SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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


                  For the quarterly period ended April 30, 2007

                         Commission file number 0-11254


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


                Delaware                                       11-2622630
     -------------------------------                       ----------------
     (State or other jurisdiction of                       (I.R.S. Employer
      incorporation or organization)                      Identification no.)


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


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


Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                              Yes   X           No
                                  -----            -----

Indicate by check mark whether the registrant is 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 June 6, 2007, the registrant had outstanding 103,720,590 shares of Common
Stock, par value $.01 per share, which is the registrant's only class of common
stock.

<PAGE>

<TABLE>
                                TABLE OF CONTENTS
                                -----------------

<S>                                                                             <C>  <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

         Condensed Balance Sheets as of April 30, 2007 (Unaudited) and
            October 31, 2006                                                    3

         Condensed Statements of Operations (Unaudited) for the six months
            ended April 30, 2007 and 2006                                       4

         Condensed Statements of Operations (Unaudited) for the three months
            ended April 30, 2007 and 2006                                       5

         Condensed Statements of Cash Flows (Unaudited) for the six months
            ended April 30, 2007 and 2006                                       6

         Notes to Condensed Financial Statements (Unaudited)                    7 - 18

Item 2.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations.                                             19 - 31

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.            31

Item 4.  Controls and Procedures.                                               32


PART II.  OTHER INFORMATION

Item 1A. Risk Factors.                                                          32

Item 6.  Exhibits.                                                              32

         SIGNATURES                                                             33
</TABLE>

                                       2

<PAGE>


                          PART I. FINANCIAL INFORMATION
                          -----------------------------

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

<TABLE>
<S>                                                                            <C>           <C>
                                 COPYTELE, INC.
                            CONDENSED BALANCE SHEETS

                                                                              (Unaudited)
                                                                              ------------
                                                                               April 30,    October 31,
                                    ASSETS                                        2007         2006*
                                    ------                                    ------------  ------------

CURRENT ASSETS:
   Cash and cash equivalents                                                   $  765,995   $ 1,281,660
   Short-term investments                                                         425,000        38,000
   Accounts receivable                                                             60,000        10,165
   Inventories                                                                    231,048       260,823
   Prepaid expenses and other current assets                                       41,775        32,011
                                                                              ------------  ------------
                    Total current assets                                        1,523,818     1,622,659

PROPERTY AND EQUIPMENT, net                                                        25,278        23,083

INVESTMENT, at cost                                                               417,000       207,000

OTHER ASSETS                                                                       10,887        10,887
                                                                              ------------  ------------
                                                                               $1,976,983   $ 1,863,629
                                                                              ============  ============

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

CURRENT LIABILITIES:
   Accounts payable                                                            $  198,505      $532,707
   Accrued liabilities                                                            129,298        49,081
                                                                              ------------  ------------
                    Total current liabilities                                     327,803       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;
      103,496,225 and 99,260,395 shares issued and outstanding, respectively    1,034,962       992,604
   Additional paid-in capital                                                  84,328,067    80,797,756
   Accumulated deficit                                                        (83,713,849)  (80,508,519)
                                                                              ------------  ------------
                                                                                1,649,180     1,281,841
                                                                              ------------  ------------
                                                                               $1,976,983   $ 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>


<TABLE>
<S>                                                     <C>              <C>
                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


                                                           For the Six Months Ended
                                                                   April 30,
                                                        -------------------------------
                                                            2007             2006
                                                        -------------    --------------


NET SALES                                               $    227,177     $     266,928

COST OF SALES                                                 76,803            81,313
                                                        -------------    --------------

         Gross profit                                        150,374           185,615
                                                        -------------    --------------

OPERATING EXPENSES
         Research and development expenses                 1,919,214         2,270,395
         Selling, general and administrative expenses      1,454,359         1,580,364
                                                        -------------    --------------
                  Total operating expenses                 3,373,573         3,850,759
                                                        -------------    --------------

LOSS FROM OPERATIONS                                      (3,223,199)       (3,665,144)

INTEREST INCOME                                               17,869            12,708
                                                        -------------    --------------

NET LOSS                                                $ (3,205,330)    $  (3,652,436)
                                                        =============    ==============



PER SHARE INFORMATION:
Net loss per share:
         Basic and Diluted                              $      (0.03)    $       (0.04)
                                                        =============    ==============

Shares used in computing net loss per share:
         Basic and Diluted                               101,589,288        93,821,919
                                                        =============    ==============
</TABLE>

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


                                       4

<PAGE>


<TABLE>
<S>                                                     <C>             <C>
                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)


                                                         For the Three Months Ended
                                                                 April 30,
                                                        ----------------------------
                                                            2007           2006
                                                        -------------   ------------


NET SALES                                               $     96,427    $    71,538

COST OF SALES                                                 35,607         25,855
                                                        -------------   ------------

         Gross profit                                         60,820         45,683
                                                        -------------   ------------

OPERATING EXPENSES
         Research and development expenses                   916,283      1,613,807
         Selling, general and administrative expenses        584,648        851,268
                                                        -------------   ------------
                  Total operating expenses                 1,500,931      2,465,075
                                                        -------------   ------------

LOSS FROM OPERATIONS                                      (1,440,111)    (2,419,392)

INTEREST INCOME                                                8,215          6,513
                                                        -------------   ------------

NET LOSS                                                $ (1,431,896)   $(2,412,879)
                                                        =============   ============



PER SHARE INFORMATION:
Net loss per share:
         Basic and Diluted                              $      (0.01)   $     (0.03)
                                                        =============   ============

Shares used in computing net loss per share:
         Basic and Diluted                               102,287,372     94,407,865
                                                        =============   ============
</TABLE>

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

                                       5

<PAGE>

<TABLE>
<S>                                                                              <C>             <C>
                                 COPYTELE, INC.
                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                                                    For the Six Months Ended
                                                                                           April 30,
                                                                                 ------------------------------
                                                                                       2007            2006
                                                                                 --------------  --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Payments to suppliers, employees and consultants                              $  (1,518,281)  $  (1,284,101)
   Cash received from customers                                                        177,342         248,845
   Interest received                                                                    17,869          12,708
                                                                                 --------------  --------------
           Net cash used in operating activities                                    (1,323,070)     (1,022,548)
                                                                                 --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from maturities of short-term investments (certificates of deposit)         38,000         400,776
   Disbursements to acquire short-term investments (certificates of deposit)          (425,000)       (398,000)
   Payments for purchases of property and equipment                                     (7,694)         (8,917)
                                                                                 --------------  --------------
           Net cash used in investing activities                                      (394,694)         (6,141)
                                                                                 --------------  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options                                           1,202,099       1,254,199
                                                                                 --------------  --------------
           Net cash provided by financing activities                                 1,202,099       1,254,199
                                                                                 --------------  --------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                  (515,665)        225,510

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     1,281,660         506,517
                                                                                 --------------  --------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $     765,995   $     732,027
                                                                                 ==============  ==============

RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
   Net loss                                                                      $  (3,205,330)  $  (3,652,436)
   Stock option compensation to employees                                              986,354       1,517,351
   Stock option compensation to consultants                                                  -          21,858
   Stock awards granted to employees and consultants pursuant to stock
      incentive plans                                                                1,174,216         968,634
   Provision for doubtful accounts and other receivables                                     -          18,287
   Depreciation and amortization                                                         5,499           7,880
   Change in operating assets and liabilities:
      Accounts receivable                                                              (49,835)        (18,083)
      Inventories                                                                       29,775          77,026
      Prepaid expenses and other current assets                                         (9,764)         19,719
      Other assets                                                                           -          (6,287)
      Accounts payable and accrued liabilities                                        (253,985)         23,503
                                                                                 --------------- --------------
           Net cash used in operating activities                                 $  (1,323,070)  $  (1,022,548)
                                                                                 =============== ==============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
    Unregistered common stock issued in connection with investment in
       Digital Info Security Co., Inc.                                           $     210,000   $      97,000
                                                                                 =============== ==============

</TABLE>

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

                                       6

<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, and with the rules and regulations
of the Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by US GAAP for complete financial statements. The information contained herein
is for the six-month and three-month periods ended April 30, 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 presented are not
necessarily indicative of the results that may be expected for a full year or
any interim period. 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 fiscal 1999, we
have generated cash flows from sales of our encryption products.

                                       7

<PAGE>

         During the six months ended April 30, 2007, our cash used in operating
activities was approximately $1,323,000. This resulted from payments to
suppliers, employees and consultants of approximately $1,518,000, which was
offset by cash of approximately $177,000 received from collections of accounts
receivable related to sales of encryption products and services, and
approximately $18,000 of interest income received. Our cash used in investing
activities during the six months ended April 30, 2007 was approximately
$395,000, which resulted from purchases of short-term investments consisting of
certificates of deposit of approximately $425,000 and purchases of approximately
$8,000 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 six months ended April 30, 2007 of
approximately $1,202,000 resulted from cash received upon the exercise of stock
options. Accordingly, during the six months ended April 30, 2007, our cash and
cash equivalents decreased by approximately $516,000 and our short-term
investments increased by approximately $387,000. As a result, our cash, cash
equivalents, and short-term investments, at April 30, 2007 decreased to
approximately $1,191,000 from approximately $1,320,000 at the end of fiscal
2006.

         We believe that our existing cash, cash equivalents, short-term
investments and accounts receivable, together with cash flows from expected
sales of encryption products and flat panel displays, and other potential
sources of cash flows, will be sufficient to enable us to continue in operation
until at least the end of the second quarter of fiscal 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 second 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 six-month period
ended April 30, 2007, we have recognized revenue from sales of encryption
products and services of approximately $227,000.

                                       8

<PAGE>

         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.

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 stock-based compensation expense related to stock options
granted to employees and directors of approximately $986,000 and $1,517,000 for
the six-month periods ended April 30, 2007 and 2006, respectively, and of
approximately $278,000 and $1,402,000 for the three-month periods ended April
30, 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 six-month periods ended April 30,
2007 and 2006 by $0.01 and $0.02, respectively, and for the three-month periods
ended April 30, 2007 and 2006 by $0.00 and $0.02, respectively.

         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, included in the stock-based compensation cost related to stock options
granted to employees and directors, was approximately $13,000 and $9,000 for the
six-month periods ended April 30, 2007 and 2006, respectively, and approximately
$6,000 and $5,000 for the three-month periods ended April 30, 2007 and 2006,
respectively. As of April 30, 2007, there was approximately $13,000 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.

                                       9

<PAGE>

         We account for options granted to consultants using the fair value
method required by SFAS No. 123R. We recognized consulting expense for options
granted to consultants, during the six-month periods ended April 30, 2007 and
2006, of approximately $-0- and $22,000, respectively, and during the
three-month periods ended April 30, 2007 and 2006, of approximately $-0- and
$22,000, respectively. Such consulting 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 consultants.

Fair Value Determination
------------------------

         In accordance with SFAS No. 123R, we estimate the fair value of stock
options granted to employees, non-employee directors and consultants 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 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 six-month periods ended April 30, 2007 and
2006 consisted of awards of options with 10-year terms which vested immediately.

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

<TABLE>
<S>                                                 <C>          <C>          <C>          <C>
                                                 For the Six Months      For the Three Months
                                                   Ended April 30,          Ended April 30,
                                             -------------------------  ------------------------
                                                2007          2006         2007         2006
                                             ------------  -----------  -----------  -----------
Expected term (in years)                             3.3          2.4          2.0          2.6
Volatility                                            94%          97%          84%         100%
Risk-free interest rate                             4.61%        4.35%        4.60%        4.37%
Dividend yield                                         0            0            0            0
Weighted average fair value at grant date          $0.39        $0.44        $0.37        $0.48
</TABLE>

         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.

                                       10

<PAGE>

         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.

Stock Option Activity
---------------------

         During the six-month periods ended April 30, 2007 and 2006, we granted
to employees and consultants options to purchase 2,505,000 shares and 3,575,000
shares, respectively, of common stock at weighted average exercise prices of
$.67 and $.83 per share, respectively, pursuant to the CopyTele, Inc. 2003 Share
Incentive Plan (the "2003 Share Plan"). During the six-month periods ended April
30, 2007 and 2006, stock options to purchase 2,277,230 shares and 2,034,725
shares, respectively, of common stock were exercised with aggregate proceeds of
approximately $1,202,000 and $1,254,000, respectively.

Stock Option Plans
------------------

         As of April 30, 2007, we have three stock option plans: the CopyTele,
Inc. 1993 Stock Option Plan (the "1993 Plan"), the CopyTele, Inc. 2000 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.

                                       11

<PAGE>

         Information regarding the 1993 Plan for the six months ended April 30,
2007 is as follows:

<TABLE>
<S>     <C> <C>                                   <C>                   <C>           <C> <C>
                                                             Current Weighted    Aggregate
                                                             Average Exercise    Intrinsic
                                                 Shares       Price Per Share      Value
                                             --------------- ----------------- --------------

Shares Under Option at October 31, 2006           4,167,000             $3.13
  Expired                                        (1,553,000)            $4.46
                                             ---------------
Shares Under Option and Exercisable at
  April 30, 2007                                  2,614,000             $2.33         $  -0-
</TABLE>

         The following table summarizes information about stock options
outstanding under the 1993 Plan as of April 30, 2007:

<TABLE>
<S>    <C>             <C>            <C>          <C>         <C>           <C>          <C>
                               Options Outstanding                     Options Exercisable
                     --------------------------------------- ---------------------------------------
                                     Weighted                               Weighted
                                     Average      Weighted                  Average      Weighted
                        Number      Remaining     Average       Number     Remaining      Average
      Range of        Outstanding  Contractual    Exercise   Exercisable  Contractual    Exercise
   Exercise Prices    at 4/30/07       Life        Price      at 4/30/07      Life         Price
----------------------------------------------------------------------------------------------------

   $0.84 to $1.56      784,000        2.54         $1.10       784,000       2.54         $1.10
       $2.28           855,000        1.21         $2.28       855,000       1.21         $2.28
       $3.38           975,000        0.21         $3.38       975,000       0.21         $3.38
</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.

                                       12
<PAGE>

         Information regarding the 2000 Share Plan for the six months ended
April 30, 2007 is as follows:

<TABLE>
<S>                                                <C>        <C>                 <C>
                                                               Current Weighted     Aggregate
                                                               Average Exercise     Intrinsic
                                                   Shares       Price Per Share        Value
                                               -------------- ------------------- --------------

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
  April 30, 2007                                   2,232,466  $             0.81  $         -0-
</TABLE>

         The following table summarizes information about stock options
         outstanding under the 2000 Share Plan as of April 30, 2007:

<TABLE>
<S>       <C>        <C>             <C>          <C>        <C>            <C>          <C>
                              Options Outstanding                    Options Exercisable
                    --------------------------------------- --------------------------------------
                                    Weighted                               Weighted
                                    Average      Weighted                  Average      Weighted
                       Number      Remaining     Average       Number     Remaining     Average
      Range of       Outstanding  Contractual    Exercise   Exercisable  Contractual    Exercise
  Exercise Prices    at 4/30/07       Life        Price      at 4/30/07      Life        Price
--------------------------------------------------------------------------------------------------

  $0.34 - $0.40       495,000        4.23         $0.40       495,000       4.23         $0.40
      $0.69           635,466        3.68         $0.69       635,466       3.68         $0.69
  $0.94 - $1.09      1,102,000       3.44         $1.06      1,102,000      3.44         $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 April 30, 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.

                                       13

<PAGE>

        Information regarding the 2003 Share Plan for the six months ended April
30, 2007 is as follows:

<TABLE>
<S>                                               <C>         <C>               <C>
                                                              Current Weighted     Aggregate
                                                              Average Exercise     Intrinsic
                                                   Shares      Price Per Share       Value
                                               -------------- ----------------- ---------------

Shares Under Option at October 31, 2006           16,092,475  $           0.68
  Granted                                          2,505,000  $           0.67
  Exercised                                       (2,241,230) $           0.53  $      440,885
                                               --------------
Shares Under Option at April 30, 2007             16,356,245  $           0.70  $          -0-
                                               --------------
Options Exercisable at April 30, 2007             16,296,245  $           0.70  $          -0-
</TABLE>

         The following table summarizes information about stock options
outstanding under the 2003 Share Plan as of April 30, 2007:

<TABLE>
<S>       <C>        <C>             <C>          <C>         <C>              <C>          <C>
                              Options Outstanding                      Options Exercisable
                    --------------------------------------- -----------------------------------------
                                    Weighted                                 Weighted
                                    Average      Weighted                     Average      Weighted
                       Number      Remaining     Average        Number       Remaining     Average
      Range of       Outstanding  Contractual    Exercise    Exercisable    Contractual    Exercise
  Exercise Prices    at 4/30/07       Life        Price       at 4/30/07       Life         Price
-----------------------------------------------------------------------------------------------------

  $0.25 - $0.46      2,580,000       6.36         $0.30       2,580,000        6.36         $0.30
  $0.52 - $0.77      6,365,170       8.31         $0.62       6,305,170        8.35         $0.63
  $0.81 - $1.07      7,411,075       8.32         $0.91       7,411,075        8.32         $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 April 30, 2007, 1,830,177
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 six-month periods ended April 30,
2007 and 2006, we issued 1,509,580 shares and 873,920 shares, respectively, of
common stock to certain employees for services rendered, principally in lieu of
cash compensation, pursuant to the 2003 Share Plan and the 2000 Share Plan. We
recorded compensation expense for the six-month periods ended April 30, 2007 and
2006 of approximately $1,068,000 and $759,000, respectively, and for the
three-month periods ended April 30, 2007 and 2006 of approximately $647,000 and
$383,000, respectively, for the shares of common stock issued to employees. In
addition, during the six-month periods ended April 30, 2007 and 2006, we issued
149,020 shares and 246,718 shares, respectively, of common stock to consultants
for services rendered pursuant to the 2003 Share Plan. We recorded consulting
expense for the six-month periods ended April 30, 2007 and 2006 of approximately
$106,000 and $210,000, respectively, and for the three-month periods ended April
30, 2007 and 2006 of approximately $11,000 and $117,000, respectively, for the
shares of common stock issued to consultants.

                                       14

<PAGE>

3.       CONCENTRATION OF CREDIT RISK
         ----------------------------

         Financial instruments that potentially subject us to concentrations of
credit risk consist principally of accounts receivable from sales in the
ordinary course of business. Management reviews our accounts receivable and
other receivables for potential doubtful accounts and maintains an allowance for
estimated uncollectible amounts. Generally, no collateral is received from
customers for our accounts receivable. During the six months ended April 30,
2007, two customers in the Encryption Products and Services Segment represented
53% and 24%, respectively, of total net sales. During the six months ended April
30, 2006, two customers in the Encryption Products and Services Segment
represented 63% and 19%, respectively, of total net sales. At April 30, 2007,
one customer in the Encryption Products and Services Segment represented 100% 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.

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"), 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. Accordingly, as of April 30, 007, we hold 12,200,000 shares of DISC's
common stock, all of which are restricted securities. DISC's common stock is not
registered under the Securities Exchange Act of 1934, but is quoted on the Pink
Sheets.

         Our investment in DISC as of April 30, 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 April 30, 2007 we held approximately 13% of the outstanding common stock of
DISC. Net sales for the six-month periods ended April 30, 2007 and 2006 included
billings to DISC for engineering services of $120,000 and $50,000 respectively.
Net sales for the three-month periods ended April 30, 2007 and 2006 included
billings to DISC for engineering services of $60,000 and $50,000, respectively.
Accounts receivable at April 30, 2007 include $60,000 from DISC.

                                       15

<PAGE>

6.       INVENTORIES
         -----------

         Inventories consist of the following as of:
                                                      April 30,    October 31,
                                                        2007          2006
                                                     -----------  ------------
                 Component parts                      $ 114,715    $ 117,040
                 Work-in-process                         28,819       43,135
                 Finished products                       87,514      100,648
                                                      ---------    ---------
                                                      $ 231,048    $ 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 six-month and three-month periods ended April 30, 2007 and 2006, were
options to purchase 21,202,711 shares and 21,395,941 shares, respectively.

8.       EFFECT OF RECENTLY ISSUED PRONOUNCEMENTS
         ----------------------------------------

         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. FIN 48 is
effective for fiscal years beginning after December 15, 2006. We are currently
evaluating the effect, if any, that the adoption of FIN 48 will have 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 are to 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

                                       16

<PAGE>

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 to other
accounting pronouncements that require or permit fair value measurements. The
provisions of SFAS 157 are effective for fiscal years beginning after November
15, 2007. The adoption of SFAS 157 is not expected to have a material effect on
our financial statements.

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 expands
opportunities to use fair value measurement in financial reporting and permits
entities to choose to measure many financial instruments and certain other items
at fair value. SFAS 159 is effective for fiscal years beginning after November
15, 2007. We are currently evaluating the effect, if any, that the adoption of
SFAS 159 will have on our financial statements.

9.       SEGMENT INFORMATION
         -------------------

         We follow the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). Reportable operating
segments are determined based on management's approach. The management approach,
as defined by SFAS No. 131, is based on the way that the chief operating
decision-maker organizes the segments within an enterprise for making operating
decisions and assessing performance. While our results of operations are
primarily reviewed on a consolidated basis, the chief operating decision-maker
also manages the enterprise in two segments: (i) Flat-panel display and (ii)
Encryption products and services. The following represents selected financial
information for our segments for the six-month and three-month periods ended
April 30, 2007 and 2006:

<TABLE>
<S>                                               <C>                  <C>                   <C>
                                                                       Encryption Products
                  Segment Data                    Flat-Panel Display       and Services            Total
------------------------------------------------- -------------------  --------------------  -----------------

Six Months Ended April 30, 2007:
   Net sales                                      $                -   $           227,177   $        227,177
   Net loss                                               (1,596,106)           (1,609,224)        (3,205,330)

Six Months Ended April 30, 2006:
   Net sales                                      $                -   $           266,928   $        266,928
   Net loss                                               (1,702,286)           (1,950,150)        (3,652,436)
</TABLE>

                                       17

<PAGE>


<TABLE>
<S>                                               <C>                  <C>                   <C>
                                                                       Encryption Products
                  Segment Data                     Flat-Panel Display       and Services           Total
------------------------------------------------- -------------------- --------------------- -----------------

Three Months Ended April 30, 2007:
   Net sales                                      $                 -  $             96,427  $         96,427
   Net loss                                                  (661,765)             (770,131)       (1,431,896)

Three Months Ended April 30, 2006:
   Net sales                                      $                 -  $             71,538  $         71,538
   Net loss                                               (1,037,530))           (1,375,349)       (2,412,879)
</TABLE>

                                       18

<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. We have
developed a process of maintaining uniform carbon nanotube deposition
independent of phosphor deposition. We have also developed a method of enhancing
nanotube electron emission to increase the brightness of our display. In
addition, we have developed various proprietary carbon nanotube network
configurations to optimize the energy efficiency of our display. The carbon
nanotube election emission display technology utilizes the same TFT color matrix
structures as the thin film electron emission technology.

                                       19

<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 LVND(TM) 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 LVND(TM) 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 degrees C to 85 degrees C) which exceeds the range over
          which LCDs can operate, especially under cold temperature conditions.

         We believe our LVND(TM) 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 LVND(TM) nanotube display
design and the related electronics for use in larger size displays, such as to
accommodate TV operation.

                                       20

<PAGE>

         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, LVND(TM) 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.

         We have successfully tested our displays under various environmental
conditions. This included subjecting our displays to shock, vibration, and
operating temperatures from -40 degrees C to 85 degrees 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 The Boeing Company ("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 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 recently entered into a new three year agreement with Boeing,
under which Boeing distributes certain of our encryption products. This replaces
our prior agreement with Boeing, which had expired. Boeing now distributes 13 of
our products, including our DCS-1400D (docker voice encryption device), USS-900T
(satellite fax encryption device), USS-900TL (landline to satellite fax
encryption device), USS-900WF (satellite and cellular fax encryption device),
USS-900WFL (landline to satellite and cellular fax encryption device) and
USS-900TC (satellite fax encryption to computer) products, which were
specifically designed for the Thuraya network. 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.

                                       21

<PAGE>

         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 field tested by APSI and by Boeing over the Thuraya
network and is currently being marketed to consumers by Boeing and Thuraya
distributors. 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.

         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 our agreement with Boeing, Boeing authorized us to
use its name on our website. Accordingly, customers desiring to purchase certain
of our 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 are currently advising APSI and Sattrans on their
development of new docking units for the Thuraya handsets which will allow
greater flexibility and usage of our encryption products.

         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.

                                       22

<PAGE>

         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.

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

         In February 2006, we licensed to Digital Info Security Co., Inc.
("DISC"), an encrypted system for e-mail that integrates into DISC's e-mail
services. DISC is now marketing this system through presentations to commercial
customers directly and through trade shows. These efforts have lead to ongoing
customer evaluation trials. 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 and
re-encrypts it for forwarding to the recipient if required. Copies of e-mails
can also be archived in accordance with the tracking and monitoring requirements
of the Sarbanes-Oxley Act and Gramm-Leach-Bliley Act and 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 corporate 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. Accordingly, as of April 30, 007,
we hold 12,200,000 shares of DISC's common stock, all of which are restricted
securities. DISC's common stock is not registered under the Securities Exchange
Act of 1934, but is quoted on the Pink Sheets. As of April 30, 2007 we held
approximately 13 percent of the outstanding common stock of DISC.

                                       23

<PAGE>

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

         Our operations and the achievement of our objectives in marketing,
production, and research and development are dependent upon an adequate cash
flow. Accordingly, in monitoring our financial position and results of
operations, particular attention is given to cash and accounts receivable
balances and cash flows from operations. Since our initial public offering, our
cash flows have been primarily generated through the sales of common stock in
private placements and upon exercise of stock options. Since 1999 we have also
generated cash flows from sales of our encryption products. During the past year
we have continued to direct our encryption marketing efforts to participate in
the security opportunities created by the U.S. Department of Homeland Security,
the Defense Department, and the enactment of laws such as HIPAA, the
Sarbanes-Oxley Act, and Gramm-Leach-Bliley Act, which mandate that government
and private sector firms provide higher levels of information privacy and
security. We are continuing to pursue marketing and licensing opportunities for
our display technology; however, to date, we have not had any revenue from sales
or licensing of our LVND(TM) 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
second quarter of fiscal 2008.

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.

                                       24

<PAGE>

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.

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
---------------------

Six months ended April 30, 2007 compared with six months ended April 30, 2006
-----------------------------------------------------------------------------

         Net Sales and Gross Profit

         Net Sales. Net sales decreased by approximately $40,000 in the
six-month period ended April 30, 2007, to approximately $227,000, as compared to
approximately $267,000 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 $110,000, to
approximately $107,000, as compared to approximately $217,000 in the comparable
prior-year period, offset by an increase in revenue from encryption services of
$70,000, to $120,000, as compared to $50,000 in the comparable prior-year
period. The revenue from encryption services in the both periods 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 $36,000 in the six-month period ended April
30, 2007, to approximately $150,000, as compared to a gross profit of
approximately $186,000 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 six-month period ended April 30, 2007 was
approximately 66%, as compared to approximately 70% 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.

                                       25

<PAGE>

         Research and Development Expenses

         Research and development expenses decreased by approximately $351,000
in the six-month period ended April 30, 2007, to approximately $1,919,000, from
approximately $2,270,000 in the comparable prior-year period. The decrease in
research and development expenses was principally due to a decrease in employee
stock option compensation expense of approximately $546,000, offset by an
increase in employee compensation, other than stock option expense, and related
costs of approximately $226,000, primarily resulting from the grant of employee
bonuses.

         Selling, General and Administrative Expenses

         Selling, general and administrative expenses decreased by approximately
$126,000 to approximately $1,454,000 in the six-month period ended April 30,
2007, from approximately $1,580,000 in the comparable prior-year period. The
decrease in selling, general and administrative expenses was principally due to
a decrease in professional fees of approximately $225,000, a decrease in
consulting services of approximately $24,000, a decrease in advertising expense
of approximately $19,000 and a decrease in the provision for doubtful accounts
of approximately $18,000, offset by an increase in employee compensation, other
than stock option expense, and related costs of approximately $148,000,
primarily resulting from the grant of employee bonuses.

         Interest Income

         Interest income was approximately $18,000 in the six-month period ended
April 30, 2007, compared to approximately $13,000 in the comparable prior-year
period. The increase in interest income was principally the result of an
increase in funds available for investment and an increase in prevailing
interest rates.

Three months ended April 30, 2007 compared with three months ended
April 30, 2006
--------------------------------------------------------------------------------

         Net Sales and Gross Profit

         Net Sales. Net sales increased by approximately $24,000 in the
three-month period ended April 30, 2007, to approximately $96,000, as compared
to approximately $72,000 in the comparable prior-year period. All revenue during
both periods was from encryption products and services. The increase in net
sales resulted from an increase in unit sales of approximately $14,000, to
approximately $36,000, as compared to approximately $22,000 in the comparable
prior-year period, and an increase in revenue from encryption services of
$10,000, to $60,000, as compared to $50,000 in the comparable prior-year period.
The revenue from encryption services in the both periods 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 increased by approximately $15,000 in the three-month period ended
April 30, 2007, to approximately $61,000, as compared to a gross profit of
approximately $46,000 in the comparable prior-year period. The increase in gross
profit is primarily due to the increase in sales. Gross profit as a percent of
net sales in the three-month period ended April 30, 2007 was approximately 63%,
as compared to approximately 64% 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.

                                       26

<PAGE>

         Research and Development Expenses

         Research and development expenses decreased by approximately $698,000
in the three-month period ended April 30, 2007, to approximately $916,000, from
approximately $1,614,000 in the comparable prior-year period. The decrease in
research and development expenses was principally due to a decrease in employee
stock option compensation expense of approximately $904,000, offset by an
increase in employee compensation, other than stock option expense, and related
costs of approximately $200,000, primarily resulting from the grant of employee
bonuses.

         Selling, General and Administrative Expenses

         Selling, general and administrative expenses decreased by approximately
$266,000 to approximately $585,000 in the three-month period ended April 30,
2007, from approximately $851,000 in the comparable prior-year period. The
decrease in selling, general and administrative expenses was principally due to
a decrease in employee stock option compensation expense of approximately
$219,000, a decrease in professional fees of approximately $101,000 a decrease
in consulting services of approximately $43,000, a decrease in advertising
expense of approximately $19,000 and a decrease in the provision for doubtful
accounts of approximately $12,000, offset by an increase in employee
compensation, other than stock option expense, and related costs of
approximately $140,000, primarily resulting from the grant of employee bonuses.

         Interest Income

         Interest income was approximately $8,000 in the three-month period
ended April 30, 2007, compared to approximately $7,000 in the comparable
prior-year period.

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 fiscal 1999, we
have generated cash flows from sales of our encryption products.

         During the six months ended April 30, 2007, our cash used in operating
activities was approximately $1,323,000. This resulted from payments to
suppliers, employees and consultants of approximately $1,518,000, which was
offset by cash of approximately $177,000 received from collections of accounts
receivable related to sales of encryption products and services, and
approximately $18,000 of interest income received. Our cash used in investing
activities during the six months ended April 30, 2007 was approximately
$395,000, which resulted from purchases of short-term investments consisting of
certificates of deposit of approximately $425,000 and purchases of approximately
$8,000 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 six months ended April 30, 2007 of
approximately $1,202,000 resulted from cash received upon the exercise of stock
options. Accordingly, during the six months ended April 30, 2007, our cash and
cash equivalents decreased by approximately $516,000 and our short-term
investments increased by approximately $387,000. As a result, our cash, cash
equivalents, and short-term investments, at April 30, 2007 decreased to
approximately $1,191,000 from approximately $1,320,000 at the end of fiscal
2006.

                                       27

<PAGE>

         Accounts receivable increased by approximately $50,000 from
approximately $10,000 at the end of fiscal 2006 to approximately $60,000 at
April 30, 2007. The increase in accounts receivable is a result of the timing of
collections. Inventories decreased approximately $30,000 from approximately
$261,000 at October 31, 2006 to approximately $231,000 at April 30, 2007,
primarily as a result of the timing of shipments and production schedules.
Investment at cost increased to $417,000 at April 30, 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 $254,000 from
approximately $582,000 at the end of fiscal 2006 to approximately $328,000 at
April 30, 2007, as a result the timing of payments.

         As a result of these changes, working capital at April 30, 2007
increased to approximately $1,196,000 from approximately $1,041,000 at the end
of fiscal 2006.

         Our working capital includes inventory of approximately $231,000 at
April 30, 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 six-month periods ended April 30, 2007 and 2006, we issued
1,509,580 shares and 873,920 shares, respectively, of common stock to certain
employees for services rendered, principally in lieu of cash compensation,
pursuant to the 2003 Share Plan and the 2000 Share Plan. We recorded
compensation expense for the six-month periods ended April 30, 2007 and 2006 of
approximately $1,068,000 and $759,000, respectively, and for the three-month
periods ended April 30, 2007 and 2006 of approximately $647,000 and $383,000,
respectively, for the shares of common stock issued to employees. In addition,
during the six-month periods ended April 30, 2007 and 2006, we issued 149,020
shares and 246,718 shares, respectively, of common stock to consultants for
services rendered pursuant to the 2003 Share Plan. We recorded consulting
expense for the six-month periods ended April 30, 2007 and 2006 of approximately
$106,000 and $210,000, respectively, and for the three-month periods ended April
30, 2007 and 2006 of approximately $11,000 and $117,000, respectively, for the
shares of common stock issued to consultants.

         During the six-month periods ended April 30, 2007 and 2006, we granted
to employees and directors options to purchase 2,505,000 shares and 3,575,000
shares, respectively, pursuant to the 2003 Share Plan. We recorded stock-based
compensation expense related to stock options granted to employees and directors
of approximately $986,000 and $1,517,000 for the six-month periods ended April
30, 2007 and 2006, respectively, and of approximately $278,000 and $1,402,000
for the three-month periods ended April 30, 2007 and 2006, respectively.

                                       28

<PAGE>

         During the six-month period ended April 30, 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 second 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 second 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 LVNDTM display. During the six-month
period ended April 30, 2007, we have recognized revenue from sales of encryption
products and services of approximately $227,000.

                                       29

<PAGE>

         The following table presents our expected cash requirements for
contractual obligations outstanding as of April 30, 2007:


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

Consulting
Agreement             $105,000           -           -           -     $105,000

Noncancelable
Operating Leases      $272,000    $162,000           -           -     $434,000
                    ----------- ----------- -----------  ---------- ------------

Total Contractual
Cash Obligations      $377,000    $162,000           -           -     $539,000
                    =========== =========== ===========  ========== ============


IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
------------------------------------------

         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. FIN 48 is
effective for fiscal years beginning after December 15, 2006. We are currently
evaluating the effect, if any, that the adoption of FIN 48 will have 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 are to 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

                                       30

<PAGE>

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

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

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 expands
opportunities to use fair value measurement in financial reporting and permits
entities to choose to measure many financial instruments and certain other items
at fair value. SFAS 159 is effective for fiscal years beginning after November
15, 2007. We are currently evaluating the effect, if any, that the adoption of
SFAS 159 will have on our financial statements.

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.

                                       31

<PAGE>

Item 4.  Controls and Procedures.
         ------------------------

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

         There was no change in our internal control over financial reporting
during the quarter ended April 30, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

                           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 6.  Exhibits.
         ---------

            31.1    Certification of Chief Executive Officer, pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002, dated
                    June 11, 2007.

            31.2    Certification of Chief Financial Officer, pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002, dated
                    June 11, 2007.

            32.1    Statement of Chief Executive Officer, pursuant to Section
                    1350 of Title 18 of the United States Code, dated
                    June 11, 2007.

            32.2    Statement of Chief Financial Officer, pursuant to Section
                    1350 of Title 18 of the United States Code, dated
                    June 11, 2007.


                                       32

<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
June 11, 2007                                (Principal Executive Officer)



                                             By: /s/ Henry P. Herms
                                                 ------------------
                                             Henry P. Herms
                                             Vice President - Finance and
                                             Chief Financial Officer (Principal
June 11, 2007                                Financial and Accounting Officer)


                                       33