Named Executive Officer received total compensation in excess of $100,000 during fiscal year 2009.
 
 
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 SUMMARY COMPENSATION TABLE
 
Name and
Principal Position
 
 
Year
 
Salary
($)
Option Awards
($) (1)
All Other
Compensation
($) (2)
Total
Compensation
($)
Denis A. Krusos,
Chairman of the Board,
Chief Executive Officer and Director
 
2009
2008
2007
 
$250,000
$250,000
$250,000
 
$748,500
$967,000
$422,170
 
$39,815
$33,929
$28,532
 
$1,038,315
$1,250,929
$700,702
Henry P. Herms
Chief Financial Officer, Vice President-
Finance and Director
 
2009
2008
2007
 
$125,000
$125,000
$100,000
 
$74,850
$72,525
$30,155
 
$18,779
$21,777
$14,300
 
$218,629
$219,302
$144,455

(1)
Amounts in the Option Awards column represent the dollar amounts recognized for financial statement reporting purposes for the fiscal years ended October 31, 2009, 2008 and 2007 for each Named Executive Officer in accordance with ACS 718.   A discussion of assumptions used in valuation of option awards may be found in Note 2 to our Consolidated Financial Statements for the fiscal year ended October 31, 2009, included elsewhere in this Annual Report on Form 10-K.
 
(2)
Amounts in the All Other Compensation column reflect, for each Named Executive Officer, the sum of the incremental cost to us of all perquisites and personal benefits, which consisted solely of auto allowance and related expenses for fiscal years ended October 31, 2009, 2008 and 2007.

The following table sets forth certain information with respect to unexercised stock options held by the Named Executive Officers outstanding on October 31, 2009:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Option Awards (1)
Name
Number of Securities
Underlying
Unexercised Options
(#)
Exercisable
Number of Securities
Underlying
Unexercised Options
(#)
Un -Exercisable
Option Exercise
Price
($)
Option Expiration
Date
Denis A. Krusos
   250,000
   250,000
   150,000
   500,000
   500,000
   250,000
1,000,000
1,500,000
1,000,000
1,000,000
   700,000
1,000,000
1,000,000
 
$1.063
$0.688
$0.400
$0.250
$0.430
$0.810
$1.040
$0.650
$0.520
$0.830
$0.700
$1.170
$0.920
10/26/2010
1/1/2011
9/19/2011
5/5/2013
2/22/2014
5/10/2014
10/25/2014
2/17/2015
10/30/2015
5/31/2016
11/20/2016
11/11/2017
10/7/2019
Henry P. Herms
   100,000
     50,000
     50,000
     70,000
   100,000
   100,000
     50,000
     50,000
     75,000
   100,000
 
$0.938
$0.688
$0.810
$1.040
$0.650
$0.520
$0.830
$0.700
$1.170
$0.920
11/19/2010
1/1/2011
5/10/2014
10/25/2014
2/17/2015
10/30/2015
5/31/2016
11/20/2016
11/11/2017
10/7/2019
 
 
37

 
 
           The following table sets forth certain information with respect to grants of stock options to the Named Executive Officers during fiscal year 2009:
 
GRANTS OF PLAN BASED AWARDS TABLE
Name
Grant Date
All Other Option
Awards: Number of
Securities Underlying
Options
(#)
Exercise Price of
Option Awards
($/Sh)
Grant Date
Fair Value
($)
Denis A. Krusos
10/08/09
1,000,000
$0.92
$748,500
Henry P. Herms
10/08/09
   100,000
$0.92
 $74,850
 
The following table summarizes the exercise of stock options during fiscal year 2009 by Named Executive Officers:
 
OPTION EXERCISES AND STOCK VESTED TABLE
  Option Awards
Name
Number of Shares Acquired
on Exercise
(#)
Value Realized
on Exercise
($) (1)
Denis A. Krusos
100,000
$52,000
Henry P. Herms 100,000 $52,000
 
 
(1) 
The value realized on exercise is calculated based on the difference between the exercise price of the options and the market price of the stock at the time of exercise.
 
 
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Director’s Compensation
 
There is no present arrangement for cash compensation of directors for services in that capacity.  Under the 2003 Share Incentive Plan (as defined in Note 7 to our Consolidated Financial Statements), each non-employee director is entitled to receive nonqualified stock options to purchase 60,000 shares of common stock each year that such director is elected to the Board of Directors.  Mr. Larounis received such an award upon his election to our Board of Directors at our 2009 Annual Meeting of Shareholders and in October 2009, he received an additional award of stock options for his services as a director.

Our employee directors, Denis A. Krusos and Henry P. Herms did not receive any additional compensation for services provided as a director during fiscal year 2009.  The following table sets forth compensation of George P. Larounis, our sole non-employee director for fiscal year 2009:

DIRECTORS COMPENSATION
Name
Option Awards
($) (1)
All Other
Compensation
($)
George P. Larounis
$60,564
-

(1)
Amounts in the Option Awards column represent the dollar amounts recognized for financial statement reporting purposes for fiscal year 2009 for Mr. Larounis in accordance with ASC 718.  A discussion of assumptions used in valuation of option awards may be found in Note 2 to our Consolidated Financial Statements for fiscal year ended October 31, 2009, included elsewhere in this Annual Report on Form 10-K.  At October 31, 2009, Mr. Larounis held unexercised stock options to purchase 780,000 shares of our common stock.  The grant date fair value of awards to Mr. Larounis in fiscal year 2009, calculated in accordance ASC 718 was $60,564.
 
 
39

 
 
Item 12.              Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
The following table sets forth certain information with respect to our common stock beneficially owned as of January 25, 2010 by (a) each person who is known by us to be the beneficial owner of more than 5% of our outstanding common stock, (b) each of our directors and executive officers, and (c) all directors and executive officers as a group:

Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership(1)(2)
Percent of
Class
Mars Overseas Limited (3)
P.O. Box 309, GI Ugland House
South Church Street, George Town
Grand Cayman, Cayman Islands
20,000,000
13.70%
Denis A. Krusos
900 Walt Whitman Road
Melville, NY  11747
10,519,880
 
6.78%
Henry P. Herms
900 Walt Whitman Road
Melville, NY  11747
     755,575
*
George P. Larounis
900 Walt Whitman Road
Melville, NY 11747
     760,000
*
All Directors and Executive Officers as a
Group (3 persons)
12,035,455
7.69%

  * Less than 1%.

(1)
A beneficial owner of a security includes any person who directly or indirectly has or shares voting power and/or investment power with respect to such security or has the right to obtain such voting power and/or investment power within sixty (60) days.  Except as otherwise noted, each designated beneficial owner in this report has sole voting power and investment power with respect to the shares of our common stock beneficially owned by such person.
 
(2)
Includes 9,100,000 shares, 745,000 shares, 720,000 shares and 10,565,000 shares which Denis A. Krusos, Henry P. Herms, George P. Larounis, and all directors and executive officers as a group, respectively, have the right to acquire within 60 days upon exercise of options granted pursuant to the 1993 Stock Option Plan, 2000 Share Incentive Plan and the 2003 Share Incentive Plan(as each is defined in Note 7 to our Consolidated Financial Statements).

(3)
The Company has relied solely on information provided in the Schedule 13G which Mars Overseas Limited filed with the Securities and Exchange Commission on November 9, 2007 and has no knowledge as to which natural persons exercise sole or shared voting or dispositive power of the shares of the Company’s common stock held of record by Mars Overseas Limited.
 
 
40

 
 
Equity Compensation Plan Information
 
The following is information as of October 31, 2009 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under all equity compensation plans in effect as of that date, including our 1993 Stock Option Plan, our 2000 Share Incentive Plan and our 2003 Share Incentive Plan.  See Note 7 to Consolidated Financial Statements for more information on these plans.

Plan category
 
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
 
Weighted average
exercise price of
outstanding
options, warrants
and rights
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
   
(a)
 
(b)
 
(c)
Equity compensation plans
approved by security holders
 
 
2,258,466
 
 
$0.91
 
 
21,508
             
Equity compensation plans not
approved by security holders (1)
 
 
18,252,045
 
 
$0.80
 
 
5,483,086
             
Total
 
20,510,511
 
$0.81
 
5,504,594
 
(1)           On April 23, 2003 the Board of Directors adopted the 2003 Share Incentive Plan (the “Plan”).  Officers, key employees and non-employee directors of, and consultants to, the Company or any of its subsidiaries and affiliates are eligible to participate in the Plan.  The Plan provides for the grant of stock options, stock appreciation rights, stock awards, performance awards and stock units (the “Benefits”).  The maximum number of shares of common stock available for issuance under the Plan initially was 15,000,000 shares.  On October 8, 2004, February 9, 2006, August 22, 2007 and December 3, 2008, the Plan was amended by our Board of Directors to increase the maximum number of shares of common stock that may be granted to 30,000,000 shares, 45,000,000 shares, 55,000,000 shares and 70,000,000 shares, respectively.  Current and future non-employee directors are automatically granted non-qualified stock options to purchase 60,000 shares of common stock upon their initial election to the Board of Directors and at the time of each subsequent annual meeting of shareholders at which they are elected to the Board of Directors.  The Plan was administered by the Stock Option Committee through June 2004 and since that date has been administered by the Board of Directors, which determines the option price, term and provisions of the Benefits. The Plan contains provisions for equitable adjustment of the Benefits in the event of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, spinoff, combination of shares, exchange of shares, dividends in kind or other like change in capital structure or distribution (other than normal cash dividends) to stockholders of the Company.  The Plan terminates on April 21, 2013.  The Board of Directors may amend, suspend or terminate the Plan at any time.
 
 
41

 
 
Item 13.              Certain Relationships and Related Transactions, and Director Independence.
 
Transactions with Related Persons
 
Except for those transactions between the Company and Videocon or Mars Overseas, there have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-K.  Videocon and Mars Overseas are related persons under Item 404 due to Mars Overseas’ beneficial ownership of more than five percent (5%)  of our outstanding common stock.  Details of the transactions with Videocon and Mars Overseas can be found under “Item 1. Business,” subsection “Overview” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation,” subsection “General.”

Related Person Transaction Approval Policy
 
Our Board of Directors review and approve all transactions between us and a related person, to the extent required by applicable rules and regulations.  Generally, management would present to the Board of Directors for approval at the next regularly scheduled Board meeting any related person transactions proposed to be entered into by us.

Director Independence

Our Board of Directors oversees the activities of our management in the handling of the business and affairs of our company. None of our directors are “independent” under the rules adopted by the Nasdaq Stock Market and other stock exchanges.
 
 
PART IV
Item 15.              Exhibits, Financial Statement Schedules.
 
(a)(1)(2) Financial Statement Schedules
 
 See accompanying “Index to Consolidated Financial Statements.”
 
(a)(3)   Executive Compensation Plans and Arrangements
 
 CopyTele, Inc. 1993 Stock Option Plan (filed as Annex A to our Proxy Statement dated June 10, 1993).
 
 Amendment No. 1 to CopyTele, Inc. 1993 Stock Option Plan (filed as Exhibit 4(d) to our Form S-8 dated September 6, 1995).
 
 
42

 
 
 Amendment No. 2 to CopyTele, Inc. 1993 Stock Option Plan (filed as Exhibit 10.32 to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1996).
 
 CopyTele, Inc. 2000 Share Incentive Plan (filed as Annex A of our Proxy Statement dated June 12, 2000).
 
 Amendment No. 1 to CopyTele, Inc. 2000 Share Incentive Plan (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2001).
 
 Amendment No. 2 to CopyTele, Inc. 2000 Share Incentive Plan (filed as Exhibit 4(e) to our Form S-8 dated September 18, 2002).
 
 CopyTele, Inc. 2003 Share Incentive Plan (filed as Exhibit 4 to our Form S-8 dated May 5, 2003).
 
 Amendment No. 1 to the CopyTele, Inc. 2003 Share Incentive Plan (filed as Exhibit 4(e) to our Form S-8 dated November 9, 2004).
 
 Amendment No. 2 to the CopyTele, Inc. 2003 Share Incentive Plan (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2006).
 
 Amendment No. 3 to the CopyTele, Inc. 2003 Share Incentive Plan (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2006).
 
 Form of Stock Option Agreement under CopyTele, Inc. 2003 Share Incentive Plan (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2004).
 
 Form of Stock Award Agreement under CopyTele, Inc. 2003 Share Incentive Plan (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2004).
 
(b)        Exhibits
 
 
3.1
Certificate of Incorporation, as amended.  (Incorporated by reference to Form 10-Q for the fiscal quarter ended July 31, 1992 and to Form 10-Q for the fiscal quarter ended July 31, 1997.)
 
 
3.2
Amended and Restated By-laws.  (Incorporated by reference to Exhibit 3.2 to our Form 8-K dated August 4, 2008.)
 
 
4.1
Common Stock Purchase Warrant issued to ZQX Advisors, LLC on August 20, 2009 (Incorporated by reference to Exhibit 4.1 to our Form 10-K for the fiscal year ended October 31, 2009.)
 
 
43

 
 
 
4.2
Common Stock Purchase Warrant issued to ZQX Advisors, LLC on August 20, 2009 (Incorporated by reference to Exhibit 4.2 to our Form 10-K for the fiscal year ended October 31, 2009.)
 
 
10.1
CopyTele, Inc. 1993 Stock Option Plan, adopted on April 28, 1993 and approved by shareholders on July 14, 1993.  (Incorporated by reference to Proxy Statement dated June 10, 1993.)
 
 
10.2
Amendment No. 1 to the CopyTele, Inc. 1993 Stock Option Plan, adopted on May 3, 1995 and approved by shareholders on July 19, 1995.  (Incorporated by reference to Form S-8 (Registration No. 33-62381) dated September 6, 1995.)
 
 
10.3
Amendment No. 2 to the CopyTele, Inc. 1993 Stock Option Plan, adopted on May 10, 1996 and approved by shareholders on July 24, 1996.  (Incorporated by reference to Form 10-Q for the fiscal quarter ended April 30, 1996.)
 
 
10.4
Agreement dated March 3, 1999 between Harris Corporation and CopyTele, Inc.  (Incorporated by reference to Form 10-Q for the fiscal quarter ended January 31, 1999.)
 
 
10.5
Agreement dated July 28, 1999, among CopyTele, Inc., Harris Corporation and RF Communications.  (Incorporated by reference to Form 8-K dated July 28, 1999.)
 
 
10.6
CopyTele, Inc. 2000 Share Incentive Plan.  (Incorporated by reference to Annex A of our Proxy Statement dated June 12, 2000.)
 
 
10.7
Amendment No. 1 to the CopyTele, Inc. 2000 Share Incentive Plan, adopted on July 6, 2001 and approved by shareholders on August 16, 2001.  (Incorporated by reference to Form 10-Q for the fiscal quarter ended July 31, 2001.)
 
 
10.8
Amendment No. 2 to the CopyTele, Inc. 2000 Share Incentive Plan, adopted on July 16, 2002 and approved by shareholders on September 12, 2002.  (Incorporated by reference to Exhibit 4(e) to our Form S-8 (Registration No. 333-99717) dated September 18, 2002.)
 
 
10.9
Amendment, dated May 10, 2001, to the Joint Cooperation Agreement between CopyTele, Inc. and Volga Svet Ltd.  (Incorporated by reference to Exhibit 10.14 to our Form 10-K for the fiscal year ended October 31, 2001.)
 
 
10.10
Letter Agreement between CopyTele, Inc. and Volga Svet Ltd., dated as of February 1, 2002.  (Incorporated by reference to Exhibit 10.15 to our Form 10-K for the fiscal year ended October 31, 2001.)
 
 
44

 
 
 
10.11
CopyTele, Inc. 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 4 to our Form S-8 dated May 5, 2003).
 
 
10.12
Amendment No. 1 to the CopyTele, Inc. 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 4(e) to our Form S-8 dated November 9, 2004.)
 
 
10.13
Amendment No. 2 to the CopyTele, Inc. 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2005).
 
 
10.14
Amendment No. 3 to the CopyTele, Inc. 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2005).
 
 
10.15
Form of Stock Option Agreement under CopyTele, Inc. 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2004).
 
 
10.16
Form of Stock Award Agreement under CopyTele, Inc. 2003 Share Incentive Plan. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2004).
 
 
10.17
Long Term Agreement dated May 23, 2007, between The Boeing Company and CopyTele, Inc. (Incorporated by reference to Exhibit 10.1 to our Form 8-K dated May 23, 2007.)
 
 
10.18
Amended and Restated Technology License Agreement, dated May 16, 2008, between CopyTele, Inc. and Videocon Industries Limited (filed herewith) (Confidential portions have been omitted and filed separately with the Commission).
 
 
10.19
Loan and Pledge Agreement, dated November 2, 2007, between Mars Overseas Limited and CopyTele International Ltd. (Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2008.)
 
 
10.20
Loan and Pledge Agreement, dated November 2, 2007, between CopyTele International Ltd. and Mars Overseas Limited. (Incorporated by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2008.)
 
 
21
Subsidiaries of CopyTele, Inc. (Incorporated by reference to Exhibit 21 to our Annual Report on Form 10-K for the fiscal year ended October 31, 2009.)
 
 
23.1
Consent of KPMG LLP. (Incorporated by reference to Exhibit 23.1 to our Form 10-K for the fiscal year ended October 31, 2009.)
 
 
45

 
 
 
23.2
Consent of Grant Thornton LLP.  (Incorporated by reference to Exhibit 23.2 to our Form 10-K for the fiscal year ended October 31, 2009.)
 
 
31.1
Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated March 9, 2010.  (Filed herewith.)
 
 
31.2
Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated March 9, 2010.  (Filed herewith.)
 
 
32.1
Statement of Chief Executive Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated March 9, 2010.  (Filed herewith.)
 
 
32.2
Statement of Chief Financial Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated March 9, 2010.  (Filed herewith.)
 
 
 
46

 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  COPYTELE, INC.  
     
 
By:
/s/ Denis A. Krusos
 
   
Denis A. Krusos
 
   
Chairman of the Board and
 
March 9, 2010
 
Chief Executive Officer
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
 
 
By:
/s/ Denis A. Krusos
 
   
Denis A. Krusos
 
   
Chairman of the Board,
 
   
Chief Executive Officer
 
March 9, 2010
 
and Director (Principal Executive Officer)
 
       
       
 
By:
/s/ Henry P. Herms
 
   
Henry P. Herms
 
   
Vice President - Finance,
 
   
Chief Financial Officer and
 
   
Director (Principal Financial
 
March 9, 2010
 
and Accounting Officer)
 
       
       
 
By:
/s/ George P. Larounis
 
   
George P. Larounis
 
March 9, 2010
 
Director
 
 
 
 
47