SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                 For the quarterly period ended January 31, 2007

                         Commission file number 0-11254


                                 COPYTELE, INC.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                 Delaware                                11-262263
    (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                   Identification no.)


               900 Walt Whitman Road
                    Melville, NY                            11747
-------------------------------------------------------------------------------
      (Address of principal executive offices)            (Zip Code)


                                 (631) 549-5900
-------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


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

                                  Yes X    No ___
                                     ---

Indicate by check mark whether the registrant is 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
                                               ---

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

On March 8, 2007, the registrant had outstanding 102,100,565 shares of Common
Stock, par value $.01 per share, which is the registrant's only class of common
stock.


<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

<S>                                                                          <C>
          Condensed Balance Sheets as of January 31, 2007 (Unaudited) and
             October 31, 2006                                                    3

         Condensed Statements of Operations (Unaudited) for the three months
            ended January 31, 2007 and 2006                                      4

         Condensed Statements of Cash Flows (Unaudited) for the three months
            ended January 31, 2007 and 2006                                      5

         Notes to Condensed Financial Statements (Unaudited)                     6 - 15

Item 2.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations.                                              16 - 27

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.             27

Item 4.  Controls and Procedures.                                                27


PART II.  OTHER INFORMATION

Item 1A. Risk Factors.                                                           28

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.            28

Item 6.   Exhibits.                                                              28

          SIGNATURES                                                             29
</TABLE>


                                       2


<PAGE>


                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

                                 COPYTELE, INC.
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                (Unaudited)
                                                                                ----------
                                                                                January 31,     October 31,
                                         ASSETS                                    2007            2006*
                                                                                -----------    ------------
CURRENT ASSETS:

<S>                                                                            <C>             <C>
   Cash and cash equivalents                                                   $    828,011    $  1,281,660
   Short-term investments                                                           425,000          38,000
   Accounts receivable                                                               68,750          10,165
   Inventories                                                                      243,192         260,823
   Prepaid expenses and other current assets                                         32,360          32,011
                                                                               ------------    ------------
                        Total current assets                                      1,597,313       1,622,659

PROPERTY AND EQUIPMENT, net                                                          22,353          23,083

INVESTMENT, at cost                                                                 417,000         207,000

OTHER ASSETS                                                                         10,887          10,887
                                                                               ------------    ------------
                                                                               $  2,047,553    $  1,863,629
                                                                               ============    ============
                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                            $    317,887    $    532,707
   Accrued liabilities                                                               49,229          49,081
                                                                               ------------    ------------
                       Total current liabilities                                    367,116         581,788

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;
      101,855,445 and 99,260,395 shares issued and outstanding, respectively      1,018,554         992,604
   Additional paid-in capital                                                    82,943,836      80,797,756
   Accumulated deficit                                                          (82,281,953)    (80,508,519)
                                                                               ------------    ------------
                                                                                  1,680,437       1,281,841
                                                                               ------------    ------------
                                                                               $  2,047,553    $  1,863,629
                                                                               ============    ============
</TABLE>

*        Derived from audited  balance  sheet  included in our Annual  Report on
         Form 10-K for the fiscal year ended October 31, 2006.

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


                                       3
<PAGE>




                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                         For the Three Months Ended
                                                        -----------------------------
                                                                 January 31,
                                                        -----------------------------
                                                             2007            2006
                                                        -------------    ------------

<S>                                                     <C>              <C>
NET SALES                                               $     130,750    $    195,390

COST OF SALES                                                  41,196          55,458
                                                        -------------    ------------
         Gross profit                                          89,554         139,932
                                                        -------------    ------------
OPERATING EXPENSES
         Research and development expenses                  1,002,931         656,588
         Selling, general and administrative expenses         869,711         729,096
                                                        -------------    ------------
                  Total operating expenses                  1,872,642       1,385,684
                                                        -------------    ------------
LOSS FROM OPERATIONS                                       (1,783,088)     (1,245,752)

INTEREST INCOME                                                 9,654           6,195
                                                        -------------    ------------

NET LOSS                                                $  (1,773,434)   $ (1,239,557)
                                                        =============    ============

PER SHARE INFORMATION:
Net loss per share:
         Basic and Diluted                              $       (0.02)   $      (0.01)
                                                        =============    ============
Shares used in computing net loss per share:
         Basic and Diluted                                100,913,968      93,255,081
                                                        =============    ============
</TABLE>



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


                                       4

<PAGE>


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

<TABLE>
<CAPTION>
                                                                                  For the three Months Ended
                                                                                         January 31,
                                                                                  --------------------------
                                                                                     2007           2006
                                                                                  -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>            <C>
   Payments to suppliers, employees and  consultants                              $  (883,663)   $  (631,743)
   Cash received from customers                                                        72,165        227,192
   Interest received                                                                    9,654          6,195
                                                                                  -----------    -----------
           Net cash used in operating activities                                     (801,884)      (398,356)
                                                                                  -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from maturities of short-term investments (certificates of deposit)        38,000           --
   Disbursements to acquire short-term investments (certificates of deposit)         (425,000)        (2,402)
   Payments for purchases of property and equipment                                    (2,364)        (7,415)
                                                                                  -----------    -----------
           Net cash used in investing activities                                     (389,364)        (9,817)
                                                                                  -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options                                            737,599        710,720
                                                                                  -----------    -----------
           Net cash provided by financing activities                                  737,599        710,720
                                                                                  -----------    -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                 (453,649)       302,547
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                    1,281,660        506,517
                                                                                  -----------    -----------
CASH AND CASH EQUIVALENTS AT  END OF PERIOD                                       $   828,011    $   809,064
                                                                                  ===========    ===========
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:

   Net loss                                                                       $(1,773,434)   $(1,239,557)
   Stock option compensation to employees                                             708,204        115,681
   Stock awards granted to employees and consultants pursuant to stock
      incentive plans                                                                 516,227        468,774
   Provision for doubtful accounts and other receivables                                 --            6,287
   Depreciation and amortization                                                        3,094          3,915
   Change in operating assets and liabilities:
      Accounts receivable                                                             (58,585)        31,802
      Inventories                                                                      17,631         54,973
      Prepaid expenses and other current assets                                          (349)        41,894
      Other assets                                                                       --           (6,287)
      Accounts payable and  accrued liabilities                                      (214,672)       124,162
                                                                                  -----------    -----------
           Net cash used in operating activities                                  $  (801,884)   $  (398,356)
                                                                                  ===========    ===========

SUPPLEMENTAL DISCLOSURE  OF NON-CASH INVESTING ACTIVITIES:
    Unregistered common stock issued in connection with investment in
        Digital Info Security Co., Inc.                                           $   210,000    $      --
                                                                                  ===========    ===========
</TABLE>

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

                                       5
<PAGE>
                                 COPYTELE, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                   (UNAUDITED)


1. BUSINESS AND FUNDING

Description of Business and Basis of Presentation

         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.

         The  condensed  financial  statements  have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
("US GAAP") for interim financial  reporting.  Accordingly,  they do not include
all of the information and footnotes  required by US GAAP for complete financial
statements.  The information  contained  herein is for the  three-month  periods
ended  January 31,  2007 and 2006.  In  management's  opinion,  all  adjustments
(consisting only of normal recurring adjustments considered necessary for a fair
presentation  of the results of operations  for such periods) have been included
herein.  Certain  prior year  amounts  have been  reclassified  to conform  with
current year presentation.

         The  results of  operations  for interim  periods  may not  necessarily
reflect  the results of  operations  for a full year.  Reference  is made to the
audited financial  statements and notes thereto included in our Annual Report on
Form 10-K for the  fiscal  year  ended  October  31,  2006,  for more  extensive
disclosures than contained in these condensed financial statements.

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  the three  months  ended  January  31,  2007,  our cash used in
operating activities was approximately  $802,000. This resulted from payments to
suppliers, employees and consultants of approximately $884,000, which was offset
by  cash  of  approximately   $72,000  received  from  collections  of  accounts
receivable related to sales of encryption products and approximately  $10,000 of
interest income received. Our cash used in investing activities during the three
months ended January 31, 2007 was  approximately  $389,000,  which resulted from
purchases of short-term  investments  consisting of  certificates  of deposit of
approximately  $425,000 and  purchases  of  approximately  $2,000 of  equipment,
offset  by   approximately   $38,000  received  upon  maturities  of  short-term
investments  consisting  of  certificates  of  deposit.  Our  cash  provided  by
financing  activities  during  the  three  months  ended  January  31,  2007  of
approximately  $738,000  resulted  from cash received upon the exercise of stock
options.  Accordingly,  during the three months ended January 31, 2007, our cash
and cash  equivalents  decreased by  approximately  $454,000 and our  short-term
investments  increased by approximately  $387,000.  As a result,  our cash, cash
equivalents,  and  short-term  investments,  at January  31, 2007  decreased  to
approximately  $1,253,000  from  approximately  $1,320,000  at the end of fiscal
2006.

                                       6
<PAGE>

         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. 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 display.  During the  three-month  period
ended  January 31, 2007,  we have  recognized  revenue from sales of  encryption
products and services of approximately $131,000.

         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  included in our Annual Report on Form 10-K for the
year ended  October  31,  2006,  raise  substantial  doubt  about our ability to
continue as a going concern.  The auditor's  report on our financial  statements
for the year ended October 31, 2005 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.

                                       7
<PAGE>

2. STOCK-BASED COMPENSATION

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

         In December 2004,  the Financial  Accounting  Standards  Board ("FASB")
issued  Statement of Financial  Accounting  Standards  ("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.  In March  2005,  the
Securities  and Exchange  Commission  issued Staff  Accounting  Bulletin No. 107
("SAB No. 107") relating to SFAS No. 123R. We account for stock options  granted
to  employees  and  directors  using SFAS No. 123R.  We  recognize  compensation
expense for stock  option  awards on a  straight-line  basis over the  requisite
service period of the grant.

Stock Option Compensation Expense

         We  recorded   approximately   $708,000  and  $116,000  of  stock-based
compensation  expense,  related  to  stock  options  granted  to  employees  and
directors,  for the  three-month  periods  ended  January  31,  2007  and  2006,
respectively,  in accordance  with SFAS No. 123R. Such  compensation  expense is
included  in the  accompanying  condensed  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  three-month  periods  ended January 31, 2007
and 2006 by $0.01 and $-0-, respectively.

         Included in the stock-based  compensation cost related to stock options
granted to employees and directors recorded during the three-month periods ended
January 31, 2007 and 2006 was approximately $6,000 and $5,000, respectively,  of
expense  related to the  amortization  of  compensation  cost for stock  options
granted  prior to but not yet vested as of the end of the prior fiscal year.  As
of January  31,  2007,  there was  approximately  $19,000 of total  unrecognized
compensation cost related to non-vested share-based  compensation  arrangements.
This  unrecognized  cost is expected to be fully  amortized  over the  remaining
portion of the current fiscal year.

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 separate the individuals we grant stock options to into three
relatively  homogenous  groups,  based on exercise and  post-vesting  employment
termination  behaviors.  To determine  the weighted  average fair value of stock
options 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 three-month periods ended January 31, 2007 and 2006 consisted
of awards of options with 10-year terms which vested immediately.

                                       8
<PAGE>

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

                                                   For the Three Months
                                                    Ended January 31,
                                                  ---------------------
                                                  2007             2006
                                                  ----             ----
    Expected term (in years)                      3.8               1.2
    Volatility                                    98%               81%
    Risk-free interest rate                      4.62%             4.25%
    Dividend yield                                 0                 0
    Weighted average fair value at grant date    $0.40             $0.22

         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
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 reduce  the fair  value of the stock  option  awards for
expected  forfeitures,   which  are  forfeitures  of  the  unvested  portion  of
surrendered  options.  We estimate expected  forfeitures based on our historical
experience.

         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.

                                       9
<PAGE>

Stock Option Activity

         During the  three-month  periods  ended  January 31, 2007 and 2006,  we
granted to employees  options to purchase  1,775,000  shares and 500,000 shares,
respectively,  of common stock at weighted  average  exercise prices of $.61 and
$.62  per  share,  respectively,  pursuant  to the  CopyTele,  Inc.  2003  Share
Incentive  Plan (the "2003 Share Plan").  During the  three-month  periods ended
January  31,  2007 and 2006,  stock  options to  purchase  1,612,230  shares and
1,275,000  shares,  respectively,  of common stock were exercised with aggregate
proceeds of approximately $738,000 and $711,000, respectively.

Stock Option Plans

         As of January 31, 2007, we have three stock option plans: the CopyTele,
Inc.  1993 Stock Option Plan (the "1993 Plan"),  the  CopyTele,  Inc. 2003 Share
Incentive  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.

         Information  regarding the 1993 Plan for the three months ended January
31, 2007 is as follows:
<TABLE>
<CAPTION>
                                                                                  Current Weighted
                                                                                  Average Exercise       Aggregate
                                                                   Shares          Price Per Share     Intrinsic Value
                                                                   ------          ---------------     ---------------
<S>                                                           <C>                 <C>                 <C>
Shares Under Option at October 31, 2006                           4,167,000             $3.13
  Expired                                                        (1,053,000)            $4.50
                                                              --------------
Shares Under Option and Exercisable at
  January 31, 2007                                                3,114,000             $2.66                $-0-
                                                              --------------
</TABLE>

                                       10
<PAGE>
         The  following  table  summarizes   information   about  stock  options
outstanding under the 1993 Plan as of January 31, 2007:

<TABLE>
<CAPTION>
                                     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 1/31/07         Life           Price        at 1/31/07        Life           Price
------------------------ --------------- --------------- -------------- --------------- -------------- --------------
<S>                        <C>            <C>             <C>             <C>           <C>             <C>
   $0.84 to $1.56              784,000        2.79            $1.10           784,000       2.79            $1.10
        $2.28                  855,000        1.45            $2.28           855,000       1.45            $2.28
   $3.38 to $4.38            1,475,000        0.34            $3.71         1,475,000       0.34            $3.71
</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
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  months ended
January 31, 2007 is as follows:
<TABLE>
<CAPTION>
                                                                                 Current Weighted
                                                                                 Average Exercise        Aggregate
                                                                 Shares          Price Per Share      Intrinsic Value
                                                                 ------          ---------------      ---------------
<S>                                                             <C>                  <C>              <C>
Shares Under Option at October 31, 2006                          2,268,466            $0.80
  Exercised                                                        (36,000)           $0.42                $ 18,120
                                                                 --------
Shares Under Option and Exercisable at
  January 31, 2007                                               2,232,466            $0.81                $250,080
                                                                 ---------
</TABLE>

                                       11
<PAGE>


         The  following  table  summarizes   information   about  stock  options
outstanding under the 2000 Share Plan as of January 31, 2007:
<TABLE>
<CAPTION>


                                    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 1/31/07         Life           Price        at 1/31/07        Life           Price
---------------------- ---------------- -------------- -------------- --------------- -------------- --------------
<S>                      <C>            <C>             <C>             <C>           <C>             <C>
  $0.34 - $0.40              495,000        4.47            $0.40           495,000       4.47            $0.40
      $0.69                  635,466        3.92            $0.69           635,466       3.92            $0.69
  $0.94 - $1.09            1,102,000        3.68            $1.06         1,102,000       3.68            $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 January 31, 2007, 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
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  months  ended
January 31, 2007 is as follows:
<TABLE>
<CAPTION>
                                                                                 Current Weighted
                                                                                 Average Exercise        Aggregate
                                                                 Shares          Price Per Share      Intrinsic Value
                                                                 ------          ---------------      ---------------

<S>                                                         <C>                    <C>                <C>
Shares Under Option at October 31, 2006                        16,092,475             $0.68
  Granted                                                        1,775,000            $0.61
  Exercised                                                    (1,576,230)            $0.46              $   406,735
                                                            --------------
Shares Under Option at January 31, 2007                        16,291,245             $0.70              $3,641,514
                                                            -------------
Options Exercisable at January 31, 2007                        16,231,245             $0.70              $3,621,714
                                                            -------------
</TABLE>

                                       12
<PAGE>


         The  following  table  summarizes   information   about  stock  options
outstanding under the 2003 Share Plan as of January 31, 2007:

<TABLE>
<CAPTION>
                                   Options Outstanding                            Options Exercisable
                                         Weighted                                      Weighted
                                          Average                                       Average       Weighted
                          Number         Remaining       Weighted        Number        Remaining       Average
    Range of            Outstanding     Contractual      Average       Exercisable    Contractual     Exercise
Exercise Prices         at 1/31/07         Life       Exercise Price   at 1/31/07        Life           Price
--------------------- ---------------- -------------- --------------- -------------- -------------- --------------
<S>                     <C>              <C>             <C>            <C>            <C>             <C>
 $0.25 - $0.46            2,600,000        6.54            $0.30          2,600,000      6.54            $0.30
 $0.52 - $0.77            6,565,170        8.49            $0.62          6,505,170      8.53            $0.62
 $0.81 - $1.07            7,126,075        8.43            $0.91          7,126,075      8.43            $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 January 31,  2007,  3,535,957
shares were available for future grants under the 2003 Share Plan.

Stock Grants

         We account for stock awards granted to employees and consultants  based
on their grant date fair value. During the three-month periods ended January 31,
2007 and 2006, we issued 548,800  shares and 460,860  shares,  respectively,  of
common stock to certain employees for services rendered,  principally in lieu of
cash  compensation,  pursuant to the 2003 Share Plan.  We recorded  compensation
expense  for  the  three-month  periods  ended  January  31,  2007  and  2006 of
approximately  $421,000  and  $376,000,  respectively,  for the shares of common
stock issued to employees.  In addition,  during the  three-month  periods ended
January  31,  2007 and 2006,  we  issued  134,020  shares  and  117,663  shares,
respectively,  of common stock to consultants for services  rendered pursuant to
the 2003 Share Plan. We recorded  consulting expense for the three-month periods
ended  January  31,  2007  and  2006  of  approximately   $95,000  and  $92,000,
respectively, for the shares of common stock issued to consultants.

3. CONCENTRATION OF CREDIT RISK

         Financial  instruments that potentially subject us to concentrations of
credit  risk  consist  principally  of  accounts  receivable  from  sales in the
ordinary  course of business.  Management  reviews our accounts  receivable  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 the three months ended January 31,
2007, two customers in the Encryption  Products and Services Segment represented
46% and 38%,  respectively,  of total net sales.  During the three  months ended
January 31, 2006, one customer in the Encryption  Products and Services  Segment
represented  84% of total net sales.  At January 31, 2007,  two customers in the
Encryption Products and Services Segment represented 87% and 13%,  respectively,
of accounts  receivable and at October 31, 2006, two customers in the Encryption
Products and Services Segment represented 89% and 11%, respectively, of accounts
receivable.

                                   13
<PAGE>

4. SHORT-TERM INVESTMENTS

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

5. 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 e-mail  services.  The
system is intended to allow  companies to encrypt all e-mail  transactions  in a
manner  transparent to the individual  user.  DISC is now marketing this system,
including  through  presentations to commercial  customers,  for such customers'
evaluation.  Concurrently with entering into the License Agreement with DISC, we
acquired a minority interest in DISC by exchanging 100,000  unregistered  shares
of our common stock for 5,000,000 shares of DISC's common stock. 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 in cash,
respectively.  On November 27, 2006, we acquired an additional  5,000,000 shares
of DISC's common stock in exchange for 300,000 unregistered shares of our common
stock.  Our  investment  in DISC as of January  31,  2007,  is  recorded  in the
accompanying  condensed balance sheet at cost of $417,000,  based on the closing
price of our common stock on the dates we acquired DISC common stock in exchange
for our common stock,  and the price paid for the shares  purchased for cash. As
of January 31, 2007 we held approximately 14% of the outstanding common stock of
DISC.

         Net sales during the three-month  period ended January 31, 2007 include
$60,000 of billings to DISC for engineering services.

6.       INVENTORIES

         Inventories consist of the following as of:

                                              January 31,        October 31,
                                                 2007               2006
                                                 ----               ----

             Component parts                   $ 115,491      $    117,040
             Work-in-process                      29,683            43,135
             Finished products                    98,018           100,648
                                               ---------      -------------
                                               $ 243,192      $     260,823
                                               =========      =============


7. 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 periods presented is the same as Basic EPS, as
the inclusion of the effect of common stock  equivalents then outstanding  would
be anti-dilutive.  For this reason, excluded from the calculation of Diluted EPS
for the  three-month  periods ended  January 31, 2007 and 2006,  were options to
purchase 21,637,711 shares and 21,117,246 shares, respectively.

                                   14
<PAGE>

8. SEGMENT INFORMATION

         We follow the provisions of SFAS No. 131,  "Disclosures  about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). Reportable operating
segments are determined based on management's approach. The management approach,
as  defined  by SFAS No.  131,  is based  on the way  that the  chief  operating
decision-maker  organizes the segments within an enterprise for making operating
decisions  and  assessing  performance.  While our  results  of  operations  are
primarily reviewed on a consolidated  basis, the chief operating  decision-maker
also manages the  enterprise in two segments:  (i)  Flat-panel  display and (ii)
Encryption  products and services.  The following  represents selected financial
information for our segments for the three-month  periods ended January 31, 2007
and 2006:
<TABLE>
<CAPTION>
                                                                         Encryption Products
               Segment Data                     Flat-Panel Display           and Services                 Total
-------------------------------------------    ---------------------     ----------------------    ---------------------
Three Months Ended January 31, 2007:
<S>                                              <C>                       <C>                       <C>
   Net sales                                     $            -            $      130,750            $     130,750
   Net loss                                             (934,341)                 (839,093)            (1,773,434)

Three Months Ended January 31, 2006:
   Net sales                                     $            -            $      195,390            $     195,390
   Net loss                                             (664,756)                 (574,801)            (1,239,557)
</TABLE>


                                   15

<PAGE>



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

GENERAL

         Our principal operations are the development,  production and marketing
of 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.

         We continue to further  optimize  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 are  continuing  to further  optimize a  variation  of our  LVND(TM)
display  utilizing carbon nanotubes and proprietary low voltage color phosphors.
We have developed  various  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.

                                   16



<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 20% 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.

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 also in the process of modifying our LVNDTM nanotube display design
and  the  related  electronics  for  use in  larger  size  displays,  such as to
accommodate TV operation.

         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.  Volga has successfully  performed  acceptance  reliability tests in
Russia on our 5.5 inch (diagonal) display utilizing thin film electron emitters.
This  type of  display  is  expected  to be  suitable  for use by car and  truck
producers in Russia for navigational and informational purposes.

                                       17
<PAGE>

         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.

         We have continued to direct our encryption  marketing  efforts  towards
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  satellite  service  to the Far East  this  year,  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  from APSI  samples  of APSI's  next  generation
satellite  telephone  (the  SO-2510),  and have developed and are now selling an
interconnect  cable  incorporating  active circuits which provide  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 and  Thuraya.  We believe that the same  interconnect  cable will provide
compatibility with APSI's next generation cellular/satellite phone (the SG-2520)
that will be released shortly.

                                       18
<PAGE>

         We  also  are  developing,  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.  We have built
samples  of our design  which are now being  evaluated  and  tested by APSI.  We
believe that this  enhanced  offering will be useful by Thuraya  customers  that
require  confidential and secure  communications.  The new device is designed to
provide a better customer interface in a smaller more portable size.

         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.  Boeing is  continuing
to demonstrate our encryption  products to Thuraya  service  providers at annual
Service Providers Conferences in the United Arab Emirates and elsewhere.

         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.   These  same  products
offer voice and data  encryption  compatibility  with the  Iridium and  Inmarsat
satellite networks.

         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 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.

         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.

                                       19
<PAGE>

         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"), a privately held corporation, an encryption system that integrates our
encryption  technology into DISC's e-mail  services.  DISC is now marketing this
system,  including  through  presentations  to  commercial  customers  for  such
customers' evaluation.  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  and  are  monitored  for
compliance  with  other  regulatory   requirements  and  with  corporate  e-mail
policies. In addition, the system notifies corporate administrators when e-mails
violate such requirements or e-mail policies. In furtherance of the relationship
between us and DISC, at the time we licensed our technology to DISC, we acquired
5,000,000  shares of DISC's  common stock in exchange for 100,000  shares of our
common stock.  Since then, we have  acquired an additional  7,200,000  shares of
DISC's common stock, in the aggregate, for cash and an additional 300,000 shares
of our common stock. As of January 31, 2007 we held  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.

         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.

                                       20
<PAGE>

CRITICAL ACCOUNTING POLICES

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

         We believe the following  critical  accounting  polices affect the more
significant  judgments and estimates  used in the  preparation  of our financial
statements.  For  additional  discussion on the  application  of these and other
accounting polices, refer to the financial statements and notes thereto included
in our Annual Report on Form 10-K for the year ended October 31, 2006.

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.

Inventories

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

                                       21
<PAGE>

Stock Based Compensation

         We account  for stock  options  granted  to  employees,  directors  and
consultants  using SFAS No. 123R.  We recognize  compensation  expense for stock
option awards on a straight-line  basis over the requisite service period of the
grant.  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

Three months ended January 31, 2007 compared with three months ended January 31,
2006

         Net Sales and Gross Profit

         Net  Sales.  Net  sales  decreased  by  approximately  $64,000  in  the
three-month  period  ended  January 31,  2007,  to  approximately  $131,000,  as
compared to  approximately  $195,000 in the comparable  prior-year  period.  All
revenue  during both  periods was from  encryption  products and  services.  The
decrease in net sales  resulted from a reduction in unit sales of  approximately
$124,000,  offset  by  an  increase  in  revenue  from  encryption  services  of
approximately  $60,000.  The  revenue  from  encryption  services in the current
period 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  between  periods  generally  represent  the nature of the
early stage of our product and sales channel development.

         Gross  Profit.  Gross  profit  from sales of  encryption  products  and
services  decreased by  approximately  $50,000 in the  three-month  period ended
January 31, 2007,  to  approximately  $90,000,  as compared to a gross profit of
approximately  $140,000 in the  comparable  prior-year  period.  The decrease in
gross  profit is  primarily  due to the  decrease  in sales.  Gross  profit as a
percent  of net sales in the  three-month  period  ended  January  31,  2007 was
approximately 69%, as compared to approximately 72% in the comparable prior-year
period.  Because  of the  limited  number  of  transactions  during  each of the
periods, gross profit percentages are sensitive to individual transactions.

         Research and Development Expenses

         Research and development  expenses increased by approximately  $346,000
in the three-month  period ended January 31, 2007, to approximately  $1,003,000,
from approximately $657,000 in the comparable prior-year period. The increase in
research and development expenses was principally due to an increase in employee
stock option  compensation  expense of  approximately  $359,000,  an increase in
employee  compensation,  other than stock option  expense,  and related costs of
approximately $26,000,  offset by a decrease of approximately $32,000 in outside
research and development expense.

                                       22
<PAGE>


         Selling, General and Administrative Expenses

         Selling, general and administrative expenses increased by approximately
$141,000 to approximately  $870,000 in the three-month  period ended January 31,
2007,  from  approximately  $729,000 in the comparable  prior-year  period.  The
increase in selling,  general and administrative expenses was principally due to
an increase in  employee  stock  option  compensation  expense of  approximately
$234,000, offset by a decrease in professional fees of approximately $124,000.

         Interest Income

         Interest income was  approximately  $10,000 in the  three-month  period
ended  January 31,  2007,  compared to  approximately  $6,000 in the  comparable
prior-year period. The increase in interest income was principally the result of
an increase in prevailing interest rates.

LIQUIDITY AND CAPITAL RESOURCES

         From our inception,  we have met our liquidity and capital  expenditure
needs  primarily  through the proceeds from sales of common stock in our initial
public  offering,  in private  placements,  upon exercise of warrants  issued in
connection  with  the  private  placements  and  public  offering,  and upon the
exercise of stock options.  In 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  the three  months  ended  January  31,  2007,  our cash used in
operating activities was approximately  $802,000. This resulted from payments to
suppliers, employees and consultants of approximately $884,000, which was offset
by  cash  of  approximately   $72,000  received  from  collections  of  accounts
receivable related to sales of encryption products and approximately  $10,000 of
interest income received. Our cash used in investing activities during the three
months ended January 31, 2007 was  approximately  $389,000,  which resulted from
purchases of short-term  investments  consisting of  certificates  of deposit of
approximately  $425,000 and  purchases  of  approximately  $2,000 of  equipment,
offset  by   approximately   $38,000  received  upon  maturities  of  short-term
investments  consisting  of  certificates  of  deposit.  Our  cash  provided  by
financing  activities  during  the  three  months  ended  January  31,  2007  of
approximately  $738,000  resulted  from cash received upon the exercise of stock
options.  Accordingly,  during the three months ended January 31, 2007, our cash
and cash  equivalents  decreased by  approximately  $454,000 and our  short-term
investments  increased by approximately  $387,000.  As a result,  our cash, cash
equivalents,  and  short-term  investments,  at January  31, 2007  decreased  to
approximately  $1,253,000  from  approximately  $1,320,000  at the end of fiscal
2006.

         Accounts   receivable   increased   by   approximately   $59,000   from
approximately  $10,000  at the end of fiscal  2006 to  approximately  $69,000 at
January 31, 2007. The increase in accounts  receivable is a result of the timing
of collections.  Inventories decreased  approximately $18,000 from approximately
$261,000  at October  31, 2006 to  approximately  $243,000 at January 31,  2007,
primarily  as a result of the  timing of  shipments  and  production  schedules.
Investment  at cost  increased  to  $417,000  at January  31,  2007  compared to
$207,000 at October 31, 2006, due to an additional  non-cash investment in DISC.
Accounts payable and accrued  liabilities  decreased by  approximately  $215,000
from approximately  $582,000 at the end of fiscal 2006 to approximately $367,000
at January 31, 2007, as a result the timing of payments.

                                       23
<PAGE>

         As a result of these  changes,  working  capital  at January  31,  2007
increased to approximately  $1,230,000 from approximately  $1,041,000 at the end
of fiscal 2006.

         Our working capital  includes  inventory of  approximately  $243,000 at
January 31, 2007.  Management has recorded our inventory at the lower of cost or
our  current  best  estimate  of net  realizable  value.  To date,  sales of our
products have been limited. Accordingly,  there can be no assurance that we will
not be required to reduce the selling price of our  inventory  below our current
carrying value.

         During the  three-month  periods  ended  January 31, 2007 and 2006,  we
issued  548,800  shares and 460,860  shares,  respectively,  of common  stock to
certain   employees  for  services   rendered,   principally  in  lieu  of  cash
compensation,  pursuant to the 2003 Share Plan. We recorded compensation expense
for the  three-month  periods ended  January 31, 2007 and 2006 of  approximately
$421,000 and  $376,000,  respectively,  for the shares of common stock issued to
employees.  In addition,  during the three-month  periods ended January 31, 2007
and 2006, we issued 134,020 shares and 117,663 shares,  respectively,  of common
stock to consultants for services  rendered  pursuant to the 2003 Share Plan. We
recorded  consulting expense for the three-month  periods ended January 31, 2007
and 2006 of approximately $95,000 and $92,000,  respectively,  for the shares of
common stock issued to consultants.

         During the  three-month  periods  ended  January 31, 2007 and 2006,  we
granted to employees  and  directors  options to purchase  1,775,000  shares and
500,000  shares,  respectively,  pursuant  to the 2003 Share  Plan.  We recorded
stock-based  compensation  expense for the three-month periods ended January 31,
2007 and 2006 of approximately $708,000 and $116,000,  respectively,  related to
stock options granted to employees and directors.

         During the  three-month  period ended  January 31, 2007, we acquired an
additional  minority  interest  in  DISC,  a  privately  held  corporation,   by
exchanging 300,000  unregistered shares of our common stock for 5,000,000 shares
of DISC's common stock.

         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  included in our Annual Report on Form 10-K for the
year ended  October  31,  2006,  raise  substantial  doubt  about our ability to
continue as a going concern.  The auditor's  report on our financial  statements
for the year ended October 31, 2005 contained a similar statement. Our financial
statements  have been prepared  assuming we will continue as a going concern and
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

         We  believe  that  our  existing  cash,  cash  equivalents,  short-term
investments  and accounts  receivable,  together  with cash flows from  expected
sales of  encryption  products  and flat  panel  displays,  and other  potential
sources of cash flows,  will be sufficient to enable us to continue in operation
until at least the end of the 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. If we cannot  obtain such funds if needed,  we would
need to curtail or cease some or all of our operations.

                                       24
<PAGE>

         We are  seeking to improve our  liquidity  through  increased  sales or
license of products  and  technology.  In an effort to generate  sales,  we have
marketed  our   encryption   products   directly  to  U.S.   and   international
distributors,  dealers  and  original  equipment  manufacturers  that market our
encryption  products and to  end-users.  We have been working with several large
organizations  to provide them with both our  hardware  and software  encryption
solutions  for them to  evaluate  whether  the  solutions  meet  their  security
requirements  and have begun  supplying  several major U.S.  companies  with our
encryption  products.  We 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 the  three-month
period  ended  January  31,  2007,  we have  recognized  revenue  from  sales of
encryption products and services of approximately $131,000.

         The  following  table  presents  our  expected  cash  requirements  for
contractual obligations outstanding as of January 31, 2007:

<TABLE>
<CAPTION>
                                                          Payments Due by Period
                                 Less
Contractual Obligations          than              1-3              4-5             After
                                1 year            years            years           5 years          Total
-------------------------    -------------    --------------    -------------     -----------    -----------
<S>                          <C>              <C>               <C>               <C>            <C>
Consulting
Agreement                    $   43,000                -               -                 -        $  43,000

Noncancelable  Operating
Leases                       $  270,000        $ 231,000                                          $ 501,000
                                                                       -                 -
                             -------------    --------------    -------------     -----------    -----------
Total Contractual
Cash Obligations             $  313,000        $ 231,000               -                  -       $  544,000
                             =============    ==============    =============     ===========    ===========
</TABLE>


                                       25
<PAGE>



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 had no 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
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.


                                       26
<PAGE>


FORWARD-LOOKING STATEMENTS

         Information  included in this Quarterly Report on Form 10-Q may contain
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation Reform Act of 1995.  Forward-looking statements are not statements of
historical facts, but rather reflect our current expectations  concerning future
events and results. We generally use the words "believes," "expects," "intends,"
"plans,"  "anticipates,"  "likely,"  "will" and similar  expressions to identify
forward-looking  statements.  Such forward-looking  statements,  including those
concerning our  expectations,  involve risks,  uncertainties  and other factors,
some of which are  beyond  our  control,  which may  cause our  actual  results,
performance or achievements,  or industry  results,  to be materially  different
from any future results,  performance,  or achievements  expressed or implied by
such forward-looking statements. These risks, uncertainties and factors include,
but are not  limited  to,  those  factors  set forth in Part II, Item 1A - "Risk
Factors"  below and Note 1 to Condensed  Financial  Statements.  You should read
this  discussion  and analysis along with our Annual Report on Form 10-K for the
year ended October 31, 2006 and the condensed  financial  statements included in
this  Report.  We  undertake  no  obligation  to  publicly  update or revise any
forward-looking  statements,  whether  as a result  of new  information,  future
events  or   otherwise.   You  are   cautioned   not  to  unduly  rely  on  such
forward-looking  statements when  evaluating the  information  presented in this
Report.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4.  Controls and Procedures.

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

         There was no change in our internal  control over  financial  reporting
during the quarter ended January 31, 2006 that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


                                       27
<PAGE>

                           PART II. OTHER INFORMATION

Item 1A.  Risk Factors.

         There  have been no  material  changes in our risk  factors  from those
disclosed in our Annual Report on Form 10-K for the year ended October 31, 2006.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

         On November 27, 2006,  we acquired an additional  minority  interest in
DISC by exchanging  300,000  shares of our common stock for 5,000,000  shares of
DISC's  common stock.  The shares of common stock we issued were issued  without
registration  in  reliance  on the  exemption  provided  by Section  4(2) of the
Securities  Act of 1933,  as amended,  for  transactions  not involving a public
offering.  In claiming such exemption,  we relied on representations that, among
other things, DISC was acquiring the shares for its own account (and not for the
account  of  others)  for  investment  and not  with a view to the  distribution
thereof.

Item 6.  Exhibits.

31.1     Certification  of Chief Executive  Officer,  pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002, dated March 12, 2007.

31.2     Certification  of Chief Financial  Officer,  pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002, dated March 12, 2007.

32.1     Statement of Chief Executive Officer, pursuant to Section 1350 of Title
         18 of the United States Code, dated March 12, 2007.

32.2     Statement of Chief Financial Officer, pursuant to Section 1350 of Title
         18 of the United States Code, dated March 12, 2007.


                                       28
<PAGE>




                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                            COPYTELE, INC.


                            By: /s/ Denis A. Krusos
                            -----------------------
                            Denis A. Krusos
                            Chairman of the Board and
                            Chief Executive Officer
March 12, 2007              (Principal Executive Officer)



                            By: /s/ Henry P. Herms
                            ----------------------
                            Henry P. Herms
                            Vice President - Finance and
                            Chief Financial Officer (Principal
March 12, 2007              Financial and Accounting Officer)