================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

[x]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 For the fiscal year ended October 31, 2006
                                                          or
[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 (No Fee Required) 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           (I.R.S. Employer Identification No.)
   of Incorporation or Organization)
--------------------------------------------------------------------------------
                              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 Exchange 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
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, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

  Large accelerated filer [_]  Accelerated filer [x]  Non-accelerated filer [_]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange 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 28, 2006 (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 ($0.80):
$74,212,833

On January 9, 2007, the registrant had outstanding 101,398,510 shares of Common
Stock, par value $.01 per share, which is the registrant's only class of common
stock.
================================================================================
                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE


<PAGE>

                                     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. 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

                  Our principal operations are the development, production and
marketing of a thin, flat low-voltage phosphor display (our "LVNDTM display")
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.

         LVNDTM Display

                  In fiscal 2006, we continued to develop our LVNDTM display
technology. Our LVNDTM display incorporates a proprietary thin film technology
(TFT)-based pixel matrix electron control system ("PMECS") that can operate with
virtually any electron emission system. We use different types of proprietary
electron emission systems, including carbon nanotubes, both reflective and
non-reflective planar edge, and thin films. The different emission systems are
suitable for different display application requirements. Our LVNDTM displays
incorporating PMECS consist of two thin glass substrates. Using our unique rapid
low temperature and low profile vacuum technology, we create a vacuum between
the substrates and seal them. The PMECS, which is located on one of the
substrates, is being exclusively produced for us by an Asian company utilizing
its mass production TFT LCD (liquid crystal display) facilities. We have
demonstrated our LVNDTM display technology by exhibiting it at display
symposiums and through private demonstrations to potentially interested
companies. We have presented the LVNDTM display's capabilities and features by
showing TV programs and movies from DVD players.


                                       1
<PAGE>

                  We have continued to develop a variation of our LVND(TM)
display utilizing carbon nanotubes and proprietary low voltage color phosphors.
We have developed engineering models which demonstrate the display's ability to
show images from computers by controlling the brightness of selected individual
pixels utilizing our carbon nanotube display technology. The carbon nanotubes,
which are being supplied to us by a U.S. company, require a low voltage for
electron emission and are extremely small - approximately 10,000 times thinner
than the width of a human hair. The 5.5 inch (diagonal) display we developed has
960 x 234 pixels and utilizes a new memory-based active matrix thin film
technology (AMTFT) with each pixel phosphor activated by electrons emitted by a
proprietary carbon nanotube network located approximately 10 microns (1/10th of
a human hair) from the pixels. As a result, each pixel phosphor brightness is
controlled using a maximum of only 40 volts. The carbon nanotubes and
proprietary color phosphors are precisely placed and separated utilizing our
proprietary nanotube and phosphor deposition technology. The carbon nanotube
election emission display technology utilizes the same TFT color matrix
structures as the thin film electron emission technology.

                  Some other characteristics of our LVND(TM) display technology
are as follows:

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

     o    The display matrix, carbon nanotubes,  phosphors,  and drivers are all
          on one  substrate.  A second  substrate  is  utilized  only to allow a
          vacuum to be created within the display.

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

     o    Our LVNDTM  display has no  backlight.  Because power is only consumed
          when a pixel is turned on, low power is needed to  activate  the whole
          display. The display requires less than 1/5th the power required by an
          LCD.  This  low  power  consumption  could  potentially  allow  use of
          rechargeable   batteries   to  operate  TV   products   for   wireless
          applications  and  extend  the  battery  operation  time for  portable
          devices.

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


                                       2
<PAGE>

     o    Our  proprietary  AMTFT  matrix  structure  can be produced  utilizing
          existing mass production TFT LCD facilities.

     o    Our display  eliminates display flicker by having memory in each pixel
          and eliminates pixel cross-talk.

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

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

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

                  We believe our LVNDTM displays could potentially have a cost
similar to a CRT and thus less than current LCD or PDP displays (our display
does not contain a backlight, or color filter or polarizer, which represent a
substantial portion of the cost of an LCD). We are continuing to optimize our
LVND(TM) display technology performance including its reliability, size and
potential cost.

                  We are discussing our technology and business arrangements
with several companies that have expressed a desire to either produce portions
of our display or license our display for use in conjunction with their
products. Our Asian supplier has supplied us with 5.5 inch (diagonal) TFT color
matrix structures with 960 X 234 pixels which incorporate PMECS. We are now
producing, with the assistance of Volga Svet Ltd. ("Volga"), a Russian display
company that we have been working with for more than nine years, LVNDTM displays
using these structures in combination with our proprietary thin film electron
emission technology. We are working with Volga to perform acceptance tests on
our 5.5 inch (diagonal) display utilizing thin film electron emitters, based on
requests from car and truck producers in Russia for navigational and
informational purposes.

                  We have successfully tested our displays under various
environmental conditions. This included subjecting our displays to shock,
vibration, and operating temperatures from -40(degree)C to 85(degree)C. Our
displays are capable of operating under both sunlight and nighttime conditions.
As a result, we believe that our displays can meet performance requirements for
both outdoor and indoor applications.

         Encryption Products and Technology

                  Over the past year, we have directed our marketing efforts
toward both the government and commercial security markets. Our government
market has been primarily handled by Boeing and its large distributors of the
Thuraya satellite phones. As a result, we have our security products operating
over the Thuraya network in the Middle East, Europe, and Africa. Thuraya is


                                       3
<PAGE>

scheduled to start providing, early next year, satellite service to the Far
East, which could potentially create larger marketing opportunities for our
encryption products. Our security products for the Thuraya network are being
used by government agencies, the military and domestic and international
non-governmental organizations (NGOs).

                  We have supplied USS-900, DCS-1400, and DCS-1200 products to
major Thuraya distributors for use by government agencies and NGOs in Middle
Eastern, European and African countries. We are hopeful that these recent
developments will lead to larger commitments for our security products. In
addition, we have supplied our USS-900AF automatic fax encryption product to a
major U.S. defense contractor to secure its worldwide fax communications and
have supplied our encryption solution to a major U.S. company to secure its
executive teleconferencing system.

                  We have an agreement with Boeing under which Boeing is the
exclusive distributor of 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. Boeing now
distributes 13 of our products. Boeing sells these products under the brand name
of Thuraya. We have also developed for Boeing a voice product to operate over
the Thuraya network having a higher level of security.

                  We are cooperating with Asia Pacific Satellite Industries
("APSI"), the supplier of the next generation voice and data handsets for the
Thuraya network, and with Boeing to integrate our encryption solution into
APSI's handset. As a first step, we have received samples of the next generation
satellite telephone from APSI and have designed an interconnect cable that
offers compatibility between the new phone and our current DCS-1200, DCS-1400
and USS-900T models. This solution has been tested by APSI, and is currently
under field testing by Boeing. We believe that the same interconnect cable will
provide compatibility with APSI's next generation cellular/satellite phone that
will be released shortly.

                  We also plan to develop, together with APSI and Boeing, a
small voice-only encryption device that will directly connect to the satellite
phone, offering simplified operation in a highly convenient package.

                  In connection with Boeing becoming the exclusive distributor
of certain of our products, Boeing authorized us to use its name on our website.
Accordingly, customers desiring to purchase these encryption products can find
authorized Boeing sales information on the "Encryption Products" page of our
website or on the Thuraya website at
http://www.thuraya.com/content/thuraya-products-boe.html. In May 2006, Boeing
demonstrated our encryption products to Thuraya service providers at the annual
Service Providers Conference.


                                       4
<PAGE>

                  Our encryption products also can be used to encrypt data over
the Globalstar network. Globalstar provides satellite voice and data service
throughout a world-wide coverage area. Our DCS-1200 and DCS-1400 encryption
devices are included on the Globalstar webpage,
http://www.globalstarusa.com/en/products /encryption.php.

                  We have developed a prototype hardware device to encrypt Short
Message Service ("SMS"), an inexpensive text message communication protocol that
is used in many cellular and satellite phones and networks. We currently plan to
utilize this encryption solution in conjunction with the Thuraya handsets, but
it can be used for data communications across other platforms as well.

                  Our products provide secure communications with many different
satellite phones, including the Thuraya 7100/7101 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
Fixed Docking Unit, and Sattrans's SAT-OFFICE Fixed Docking Unit and SAT-VDA
Hands-Free Car Kit.

                  We are continuing to pursue 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.

                  The TCP/IP encryption provided by our DCS-1700 is being
evaluated by firms that require secure data communications when using
multifunctional office products. The DCS-1700 secures the network or internet
connection between the multifunctional product and a corporate server,
protecting sensitive information during its transmission from origin to
destination.

                  A new DCS-1700 application that we are co-developing with
another organization is to provide encrypted TCP/IP communications between
computers and backup servers. The easy-to-use turnkey product could be utilized
by large organizations to facilitate the turnover of a computer from one
employee to another, or to upgrade the software on an employee's computer. The
automated system allows sensitive information, such as program license keys and
user databases, to be protected over the network or internet connections to the
controlling server.

                  We are investigating additional DCS-1700 applications in the
automobile industry. An interactive customer-friendly electronic selling device
is being designed by a company to help business managers monitor the automobile
sales process. CopyTele's encryption technology could help keep the customer's
financial information secure while the sales records are stored at the
dealership and during the sales process.

                  In February 2006, we licensed to Digital Info Security Co.,
Inc. ("DISC"), an encryption system that integrates our encryption technology
into DISC's secure e-mail services. DISC is now test marketing this system. The
system, our DCS-2200, is intended to allow companies to encrypt all e-mail
transactions in a manner transparent to the individual user. DISC is adding our


                                       5
<PAGE>

e-mail encryption system to their suite of management products and services,
which includes e-mail compliance and archiving, remote backup and recovery, and
Spam and antivirus protection functions.

                  The CopyTele DCS-2200 e-mail system consists of an
encryption/decryption module, which is used within Microsoft Outlook(R) to
transparently encrypt and decrypt e-mails at the source or destination, and an
e-mail server, which receives clear text or encrypted e-mail communication,
archives a copy and re-encrypts it for forwarding to the recipient. Archive
copies are saved in accordance with the tracking and monitoring requirements of
the Sarbanes-Oxley Act and Gramm-Leach-Bliley Act as well as other regulatory
requirements. In furtherance of the relationship between us and DISC, we
exchanged 100,000 shares of our common stock for 5,000,000 shares of DISC's
common stock in February 2006. Since then, we have purchased an additional
7,200,000 shares of DISC's common stock and exchanged an additional 300,000
shares of our common stock for an additional 5,000,000 shares of DISC's common
stock. As of January 9, 2007 we own approximately 14 percent of the outstanding
common stock of DISC.

                  We are continuing to seek patents to protect our encryption
technologies. We recently received a patent for a system to provide additional
security for information sent over any communication network.

                  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) 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.

New Technologies Under Development

         LVNDTM Display Technology

                  We are continuing to pursue our efforts to develop new
technologies for our color and monochrome LVNDTM displays. In particular we are
optimizing our carbon nanotube LVNDTM display technology, which incorporates our
proprietary low voltage and low power carbon nanotube electron emission system
as part of PMECS. We are also utilizing our E-Paper(TM) technology in connection
with development of our PMECS incorporating our carbon nanotube electron
emission technology. There can be no assurance that we can mass produce our
LVNDTM displays using our PMECS and carbon nanotube technology.


                                       6
<PAGE>

         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 an encryption solution to secure
data links among corporate servers and scanners, include to secure data backup,
to meet HIPAA, Sabanes-Oxley, Gramm-Leach-Bliley, and other corporate government
requirements. We are also developing an encryption system to secure e-mail
services. In February 2006, we licensed to DISC an encryption system that
integrates our encryption technology into DISC's secure e-mail services. DISC is
now test marketing this system. The system, our DCS-2200, is intended to allow
companies to encrypt all e-mail transactions in a manner transparent to the
individual user. DISC is adding our e-mail encryption system to their suite of
management products and services, which includes e-mail compliance and
archiving, remote backup and recovery, and SPAM and antivirus protection
functions.

                  We developed and have produced a prototype of an encryption
product to encrypt the next generation voice and data handset over the Thuraya
network.

Production

         Flat Panel Video Display Products

                  We are producing models, with the assistance of Volga, of both
color and monochrome LVNDTM displays using the 5.5 inch (diagonal) TFT color
matrix structures with 960 x 234 pixels which incorporate PMECS supplied to us
by our Asian supplier. The displays also incorporate our hardware and software
to generate color and monochrome information on our displays. Volga is
performing acceptance tests on our 5.5 inch (diagonal) display utilizing thin
film electron emitters based on requests from car and truck producers in Russia
for navigation and information purposes. We are discussing our technology with
several companies that have expressed a desire to either produce portions of our
display or license our display for use in conjunction with their products.

         Encryption Products

                  Our 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(TM) 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.


                                       7
<PAGE>

                  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

                  We are continuing to pursue marketing and licensing
opportunities for our display technology, however to date we have not had any
revenue from sales or licensing of our LVNDTM display. We have utilized models
of our 5.5 inch (diagonal) color and monochrome displays to demonstrate the
capabilities of our display and its advantages over LCD, Plasma and CRT
displays.

                  We have displayed our LVNDTM display at exhibitions. In June
2006, we exhibited our Flat Panel LVNDTM display to personnel from more than one
hundred companies and government agencies at the Society for Information Display
International Symposium, Seminar and Exhibition, the premier international
gathering of scientists, engineers, manufacturers and users for the discussion,
presentation, viewing and exhibiting of information display technology.

                  We are discussing our technology and business arrangements
with several companies that have expressed a desire to either produce portions
of our display or license our display for use in conjunction with their
products.

                  We have continued to work with Volga to produce and supply
both our monochrome and color LVNDTM displays to a Russian customer that
provides informational modules to vehicles, for the customer's evaluation.

         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. For example, HIPAA requires certain privacy
protection for medical records and other health care information for
individuals. We are working with three companies on applications involving our
encryption technology that offer simple, straight-forward compliance measures
for these laws and we have agreements with several large companies to provide
them with both our hardware and software solutions to meet their security
requirements. We have licensed to DISC an encryption system that integrates our
encryption technology into DISC's secure e-mail services. DISC is now test
marketing this system.


                                       8
<PAGE>

                  We have a long term agreement with Boeing, which is
distributing our line of encryption products. These include voice, fax and data
products on both an exclusive and non-exclusive basis. We also have entered into
an agreement with a major Thuraya service provider to distribute our encryption
equipment.

                  Through these efforts, we have recently begun receiving
initial orders and requests from city, state, U.S. government agencies and
financial institutions. We expect that these orders could result in requirements
for larger quantities of units for their security applications.

                  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 2006, we recognized approximately $204,000 in
net sales from GloCall Middle East FZE, a subsidiary of France Telecom Mobile
Satellite Communications and a Thuraya service provider, approximately 40% of
our total net sales. During fiscal 2005, we recognized approximately $339,000 in
net sales from The Boeing Company, approximately 77% of our total net sales.
During fiscal 2004 we recognized approximately $300,000 in net sales from The
Boeing Company, or approximately 61% of total net sales, and approximately
$93,000 in net sales from Outfitter Satellite, Inc., or approximately 19% of
total net sales. All of such sales were 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.

                  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 cannot give you any assurance that
we will be able to compete successfully in the market for our encryption
products and our flat panel displays.


                                       9
<PAGE>

Patents

                  We have received patents from the United States and certain
foreign patent offices, expiring at various dates between 2007 and 2022. We have
also filed or are planning to file patent applications for our LVNDTM display
technologies, including our PMECS and nanotube technologies, and for our
encryption technologies.

                  We have received from the U.S. patent office patents for six
variations of our video display technology. We have also received patents
related to the design, structure and method of construction of the E-Paper(TM)
flat panel display, methods of operating the display, particle generation,
applications using the E-Paper(TM) flat panel display, and for our solid state
and thin film video color display. In addition, three of our patent applications
describing our display technology have recently been published.

                  We have received from the U.S. patent office four patents
related to our encryption technology. Two other of our patent applications
describing our fax, voice and data encryption over satellite and cellular
communication networks have recently been published.

                  We cannot assure you that patents will be issued for any of
our pending applications. In addition, we cannot assure you 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 assure you, 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
$4,614,000, $2,267,000, and $2,164,000 for the fiscal years ended October 31,
2006, 2005 and 2004, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below and our Financial
Statements.

Employees and Consultants

                  We had 21 full-time and 1 part-time employees and 9
consultants as of October 31, 2006. Eighteen of these individuals, including our
Chairman of the Board and Chief Executive Office and our President, are engaged
in research and development. Their backgrounds include expertise in physics,
chemistry, optics and electronics. Five 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.


                                       10
<PAGE>

Financial Information About Segments and Geographical Areas

                  See our Financial Statements

Item 1A. Risk Factors.

                  Our business involves a high degree of risk and uncertainty,
including the following risks and uncertainties:

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

         We have had net losses and negative cash flows from operations in each
year since our inception, and 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, 2006. 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, 2006:

                                           Fiscal Years Ended October 31,
                                     -------------------------------------------
                                         2006           2005           2004
                                     -------------  -------------  -------------
Net loss                               $7,600,901     $4,451,257     $3,360,655
Research and development expenses       4,614,300      2,266,911      2,164,427
Net cash used in operations             1,847,108      1,720,332      1,205,122


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

                  We anticipate that, if cash generated from operations is
insufficient to satisfy our requirements, we will require additional funding to
continue our research and development activities and market our products. The
auditor's report on our financial statements as of October 31, 2006 states that
the net loss incurred during the year ended October 31, 2006, our accumulated
deficit as of that date, and the other factors described in Note 1 to the
Financial Statements raise substantial doubt about our ability to continue as a
going concern. The auditor's report on our financial statements for the years
ended October 31, 2005 and 2004 contained a similar statement. Our financial
statements have been prepared assuming we will continue as a going concern and
do not include any adjustments that might result from the outcome of this
uncertainty.


                                       11
<PAGE>

                  We believe that our existing cash and accounts receivable,
together with cash flows from expected sales of encryption products and flat
panel displays, and other potential sources of cash flows, will be sufficient to
enable us to continue in operation until at least the end of the first quarter
of fiscal 2008. We anticipate that, thereafter, we will require additional funds
to continue marketing, production, and research and development activities, and
we will require outside funding if cash generated from operations is
insufficient to satisfy our liquidity requirements. However, our projections of
future cash needs and cash flows may differ from actual results. If current cash
and cash that may be generated from operations are insufficient to satisfy our
liquidity requirements, we may seek to sell debt or equity securities or to
obtain a line of credit prior to the first quarter of fiscal 2008. The sale of
additional equity securities or convertible debt could result in dilution to our
stockholders. We can give no assurance that we will be able to generate adequate
funds from operations, that funds will be available to us from debt or equity
financings or that, if available; we will be able to obtain such funds on
favorable terms and conditions. We currently have no arrangements with respect
to additional financing. If we cannot obtain such funds if needed, we would need
to curtail or cease some or all of our operations.

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

                  We are engaged in two principal operations: (i) the
development, production and marketing of our LVNDTM display and (ii) the
development, production and marketing of multi-functional encryption products
that provide information security for domestic and international users over
virtually every communications media. We have only recently started to produce
color and monochrome versions of our display and to date, we have not had any
revenue from sales or licensing of our display. Our encryption products are only
in their initial stages of commercial production. Our investments in research
and development are considerable. Our ability to generate sufficient revenues to
support our operations in the future or to generate profits will depend upon
numerous factors, many of which are beyond our control, including:

     o    Our ability to  successfully  market our line of LVNDTM  displays  and
          encryption products.

     o    The  capability  of Volga  to  produce  color  and  monochrome  LVNDTM
          displays and supply them to us.

     o    Our ability to enter into arrangements with other companies to produce
          and market our LVNDTM displays.

     o    Our production capabilities and those of our suppliers as required for
          the production of our encryption products.

     o    Long-term performance of our products.

     o    The capability of our dealers and  distributors to adequately  service
          our encryption products.

     o    Our ability to maintain an  acceptable  pricing level to end-users for
          both our encryption and display products.

     o    The ability of suppliers to meet our requirements and schedule.


                                       12
<PAGE>

     o    Our  ability  to   successfully   develop  other  new  products  under
          development.

     o    Rapidly changing consumer preferences.

     o    The possible development of competitive products that could render our
          products obsolete or unmarketable.

     o    Our future  negotiations with Volga with respect to payments and other
          arrangements under our Joint Cooperation Agreement with Volga.

                  Because our revenue is subject to fluctuation, we may be
unable to reduce operating expenses quickly enough to offset any unexpected
revenue shortfall. If we have a shortfall in revenue in relation to expenses,
our operating results would suffer. Our operating results for any particular
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.

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

                  Our future success is dependent on our ability to hire, retain
and motivate highly qualified personnel. In particular, our success depends on
the continued efforts of our Chief Executive Officer, Denis A. Krusos, and our
President, Frank J. DiSanto, who founded our company in 1982 and are engaged in
the management and operations of our business, including all aspects of the
development, production and marketing of our encryption products and flat panel
display technology. In addition, Messrs. Krusos and DiSanto, as well as our
other skilled management and technical personnel, are important to our future
business and financial arrangements. We do not have employment agreements with,
nor do we maintain "key person" life insurance on, either Mr. Krusos or Mr.
DiSanto. The loss of the services of any such persons could have a material
adverse effect on our business and operating results.

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

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

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

                  Our stock fits the definition of a penny stock. The SEC rules
regarding penny stocks may have the effect of reducing trading activity in our
common stock and making it more difficult for investors to sell their shares.
The rules require a broker to deliver a risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny


                                       13
<PAGE>

stock market. The broker must also give bid and offer quotations and broker and
salesperson compensation information to the customer orally or in writing prior
to effecting a transaction and in writing with the confirmation. The SEC rules
also require a broker to make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction before completion of the transaction. These
requirements may result in a lower trading volume of our common stock and lower
trading prices.

Item 1B. Unresolved Staff Comments.

                  None.

Item 2.           Properties.

                  We lease approximately 12,000 square feet of office and
laboratory research facilities at 900 Walt Whitman Road, Melville, New York (our
principal offices) from an unrelated party pursuant to a lease that expires
November 30, 2008. Our base rent is approximately $261,000 per annum with a 3%
annual increase and an escalation clause for increases in certain operating
costs. This lease does not contain provisions for its renewal and management
will continue to evaluate the future adequacy of this facility. We anticipate
securing a lease renewal for this facility at the end of the lease term if we
determine to remain there. See Note 10 to our Financial Statements.

                  We believe that the facilities described above are adequate
for our current requirements.

Item 3.           Legal Proceedings.

                  We are not a party to any material pending legal proceedings.

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

                  At our Annual Meeting of Stockholders, held on October 31,
2006, four directors were elected and the selection of Grant Thornton LLP,
independent registered public accountants, as our independent auditors for the
fiscal year ending October 31, 2006 was ratified. The following is a tabulation
of the voting with respect to the foregoing matters:

          (a) Election of Directors:

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

               Denis A. Krusos                86,690,952             3,126,688
               Frank J.  DiSanto              87,354,163             2,463,477
               Henry P. Herms                 87,510,607             2,307,033
               George P.  Larounis            87,497,607             2,320,033


                                       14
<PAGE>

         (b) Ratification of selection of Grant Thornton LLP as independent
auditors for the fiscal year ending October 31, 2006:

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

                  89,113,989                  428,306                 275,344


                                       15
<PAGE>

                                     PART II

Item 5.           Market for the Registrant's Common Equity, Related Stockholder
                  Matters and Issuer Purchases of Equity Securities.

                  Our common stock is traded on the Over-the-Counter Bulletin
Board, under the symbol "COPY". The high and low sales prices as reported by the
Over-the-Counter Bulletin Board for each quarterly fiscal period during our
fiscal years ended October 31, 2005 and 2006 have been as follows:

--------------------------------------------------------------------------------
             Fiscal Period                      High                      Low
--------------------------------------------------------------------------------
            1st quarter 2005                    $1.08                    $0.72
            2nd quarter 2005                     0.77                     0.43
            3rd quarter 2005                     0.67                     0.35
            4th quarter 2005                     0.68                     0.44
--------------------------------------------------------------------------------
            1st quarter 2006                     1.06                     0.52
            2nd quarter 2006                     1.09                     0.73
            3rd quarter 2006                     1.00                     0.62
            4th quarter 2006                    $0.70                    $0.51
--------------------------------------------------------------------------------

                  As of January 9, 2006, the approximate number of record
holders of our common stock was 1,354 and the closing price of our common stock
was $0.92 per share.

                  No cash dividends have been paid on our common stock since our
inception. We have no present intention to pay any cash dividends in the
foreseeable future.


                                       16
<PAGE>

Item 6.           Selected Financial Data.

                  The following selected financial data has been derived from
our audited Financial Statements and should be read in conjunction with those
statements, and the notes related thereto, which are included in this report.

                             As of and for the years ended October 31,
                    ------------------------------------------------------------
                           2006        2005        2004        2003        2002
--------------------------------------------------------------------------------
Revenue -
  Net Sales         $   508,651 $   439,785 $   494,462 $   244,221 $   645,027
  Collaborative
   agreement                  -           -           -           -   4,541,667
                    ------------------------------------------------------------
    Total revenue       508,651     439,785     494,462     244,221   5,186,694
--------------------------------------------------------------------------------
Cost of revenue -
  Cost of goods and
   services sold        156,446     132,966     176,112     123,140     327,056
  Provision for
   excess inventory           -     586,662           -      52,804     100,000
  Collaborative
   agreement                  -           -           -           -   1,444,002
                    ------------------------------------------------------------
    Total cost of
     revenue            156,446     719,628     176,112     175,944   1,871,058
--------------------------------------------------------------------------------
Gross Profit (Loss)     352,205    (279,843)    318,350      68,277   3,315,636
--------------------------------------------------------------------------------
Research and
 Development
 Expenses             4,614,300   2,266,911   2,164,427   1,807,742   1,625,974
--------------------------------------------------------------------------------
Selling, General and
 Administrative
 Expenses             3,365,521   1,919,010   1,518,911   1,379,614   2,177,608
--------------------------------------------------------------------------------
Impairment Loss on
 Commercial Trade
 Barter Credits               -           -           -           -   2,820,800
--------------------------------------------------------------------------------
Interest Income          26,715      14,507       4,333       4,668      23,506
--------------------------------------------------------------------------------
Net Loss             (7,600,901) (4,451,257) (3,360,655) (3,114,411) (3,285,240)
--------------------------------------------------------------------------------
Net Loss Per Share
 of Common Stock -
 Basic and Diluted        ($.08)      ($.05)      ($.04)      ($.04)      ($.05)
--------------------------------------------------------------------------------
Total Assets          1,863,629   1,466,253   2,316,050   2,330,491   2,731,509
--------------------------------------------------------------------------------
Long Term
 Obligations                  -           -           -           -           -
--------------------------------------------------------------------------------
Shareholders' Equity  1,281,841   1,118,023   1,872,930   1,988,206   2,317,490
--------------------------------------------------------------------------------
Cash Dividends Per
 Share of Common
 Stock                        -           -           -           -           -
--------------------------------------------------------------------------------


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


                                       17
<PAGE>

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 the heading "Item 1A. Risk Factors." 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 are the development, production and
marketing of a thin, flat low-voltage phosphor display (our "LVNDTM display")
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 fiscal 2006, we continued to develop our LVNDTM display
technology. Our LVNDTM display incorporates a proprietary thin film technology
(TFT)-based pixel matrix electron control system ("PMECS") that can operate with
virtually any electron emission system. We use different types of proprietary
electron emission systems, including carbon nanotubes, both reflective and
non-reflective planar edge, and thin films. The different emission systems are
suitable for different display application requirements. Our LVNDTM displays
incorporating PMECS consist of two thin glass substrates. Using our unique rapid
low temperature and low profile vacuum technology, we create a vacuum between
the substrates and seal them. The PMECS, which is located on one of the
substrates, is being exclusively produced for us by an Asian company utilizing
its mass production TFT LCD (liquid crystal display) facilities. We have
demonstrated our LVNDTM display technology by exhibiting it at display
symposiums and through private demonstrations to potentially interested
companies. We have presented the LVNDTM display's capabilities and features by
showing TV programs and movies from DVD players.

                  We have continued to develop a variation of our LVND(TM)
display utilizing carbon nanotubes and proprietary low voltage color phosphors.
We have developed engineering models which demonstrate the display's ability to
show images from computers by controlling the brightness of selected individual
pixels utilizing our carbon nanotube display technology. The carbon nanotubes,
which are being supplied to us by a U.S. company, require a low voltage for
electron emission and are extremely small - approximately 10,000 times thinner
than the width of a human hair. The 5.5 inch (diagonal) display we developed has
960 x 234 pixels and utilizes a new memory-based active matrix thin film
technology (AMTFT) with each pixel phosphor activated by electrons emitted by a
proprietary carbon nanotube network located approximately 10 microns (1/10th of
a human hair) from the pixels. As a result, each pixel phosphor brightness is
controlled using a maximum of only 40 volts. The carbon nanotubes and
proprietary color phosphors are precisely placed and separated utilizing our
proprietary nanotube and phosphor deposition technology. The carbon nanotube
election emission display technology utilizes the same TFT color matrix
structures as the thin film electron emission technology.


                                       18
<PAGE>

                  Some other characteristics of our LVND(TM) display technology
are as follows:

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

     o    The display matrix, carbon nanotubes,  phosphors,  and drivers are all
          on one  substrate.  A second  substrate  is  utilized  only to allow a
          vacuum to be created within the display.

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

     o    Our LVNDTM  display has no  backlight.  Because power is only consumed
          when a pixel is turned on, low power is needed to  activate  the whole
          display. The display requires less than 1/5th the power required by an
          LCD.  This  low  power  consumption  could  potentially  allow  use of
          rechargeable   batteries   to  operate  TV   products   for   wireless
          applications  and  extend  the  battery  operation  time for  portable
          devices.

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

     o    Our  proprietary  AMTFT  matrix  structure  can be produced  utilizing
          existing mass production TFT LCD facilities.

     o    Our display  eliminates display flicker by having memory in each pixel
          and eliminates pixel cross-talk.

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

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


                                       19
<PAGE>

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

                  We believe our LVNDTM displays could potentially have a cost
similar to a CRT and thus less than current LCD or PDP displays (our display
does not contain a backlight, or color filter or polarizer, which represent a
substantial portion of the cost of an LCD). We are continuing to optimize our
LVND(TM) display technology performance including its reliability, size and
potential cost.

                  We are discussing our technology and business arrangements
with several companies that have expressed a desire to either produce portions
of our display or license our display for use in conjunction with their
products. Our Asian supplier has supplied us with 5.5 inch (diagonal) TFT color
matrix structures with 960 X 234 pixels which incorporate PMECS. We are now
producing, with the assistance of Volga Svet Ltd. ("Volga"), a Russian display
company that we have been working with for more than nine years, LVNDTM displays
using these structures in combination with our proprietary thin film electron
emission technology. We are working with Volga to perform acceptance tests on
our 5.5 inch (diagonal) display utilizing thin film electron emitters, based on
requests from car and truck producers in Russia for navigational and
informational purposes.

                  We have successfully tested our displays under various
environmental conditions. This included subjecting our displays to shock,
vibration, and operating temperatures from -40(degree)C to 85(degree)C. Our
displays are capable of operating under both sunlight and nighttime conditions.
As a result, we believe that our displays can meet performance requirements for
both outdoor and indoor applications.

                  Over the past year, we have directed our encryption marketing
efforts toward both the government and commercial security markets. Our
government market has been primarily handled by Boeing and its large
distributors of the Thuraya satellite phones. As a result, we have our security
products operating over the Thuraya network in the Middle East, Europe, and
Africa. Thuraya is scheduled to start providing, early next year, satellite
service to the Far East, which could potentially create larger marketing
opportunities for our encryption products. Our security products for the Thuraya
network are being used by government agencies, the military and domestic and
international non-governmental organizations (NGOs).

                  We have supplied USS-900, DCS-1400, and DCS-1200 products to
major Thuraya distributors for use by government agencies and NGOs in Middle
Eastern, European and African countries. We are hopeful that these recent
developments will lead to larger commitments for our security products. In
addition, we have supplied our USS-900AF automatic fax encryption product to a
major U.S. defense contractor to secure its worldwide fax communications and
have supplied our encryption solution to a major U.S. company to secure its
executive teleconferencing system.


                                       20
<PAGE>

                  We have an agreement with Boeing under which Boeing is the
exclusive distributor of 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. Boeing now
distributes 13 of our products. Boeing sells these products under the brand name
of Thuraya. We have also developed for Boeing a voice product to operate over
the Thuraya network having a higher level of security.

                  We are cooperating with Asia Pacific Satellite Industries
("APSI"), the supplier of the next generation voice and data handsets for the
Thuraya network, and with Boeing to integrate our encryption solution into
APSI's handset. As a first step, we have received samples of the next generation
satellite telephone from APSI and have designed an interconnect cable that
offers compatibility between the new phone and our current DCS-1200, DCS-1400
and USS-900T models. This solution has been tested by APSI, and is currently
under field testing by Boeing. We believe that the same interconnect cable will
provide compatibility with APSI's next generation cellular/satellite phone that
will be released shortly.

                  We also plan to develop, together with APSI and Boeing, a
small voice-only encryption device that will directly connect to the satellite
phone, offering simplified operation in a highly convenient package.

                  In connection with Boeing becoming the exclusive distributor
of certain of our products, Boeing authorized us to use its name on our website.
Accordingly, customers desiring to purchase these encryption products can find
authorized Boeing sales information on the "Encryption Products" page of our
website or on the Thuraya website at
http://www.thuraya.com/content/thuraya-products-boe.html. In May 2006, Boeing
demonstrated our encryption products to Thuraya service providers at the annual
Service Providers Conference.

                  Our encryption products also can be used to encrypt data over
the Globalstar network. Globalstar provides satellite voice and data service
throughout a world-wide coverage area. Our DCS-1200 and DCS-1400 encryption
devices are included on the Globalstar webpage,
http://www.globalstarusa.com/en/products /encryption.php.

                  We have developed a prototype hardware device to encrypt Short
Message Service ("SMS"), an inexpensive text message communication protocol that
is used in many cellular and satellite phones and networks. We currently plan to
utilize this encryption solution in conjunction with the Thuraya handsets, but
it can be used for data communications across other platforms as well.

                  Our products provide secure communications with many different
satellite phones, including the Thuraya 7100/7101 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


                                       21
<PAGE>

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
Fixed Docking Unit, and Sattrans's SAT-OFFICE Fixed Docking Unit and SAT-VDA
Hands-Free Car Kit.

                  We are continuing to pursue 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.

                  The TCP/IP encryption provided by our DCS-1700 is being
evaluated by firms that require secure data communications when using
multifunctional office products. The DCS-1700 secures the network or internet
connection between the multifunctional product and a corporate server,
protecting sensitive information during its transmission from origin to
destination.

                  A new DCS-1700 application that we are co-developing with
another organization is to provide encrypted TCP/IP communications between
computers and backup servers. The easy-to-use turnkey product could be utilized
by large organizations to facilitate the turnover of a computer from one
employee to another, or to upgrade the software on an employee's computer. The
automated system allows sensitive information, such as program license keys and
user databases, to be protected over the network or internet connections to the
controlling server.

                  We are investigating additional DCS-1700 applications in the
automobile industry. An interactive customer-friendly electronic selling device
is being designed by a company to help business managers monitor the automobile
sales process. CopyTele's encryption technology could help keep the customer's
financial information secure while the sales records are stored at the
dealership and during the sales process.

                  In February 2006, we licensed to Digital Info Security Co.,
Inc. ("DISC"), an encryption system that integrates our encryption technology
into DISC's secure e-mail services. DISC is now test marketing this system. The
system, our DCS-2200, is intended to allow companies to encrypt all e-mail
transactions in a manner transparent to the individual user. DISC is adding our
e-mail encryption system to their suite of management products and services,
which includes e-mail compliance and archiving, remote backup and recovery, and
Spam and antivirus protection functions.

                  The CopyTele DCS-2200 e-mail system consists of an
encryption/decryption module, which is used within Microsoft Outlook(R) to
transparently encrypt and decrypt e-mails at the source or destination, and an
e-mail server, which receives clear text or encrypted e-mail communication,
archives a copy and re-encrypts it for forwarding to the recipient. Archive
copies are saved in accordance with the tracking and monitoring requirements of
the Sarbanes-Oxley Act and Gramm-Leach-Bliley Act as well as other regulatory
requirements. In furtherance of the relationship between us and DISC, we
exchanged 100,000 shares of our common stock for 5,000,000 shares of DISC's
common stock in February 2006. Since then, we have purchased an additional
7,200,000 shares of DISC's common stock and exchanged an additional 300,000
shares of our common stock for an additional 5,000,000 shares of DISC's common
stock. As of January 9, 2007 we own approximately 14 percent of the outstanding
common stock of DISC.


                                       22
<PAGE>

                  We are continuing to seek patents to protect our encryption
technologies. We recently received a patent for a system to provide additional
security for information sent over any communication network.

                  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.
During the past year we have continued to direct our encryption 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 continuing to pursue marketing and
licensing opportunities for our display technology; however, to date, we have
not had any revenue from sales or licensing of our LVNDTM display. We anticipate
that current cash on hand, cash generated from operations, and cash generated
from the exercise of employee options will be adequate to fund our operations at
least through the end of the first quarter of fiscal 2008.

                  In reviewing Management's Discussion and Analysis of Financial
Condition and Results of Operations, you should refer to our Financial
Statements and the notes thereto.

Critical Accounting Policies

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

                  We believe the following critical accounting polices affect
the more significant judgments and estimates used in the preparation of our
financial statements.

         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


                                       23
<PAGE>

rendered; (iii) our price to the buyer is fixed or determinable; and (iv)
collectibility is reasonably assured.

         Inventories

                  Inventories are stated at the lower of cost, including
material, labor and overhead, determined on a first-in, first-out basis, or
market, which represents our best estimate of market value. We regularly review
inventory quantities on hand, particularly finished goods, and record a
provision for excess and obsolete inventory based primarily on forecasts of
future product demand. During fiscal 2005, we recorded a provision for excess
inventory due to changes in product requirements of approximately $587,000. Our
net loss is directly affected by management's estimate of the realizability of
inventories. To date, sales of our products have been limited. Accordingly,
there can be no assurance that we will not be required to reduce the selling
price of our inventory below our current carrying value in the future.

         Stock-Based Compensation

         Prior to November 1, 2005, we accounted for stock options granted to
employees and directors using the intrinsic value method prescribed in
Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued
to Employees" ("APB Opinion No. 25") and complied with the disclosure provision
of Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock Based Compensation" and SFAS No. 148 "Accounting for Stock Based
Compensation - Transition and Disclosure, an amendment of SFAS No. 123". In
December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No.
123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which addresses the
accounting for share-based payment transactions in which a company receives
employee services in exchange for either equity instruments of the company or
liabilities that are based on the fair value of the company's equity instruments
or that may be settled by the issuance of such equity instruments. SFAS No. 123R
eliminates the ability to account for share-based compensation transactions
using the intrinsic value method and requires that such transactions be
accounted for using a fair-value-based method and recognized as expense in the
statement of operations.

         Effective November 1, 2005, we adopted SFAS No. 123R. Under the fair
value recognition provisions of SFAS No. 123R, stock-based compensation cost is
estimated at the grant date based on the fair value of the award and is
recognized as an expense ratably over the requisite service period of the award.
We recorded approximately $2,973,000 of stock-based compensation expense,
related to stock options granted to employees and directors, for the year ended
October 31, 2006. Under the accounting method we followed prior to November 1,
2005, we did not record any stock-based compensation expense related to stock
options granted to employees and directors for the years ended October 31, 2005
and 2004. If we had included the cost of employee stock option compensation in
the financial statements for the years ended October 31, 2005 and 2004, our net
loss would have increased by approximately $2,805,000 and $2,909,000,
respectively, based on the fair value of the stock options granted to employees.
See Note 2 to the Financial Statements for additional information.


                                       24
<PAGE>

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

Results of Operations

Fiscal Year Ended October 31, 2006 Compared to Fiscal Year Ended October 31,
2005

         Net Sales and Gross Profit

                  Net Sales. Net sales increased by approximately $69,000 in
fiscal 2006, to approximately $509,000, as compared to approximately $440,000 in
fiscal 2005. All sales during both periods were from encryption products and
services. The increase in net sales was due to an increase in revenue from
encryption services of approximately $71,000 to approximately $131,000 in fiscal
2006, offset by a decrease in unit sales of encryption products of approximately
$2,000 to approximately $378,000 in fiscal 2006. The revenue from encryption
services in fiscal 2006 resulted from engineering services billed to DISC. Our
encryption sales have been limited and are sensitive to individual large
transactions. We believe that changes in sales of our encryption products
between periods generally represent the nature of the early stage of our product
and sales channel development. Revenue from sales of encryption services is
generally non-recurring due to the nature of the individual transactions.

                  Gross Profit (Loss). Gross profit (loss) from sales of
encryption products and services increased by approximately $632,000 in fiscal
2006, to a profit of approximately $352,000, as compared to a loss of
approximately $280,000 in fiscal 2005. The increase in gross profit is primarily
the result of the provision for excess inventory due to changes in product
requirements of approximately $587,000 recorded in fiscal 2005, compared to no
such provision in fiscal 2006, and the increased revenue from encryption
services in fiscal 2006. Gross profit as a percent of sales in fiscal 2006 was
approximately 69%. Gross profit (loss) as a percent of sales in fiscal 2005 is
not meaningful, since we recorded a loss, due to the inventory adjustment during
the year. Because of the limited number of transactions during each of the
periods, gross profit percentages, excluding the effect of inventory
adjustments, are sensitive to individual transactions.

         Research and Development Expenses

         Research and development expenses increased by approximately $2,347,000
in fiscal 2006, to approximately $4,614,000, from approximately $2,267,000 in
fiscal 2005. The increase in research and development expenses was principally
due to employee stock option compensation expense of approximately $2,028,000 in


                                       25
<PAGE>

fiscal 2006 compared to $-0- in fiscal 2005, an increase of approximately
$157,000 in outside research and development expense primarily relating to
development of our LVNDTM display technology, an increase in patent related
expenses of approximately $102,000 and an increase in employee compensation,
other than stock option expense, and related costs of approximately $68,000. The
employee stock option compensation expense included in our financial statements
in fiscal 2006 is a result of our adopting SFAS No. 123R, effective November 1,
2005.

         Selling, General and Administrative Expenses

                  Selling, general and administrative expenses increased by
approximately $1,447,000 to approximately $3,366,000 in fiscal 2006 from
approximately $1,919,000 in fiscal 2005. The increase in selling, general and
administrative expenses was principally due to employee stock option
compensation expense of approximately $945,000 in fiscal 2006 compared to $-0-
in fiscal 2005, an increase in professional fees of approximately $372,000 and
an increase in employee compensation, other than stock option expense, and
related costs of approximately $112,000. The employee stock option compensation
expense included in our financial statements in fiscal 2006 is a result of our
adopting SFAS No. 123R, effective November 1, 2005.

         Interest Income

         Interest income was approximately $27,000 in fiscal 2006, compared to
approximately $15,000 in the comparable prior-year period. The increase in
interest income was principally due to an increase in prevailing interest rates.

Fiscal Year Ended October 31, 2005 Compared to Fiscal Year Ended October 31,
2004

         Net Sales and Gross Profit

                  Net Sales. Net sales decreased by approximately $54,000 in
fiscal 2005, to approximately $440,000, as compared to approximately $494,000 in
fiscal 2004. All sales during both periods were from encryption products and
services. The decrease in net sales was principally due to a decrease in unit
sales of approximately $114,000, offset by an increase in revenue from
encryption services of approximately $60,000. Our encryption sales have been
limited and are sensitive to individual large transactions. We believe that
changes in sales of our encryption products between periods generally represent
the nature of the early stage of our product and sales channel development.
Revenue from sales of encryption services is generally non-recurring due to the
nature of the individual transactions.

                  Gross Profit (Loss). Gross profit (loss) from sales of
encryption products and services decreased by approximately $598,000 in fiscal
2005, to a loss of approximately $280,000, as compared to a gross profit of
approximately $318,000 in fiscal 2004. The decrease in gross profit was
primarily the result of the provision for excess inventory due to changes in
product requirements of approximately $587,000 recorded in fiscal 2005. The


                                       26
<PAGE>

decrease in gross profit also resulted from the decrease in net sales, which was
offset by the decrease in cost of sales from goods and products sold to
approximately $133,000 in fiscal 2005, as compared to approximately $176,000 in
fiscal 2004. Gross profit as a percent of sales in fiscal 2004 was approximately
64%. Gross profit (loss) as a percent of sales in fiscal 2005 is not meaningful,
since we recorded a loss, due to the inventory adjustment during the year.
Because of the limited number of transactions during each of the periods, gross
profit percentages, excluding the effect of inventory adjustments, are sensitive
to individual transactions.

         Research and Development Expenses

                  Research and development expenses increased by approximately
$103,000 in fiscal 2005, to approximately $2,267,000, from approximately
$2,164,000 in fiscal 2004. The increase in research and development expenses was
principally due to an increase in employee compensation and related costs of
approximately $262,000, primarily resulting from the grant of employee bonuses,
and an increase in patent related expenses of approximately $34,000, offset by a
decrease of approximately $192,000 in outside research and development expense
relating to our development of our flat panel display technology.

         Selling, General and Administrative Expenses

                  Selling, general and administrative expenses increased by
approximately $400,000 to approximately $1,919,000 in fiscal 2005 from
approximately $1,519,000 in fiscal 2004. The increase in selling, general and
administrative expenses was principally due to an increase in professional fees
of approximately $276,000, approximately $50,000 of which was incurred with
respect to a theft by a former employee (see "Investigation and Recovery Efforts
Regarding Misappropriated Funds"), an increase in employee compensation and
related costs of approximately $128,000 and a net increase in the provision for
doubtful accounts of approximately $111,000, offset a charge to expense of
approximately $75,000 in fiscal 2004 related to the theft by a former employee.
The net increase in the provision for doubtful accounts of approximately
$111,000 was due to a provision of approximately $38,000 in fiscal 2005 and a
decrease in the provision of approximately $73,000 in fiscal 2004 due to a
partial collection of the outstanding receivable to which the provision related.

         Interest Income

         Interest income was approximately $15,000 in fiscal 2005, compared to
approximately $4,000 in the comparable prior-year period. The increase in
interest income was principally due to an increase in prevailing interest rates
and the higher interest rates received on funds invested in certificates of
deposit in fiscal 2005.

Liquidity and Capital Resources

                  From our inception, we have met our liquidity and capital
expenditure needs primarily through the proceeds from sales of common stock in
our initial public offering, in private placements, upon exercise of warrants


                                       27
<PAGE>

issued in connection with the private placements and public offering, and upon
the exercise of stock options. In 2001 and 2002, we also received payments under
a technology development agreement. In addition, commencing in the fourth
quarter of fiscal 1999, we began to generate cash flows from sales of our
encryption products.

         During fiscal 2006, our cash used in operating activities was
approximately $1,847,000. This resulted from payments to suppliers, employees
and consultants of approximately $2,398,000, which was offset by cash of
approximately $524,000 received from collections of accounts receivable and
other receivables related to sales of encryption products and approximately
$27,000 of interest income received. Our cash provided by investing activities
during fiscal 2006 was approximately $242,000, which resulted from approximately
$761,000 received upon maturities of short-term investments consisting of
certificates of deposit, offset by purchases of short-term investments
consisting of certificates of deposit of approximately $398,000, disbursements
of $110,000 to acquire DISC common stock and purchases of approximately $11,000
of equipment. Our cash provided by financing activities during fiscal 2006 of
approximately $2,380,000 resulted from cash received upon the exercise of stock
options. Accordingly, during fiscal 2006 our cash and cash equivalents increased
by approximately $775,000 and our short-term investments decreased by
approximately $362,000. As a result, our cash, cash equivalents, and short-term
investments, at October 31, 2006 increased to approximately $1,320,000 from
approximately $907,000 at the end of fiscal 2005.

         Accounts receivable decreased by approximately $22,000 from
approximately $32,000 at the end of fiscal 2005 to approximately $10,000 at
October 31, 2006. The decrease in accounts receivable is a result of the timing
of collections. Inventories decreased approximately $124,000 from approximately
$385,000 at October 31, 2005 to approximately $261,000 at October 31, 2006, as a
result of the timing of shipments and production schedules. Prepaid expenses and
other current assets decreased by approximately $48,000 from approximately
$80,000 at the end of fiscal 2005 to approximately $32,000 at October 31, 2006.
The decrease in prepaid expenses and other assets is primarily due to prepaid
outside research and development expenses of approximately $50,000 as of October
31, 2005. Investments increased to $207,000 at October 31, 2006 compared to $-0-
at the end of fiscal 2005, due to investments in DISC. Other assets decreased
$24,000 from approximately $35,000 at the end of fiscal 2005 to approximately
$11,000 at October 31, 2006. The decrease in other assets is a result of a
provision for bad debts related to a specific receivable included in other
assets. Accounts payable and accrued liabilities increased by approximately
$234,000 from approximately $348,000 at the end of fiscal 2005 to approximately
$582,000 at October 31, 2006, as a result of increased professional fees payable
and the timing of payments.

                  As a result of these changes, working capital at October 31,
2006 decreased to approximately $1,041,000 from approximately $1,056,000 at the
end of fiscal 2005.


                                       28
<PAGE>

                  Our working capital includes inventory of approximately
$261,000 and $385,000 at October 31, 2006 and 2005, respectively. Management has
recorded our inventory at the lower of cost or our current best estimate of net
realizable value. During fiscal 2005, we recorded a provision for excess
inventory of approximately $587,000 due to changes in product requirements. To
date, sales of our products have been limited. Accordingly, there can be no
assurance that we will not be required to reduce the selling price of our
inventory below our current carrying value.

         During fiscal years ended October 31, 2006, 2005 and 2004, we issued
shares of common stock to certain employees for services rendered, principally
in lieu of cash compensation. We recorded compensation expense for the fiscal
years ended October 31, 2006, 2005 and 2004 of approximately $1,897,000,
$1,822,000 and $1,507,000, respectively, for shares of common stock issued to
employees. In addition during fiscal 2006, 2005 and 2004, we issued shares of
common stock to consultants for services rendered. We recorded consulting
expense for the fiscal years ended October 31, 2006, 2005 and 2004 of
approximately $287,000, $37,000 and $342,000, respectively, for shares of common
stock issued to consultants.

         During fiscal 2006, we recorded approximately $2,973,000 of stock-based
compensation expense, related to stock options granted to employees and
directors, for the year ended October 31, 2006. Under the accounting method we
followed prior to November 1, 2005, we did not record any stock-based
compensation expense related to stock options granted to employees and directors
for the years ended October 31, 2005 and 2004. If we had included the cost of
employee stock option compensation in the financial statements for the years
ended October 31, 2005 and 2004, our net loss would have increased by
approximately $2,805,000 and $2,909,000, respectively, based on the fair value
of the stock options granted to employees.

                  The auditor's report on our financial statements as of October
31, 2006 states that the net loss incurred during the year ended October 31,
2006, our accumulated deficit as of that date, and the other factors described
in Note 1 to the Financial Statements raise substantial doubt about our ability
to continue as a going concern. The auditor's report on our financial statements
for the years ended October 31, 2005 and 2004 contained a similar statement. Our
financial statements have been prepared assuming we will continue as a going
concern and do not include any adjustments that might result from the outcome of
this uncertainty

                  We believe that our existing cash and accounts receivable,
together with cash flows from expected sales of encryption products and flat
panel displays, and other potential sources of cash flows, will be sufficient to
enable us to continue in operation until at least the end of the first quarter
of fiscal 2008. We anticipate that, thereafter, we will require additional funds
to continue our marketing, production, and research and development activities,
and we will require outside funding if cash generated from operations is
insufficient to satisfy our liquidity requirements. However, our projections of
future cash needs and cash flows may differ from actual results. If current cash
and cash that may be generated from operations are insufficient to satisfy our
liquidity requirements, we may seek to sell debt or equity securities or to


                                       29
<PAGE>

obtain a line of credit prior to the first quarter of fiscal 2008. The sale of
additional equity securities or convertible debt could result in dilution to our
stockholders. We currently have no arrangements with respect to additional
financing. There can be no assurance that we will generate sufficient revenues
in the future (through sales or otherwise) to improve our liquidity or sustain
future operations, that our production capabilities will be adequate, that other
products will not be produced by other companies that will render our products
obsolete, or that funds will be available to us from debt or equity financings
or that, if available; we will be able to obtain such funds on favorable terms
and conditions. If we cannot obtain such funds if needed, we would need to
curtail or cease some or all of our operations.

                  We are seeking to improve our liquidity through increased
sales or license of products and technology. In an effort to generate sales, we
have marketed our encryption products directly to U.S. and international
distributors, dealers and original equipment manufacturers that market our
encryption products and to end-users. We have been working with several large
organizations to provide them with both our hardware and software encryption
solutions for them to evaluate whether the solutions meet their security
requirements and have begun supplying several major U.S. companies with our
encryption products. We are also continuing to pursue marketing and licensing
opportunities for our display technology; however, to date, we have not had any
revenue from sales or licensing of our LVNDTM display. During fiscal 2006, we
have recognized revenue from sales of encryption products and services of
approximately $509,000.

                  The following table presents our expected cash requirements
for contractual obligations outstanding as of October 31, 2006:

                                      Payments Due by Period
                   -------------------------------------------------------------
                      Less
Contractual           than          1-3         4-5        After
Obligations          1 year        years       years      5 years       Total
-----------------  -----------  -----------  ----------  ----------  -----------

Consulting
Agreement          $   43,000            -           -           -   $   43,000

Noncancelable
Operating Leases   $  268,000   $  299,000           -           -   $  567,000
                   -----------  -----------  ----------  ----------  -----------

Total Contractual
Cash Obligations   $  311,000   $  299,000           -           -   $  610,000
                   ===========  ===========  ==========  ==========  ===========

                  We have no variable interest entities or other off-balance
sheet obligation arrangements.


                                       30
<PAGE>

Investigation and Recovery Efforts Regarding Misappropriated Funds

                  In December 2004, we determined that a former accounting
employee embezzled funds from us. We initially conducted an internal
investigation, and subsequently engaged an independent accounting firm to
conduct an independent investigation of this matter. Through our internal
investigation, we determined that the amount embezzled by the employee during
fiscal 2004 and the first month of fiscal 2005 was approximately $189,000. We
also discovered approximately $4,000 in deposits to our account during these
periods that we believe were made by the employee in an effort to conceal his
fraudulent activity, for a net loss to us during this period of approximately
$185,000. The independent accounting firm agreed with this conclusion. The
independent accounting firm determined that the employee had committed
additional fraudulent activity during fiscal 2003, and we subsequently conducted
a further internal review of activity by the employee since his hiring in 2001
and determined that the employee had committed additional fraudulent activity in
fiscal 2002 and fiscal 2001, as well. The total losses from such activity during
fiscal 2003, 2002 and 2001 was approximately $28,000. The independent accounting
firm also agreed with these conclusions.

                  We have recovered approximately $110,000 of the losses through
insurance proceeds. We applied $100,000 of such recovery to fiscal 2004, and
recorded a charge to expense of approximately $75,000 in fiscal 2004,
representing the remainder of the fiscal 2004 loss. We applied the remaining
$10,000 of such recovery to fiscal 2005, representing the entire loss identified
in such period. During fiscal 2005, we also recovered approximately $4,000 from
financial institutions, which we recorded as a recovery when received. The
losses in fiscal 2001 through fiscal 2003 were the result of false expenses for
which no corresponding asset was received. Accordingly, such amounts were
previously expensed in the years such funds were embezzled. If we recover any
additional amounts, such amounts will be recorded as recoveries in future
periods when they are received. Based on the amount and nature of the
embezzlement and the expected recoveries, we do not believe that the fraudulent
activity had a material effect on any of our previously issued financial
statements.

                  We incurred  approximately  $50,000 of accounting  and other
professional  fees related to this matter during fiscal 2005.

Impact of Recent Accounting Pronouncements

                  In May 2005, the FASB issued SFAS No. 154, "Accounting Changes
and Error Corrections" ("SFAS 154"). SFAS 154 replaces the Accounting Principles
Board Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements," to require retrospective application
to prior periods' financial statements of changes in accounting principle. The
provisions of SFAS 154 are effective for accounting changes made in fiscal years
beginning after December 15, 2005. The adoption of SFAS 154 is not expected to
have a material effect on our financial statements.


                                       31
<PAGE>

         In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes," an interpretation of FASB Statement No. 109
("FIN 48"). FIN 48 clarifies the accounting for uncertainties in income taxes
recognized in an enterprise's financial statements. The interpretation requires
that the Company determine whether it is more likely than not that a tax
position will be sustained upon examination by the appropriate taxing authority.
If a tax position meets the more likely than not recognition criteria, FIN 48
requires the tax position be measured at the largest amount of benefit greater
than 50 percent likely of being realized upon ultimate settlement. This
accounting standard is effective for fiscal years beginning after December 15,
2006. The adoption of FIN 48 is not expected to have a material effect on our
financial statements.

         In September 2006, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 108, "Considering the Effects of Prior
Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements" ("SAB No. 108"). SAB No. 108 provides interpretative guidance on how
public companies quantify financial statement misstatements. There have been two
common approaches used to quantify such errors. Under an income statement
approach (the "roll-over" method) the error is quantified as the amount by which
the current year income statement is misstated. Alternatively, under a balance
sheet approach (the "iron curtain" method) the error is quantified as the
cumulative amount by which the current year balance sheet is misstated. In SAB
No. 108, the SEC established an approach that requires quantification of
financial statement misstatements based on the effects of the misstatements on
each of the company's financial statements and the related financial statement
disclosures. This model is commonly referred to as a "dual approach" because it
requires quantification of errors under both the roll-over and iron curtain
methods. SAB No. 108 is effective for annual financial statements covering the
first fiscal year ending after November 15, 2006. The adoption of SAB No. 108 is
not expected to have a material effect on our financial statements.

         In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements. The
provisions of SFAS 157 are effective for fiscal years beginning after November
15, 2007. The adoption of SFAS 157 is not expected to have a material effect on
our financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

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


                                       32
<PAGE>

Item 8.           Financial Statements and Supplementary Data.

                  See accompanying "Index to Financial Statements."

Item 9.           Changes in and Disagreements With Accountants on Accounting
                  and Financial Disclosure.

                  None.

Item 9A.          Controls and Procedures

Disclosure Controls and Procedures

                  We carried out an evaluation, under the supervision and with
the participation of our management, including our Chairman of the Board and
Chief Executive Officer and our Chief Financial Officer and Vice President -
Finance, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13-15(b) of the Securities Exchange Act
of 1934, as amended. Based upon that evaluation, the Chairman of the Board and
Chief Executive Officer and the Chief Financial Officer and Vice President -
Finance concluded that our disclosure controls and procedures were effective as
of the end of fiscal 2006.

Management's Report on Internal Control Over Financial Reporting

                  Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
the Securities and Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.

                  Our management has assessed the effectiveness of our internal
control over financial reporting as of October 31, 2006. This assessment of our
internal control over financial reporting used the criteria for effective
internal control established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this assessment, our management concluded that our internal control over
financial reporting was effective as of October 31, 2006.

                  Management's assessment of the effectiveness of our internal
control over financial reporting as of October 31, 2006, has been audited by
Grant Thornton LLP, an independent registered public accounting firm, as stated
in their report below.

Change in Internal Control Over Financial Reporting

         There was no change in our internal control over financial reporting
during the fourth quarter of fiscal 2006 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.


                                       33
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
   CopyTele, Inc.

We have audited management's assessment, included in the accompanying Management
Report on Internal Control Over Financial Reporting, that CopyTele, Inc.
maintained effective internal control over financial reporting as of October 31,
2006, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the "COSO criteria"). The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.


                                       34
<PAGE>

In our opinion, management's assessment that CopyTele, Inc. maintained effective
internal control over financial reporting as of October 31, 2006, is fairly
stated, in all material respects, based on the COSO criteria. Also, in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of October 31, 2006, based on the COSO
criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the balance sheets of the Company as
of October 31, 2006 and 2005, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended October 31, 2006, and our report dated January 11, 2007
expressed an unqualified opinion thereon and included an explanatory paragraph
as to the uncertainty of the Company's ability to continue as a going concern.


/s/ GRANT THORNTON LLP

Melville, New York
January 11, 2007


Item 9B.          Other Information.

                  None.


                                       35
<PAGE>

                                    PART III

Item 10.          Directors and Executive Officers of the Registrant.

                  The following table sets forth certain information with
respect to all of our directors and executive officers:

                                                               Director and/or
       Name           Position with the Company and      Age       Executive
                           Principal Occupation                  Officer Since
--------------------------------------------------------------------------------
Denis A. Krusos     Director, Chairman of the Board
                     and Chief Executive Officer         79           1982
--------------------------------------------------------------------------------
Frank J. DiSanto    Director and President               82           1982
--------------------------------------------------------------------------------
Henry P. Herms      Director, Chief Financial Officer
                     and Vice President - Finance        61           2000
--------------------------------------------------------------------------------
George P. Larounis  Director                             78           1997
--------------------------------------------------------------------------------

                  Mr. Krusos has served as one of our Directors and as our
Chairman of the Board and Chief Executive Officer since November 1982. He holds
an M.S.E.E. degree from Newark College of Engineering, a B.E.E. degree from City
College of New York and a J.D. degree from St. John's University.

                  Mr. DiSanto has served as one of our Directors and as our
President since November 1982. He holds a B.E.E. degree from Polytechnic
Institute of Brooklyn and an M.E.E. degree from New York University.

                  Mr. Herms has served as our Chief Financial Officer and Vice
President - Finance since November 2000 and as one of our Directors since August
2001. Mr. Herms was also our Chief Financial Officer from 1982 to 1987. He is
also a former audit manager with the firm of Arthur Andersen LLP and a CPA. He
holds a B.B.A. degree from Adelphi University.

                  Mr. Larounis has served as one of our Directors since
September 1997, prior to which he served as a consultant to us. Mr. Larounis is
currently retired. From 1960 to 1993, he held numerous positions as a senior
international executive of The Bendix Corporation and Allied Signal Inc., which
is now known as Honeywell International, Inc. He has also served on the Boards
of Directors of numerous affiliates of Allied Signal in Europe, Asia and
Australia. He holds a B.E.E. degree from the University of Michigan and a J.D.
degree from New York University.


                                       36
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

                  Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires our directors, executive officers and ten
percent stockholders to file initial reports of ownership and reports of changes
in ownership of our common stock with the Securities and Exchange Commission
("SEC"). Directors, executive officers and ten percent stockholders are required
to furnish us with copies of all Section 16(a) forms that they file. Based upon
a review of these filings, we believe that all required Section 16(a) reports
were made on a timely basis during fiscal year 2006, except that Frank J.
DiSanto failed to timely file reports with respect to four transactions during
the period from October 6, 2006 through October 10, 2006. Such transactions
involved shares sold at the direction of Edward A. Ambrosino, a receiver for
certain of Mr. DiSanto's assets appointed in a divorce proceeding, pursuant to a
court order authorizing Mr. Ambrosino to cause the sale of such shares. Although
Mr. DiSanto made numerous requests of Mr. Ambrosino to provide the information
necessary for filing on a timely basis, the information was first provided by
Mr. Ambrosino on December 5, 2006, at which date Mr. DiSanto completed the
filing.

Code of Ethics

                  In July 2005, our Board of Directors adopted a formal code of
ethics that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller or persons performing
similar functions. We will provide to any person without charge, upon request, a
copy of such code of ethics. Requests may be made in writing at CopyTele, Inc.,
900 Walt Whitman Road, Melville, New York 11747, Attn: Secretary, or by
telephone at 631-549-5900.

Audit Committee Financial Expert

                  The Securities and Exchange Commission has adopted rules
implementing Section 407 of the Sarbanes-Oxley Act of 2002 requiring public
companies to disclose information about "audit committee financial experts." We
do not have a standing Audit Committee. The functions of the Audit Committee
have been assumed by our full Board of Directors. Our Board of Directors has not
concluded that Mr. Larounis, the sole non-management director, meets the
definition of "audit committee financial expert." The Securities and Exchange
Commission's rules do not require us to have an audit committee financial
expert, and our Board of Directors has determined that it possesses sufficient
financial expertise to effectively discharge its obligations.

Item 11.          Executive Compensation.

                  Messrs. Denis A. Krusos, Chairman of the Board, Chief
Executive Officer and Director, Frank J. DiSanto, President and Director, and
Henry P. Herms, Chief Financial Officer, Vice President - Finance and Director,
are our executive officers. Mr. Krusos and Mr. Herms were the only executive
officers to receive an annual salary and bonus in excess of $100,000 during the
fiscal year ended October 31, 2006. We do not have employment agreements with


                                       37
<PAGE>

any of Mssrs. Krusos, DiSanto, and Herms. The following is compensation
information regarding Mr. Krusos and Mr. Herms for the fiscal years ended
October 31, 2006, 2005 and 2004:

--------------------------------------------------------------------------------
                           SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
                                      Fiscal
              Name and                 Year      Annual          Long-Term
         Principal Position           Ended   Compensation  Compensation Awards
--------------------------------------------------------------------------------
                                               Salary (1)  Securities Underlying
                                                                Options (#)
--------------------------------------------------------------------------------
Denis A. Krusos,                     10/31/06     $170,400      1,000,000
Chairman of the Board,               10/31/05     $147,200      2,500,000
Chief Executive Officer and Director 10/31/04     $135,075      1,750,000
--------------------------------------------------------------------------------
Henry P. Herms                       10/31/06     $111,532        50,000
Chief Financial Officer, Vice        10/31/05     $100,000       200,000
 President- Finance and Director     10/31/04      $98,750       120,000
--------------------------------------------------------------------------------

         (1)      The salary received by Mr. Krusos in fiscal 2006, 2005 and
                  2004 included approximately $80,000, $97,000 and $135,000,
                  respectively, which was paid in the form of common stock. The
                  salary received by Mr. Herms in fiscal 2006, 2005 and 2004
                  included approximately $8,000, $8,000 and $19,000,
                  respectively, which was paid in the form of common stock.

                  The following is information regarding stock options granted
to Mr. Krusos and Mr. Herms pursuant to the 2003 Share Incentive Plan, during
the fiscal year ended October 31, 2006:

<TABLE>
<CAPTION>
<S>              <C>                <C>           <C>          <C>          <C>       <C>
-------------------------------------------------------------------------------------------------
                                OPTION GRANTS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------------------------
                            Individual Grants                              Potential Realizable
                                                                              Value at Assumed
                                                                            Annual Rates of Stock
                                                                             Price Appreciation
                                                                               for Option Term
-------------------------------------------------------------------------  ----------------------
                                  Percent of
                   Number of         Total
                   Securities       Options
                   Underlying     Granted to     Exercise
                    Options       Employees in     Price      Expiration
      Name         Granted (#)    Fiscal Year    ($/Share)       Date       5% ($)     10% ($)
-------------------------------------------------------------------------------------------------
Denis A. Krusos  1,000,000 (1)      13.82%       $0.83 (2)     5/31/16     $521,983  $1,322,807
-------------------------------------------------------------------------------------------------
Henry P. Herms     50,000 (1)        .69%        $0.83 (2)     5/31/16     $26,100     $66,142
-------------------------------------------------------------------------------------------------
</TABLE>


         (1)      Options granted pursuant to the 2003 Share Incentive Plan,
                  which are exercisable in whole or in part on the date of
                  grant. The options are not issued in tandem with stock
                  appreciation or similar rights and are not transferable other
                  than by will or the laws of descent and distribution. The
                  options terminate upon termination of employment, except that
                  in the case of death, disability or termination for reasons
                  other than cause, options may be exercised for certain periods
                  of time thereafter as set forth in the 2003 Share Incentive
                  Plan.


                                       38
<PAGE>

(2)               The exercise price of these options was equal to the fair
                  market value (closing price) of the underlying common stock on
                  the date of grant. These options are nonqualified options.

                  The following is information regarding stock option exercises
during fiscal 2006 by Mr. Krusos and Mr. Herms and the values of their options
as of October 31, 2006:

<TABLE>
<CAPTION>
<S>                 <C>          <C>        <C>                 <C>            <C>               <C>
----------------------------------------------------------------------------------------------------------
                           AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                           FY-END OPTION VALUES
----------------------------------------------------------------------------------------------------------
                  Shares                  Number of Securities Underlying   Value of Unexercised In-the-
                Acquired on    Value       Unexercised Options at Fiscal    Money Options at Fiscal Year
     Name       Exercise (#) Realized ($)           Year End (#)                     End ($) (1)
                                          -------------------------------  -------------------------------
                                            Exercisable    Unexercisable     Exercisable    Unexercisable
----------------------------------------- -------------------------------  -------------------------------
Denis A. Krusos     -            -          8,725,000           -             $707,500           -
----------------------------------------- -------------------------------  -------------------------------
Henry P. Herms      -            -           820,000            -             $94,000            -
----------------------------------------- -------------------------------  -------------------------------
</TABLE>

         (1)      Such value was determined by multiplying the net difference
                  between the last sales price of the stock on October 31, 2006
                  and the exercise price for the options by the number of
                  unexercised in-the-money options held.

                  There is no present arrangement for cash compensation of
directors for services in that capacity. Under the 2003 Share Incentive Plan,
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. Accordingly, Mr. Larounis was granted options to
purchase 60,000 shares of common stock upon his reelection in fiscal 2006. Mr.
Larounis was also granted nonqualified stock options to purchase an additional
160,000 shares of common stock for services as a director during fiscal 2006.

Item 12.          Security Ownership of Certain Beneficial Owners and
                  Management.

                  The following table sets forth certain information with
respect to our common stock beneficially owned as of January 9, 2007 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:


                                       39
<PAGE>

--------------------------------------------------------------------------------
                                            Amount and Nature of
                                                 Beneficial        Percent of
    Name and Address of Beneficial Owner       Ownership(1)(2)         Class
================================================================================
Denis A. Krusos
900 Walt Whitman Road
Melville, NY 11747                               10,821,130           9.79%
--------------------------------------------------------------------------------
Frank J. DiSanto
900 Walt Whitman Road
Melville, NY 11747                               2,248,000            2.17%
--------------------------------------------------------------------------------
Henry P. Herms                                                          *
900 Walt Whitman Road
Melville, NY 11747                                881,575
--------------------------------------------------------------------------------
George P. Larounis                                                      *
900 Walt Whitman Road
Melville, NY 11747                                560,000
--------------------------------------------------------------------------------
All Directors and Executive Officers as a
 Group (4 persons)                               14,510,705           12.71%
--------------------------------------------------------------------------------

                  *  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, 2,248,000 shares, 870,000 shares,
                  560,000 shares and 12,778,000 shares which Denis A. Krusos,
                  Frank J. DiSanto, 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.

Equity Compensation Plan Information

                  The following is information as of October 31, 2006 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 8 to Financial Statements for more
information on these plans.


                                       40
<PAGE>

                                                           Number of securities
                         Number of                          remaining available
                      securities to be   Weighted average   for future issuance
                        issued upon       exercise price       under equity
                        exercise of       of outstanding    compensation plans
                        outstanding          options,           (excluding
                      options, warrants    warrants and     securities reflected
   Plan category         and rights           rights           in column (a))
-------------------  ------------------  ----------------  ---------------------
                            (a)                (b)                  (c)
Equity compensation      6,435,466            $2.31               21,508
 plans approved by
 security holders
Equity compensation     16,092,475            $0.65             5,993,777
 plans not approved
 by security
 holders
Total                   22,527,941            $1.13             6,015,285


Item 13. Certain Relationships and Related Transactions.

                  None.

Item 14. Principal Accountant Audit Fees and Services.

                   The following table describes fees for professional audit
services rendered by Grant Thornton LLP, our present independent registered
public accounting firm and principal accountant, for the audit of our annual
financial statements and for other services for the years ended October 31,
2006, and 2005.

          Type of Fee                  2006              2005
-------------------------------   --------------    --------------

Audit Fees                         $    396,622      $    219,854
Audit Related Fees (1)                   18,274             7,800
Tax Fees - Tax return review                  -                 -
All Other Fees                                -                 -
                                  --------------    --------------
Total                              $    414,896      $    227,654
                                  ==============    ==============

     (1)  Audit related fees consist of fees related to registration  statements
          filed in connection with our 2003 Share Incentive Plan.

Procedures For Board of Directors Pre-Approval of Audit and Permissible Non-
Audit Services of Independent Auditor

                  Our Board of Directors is responsible for reviewing and
approving, in advance, any audit and any permissible non-audit engagement or
relationship between us and our independent registered public accounting firm.
Grant Thornton LLP's engagement to conduct our audit was approved by the Board
of Directors on September 5, 2006. We did not enter into any non-audit
engagement or relationship with Grant Thornton LLP during fiscal 2006.


                                       41
<PAGE>

                                     PART IV

Item 15.          Exhibits and Financial Statement Schedules

         (a)(1)(2) Financial Statement Schedules

                  See accompanying "Index to 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).

                  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).


                                       42
<PAGE>

                  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      By-laws, as amended.  (Incorporated by reference to
                           Exhibit 3.2 to our Form 10-K for the fiscal year
                           ended October 31, 2005.)

                  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     Stock Subscription Agreement dated April 27, 1999,
                           including form of Warrant, between CopyTele, Inc. and
                           Lewis H. Titterton. (Incorporated by reference to
                           Form 10-Q for the fiscal quarter ended April 30,
                           1999.)

                  10.6     Agreement dated July 28, 1999, among CopyTele, Inc.,
                           Harris Corporation and RF Communications.
                           (Incorporated by reference to Form 8-K dated July 28,
                           1999.)

                  10.7     Stock Subscription Agreement dated August 30, 1999,
                           including form of Warrant, between CopyTele, Inc. and
                           Lewis H. Titterton.  (Incorporated by reference to
                           Form 10-K for the fiscal year ended October 31,
                           1999.)

                  10.8     CopyTele, Inc. 2000 Share Incentive Plan.
                           (Incorporated by reference to Annex A of our Proxy
                           Statement dated June 12, 2000.)


                                       43
<PAGE>

                  10.9     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.)

                  10.10    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.)

                  10.11    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.)

                  10.12    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.)

                  10.13    CopyTele, Inc. 2003 Share Incentive Plan.
                           (Incorporated by reference to Exhibit 4 to our Form
                           S-8 dated May 5, 2003).

                  10.14    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).

                  10.15    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).

                  10.16    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).

                  10.17    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).

                  10.18    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).


                                       44
<PAGE>

                  10.19    Long Term Agreement dated April 2, 2004 between
                           CopyTele, Inc. and Boeing Satellite Systems
                           International, Inc., as modified September 16, 2004.
                           (Incorporated by reference to Exhibit 10.17 to our
                           Annual Report on Form 10-K for the fiscal year ended
                           October 31, 2004.)

                  23.1     Consent of Grant Thornton LLP.  (Filed herewith.)

                  31.1     Certification of Chief Executive Officer, pursuant to
                           Section 302 of the Sarbanes-Oxley Act of 2002, dated
                           January 16, 2007.  (Filed herewith.)

                  31.2     Certification of Chief Financial Officer, pursuant to
                           Section 302 of the Sarbanes-Oxley Act of 2002, dated
                           January 16, 2007.  (Filed herewith.)

                  32.1     Statement of Chief Executive Officer, pursuant to
                           Section 1350 of Title 18 of the United States Code,
                           dated January 16, 2007.  (Filed herewith.)

                  31.2     Statement of Chief Financial Officer, pursuant to
                           Section 1350 of Title 18 of the United States Code,
                           dated January 16, 2007.  (Filed herewith.)


                                       45
<PAGE>

                                   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
January 16, 2007                          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
                                          and Director (Principal Executive
January 16, 2007                          Officer)

                                      By: /s/ Frank J. DiSanto
                                              -----------------------
                                          Frank J. DiSanto
January 16, 2007                          President and Director

                                      By: /s/ Henry P. Herms
                                              -----------------------
                                          Henry P. Herms
                                          Vice President - Finance,
                                          Chief Financial Officer and
                                          Director (Principal Financial
January 16, 2007                          and Accounting Officer)

                                      By: /s/ George P. Larounis
                                              -----------------------
                                          George P. Larounis
January 16, 2007                          Director



                                       46
<PAGE>

COPYTELE, INC.


INDEX TO FINANCIAL STATEMENTS
OCTOBER 31, 2006

<TABLE>
<CAPTION>
                                                                                                   Page
<S>                                                                                                 <C>
Report of Independent Registered Public Accounting Firm: Grant Thornton LLP                        F-1
Balance Sheets as of October 31, 2006 and 2005                                                     F-2
Statements of Operations for the years ended October 31, 2006, 2005 and 2004                       F-3
Statement of Shareholders' Equity for the years ended October 31, 2006, 2005 and 2004              F-4
Statements of Cash Flows for the years ended October 31, 2006, 2005 and 2004                       F-5
Notes to Financial Statements                                                                   F-6 - F-24
Schedule of Valuation and Qualifying Accounts                                                      S-1
</TABLE>


Additional information required by schedules called for under Regulation S-X is
either not applicable or is included in the financial statements or notes
thereto.


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
CopyTele, Inc.

We have audited the accompanying balance sheets of CopyTele, Inc. as of October
31, 2006 and 2005, and the related statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended October
31, 2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CopyTele, Inc. as of October
31, 2006 and 2005, and the results of its operations and cash flows for each of
the three years in the period ended October 31, 2006, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred a net loss of approximately $7,601,000 during the year
ended October 31, 2006, and, as of that date, the Company has an accumulated
deficit of approximately $80,509,000. These and the other factors described in
Note 1 raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of October 31, 2006, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and
our report dated January 11, 2007 expressed an unqualified opinion on
management's assessment of the effectiveness of internal control over financial
reporting and an unqualifed opinion on the effectiveness of internal control
over financial reporting.

We have also audited the financial statement schedule listed in the Index at
Item 15(a) (2). In our opinion, this schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information therein.


/s/ GRANT THORNTON LLP

Melville, New York
January 11, 2007


                                       F-1
<PAGE>

COPYTELE, INC.

BALANCE SHEETS


                                                     October 31,    October 31,
                     ASSETS                             2006           2005
------------------------------------------------    -------------  -------------

CURRENT ASSETS:
  Cash and cash equivalents                         $  1,281,660   $    506,517
  Short-term investments                                  38,000        400,776
  Accounts receivable                                     10,165         32,117
  Inventories                                            260,823        384,996
  Prepaid expenses and other current assets               32,011         79,829
                                                    -------------  -------------

              Total current assets                     1,622,659      1,404,235

PROPERTY AND EQUIPMENT, net of accumulated
 depreciation and amortization of $2,130,786 and
 $2,115,714, respectively                                 23,083         27,131

INVESTMENT, at cost                                      207,000              -

OTHER ASSETS                                              10,887         34,887
                                                    -------------  -------------
                                                    $  1,863,629   $  1,466,253
                                                    =============  =============

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

CURRENT LIABILITIES:
 Accounts payable                                   $    532,707   $    270,806
 Accrued liabilities                                      49,081         77,424
                                                    -------------  -------------

              Total current liabilities                  581,788        348,230

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Preferred stock, par value $100 per share;
   500,000 shares authorized; no shares issued
   or outstanding                                              -              -
  Common stock, par value $.01 per share;
   240,000,000 shares authorized; 99,260,395 and
   91,975,538 shares issued and outstanding,
   respectively                                          992,604        919,755
  Additional paid-in capital                          80,797,756     73,105,886
  Accumulated deficit                                (80,508,519)   (72,907,618)
                                                    -------------  -------------
                                                       1,281,841      1,118,023
                                                    -------------  -------------
                                                    $  1,863,629   $  1,466,253
                                                    =============  =============


The accompanying notes are an integral part of these statements.


                                       F-2
<PAGE>

COPYTELE, INC.

STATEMENTS OF OPERATIONS


                                             For the Years Ended October 31,
                                        ----------------------------------------
                                            2006          2005          2004
                                        ------------  ------------  ------------

NET SALES                               $   508,651   $   439,785   $   494,462
                                        ------------  ------------  ------------

COST OF SALES
  Cost of goods and services sold           156,446       132,966       176,112
  Provision for excess inventory                  -       586,662             -
                                        ------------  ------------  ------------
              Total costs of sales          156,446       719,628       176,112
                                        ------------  ------------  ------------

              Gross profit (loss)           352,205      (279,843)      318,350

OPERATING EXPENSES
  Research and development expenses       4,614,300     2,266,911     2,164,427
  Selling, general and administrative
   expenses                               3,365,521     1,919,010     1,518,911
                                        ------------  ------------  ------------
              Total operating expenses    7,979,821     4,185,921     3,683,338
                                        ------------  ------------  ------------

LOSS FROM OPERATIONS                     (7,627,616)   (4,465,764)   (3,364,988)

INTEREST INCOME                              26,715        14,507         4,333
                                        ------------  ------------  ------------

NET LOSS                                $(7,600,901)  $(4,451,257)  $(3,360,655)
                                        ============  ============  ============


PER SHARE INFORMATION:
Net loss per share:
  Basic and Diluted                     $     (.08 )  $     (.05 )  $     (.04 )
                                        ============  ============  ============

Shares used in computing net loss per
 share:
  Basic and Diluted                      95,291,780    88,480,379    82,953,519
                                        ============  ============  ============


The accompanying notes are an integral part of these statements.


                                       F-3
<PAGE>

COPYTELE, INC.

STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2006, 2005 AND 2004


<TABLE>
<CAPTION>
<S>                                                  <C>            <C>         <C>            <C>
                                                          Common Stock         Additional     Accumulated
                                                     -----------------------     Paid-in        Deficit
                                                       Shares     Par Value      Capital
                                                     ------------ -----------  -------------  -------------

BALANCE, October 31, 2003                             80,151,478     801,515     66,282,397    (65,095,706)

  Stock option compensation to consultants                     -           -        196,691              -
  Common stock issued upon exercise of stock options
   under stock option plans                            2,236,500      22,365      1,177,605              -
  Common stock issued to employees pursuant to stock
   incentive plans                                     2,491,415      24,914      1,481,679              -
  Common stock issued to consultants pursuant to
   stock incentive plans                                 643,860       6,439        335,686              -
  Net loss                                                     -           -              -     (3,360,655)
                                                     ------------ -----------  -------------  -------------

BALANCE, October 31, 2004                             85,523,253     855,233     69,474,058    (68,456,361)

  Stock option compensation to consultants                     -           -         93,349              -
  Common stock issued upon exercise of stock options
   under stock option plans                            3,083,800      30,838      1,597,762              -
  Common stock issued to employees pursuant to stock
   incentive plans                                     3,129,485      31,294      1,790,335              -
  Common stock issued to consultants pursuant to
   stock incentive plans                                  60,000         600         36,800              -
  Unregistered common stock issued to consultants        179,000       1,790        113,582
  Net loss                                                     -           -              -     (4,451,257)
                                                     ------------ -----------  -------------  -------------

BALANCE, October 31, 2005                             91,975,538     919,755     73,105,886    (72,907,618)

  Stock option compensation to employees                       -           -      2,972,793              -
  Stock option compensation to consultants                     -           -        130,724              -
  Common stock issued upon exercise of stock options
   under stock option plans                            4,147,725      41,478      2,339,021              -
  Common stock issued to employees pursuant to stock
   incentive plans                                     2,670,010      26,700      1,869,879              -
  Common stock issued to consultants pursuant to
   stock incentive plans                                 367,122       3,671        283,453              -
  Unregistered common stock issued to Digital Info
   Security CO., Inc.                                    100,000       1,000         96,000
  Net loss                                                     -           -              -     (7,600,901)
                                                     ------------ -----------  -------------  -------------

BALANCE, October 31, 2006                            $99,260,395  $  992,604   $ 80,797,756   $(80,508,519)
                                                     ============ ===========  =============  =============
</TABLE>


The accompanying notes are an integral part of this statement.


                                       F-4
<PAGE>

COPYTELE, INC.

STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
<S>                                                         <C>             <C>             <C>
                                                               For the Years Ended October 31,
                                                        ----------------------------------------------
                                                                 2006            2005            2004
                                                        --------------  --------------  --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Payments to suppliers, employees and consultants      $  (2,398,142)  $  (2,216,270)  $  (1,792,103)
  Cash received from customers                                524,319         481,431         582,648
  Interest received                                            26,715          14,507           4,333
                                                        --------------  --------------  --------------
        Net cash used in operating activities              (1,847,108)     (1,720,332)     (1,205,122)
                                                        --------------  --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from maturities of short-term investments
   (certificates of deposit)                                  760,776               -               -
  Disbursements to acquire short-term investments
   (certificates of deposit)                                 (398,000)       (400,776)              -
  Disbursements to acquire Digital Info Security Co.,
   Inc. common stock                                         (110,000)              -               -
  Payments for purchases of property and equipment            (11,024)         (3,752)        (15,602)
                                                        --------------  --------------  --------------
        Net cash provided by (used in) investing
         activities                                           241,752        (404,528)        (15,602)
                                                        --------------  --------------  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from exercise of stock options, net of
   registration disbursements                               2,380,499       1,628,600       1,199,970
                                                        --------------  --------------  --------------
        Net cash provided by financing activities           2,380,499       1,628,600       1,199,970
                                                        --------------  --------------  --------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          775,143        (496,260)        (20,754)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                506,517       1,002,777       1,023,531
                                                        --------------  --------------  --------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                $   1,281,660   $     506,517   $   1,002,777
                                                        ==============  ==============  ==============

RECONCILIATION OF NET LOSS TO NET CASH USED IN
  OPERATING ACTIVITIES:
  Net loss                                              $  (7,600,901)  $  (4,451,257)  $  (3,360,655)
  Stock option compensation to employees                    2,972,793               -               -
  Stock option compensation to consultants                    130,724          93,349         196,691
  Stock awards granted to employees and consultants
   pursuant to stock incentive plans                        2,183,703       1,859,029       1,848,717
  Provision for (recovery of) doubtful accounts and
   other receivables                                           30,287          37,718         (73,159)
  Provision for slow-moving inventory                               -         586,662               -
  Depreciation and amortization                                15,072          14,706          16,997
  Change in operating assets and liabilities:
    Accounts receivable                                        21,952          26,343         (21,959)
    Inventories                                               124,173          27,771          45,446
    Prepaid expenses and other current assets                  47,818          42,653         (74,510)
    Other assets                                               (6,287)         22,212         116,475
    Accounts payable and accrued liabilities                  233,558          20,482         100,835
                                                        --------------  --------------  --------------
        Net cash used in operating activities           $  (1,847,108)  $  (1,720,332)  $  (1,205,122)
                                                        ==============  ==============  ==============


SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
  ACTIVITIES:
  Unregistered common stock issued in connection with
   investment in Digital Info Security Co., Inc.        $      97,000   $           -   $           -
                                                        ==============  ==============  ==============
  Unregistered common stock issued to settle a
   liability                                            $           -   $     115,372   $           -
                                                        ==============  ==============  ==============
</TABLE>


The accompanying notes are an integral part of these statements.


                                       F-5
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


1.       BUSINESS AND FUNDING

Description of Business

         Our principal operations are the development, production and marketing
of a thin, flat low-voltage phosphor display 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.

Funding and Management's Plans

         From our inception, we have met our liquidity and capital expenditure
needs primarily through the proceeds from sales of common stock in our initial
public offering, in private placements, upon exercise of warrants issued in
connection with the private placements and public offering, and upon the
exercise of stock options. In 2001 and 2002, we also received payments under a
technology development agreement. In addition, commencing in the fourth quarter
of fiscal 1999, we have generated cash flows from sales of our encryption
products.

         During fiscal 2006, our cash used in operating activities was
approximately $1,847,000. This resulted from payments to suppliers, employees
and consultants of approximately $2,398,000, which was offset by cash of
approximately $524,000 received from collections of accounts receivable and
other receivables related to sales of encryption products and approximately
$27,000 of interest income received. Our cash provided by investing activities
during fiscal 2006 was approximately $242,000, which resulted from approximately
$761,000 received upon maturities of short-term investments consisting of
certificates of deposit, offset by purchases of short-term investments
consisting of certificates of deposit of approximately $398,000, disbursements
of $110,000 to acquire Digital Info Security Co., Inc, common stock and
purchases of approximately $11,000 of equipment. Our cash provided by financing
activities during fiscal 2006 of approximately $2,380,000 resulted from cash
received upon the exercise of stock options. Accordingly, during fiscal 2006 our
cash and cash equivalents increased by approximately $775,000 and our short-term
investments decreased by approximately $362,000. As a result, our cash, cash
equivalents, and short-term investments, at October 31, 2006 increased to
approximately $1,320,000 from approximately $907,000 at the end of fiscal 2005.

         We believe that our existing cash, cash equivalents, short-term
investments and accounts receivable, together with cash flows from expected
sales of encryption products and flat panel displays, and other potential
sources of cash flows, will be sufficient to enable us to continue in operation
until at least the end of the first quarter of fiscal 2008. We anticipate that,
thereafter, we will require additional funds to continue our marketing,
production, and research and development activities, and we will require outside
funding if cash generated from operations is insufficient to satisfy our
liquidity requirements. However, our projections of future cash needs and cash
flows may differ from actual results. If current cash and cash that may be
generated from operations are insufficient to satisfy our liquidity
requirements, we may seek to sell debt or equity securities or to obtain a line
of credit prior to the first quarter of fiscal 2008. The sale of additional
equity securities or convertible debt could result in dilution to our
stockholders. We currently have no arrangements with respect to additional
financing. There can be no assurance that we will generate sufficient revenues
in the future (through sales or otherwise) to improve our liquidity or sustain
future operations, that our production capabilities will be adequate, that other
products will not be produced by other companies that will render our products
obsolete, or that other sources of funding would be available, if needed, on
favorable terms or at all.


                                       F-6
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


         The accompanying financial statements have been prepared assuming that
we will continue as a going concern. As shown in the accompanying financial
statements, we have incurred a net loss of approximately $7,601,000 during the
year ended October 31, 2006, and, as of that date, we have an accumulated
deficit of approximately $80,509,000. These and the other factors described
herein raise substantial doubt about our ability to continue as a going concern.
Management's plans in regard to these matters are set forth above. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Warranty Policy

         We warrant that our products are free from defects in material and
workmanship for a period of one year from the date of initial purchase. The
warranty does not cover any losses or damage that occur as a result of improper
installation, misuse or neglect. Management has recorded a nominal amount of
warranty liability as of October 31, 2006 and 2005, based upon historical
experience and management's best estimate of future warranty claims.

Statements of Cash Flows

         Cash and cash equivalents consist of highly liquid instruments that are
readily convertible into cash and have original maturities of three months or
less. During the years ended October 31, 2006, 2005 and 2004, the Company did
not pay any interest or income taxes.

Short-term investments

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

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 they became
uncollectible.


                                       F-7
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


         Changes in our allowance for doubtful accounts are as follows:

                                                Year Ended October 31,
                                             -----------------------------
                                                 2006            2005
                                             -------------  --------------

Beginning balance                            $          -   $     149,455
   Provision for doubtful accounts
    receivable                                          -           5,000
   Accounts written off                                 -        (154,455)
                                             -------------  --------------
Ending balance                               $          -   $           -
                                             =============  ==============


Inventories

         Inventories are stated at the lower of cost, including material, labor
and overhead, determined on a first-in, first-out basis, or market, which
represents our best estimate of market value. We regularly review inventory
quantities on hand, particularly finished goods, and record a provision for
excess and obsolete inventory based primarily on forecasts of future product
demand. During fiscal 2005, we recorded a provision for excess inventory of
approximately $587,000 due to changes in product requirements. Our net loss was
directly affected by management's estimate of the realizability of inventories.
To date, sales of our products have been limited. Accordingly, there can be no
assurance that we will not be required to reduce the selling price of our
inventory below our current carrying value.

Property and Equipment

         Property and equipment, consisting primarily of engineering equipment,
is stated at cost less accumulated depreciation. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the related assets,
primarily five years. We capitalize items in excess of $500. Minor replacements
and maintenance and repair items are charged to expense as incurred. Upon
disposal or retirement of assets, the cost and related accumulated depreciation
are removed from our balance sheet.

Investment Valuation

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

Research and Development Expenses

         Research and development expenses are expensed in the year incurred.

Advertising Expense

         Advertising expense is included in the accompanying statements of
operations in selling, general and administrative expenses in the year incurred.
Advertising expense for the years ended October 31, 2006, 2005 and 2004, was
approximately $27,000, $-0- and $11,000, respectively.


                                       F-8
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


Income Taxes

         We recognize deferred tax assets and liabilities for the estimated
future tax effects of events that have been recognized in our financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. A
valuation allowance is established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.

Stock-Based Compensation

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

         Prior to November 1, 2005, we followed Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS No.
148"), which addressed financial accounting and reporting for recording expenses
for the fair value of stock options. SFAS No. 148 required prominent disclosures
in financial statements about the effects of stock-based compensation and
provided alternative methods of transition for a voluntary change to fair
value-based method of accounting for stock-based employee compensation. SFAS No.
123 "Accounting for Stock Based Compensation" ("SFAS No. 123") encouraged but
did not require companies to record compensation cost for stock-based employee
compensation plans at fair value. During this period, we accounted for stock
options granted to employees and directors using the intrinsic value method
prescribed in Accounting Principles Board ("APB") Opinion No. 25 "Accounting for
Stock Issued to Employees" ("APB Opinion No. 25") and complied with the
disclosure provisions of SFAS No. 123 and SFAS No. 148 through October 31, 2005.
Compensation cost for stock options issued to employees and directors was
measured as the excess, if any, of the quoted market price of our stock at the
date of grant over the amount an employee or director must pay to acquire the
stock. In accordance with APB Opinion No. 25, we did not recognize any
compensation cost for stock options issued to employees and directors for the
years ended October 31, 2005 and 2004, as all option grants to employees and
directors during such periods were made at the fair market value of our stock on
the date of grant.

         Had compensation cost for stock options granted to employees and
directors been determined at fair value, consistent with SFAS No. 123, our net
loss and net loss per share for the years ended October 31, 2005 and 2004 would
have increased to the following adjusted amounts:


                                       F-9
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


                                                        For the Years Ended
                                                            October 31,
                                                    ----------------------------
                                                        2005           2004
                                                    -------------  -------------

Net loss as reported                                 $(4,451,257)   $(3,360,655)
Add: Total stock-based employee compensation
     expense, determined under fair value based
     method, for all awards, net of related tax
     effect                                           (2,804,466)    (2,909,217)
                                                    -------------  -------------
Net loss as adjusted                                 $(7,255,723)   $(6,269,872)
                                                    =============  =============

Net loss per share, basic and diluted:
         As reported                                      $(0.05)        $(0.04)
                                                    =============  =============
         As adjusted                                      $(0.08)        $(0.08)
                                                    =============  =============

         In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123R") which addresses the accounting for
share-based payment transactions in which a company receives employee services
in exchange for either equity instruments of the company or liabilities that are
based on the fair value of the company's equity instruments or that may be
settled by the issuance of such equity instruments. SFAS No. 123R eliminates the
ability to account for share-based compensation transactions using the intrinsic
value method and requires, instead, that such transactions be accounted for
using a fair-value-based method and recognized as expense in the statement of
operations. In March 2005, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 107 ("SAB No. 107") relating to SFAS No. 123R.

          Effective November 1, 2005, the beginning of our first quarter of
fiscal 2006, we adopted SFAS No. 123R. We have elected to use the modified
prospective transition method as permitted by SFAS No. 123R and therefore, our
financial statements for prior periods have not been restated to reflect, and do
not include, the effect of SFAS No. 123R. Under this transition method, we apply
the provisions of SFAS No. 123R to new awards and to awards modified,
repurchased, or cancelled after October 31, 2005. We recognize compensation
expense for stock option awards on a straight-line basis over the requisite
service period of the grant. Additionally, we recognize compensation cost for
the portion of awards that were outstanding, but for which the requisite service
had not been rendered (unvested awards), as of October 31, 2005, as the
remaining service is rendered. The compensation cost we record for these awards
are based on their grant date fair value as calculated for the pro forma
disclosures required by SFAS No. 123.

         Stock Option Compensation Expense

         We recorded approximately $2,973,000 of stock-based compensation
expense, related to stock options granted to employees and directors, for the
year ended October 31, 2006, respectively, in accordance with SFAS No. 123R.
Such compensation expense is included in the accompanying statements of
operations in either research and development expenses or selling, general and
administrative expenses, as applicable based on the functions performed by such
employees and directors. Such stock-based compensation expense increased both
basic and diluted net loss per share for the year ended October 31, 2006 by
$0.03.


                                      F-10
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


         Included in the stock-based compensation cost related to stock options
granted to employees and directors recorded during the year ended October 31,
2006 was approximately $19,000 of expense related to the amortization of
compensation cost for stock options granted prior to but not yet vested as of
October 31, 2005. As of October 31, 2006, there was approximately $26,000 of
total unrecognized compensation cost related to non-vested share-based
compensation arrangements. This unrecognized cost is expected to be fully
amortized over the next fiscal year.

         We account for options granted to non-employee consultants using the
fair value method required by SFAS No. 123R. We recognized consulting expense
for options granted to consultants, during the years ended October 31, 2006,
2005 and 2004, of approximately $131,000, $93,000 and $197,000, respectively.
Such consulting expense is included in the accompanying statements of operations
in either research and development expenses or selling, general and
administrative expenses, as applicable based on the functions performed by such
consultants.

         Fair Value Determination

         In accordance with SFAS No. 123R, we estimate the fair value of stock
options granted to employees on the date of grant using the Black-Scholes
pricing model. We also used this method prior to the adoption of SFAS No. 123R
to estimate the fair value of stock options granted to employees for purposes of
the pro forma financial information set forth in our financial statements in
accordance with SFAS No. 123.

         Upon the adoption of SFAS No. 123R, we separated the individuals we
grant stock options to into three relatively homogenous groups, based on
exercise and post-vesting employment termination behaviors. To determine the
weighted average fair value of stock options granted to employees on the date of
grant, we take a weighted average of the assumptions used for each of these
groups. All of the stock options we granted during the year ended October 31,
2006 consisted of awards of options with either 5-year terms, which vested over
one year, or 10-year terms, which vested immediately.

         We estimated the fair value of stock option awards using the following
assumptions:

                                              For the Year Ended October 31,
                                          --------------------------------------
                                                           2005         2004
                                             2006       (pro forma)  (pro forma)
                                          ------------  -----------  -----------
Expected term (in years)                      2.9          2.5          2.5
Volatility                                    98%          106%         124%
Risk-free interest rate                      4.38%         3.75%        2.58%
Dividend yield                                 0            0            0
Weighted average fair value at grant date    $0.43        $0.35        $0.55

         Discussion of assumptions for fair value of stock option awards under
SFAS No. 123R.

         The expected term of stock options represents the weighted average
period the stock options are expected to remain outstanding. Because we consider
our options to be "plain vanilla", we estimated the expected term using a
modified version of the simplified method of calculation, as prescribed by SAB
No. 107. This modified calculation uses the actual life for options that have
been settled, and a uniform distribution assumption for the options still
outstanding. Under SAB No. 107, options are considered to be "plain vanilla" if


                                      F-11
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


they have the following basic characteristics: granted "at-the-money";
exercisability is conditioned upon service through the vesting date; termination
of service prior to vesting results in forfeiture; limited exercise period
following termination of service; and options are non-transferable and
non-hedgeable

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

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

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

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

         Discussion of assumptions for fair value of stock option awards under
SFAS No. 123.

         Prior to adoption of SFAS 123R, we used similar assumptions to estimate
the fair value of stock options granted to employees for purposes of the pro
forma financial information set forth in our Financial Statements in accordance
with SFAS No. 123, except that forfeitures were accounted for as they occurred
and we did not separate the individuals we grant options to into separate
groups.

         We will reconsider use of the Black-Scholes pricing model if additional
information becomes available in the future that indicates another model would
be more appropriate, or if grants issued in future periods have characteristics
that cannot be reasonably estimated using this model.

Net Loss Per Share of Common Stock

         We comply with the provisions of SFAS No. 128, "Earnings Per Share"
("SFAS No. 128"). In accordance with SFAS No. 128, basic net loss per common
share ("Basic EPS") is computed by dividing net loss by the weighted average
number of common shares outstanding. Diluted net loss per common share ("Diluted
EPS") is computed by dividing net loss by the weighted average number of common
shares and dilutive common share equivalents and convertible securities then
outstanding. Diluted EPS for all years presented is the same as Basic EPS, as
the inclusion of the effect of common share equivalents then outstanding would
be anti-dilutive. For this reason, excluded from the calculation of Diluted EPS
for the years ended October 31, 2006, 2005 and 2004, were options to purchase
22,527,941 shares, 22,012,246 shares and 18,064,546 shares, respectively.


                                      F-12
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


Fair Value of Financial Instruments

         We comply with the provisions of SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments," which requires disclosures about the fair value
of financial instruments. In the opinion of management, the carrying value of
all financial instruments, consisting primarily of cash and cash equivalents,
short-term investments, accounts and other receivables and accounts payable,
reflected in the accompanying balance sheets, approximates fair value as of
October 31, 2006 and 2005, due to their short term nature.

Use of Estimates

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

Reclassifications

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

Effect of Recently Issued Pronouncements

         In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154"). SFAS 154 replaces the Accounting Principles
Board Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements," to require retrospective application
to prior periods' financial statements of changes in accounting principle. The
provisions of SFAS 154 are effective for accounting changes made in fiscal years
beginning after December 15, 2005. The adoption of SFAS 154 is not expected to
have a material effect on our financial statements.

         In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes," an interpretation of FASB Statement No. 109
("FIN 48"). FIN 48 clarifies the accounting for uncertainties in income taxes
recognized in an enterprise's financial statements. The interpretation requires
that the Company determine whether it is more likely than not that a tax
position will be sustained upon examination by the appropriate taxing authority.
If a tax position meets the more likely than not recognition criteria, FIN 48
requires the tax position be measured at the largest amount of benefit greater
than 50 percent likely of being realized upon ultimate settlement. This
accounting standard is effective for fiscal years beginning after December 15,
2006. The adoption of FIN 48 is not expected to have a material effect on our
financial statements.

         In September 2006, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 108, "Considering the Effects of Prior
Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements" ("SAB No. 108"). SAB No. 108 provides interpretative guidance on how
public companies quantify financial statement misstatements. There have been two
common approaches used to quantify such errors. Under an income statement
approach (the "roll-over" method) the error is quantified as the amount by which


                                      F-13
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


the current year income statement is misstated. Alternatively, under a balance
sheet approach (the "iron curtain" method) the error is quantified as the
cumulative amount by which the current year balance sheet is misstated. In SAB
No. 108, the SEC established an approach that requires quantification of
financial statement misstatements based on the effects of the misstatements on
each of the company's financial statements and the related financial statement
disclosures. This model is commonly referred to as a "dual approach" because it
requires quantification of errors under both the roll-over and iron curtain
methods. SAB No. 108 is effective for annual financial statements covering the
first fiscal year ending after November 15, 2006. The adoption of SAB No. 108 is
not expected to have a material effect on our financial statements.

         In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 applies to other
accounting pronouncements that require or permit fair value measurements. The
provisions of SFAS 157 are effective for fiscal years beginning after November
15, 2007. The adoption of SFAS 157 is not expected to have a material effect on
our financial statements.

3.       CONCENTRATION OF CREDIT RISK

         Financial instruments that potentially subject us to concentrations of
credit risk consist principally of accounts receivable from sales in the
ordinary course of business. Management reviews our accounts receivable and
other receivables for potential doubtful accounts and maintains an allowance for
estimated uncollectible amounts. Generally, no collateral is received from
customers for our accounts receivable. During fiscal 2006, two customers in the
Encryption Products and Services Segment represented 40% and 26%, respectively,
of total net sales. During fiscal 2005, one customer in the Encryption Products
and Services Segment represented 77% of total net sales. During fiscal 2004, two
customers in the Encryption Products and Services Segment represented 61% and
19%, respectively, of total net sales. At October 31, 2006, two customers in the
Encryption Products and Services Segment represented 89% and 11%, respectively,
of net accounts receivable. At October 31, 2005, one customer in the Encryption
Products and Services Segment represented 100% of net accounts receivable.

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

         On February 13, 2006, we entered into a Software License and
Distribution Agreement (the "License Agreement") to license to Digital Info
Security Co., Inc. ("DISC"), a privately held corporation, an encryption system
that integrates our encryption technology into DISC's secure e-mail services.
The system is intended to allow companies to encrypt all e-mail transactions in
a manner transparent to the individual user. We developed a prototype of the
system jointly with DISC and DISC is field testing the system internally and
with potential customers. Concurrently with entering into the License Agreement
with DISC, we entered into an Exchange Agreement whereby we acquired a minority
interest in DISC by exchanging 100,000 unregistered shares of our common stock
for 5,000,000 shares of DISC's common stock. On May 17, 2006 and July 14, 2006,
we purchased an additional 1,000,000 shares and 1,200,000 shares, respectively,
of DISC's common stock for $50,000 and $60,000, respectively. Our investment in
DISC as of October 31, 2006, is recorded in the accompanying balance sheet at


                                      F-14
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


cost of $207,000, based on the closing price of our common stock on the date of
the Exchange Agreement for the shares issued under the agreement, and the price
paid for the shares purchased on May 17, 2006 and July 14, 2006. As of October
31, 2006 we held approximately 9% of the outstanding common stock of DISC.

         Net sales during the year ended October 31, 2006 include $131,000 of
billings to DISC for engineering services.

         On November 27, 2006, we entered into another Exchange Agreement
whereby we acquired an additional 5,000,000 shares of DISC's common stock for
300,000 unregistered shares of our common stock.

5.       INVENTORIES

         Inventories consist of the following as of:
                                                        October 31,
                                             ----------------------------------
                                                   2006             2005
                                             ----------------  ---------------

             Component parts                 $        117,040  $       134,084
             Work-in-process                           43,135           41,379
             Finished products                        100,648          209,533
                                             ----------------  ---------------
                                             $        260,823  $       384,996
                                             ================  ===============

6.       OTHER ASSETS

         As of October 31, 2006 and 2005, other assets include other receivables
of approximately $6,000 and $30,000, respectively. Other receivables consists of
common stock we received from a customer in 2002 in connection with an
outstanding accounts receivable of approximately $323,000 and anticipated
settling this accounts receivable through the ultimate sale of the common stock.
As of October 31, 2006, we have received aggregate proceeds of approximately
$145,000 from the sale of a portion of the common stock and we held 600,000
shares of common stock, subject to no restrictions, with a fair value of
approximately $6,000. This receivable is recorded on the accompanying balance
sheets at management's estimate of its net realizable.

7.       ACCRUED LIABILITIES

         Accrued liabilities consist of the following as of:
                                                           October 31,
                                                --------------------------------
                                                     2006              2005
                                                -------------     -------------

        Accrued professional fees               $      25,000     $         221
        Accrued payroll and related expenses           10,888            65,682
        Accrued other                                  13,193            11,521
                                                -------------     -------------

                                                $      49,081     $      77,424
                                                =============     =============


                                      F-15
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


8.       SHAREHOLDERS' EQUITY

Common Stock Issuances

         We account for stock grants to employees and consultants based on their
grant date fair value. During the years ended October 31, 2006, 2005 and 2004,
we issued 2,670,010 shares, 3,129,485 shares and 2,491,415 shares, respectively,
of common stock to certain employees for services rendered, principally in lieu
of cash compensation, pursuant to the CopyTele, Inc. 2000 Share Incentive Plan
(the "2000 Share Plan") and the CopyTele, Inc. 2003 Share Incentive Plan (the
"2003 Share Plan"). We recorded compensation expense for the years ended October
31, 2006, 2005 and 2004 of approximately $1,897,000, $1,822,000 and $1,507,000,
respectively, for shares of common stock issued to employees. In addition during
fiscal 2006, 2005 and 2004, we issued 367,122 shares, 60,000 shares and 643,860
shares, respectively, of common stock to consultants for services rendered
pursuant to the 2003 Share Plan and the 2000 Share Plan. We recorded consulting
expense for the years ended October 31, 2006, 2005 and 2004 of approximately
$287,000, $37,000 and $342,000, respectively, for shares of common stock issued
to consultants.

         During the year ended October 31, 2006, we issued 100,000 share of
unregistered common stock to acquire Digital Info Security Co., Inc. common
stock. During the year ended October 31, 2005, we issued 179,000 shares of
unregistered common stock to settle a liability of approximately $115,000.

Preferred Stock

         On May 29, 1986, our shareholders authorized 500,000 shares of
preferred stock with a par value of $100 per share. The shares of preferred
stock may be issued in series at the direction of the Board of Directors, and
the relative rights, preferences and limitations of such shares will all be
determined by the Board of Directors. As of October 31, 2006 and 2005, there is
no preferred stock issued and outstanding.

Stock Option Plans

         As of October 31, 2005, we have three stock option plans: the CopyTele,
Inc. 1993 Stock Option Plan (the "1993 Plan"), the 2000 Share Plan and the 2003
Share Plan, which were adopted by our Board of Directors on April 28, 1993, May
8, 2000 and April 21, 2003, respectively.

           On July 14, 1993, our shareholders approved the 1993 Plan. The 1993
Plan was amended as of May 3, 1995 and May 10, 1996 to, among other things,
increase the number of shares available for issuance thereunder from 6,000,000
shares to 20,000,000 shares, after giving consideration to stock splits. The
1993 Plan provided for the granting of incentive stock options and stock
appreciation rights to key employees, and non-qualified stock options and stock
appreciation rights to key employees and consultants of the Company.

         The 1993 Plan was administered by the Stock Option Committee, which
determined the option price, term and provisions of each option. However, the
purchase price of shares issuable upon the exercise of incentive stock options
could not be less than the fair market value of such shares at the date of grant
and incentive stock options are not exercisable for more than 10 years. Upon
approval of the 2000 Share Plan by our shareholders in July 2000, the 1993 Plan
was terminated with respect to the grant of future options. Since June 2004, the
1993 Plan has been administered by the Board of Directors.


                                      F-16
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


         Information regarding the 1993 Plan for the three years ended October
31, 2006 is as follows:


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

Shares Under Option at October 31,
 2003                                 8,823,780        $3.79
  Forfeited                            (315,000)       $3.84
  Expired                              (641,700)       $4.68
                                   -------------
Shares Under Option at October 31,
 2004                                 7,867,080        $3.72
  Expired                            (1,078,500)       $3.02
  Exercised                             (70,000)       $0.84
                                   -------------
Shares Under Option at October 31,
 2005                                 6,718,580        $3.86
  Expired                            (2,551,580)       $5.05
                                   -------------
Shares Under Option and
 Exercisable at October 31, 2006      4,167,000        $3.13               $-0-
                                   =============

         The following table summarizes information about stock options
outstanding under the 1993 Plan as of October 31, 2006:

<TABLE>
<CAPTION>
<S>                   <C>           <C>            <C>      <C>           <C>            <C>
                            Options Outstanding                   Options Exercisable
                   -------------------------------------  ------------------------------------
                                  Weighted                              Weighted
                                   Average    Weighted                   Average    Weighted
                      Number      Remaining    Average       Number     Remaining    Average
     Range of       Outstanding  Contractual  Exercise    Exercisable  Contractual  Exercise
 Exercise Prices    at 10/31/06      Life       Price     at 10/31/06      Life       Price
----------------------------------------------------------------------------------------------

  $0.84 to $1.56        784,000     3.04          $1.10       784,000     3.04          $1.10
      $2.28             855,000     1.70          $2.28       855,000     1.70          $2.28
  $3.38 to $4.50      2,528,000     0.54          $4.04     2,528,000     0.54          $4.04
</TABLE>

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

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

         The 2000 Share Plan was administered by the Stock Option Committee
through June 2004 and since that date has been administered by the Board of
Directors, which determines the option price, term and provisions of each


                                      F-17
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


option; however, the purchase price of shares issuable upon the exercise of
incentive stock options will not be less than the fair market value of such
shares at the date of grant and incentive stock options will not be exercisable
for more than 10 years.

         Information regarding the 2000 Share Plan for the three years ended
October 31, 2006 is as follows:


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

Shares Under Option at October
 31, 2003                          3,279,466        $0.71
  Forfeited                          (39,500)       $1.14
  Exercised                         (387,500)       $0.45
                                -------------
Shares Under Option at October
 31, 2004                          2,852,466        $0.74
  Forfeited                          (25,000)       $0.82
  Expired                            (20,000)       $1.38
  Exercised                          (19,000)       $0.40
                                -------------
Shares Under Option at October
 31, 2005                          2,788,466        $0.73
  Expired                            (20,000)       $0.74
  Exercised                         (500,000)       $0.42              $127,170
                                -------------
Shares Under Option and
 Exercisable at October 31, 2006   2,268,466        $0.80                  $-0-
                                =============

         The following table summarizes information about stock options
outstanding under the 2000 Share Plan as of October 31, 2006:

<TABLE>
<CAPTION>
<S>              <C>            <C>            <C>     <C>            <C>             <C>
                        Options Outstanding                    Options Exercisable
                ------------------------------------  -------------------------------------
                               Weighted                              Weighted
                               Average     Weighted                  Average      Weighted
   Range of       Number      Remaining     Average     Number      Remaining     Average
   Exercise     Outstanding  Contractual   Exercise   Exercisable  Contractual   Exercise
    Prices      at 10/31/06      Life        Price    at 10/31/06      Life         Price
-------------------------------------------------------------------------------------------

$0.34 - $0.40      516,000      4.73          $0.40      516,000      4.73           $0.40
$0.44 - $0.74      650,466      4.18          $0.68      650,466      4.18           $0.68
$0.94 - $1.09    1,102,000      3.93          $1.06    1,102,000      3.93           $1.06
</TABLE>


         The exercise price with respect to all of the options granted under the
2000 Share Plan since its inception, was equal to the fair market value of the
underlying common stock at the grant date. As of October 31, 2006, 21,508 shares
were available for future grants under the 2000 Share Plan.

         The 2003 Share Plan provides for the grant of nonqualified stock
options, stock appreciation rights, stock awards, performance awards and stock
units to key employees and consultants of the Company. The maximum number of
shares of common stock available for issuance under the 2003 Share Plan
initially was 15,000,000 shares. On October 8, 2004 and February 9, 2006, the
2003 Plan was amended by our Board of Directors to increase the maximum number
of shares of common stock that may be granted to 30,000,000 shares and


                                      F-18
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


45,000,000 shares, respectively. Current and future non-employee directors are
automatically granted nonqualified stock options to purchase 60,000 shares of
common stock upon their initial election to the Board of Directors and at the
time of each subsequent annual meeting of our shareholders at which they are
elected to the Board of Directors. The 2003 Share Plan was administered by the
Stock Option Committee through June 2004 and since that date has been
administered by the Board of Directors, which determines the option price, term
and provisions of each option.

         Information regarding the 2003 Share Plan for the three years ended
October 31, 2006 is as follows:


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

Shares Under Option at October
 31, 2003                          3,419,000        $0.30
  Granted                          5,775,000        $0.80
  Exercised                       (1,849,000)       $0.56
                                -------------
Shares Under Option at October
 31, 2004                          7,345,000        $0.63
  Granted                          8,195,000        $0.57
  Forfeited                          (40,000)       $0.93
  Exercised                       (2,994,800)       $0.52
                                -------------
Shares Under Option at October
 31, 2005                         12,505,200        $0.61
  Granted                          7,235,000        $0.76
  Exercised                       (3,647,725)       $0.59              $248,128
                                -------------
Shares Under Option at October
 31, 2006                         16,092,475        $0.68                  $-0-
                                =============
Options Exercisable at October
 31, 2006                         16,032,475        $0.68                  $-0-
                                =============

         The following table summarizes information about stock options
outstanding under the 2003 Share Plan as of October 31, 2006:

<TABLE>
<CAPTION>
<S>                <C>           <C>            <C>       <C>           <C>            <C>
                         Options Outstanding                    Options Exercisable
                -------------------------------------  -------------------------------------
                               Weighted                               Weighted
                                Average    Weighted                    Average    Weighted
   Range of        Number      Remaining    Average       Number      Remaining    Average
  Exercise       Outstanding  Contractual  Exercise     Exercisable  Contractual  Exercise
    Prices       at 10/31/06      Life       Price      at 10/31/06      Life       Price
--------------------------------------------------------------------------------------------

$0.25 - $0.46      3,160,000     6.79          $0.30      3,160,000     6.78          $0.30
$0.52 - $0.77      5,806,400     8.56          $0.61      5,746,400     8.60          $0.61
$0.81 - $1.07      7,126,075     8.68          $0.91      7,126,075     8.68          $0.91
</TABLE>


         The exercise price with respect to all of the options granted under the
2003 Share Plan since its inception, was equal to the fair market value of the
underlying common stock at the grant date. As of October 31, 2006, 5,993,777
shares were available for future grants under the 2003 Share Plan.


                                      F-19
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


9.       INVESTIGATION AND RECOVERY EFFORTS REGARDING MISAPPROPRIATED FUNDS

         During fiscal 2004 and the first month of fiscal 2005, a former
employee embezzled approximately $185,000 in cash of which approximately $10,000
related to fiscal 2005. During fiscal 2005, we recovered approximately $110,000
of such loss through insurance proceeds. We also recorded a charge to expense in
fiscal 2004 of approximately $75,000 related to this matter. During fiscal 2005,
we recovered approximately $4,000 from financial institutions which was recorded
as a recovery when received. If we are successful in recovering additional
amounts, such amounts up to approximately $71,000 will be recorded as recoveries
in future periods when and if any are received.

10.      COMMITMENTS AND CONTINGENCIES

Leases

We lease space at our principal location for office and laboratory research
facilities. The current lease is for approximately 12,000 square feet and
expires on November 30, 2008. The lease contains base rentals of approximately
$261,000 per annum with a 3% annual increase and an escalation clause for
increases in certain operating costs. As of October 31, 2006, our noncancelable
operating lease commitments are approximately $567,000. This lease does not
contain provisions for its renewal.

         Rent expense for the years ended October 31, 2006, 2005 and 2004, was
approximately $261,000, $252,000 and $247,000, respectively.

Consulting Agreement

         In addition, as of October 31, 2006 we had commitments under a
consulting agreement of approximately $43,000, payable during the first quarter
of fiscal 2007.

11.      EMPLOYEE PENSION PLAN

         We adopted a noncontributory defined contribution pension plan,
effective November 1, 1983, covering all of our present employees.
Contributions, which are made to a trust and have been funded on a current
basis, are based upon specified percentages of compensation, as defined in the
plan. During fiscal 2001, we amended the plan to suspend benefit accruals as of
November 1, 2000. Accordingly, we did not incur any pension expense for the
fiscal years ended October 31, 2006, 2005 and 2004.


                                      F-20
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


12.      INCOME TAXES

         Income tax provision (benefit) consists of the following:

                                                 Year Ended October 31,
                                        ----------------------------------------
                                            2006          2005          2004
                                        ------------  ------------  ------------
Federal:
  Current                               $         -   $         -   $         -
  Deferred                               (2,309,000)   (1,200,000)   (1,383,000)

State:
  Current                                         -             -             -
  Deferred                                 (340,000)     (177,000)     (203,000)
Adjustment to valuation allowance
 related to net deferred tax assets       2,649,000     1,377,000     1,586,000
                                        ------------  ------------  ------------
                                        $         -   $         -   $         -
                                        ============  ============  ============


         The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset, net, at October 31, 2006 and 2005, are as
follows:

                                               2006             2005
                                          ---------------  ---------------
Long-term deferred tax assets:
   Other assets                           $    1,128,000   $    1,128,000
   Federal and state NOL and tax credit
    carryforwards                             38,321,000       36,876,000
   Other                                       1,480,000          276,000
                                          ---------------  ---------------
      Subtotal                                40,929,000       38,280,000

Less: valuation allowance                    (40,929,000)     (38,280,000)
                                          ---------------  ---------------
  Deferred tax asset, net                 $            -   $            -
                                          ===============  ===============

         As of October 31, 2006, we had tax net operating loss and tax credit
carryforwards of approximately $90,538,000 and $1,976,000, respectively,
available, within statutory limits (expiring at various dates between 2007 and
2026), to offset any future regular Federal corporate taxable income and taxes
payable. If the tax benefits relating to deductions of option holders' income
are ultimately realized, those benefits will be credited directly to additional
paid-in capital. Certain changes in stock ownership can result in a limitation
on the amount of net operating loss and tax credit carryovers that can be
utilized each year.

         We had tax net operating loss and tax credit carryforwards of
approximately $90,583,000 and $127,000, respectively, as of October 31, 2006,
available, within statutory limits, to offset future New York State corporate
taxable income and taxes payable, if any, under certain computations of such
taxes. The tax net operating loss carryforwards expire at various dates between
2007 and 2026 and the tax credit carryforwards expire between 2007 and 2021.

         During the three years ended October 31, 2006, we incurred no Federal
and no State income taxes.


                                      F-21
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


13.      SEGMENT INFORMATION

         We follow the provisions of SFAS No. 131,"Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"). Reportable operating
segments are determined based on management's approach. The management approach,
as defined by SFAS No. 131, is based on the way that the chief operating
decision-maker organizes the segments within an enterprise for making operating
decisions and assessing performance. While our results of operations are
primarily reviewed on a consolidated basis, the chief operating decision-maker
also manages the enterprise in two segments: (i) Flat-panel display and (ii)
Encryption products and services. The following represents selected financial
information for our segments for the years ended October 31, 2006, 2005 and
2004:

                                                     Encryption
                                      Flat-Panel    Products and
           Segment Data                Display        Services         Total
-----------------------------------  ------------  ---------------  ------------

Year Ended October 31, 2006:
Net sales                            $         -   $      508,651   $   508,651
Net loss                              (3,570,993)      (4,029,908)   (7,600,901)
Depreciation                               6,769            8,303        15,072
Interest income                           12,708           14,007        26,715
Stock awards granted to employees
 and consultants pursuant to stock
 incentive plans                         885,893        1,297,810     2,183,703
Total assets                             619,590        1,244,039     1,863,629
Additions to long-lived assets             4,951            6,073        11,024


Year Ended October 31, 2005:
Net sales                            $         -   $      439,785   $   439,785
Net loss                              (1,764,610)      (2,686,647)   (4,451,257)
Depreciation                               6,220            8,486        14,706
Interest income                            5,793            8,714        14,507
Stock awards granted to employees
 and consultants pursuant to stock
 incentive plans                         661,425        1,197,604     1,859,029
Total assets                             431,037        1,035,216     1,466,253
Additions to long-lived assets             1,587            2,165         3,752


                                      F-22
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


                                                    Encryption
                                    Flat-Panel      Products and
          Segment Data                Display         Services         Total
---------------------------------  -------------  ----------------  ------------

Year Ended October 31, 2004:
Net sales                          $          -   $       494,462   $   494,462
Net loss                             (1,773,282)       (1,587,373)   (3,360,655)
Depreciation                              8,192             8,805        16,997
Interest income                           2,010             2,323         4,333
Stock awards granted to employees
 and consultants pursuant to
 stock incentive plans                  855,991           992,726     1,848,717
Total assets                            563,363         1,752,687     2,316,050
Additions to long-lived assets            7,520             8,082        15,602


Geographic Information

         We generate revenue both domestically (United States) and
internationally. International sales are based on the country in which our
customer (distributor) is located. For the years ended October 31, 2006, 2005
and 2004, and as of each respective year-end, sales and accounts receivable by
geographic area are as follows:

        Geographic Data                2006            2005            2004
--------------------------------  --------------  --------------  --------------

Net sales:
  United States                   $     269,221   $     409,521   $     479,621
  United Arab Emirates            $     204,325   $           -   $           -
  Other International                    35,105          30,264          14,871
                                  --------------  --------------  --------------
                                  $     508,651   $     439,785   $     494,492
                                  ==============  ==============  ==============

Accounts receivable, net:
  United States                   $       9,040   $      32,117   $      63,460
  International                           1,125               -               -
                                  --------------  --------------  --------------
                                  $      10,165   $      32,117   $      63,460
                                  ==============  ==============  ==============


                                      F-23
<PAGE>

COPYTELE, INC.

NOTES TO FINANCIAL STATEMENTS


14.      QUARTERLY RESULTS AND SEASONALITY (UNAUDITED)

         The following table sets forth unaudited financial data for each of our
last eight fiscal quarters:

                                First       Second        Third       Fourth
                               Quarter      Quarter      Quarter      Quarter
                             ------------  -----------  -----------  -----------

Year Ended October 31, 2006:
  Income Statement Data:
  Net sales                  $   195,390  $    71,538  $   130,845  $   110,878
  Gross profit (loss)            139,932       45,683       91,600       74,990
  Net loss                    (1,239,557)  (2,412,879)  (2,147,275)  (1,801,190)
  Net loss per share of
   common stock-basic and
   diluted                   $    ( 0.01) $    ( 0.03) $     (0.02) $     (0.02)

Year Ended October 31, 2005:
  Income Statement Data:
  Net sales                  $   212,591  $    46,709  $   132,125  $    48,360
  Gross profit                   148,018      (89,149)    (222,703)    (116,009)
  Net loss                    (1,006,494)  (1,179,995)  (1,119,053)  (1,145,715)
  Net loss per share of
   common stock-basic and
   diluted                   $    ( 0.01) $    ( 0.01) $     (0.01) $     (0.01)


                                      F-24
<PAGE>

COPYTELE, INC.
SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2006, 2005 AND 2004


<TABLE>
<CAPTION>
<S>                                          <C>                <C>                <C>              <C>
            Column A                   Column B            Column C           Column D           Column E
-------------------------------------------------------------------------------------------------------------
                                                       Additions Charged
                                      Balance at            to costs                            Balance at
           Description            beginning of period    and expenses      Deductions (1)     end of period
-------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------
              2006

Allowance for doubtful accounts          $         -         $        -         $        -       $         -

Reserve against other receivables        $   141,511         $   30,287         $        -       $   171,798

Reserve for slow moving inventory        $   542,531         $        -         $        -       $   542,531
-------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------
              2005

Allowance for doubtful accounts          $   149,455         $    5,000         $  154,455       $         -

Reserve against other receivables        $   108,793         $   41,340         $    8,622       $   141,511

Reserve for slow moving inventory        $         -         $  586,662         $   44,131       $   542,531
-------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------
              2004

Allowance for doubtful accounts          $   159,230         $        -         $    9,775       $   149,455

Reserve against other receivables        $   181,952         $        -         $   73,159       $   108,793
-------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Represents write-offs of reserved balances or reductions in allowances
previously provided.

This schedule should be read in conjunction with the accompanying financial
statements and notes thereto.


                                       S-1
<PAGE>


                                  EXHIBIT INDEX
                                  -------------

No.                              Exhibit
---                              -------

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   By-laws, as amended. (Incorporated by reference to Exhibit 3.2 to Form
      10-K for the fiscal year ended October 31, 2005.)

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  Stock Subscription Agreement dated April 27, 1999, including form of
      Warrant, between CopyTele, Inc. and Lewis H. Titterton. (Incorporated by
      reference to Form 10-Q for the fiscal quarter ended April 30, 1999.)

10.6  Agreement dated July 28, 1999, among CopyTele, Inc., Harris Corporation
      and RF Communications. (Incorporated by reference to Form 8-K dated July
      28, 1999.)

10.7  Stock Subscription Agreement dated August 30, 1999, including form of
      Warrant, between CopyTele, Inc. and Lewis H. Titterton. (Incorporated by
      reference to Form 10-K for the fiscal year ended October 31, 1999.)

10.8  CopyTele, Inc. 2000 Share Incentive Plan. (Incorporated by reference to
      Annex A of our Proxy Statement dated June 12, 2000.)

<PAGE>

10.9  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.)

10.10 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.)

10.11 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.)

10.12 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.)

10.13 CopyTele, Inc. 2003 Share Incentive Plan. (Incorporated by reference to
      Exhibit 4 to our Form S-8 dated May 5, 2003).

10.14 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).

10.15 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).

10.16 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).

10.17 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).

10.18 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).

<PAGE>

10.19 Long Term Agreement dated April 2, 2004 between CopyTele, Inc. and Boeing
      Satellite Systems International, Inc., as modified September 16, 2004.
      (Incorporated by reference to Exhibit 10.17 to our Annual Report on Form
      10-K for the fiscal year ended October 31, 2004.)

23.1  Consent of Grant Thornton LLP. (Filed herewith.)

31.1  Certification of Chief Executive Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, dated January 16, 2007. (Filed herewith.)

31.2  Certification of Chief Financial Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, dated January 16, 2007. (Filed herewith.)

32.1  Statement of Chief Executive Officer, pursuant to Section 1350 of Title 18
      of the United States Code, January 16, 2007. (Filed herewith.)

31.2  Statement of Chief Financial Officer, pursuant to Section 1350 of Title 18
      of the United States Code, January 16, 2007. (Filed herewith.)