================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A
                                (Amendment No. 1)


[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 For the fiscal year ended October 31, 1998
         
                            or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
    ACT OF 1934 (No Fee Required)  For the transition period from
    
    ------------- to --------------
          
                         Commission file number: 0-11254

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

                            
                              900 Walt Whitman Road
                          Huntington Station, NY 11746
                                 (516) 549-5900
--------------------------------------------------------------------------------
 (Address, Including Zip Code, and Telephone Number,Including Area Code, of 
  Registrant's Principal Executive Offices)
 
 Securities registered pursuant to Section 12(b) of the Act:

                                   Name of Each Exchange
    Title of Each Class            on Which Registered
------------------------          -----------------------
         NONE                            NONE

          Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
--------------------------------------------------------------------------------
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive  proxy or information  statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x].

Aggregate  market value of the voting stock (which  consists solely of shares of
Common Stock) held by  non-affiliates  of the registrant as of January 22, 1999,
computed by reference to the closing sale price of the registrant's Common Stock
on the NASDAQ National Market System on such date ($1.91): $95,593,898.

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [_] No [_]

On January 22, 1999, the registrant had outstanding  58,111,176 shares of Common
Stock, par value $.01 per share,  which is the registrant's only class of common
stock.     

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE
================================================================================
<PAGE>


               This amendment is to file exhibit 99.1 - Financial Statements of 
               Shanghai CopyTele Electronics Co., Ltd.


<PAGE>

                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules, and
                  Reports on Form 8-K.

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

                  See accompanying "Index to Financial Statements".

  (a)(3)          Executive Compensation Plans and Arrangements

                  Stock  Option Plan  (1987)  (filed as Exhibit  10.18 to the  
                  Company's  Quarterly  Report on Form 10-Q for the fiscal
                  quarter ended April 30, 1987).

                  Amendment to Stock Option Plan (1987)  (filed as Exhibit  
                  10.69 to the  Company's  Annual Report on Form 10-K for the
                  fiscal year ended October 31, 1990).

                  CopyTele, Inc. 1993 Stock Option Plan (filed as Annex A to 
                  the Company's Proxy Statement dated June 10, 1993).
 
                  Amendment to CopyTele,  Inc. 1993 Stock Option Plan (filed 
                  as Exhibit 4(d) to the Company's Form S-8 dated  September
                  6, 1995).

                  Amendment to CopyTele,  Inc. 1993 Stock Option Plan (filed as
                  Exhibit 10.32 to the Company's Quarterly Report on Form
                  10-Q for the fiscal quarter ended April 30, 1996).

      (b)         Reports on Form 8-K

                  No  current  report on Form 8-K was filed for the  Company  
                  during  the  fourth  quarter  of its  fiscal  year  ended
                  October 31, 1998.

      (c)         Exhibits

                  (a)      3.1              Certificate of Incorporation, as 
                                            amended.

                  (b)      3.2              By-laws, as amended and restated.

                           3.3              Amendment to By-laws.

                  (c)      10.1             Stock Option Plan, adopted on April 
                                            1, 1987 and approved by shareholders
                                            on May 27, 1987.

                  (d)      10.2             Amendment to Stock Option Plan,  
                                            adopted on March 12, 1990 and 
                                            approved by  shareholders on
                                            May 24, 1990.
<PAGE>

                  (e)      10.3             CopyTele,  Inc.  1993  Stock  Option
                                            Plan,  adopted  on April  28,  1993 
                                            and  approved  by shareholders on
                                            July 14, 1993.

                  (f)      10.4             Joint  Venture  Contract,  dated as 
                                            of March 28, 1995, by and between  
                                            Shanghai  Electronic Components 
                                            Corp.and CopyTele, Inc.
                                             
                  (f)      10.5             Technology  License  Agreement,  
                                            dated  as of  March  28,  1995,  by 
                                            and  between  Shanghai CopyTele
                                            Electronics Co., Ltd. and CopyTele,
                                            Inc.

                  (g)      10.6             Amendment  No. 1 to the CopyTele,  
                                            Inc. 1993 Stock Option Plan,  
                                            adopted on May 3, 1995 and approved
                                            by shareholders on July 19, 1995.

                  (h)      10.7             Assignment  Agreement,  dated  as of
                                            July  10,  1995,  by and  among 
                                            Shanghai  Electronic Components  
                                            Corp., Shanghai  International Trade
                                            and  Investment  Developing  Corp.  
                                            and CopyTele, Inc.

                  (i)      10.8             Amendment No. 2 to the CopyTele,  
                                            Inc. 1993 Stock Option Plan,  
                                            adopted on May 10, 1996 and approved
                                            by shareholders on July 24, 1996.
 
                  (j)      10.9             Contract   Granting   Land-Use   
                                            Rights,   dated   October  11, 1995,
                                            between  the  Land Administration 
                                            Bureau Songjiang County and Shanghai
                                            CopyTele Electronics Co., Ltd.

                           21               List of Significant Subsidiaries.
 
                           23.1             Consent of Arthur Andersen LLP.

                           27               Financial Data Schedule.

                   (k)     99.1             Financial Statements of Shanghai 
                                            CopyTele Electronics Co., Ltd.
                                    

                  (a)      Incorporated  by reference to Form 10-Q for the 
                           fiscal  quarter ended July 31, 1992 and to Form 10-Q 
                           for the fiscal quarter ended July 31, 1997.

                  (b)      Incorporated by reference to  Post-Effective  
                           Amendment No.1 to Form S-8 (Registration No.33-49402)
                           dated December 8, 1993.

                  (c)      Incorporated by reference to Form 10-Q for the fiscal
                           quarter ended April 30, 1987.
<PAGE>
 
                  (d)      Incorporated by reference to Form 10-K for the fiscal
                           year ended October 31, 1990.

                  (e)      Incorporated by reference to Proxy Statement dated 
                           June 10, 1993.

                  (f)      Incorporated by reference to Form 8-K dated March 28,
                           1995.

                  (g)      Incorporated by reference to Form S-8 
                          (Registration No. 33-62381) dated September 6, 1995.

                  (h)      Incorporated by reference to Form 10-K for the fiscal
                           year ended October 31, 1995.

                  (i)      Incorporated by reference to Form 10-Q for the fiscal
                           quarter ended April 30, 1996.
 
                  (j)      Incorporated by reference to Form 10-Q for the fiscal
                           quarter ended January 31, 1997.
                           

                  (k)      Incorporated by reference to Form 10-K for the fiscal
                           year ended October 31, 1998.


<PAGE>

                                   SIGNATURES
                                   ----------

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.




                                          COPYTELE, INC.

                                          By:/s/ Denis A. Krusos
                                          -------------------------
                                          Denis A. Krusos
                                          Chairman of the Board and
March 30, 1999                            Chief Executive Officer



<PAGE>


                                                    EXHIBIT INDEX
                                                    -------------
         Exhibit
Ref.     Number              Description
----     -------             ------------

(a)      3.1                 Certificate of Incorporation, as amended.

(b)      3.2                 By-laws, as amended and restated.

         3.3                 Amendment to By-Laws.

(c)      10.1                Stock Option Plan, adopted on April 1, 1987 and 
                             approved by shareholders on May 27, 1987.

(d)      10.2                Amendment to Stock Option Plan, adopted on 
                             March 12, 1990 and approved by  shareholders on
                             May 24, 1990.

 (e)     10.3                CopyTele,  Inc. 1993 Stock Option Plan, adopted on 
                             April 28, 1993 and approved by shareholders on July
                             14, 1993.
                             
(f)      10.4                Joint Venture Contract,  dated as of March 28, 
                             1995, by and between Shanghai  Electronic  
                             Components Corp. and CopyTele, Inc.
                             
(f)      10.5                Technology  License  Agreement,  dated as of March 
                             28, 1995, by and between Shanghai CopyTele  
                             Electronics  Co., Ltd. and CopyTele, Inc.

(g)      10.6                Amendment  No. 1 to the  CopyTele,  Inc.  1993 
                             Stock Option  Plan,  adopted on May 3, 1995 and 
                             approved by shareholders on July 19, 1995.
                             
(h)      10.7                Assignment  Agreement,  dated as of July 10, 1995,
                             by and among  Shanghai  Electronic  Components  
                             Corp., Shanghai International Trade and Investment 
                             Developing Corp. and CopyTele, Inc.

(i)      10.8                Amendment  No. 2 to the  CopyTele,  Inc.  1993 
                             Stock Option Plan,  adopted on May 10, 1996 and 
                             approved by shareholders on July 24, 1996.

(j)      10.9                Contract  Granting  Land-Use  Rights,  dated  
                             October 11,  1995,  between the Land Administration
                             Bureau Songjiang County and Shanghai CopyTele 
                             Electronics Co., Ltd.

         21                  List of Significant Subsidiaries.
 
         23.1                Consent of Arthur Andersen LLP.
 
         27                  Financial Data Schedule.

(k)      99.1                Financial Statements of Shanghai CopyTele 
                             Electronics Co., Ltd.
 
<PAGE>
                
(a)      Incorporated by reference to Form 10-Q for the fiscal quarter ended 
         July 31, 1992 and the fiscal quarter ended July 31, 1997.
(b)      Incorporated by reference to Post-Effective Amendment No. 1 to Form S-8
        (Registration No. 33-49402) dated December 8, 1993.
(c)      Incorporated by reference to Form 10-Q for the fiscal quarter ended 
         April 30, 1987.
(d)      Incorporated by reference to Form 10-K for the fiscal year ended 
         October 31, 1990.
(e)      Incorporated by reference to Proxy Statement dated June 10, 1993.
(f)      Incorporated by reference to Form 8-K dated March 28, 1995.
(g)      Incorporated by reference to Form S-8 (Registration No. 33-62381) dated
         September 6, 1995.
(h)      Incorporated by reference to Form 10-K for the fiscal year ended 
         October 31, 1995.
(i)      Incorporated by reference to Form 10-Q for the fiscal quarter ended 
         April 30, 1996.
(j)      Incorporated by reference to Form 10-Q for the fiscal quarter ended 
         January 31, 1997.
(k)      Incorporated by reference to Form 10-K for the fiscal year ended 
         October 31, 1998.

<PAGE>


                    SHANGHAI COPYTELE ELECTRONICS CO., LTD.         Exhibit 99.1
                     ---------------------------------------

                 (Registered in the People's Republic of China)
                 ----------------------------------------------

                          INDEX TO FINANCIAL STATEMENTS
                          -----------------------------

                                OCTOBER 31, 1998                    
                                ----------------


<TABLE>
<CAPTION>

<S>                                                                                    <C>    
                                                                                               Page

Report of Independent Public Accountants                                                        F-1

Balance Sheets as of October 31, 1998 and 1997                                                  F-2

Statements of Results of Operations for each of the three years ended October 31, 1998          F-3

Statements of Cash Flows for each of the three years ended October 31, 1998                  F-4 - F-5

Statements of Owners' Equity for each of the three years ended October 31, 1998                 F-6

Notes to Financial Statements                                                               F-7 - F-13


</TABLE>


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



<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------



To Shanghai CopyTele Electronics Co., Ltd.:


We have audited the accompanying balance sheets of Shanghai CopyTele Electronics
Co., Ltd. (established in the People's Republic of China) as of October 31, 1998
and 1997,  and the  related  statements  of  operations,  cash flows and owners'
equity for each of the three  years  ended  October 31,  1998.  These  financial
statements  are  the  responsibility  of the  management  of  Shanghai  CopyTele
Electronics  Co.,  Ltd.  Our  responsibility  is to  express an opinion on these
financial statements based on our audits.

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

Without  qualification to the above opinion,  we bring the readers  attention to
the matters set out at Notes 1, 3 and 8 to the financial statements. The Company
continues to have negative  current working capital and is incurring losses from
its  operations.  The  Company is taking  action to improve  its  liquidity  and
believes   that  it  has   sufficient   resources  to  continue  in   operation.
Nevertheless,  the Company remains heavily dependent upon its principal customer
and major  shareholder,  CopyTele,  Inc.,  for future  sales and  profitability.
Inventories  have  been  stated  at cost  in the  financial  statements,  on the
assumption that gross margins on sales to CopyTele, Inc. will improve.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Shanghai CopyTele  Electronics
Co.,  Ltd. as of October 31, 1998 and 1997,  and the results of its  operations,
cash flows and the  changes in its  owners'  equity for each of the three  years
ended  October  31,  1998  in  conformity  with  generally  accepted  accounting
principles in the United States of America.


Shanghai J.W. Associated
  CERTIFIED PUBLIC ACCOUNTANTS

Shanghai, PRC
December 18, 1998

                                       F-1
<PAGE>


                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                                 BALANCE SHEETS
                                 --------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------


<TABLE>
<CAPTION>



                                                                            October 31,          October 31,
                                                                 Note           1998                 1997
                                                               ---------  ---------------      --------------

ASSETS
<S>                                                            <C>       <C>                 <C>    
CURRENT ASSETS:
   Cash on hand and at banks                                                   51,760              135,890
   Due from CopyTele, Inc.                                        8           661,592                 -
   Inventories                                                    3         3,568,202            4,830,461
   Other current assets                                                        68,581               31,988
                                                                          ---------------      --------------

       Total Current assets                                                 4,350,135            4,998,339

PROPERTY, PLANT AND EQUIPMENT, net                                4         1,812,310            1,897,832

 LAND USE RIGHT, net                                              5           293,273              299,337
                                                                          ---------------      --------------

TOTAL ASSETS                                                                6,455,718            7,195,508
                                                                          ===============      ==============

LIABILITIES AND OWNERS'EQUITY

CURRENT LIABILITIES:
   Short-term bank loans                                          6           999,316              500,012
   Accounts payable                                                           221,459              504,269
   Due to CopyTele, Inc.                                          8         3,916,628            4,303,652
   Other current liabilities                                                  116,593                 -
                                                                          ---------------      --------------

       Total current liabilities                                            5,253,996            5,307,933   
                                                                          ---------------      --------------

OWNERS' EQUITY
   Paid-in capital                                                1         3,500,000            3,500,000
   Accumulated deficit                                                     (2,298,278)          (1,612,425)
                                                                          ---------------      --------------
                                                                         

       Total Owners' Equity                                                 1,201,722            1,887,575
                                                                          ---------------      --------------

TOTAL LIABILITIES AND OWNERS' EQUITY                                        6,455,718            7,195,508
                                                                          ===============      ==============

</TABLE>

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

                                      F-2
<PAGE>



                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                            STATEMENTS OF OPERATIONS
                            ------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

<TABLE>
<CAPTION>



                                                                       For the years ended October 31,
                                                            -------------------------------------------------------
                                                   Note           1998                1997              1996
                                                 ---------  ------------------  -----------------  ----------------
<S>                                              <C>          <C>                  <C>              <C>    
SALES                                               8                  -                 -                   -

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                       (631,101)          (594,375)         (771,984)
                                                            ------------------  -----------------  ----------------

       Operating loss                                              (631,101)          (594,375)         (771,984)

OTHER OPERATING INCOME (EXPENSES)

   Interest (expenses) income, net                                  (56,117)           (19,870)           13,892
   Foreign exchange gain (loss), net                                    169              5,002            (2,144)
   Other, net                                                         1,196               (559)              -
                                                            ------------------  -----------------  ----------------

       Loss before taxation                                        (685,853)          (609,802)         (760,236)

TAXATION                                            7                  -                  -                  -
                                                            ------------------  -----------------  ----------------

NET LOSS                                                           (685,853)          (609,802)         (760,236)

ACCUMULATED DEFICITS, beginning of year                          (1,612,425)        (1,002,623)         (242,387)
                                                            ------------------  -----------------  ----------------

ACCUMULATED DEFICITS, end of year                                (2,298,278)        (1,612,425)       (1,002,623)
                                                            ==================  =================  ================


</TABLE>


The accompanying notes are an integral part of these statements.
 
                                      F-3

<PAGE>



                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                            STATEMENTS OF CASH FLOWS
                            ------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

<TABLE>
<CAPTION>


                                                                  For the years ended October 31,
                                                      ---------------------------------------------------------
                                                            1998                1997               1996
                                                      ------------------  -----------------  ------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                     <C>                  <C>                 <C>    
   Cash received from sales of goods                        1,111,118             455,375               -
   Interest received                                            2,124               6,468             13,892
   Interest paid                                              (58,241)            (26,338)              -
   Payment to suppliers, employees and others              (1,553,313)           (809,641)          (618,378)
                                                      ------------------  -----------------  ------------------

      Net cash used in operating activities                  (498,312)           (374,136)          (604,486)
                                                      ------------------  -----------------  ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:

   Payment for purchases of property, plant and                                                                
     equipment and other assets                               (85,122)           (991,839)        (1,074,501)
                                                      ------------------  -----------------  ------------------

      Net cash used in investing activities                   (85,122)           (991,839)        (1,074,501)
                                                      ------------------  -----------------  ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:

   Capital contribution from the joint venture                                                                 
     partners (Note (a))                                         -                   -             1,960,000
   Proceeds of short-term bank loans                          499,304             500,012               -
                                                      ------------------  -----------------  ------------------

      Net cash provided by financing activities                                                    1,960,000
                                                      ------------------  -----------------  ------------------

Net DEcrease in cash and cash equivalents                     (84,130)           (865,963)           281,013

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                135,890           1,001,853            720,840
                                                      ------------------  -----------------  ------------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                       51,760             135,890          1,001,853
                                                      ==================  =================  ==================


</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>



                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                      STATEMENTS OF CASH FLOWS (continued)
                      ------------------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

<TABLE>
<CAPTION>

                                                                  For the years ended October 31,
                                                      ---------------------------------------------------------
                                                            1998                1997               1996
                                                      ------------------  -----------------  ------------------
<S>                                                    <C>                   <C>                  <C>   
RECONCILIATIONS OF NET LOSS TO  NET CASH USED IN                                                               
   OPERATING ACTIVITIES:                                                                                       

NET LOSS                                                     (685,853)           (609,802)           (760,236)

Depreciation and amortization                                 176,708             106,143             510,650
Interest income                                                (2,124)             (6,468)            (13,892)
Interest expenses                                              58,241              26,338                  -
Decrease (increase) in inventories                          1,262,259          (4,830,407)                (54)
(Increase) decrease in due from CopyTele, Inc. and                                                             
   other current assets                                      (698,185)            212,127            (400,079)
(Decrease) increase in accounts payable, due to                                                                
   CopyTele, Inc. and other current liabilities              (553,241)          4,747,803              45,233
Interest received                                               2,124               6,468              13,892
Interest paid                                                 (58,241)            (26,338)               -
                                                      ------------------  -----------------  ------------------

      Net cash used in operating activities                  (498,312)           (374,136)           (604,486)
                                                      ==================  =================  ==================

</TABLE>


Supplemental Cash Flow Information:

(a)  Non-cash Financing Activities:

Capital  contribution  from CopyTele,  Inc.  included  USD700,000 in the form of
technical  know-how,  of which USD210,000 was contributed  during the year ended
October 31, 1995 and  USD490,000 was  contributed  during the year ended October
31, 1996.


The accompanying notes are an integral part of these statements.

                                      F-5

<PAGE>



                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                          STATEMENTS OF OWNERS' EQUITY
                          ----------------------------
               FOR THE YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
               ---------------------------------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

<TABLE>
<CAPTION>



                                                              Accumulated                       
                                        Paid-in capital        deficits             Total
                                        -----------------  ------------------  -----------------
<S>                                      <C>                  <C>                 <C>    

BALANCE, November 1, 1995                   1,050,000             (242,387)            807,613

Capital contribution                        2,450,000                 -              2,450,000

Net loss for the year                            -                (760,236)           (760,236)
                                        -----------------  ------------------  -----------------

BALANCE, October 31, 1996                   3,500,000           (1,002,623)          2,497,377

Net loss for the year                            -                (609,802)           (609,802)
                                        -----------------  ------------------  -----------------

BALANCE, October 31, 1997                   3,500,000           (1,612,425)          1,887,575

Net loss for the year                            -                (685,853)           (685,853)
                                        -----------------  ------------------  -----------------

BALANCE, October 31, 1998                   3,500,000           (2,298,278)          1,201,722
                                        =================  ==================  =================


</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-6

<PAGE>



                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
  (Amounts expressed in United States Dollars ("USD") unless otherwise stated)
  ----------------------------------------------------------------------------



1.   ORGANIZATION AND PRINCIPAL ACTIVITIES
     --------------------------------------

Shanghai  CopyTele  Electronics  Co.,  Ltd.  (the  "Company") is an equity joint
venture  registered  in the People's  Republic of China  ("PRC") on May 18, 1995
with an  operating  period of twenty  years.  The  Company's  scope of  business
consists  of the  manufacture  and  sale  of  multifunctional  telecommunication
products. The Company commenced its commercial production in February 1997.

The  registered  capital of the  Company is USD 3.5  million.  As of October 31,
1998, the joint venture partners and their respective  capital  contributions to
the Company are as follows:

<TABLE>
<CAPTION>

       Joint Venture                   Country of            Percentage of         Capital
          Partner                     Incorporation           Ownership          Contributed
       -------------                 ---------------        ---------------     --------------
  <S>                           <C>                         <C>                  <C>   
                                                                                     USD            
                                    United States of
     CopyTele, Inc.                      America                  55%               1,925,000

     Shanghai Electronic
       Components Corporation              PRC                    35%               1,225,000

     Shanghai International
       Trade and Investment
       Developing Corp.                    PRC                    10%                 350,000
                                                               ---------          ---------------
     Total                                                       100%               3,500,000
                                                               ==========         ===============

</TABLE>

Shanghai  Electronic  Components  Corporation  has  assigned a 30%  interest  to
Shanghai Instrumentation and Electronics Holding Group Company and a 5% interest
to Shanghai International Trade and Investment Developing Corp.

As of October 31, 1998, the Company had net current liabilities of approximately
USD904,000,  and was incurring  losses from its operations.  The current working
capital  includes   approximately   USD4,350,000   (inclusive  of  approximately
USD3,568,000 of inventories)  of current assets and  approximately  USD5,254,000
(inclusive  of  approximately  USD3,916,000  due to  CopyTele,  Inc.) of current
liabilities.  The Company  believes that these  resources  will be sufficient to
continue  its  operations,  as  presently  conducted,  after  giving  effect  to
anticipated reductions in the Company's requirements for component purchases and
reductions in administrative and support personnel, if necessary.

The Company is seeking to improve its  liquidity  through the sale of  products,
deferment of repayment of amounts due to CopyTele, Inc. and additional borrowing
of bank loans, although there can be no assurance that any of these plans can be
implemented at terms that will be favorable to the Company.

                                      F-7

<PAGE>

2.   PRINCIPAL ACCOUNTING POLICIES
     -----------------------------

The financial  statements  were prepared in accordance  with generally  accepted
accounting  principles  in United  States of America ("US GAAP").  This basis of
accounting  differs  from  that  used  in the  statutory  accounts  prepared  in
accordance with the accounting principles and the relevant financial regulations
applicable  to joint  venture  enterprises  as  established  by the  Ministry of
Finance of China ("PRC GAAP").

The principal  adjustment made to conform the statutory  accounts of the Company
to US GAAP were:

         Charge the expenses and exchange loss incurred during the pre-operating
         period,  which were capitalized as non-current  assets in its statutory
         accounts, to the statements of operations.

         Write off the  technical  know-how  contributed  by  CopyTele,  Inc. as
         paid-in  capital,  which was  capitalized  as intangible  assets in its
         statutory accounts, to the statements of operations.

The accompanying financial statements of the Company were prepared in conformity
with US GAAP as if those standards had been consistently  applied throughout the
years.  The following  accounting  policies were adopted in the  preparation  of
these financial statements:

     (a) Inventories

Inventories   are   stated   at  the  lower  of  cost,   calculated   using  the
weighted-average method, and net realizable value.

     (b) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated  depreciation.
Depreciation  is provided  using the  straight-line  method  over the  estimated
useful lives of the property, plant and equipment,  after taking into account an
estimated  residual  value of 10% of cost.  The  estimated  useful  lives are as
follows:

                Buildings                              18 years
                Machinery and equipment                10 years
                Motor vehicles                          5 years
                Office equipment                        5 years

Construction-in-progress  represents  buildings under construction and is stated
at cost.

                                      F-8

<PAGE>

     (c) Land Use Right

Land use right is stated at cost less accumulated amortization.  Amortization of
land use right is provided using the straight-line method over 50 years

     (d) Foreign Currency Translations and Balances

The Company  maintains  its books and  accounting  records in Renminbi  ("RMB"),
which is not a freely convertible  currency.  Transactions in foreign currencies
are  translated  into  RMB at the  exchange  rates  prevailing  at the  date  of
transactions.  Monetary assets and liabilities denominated in foreign currencies
at the  balance  sheet  date  are  translated  into  RMB at the  exchange  rates
prevailing at that date. Exchange  differences are included in the determination
of income.

The management  determines USD is the functional  currency.  The accounts of the
Company are  translated  into USD as if the  Company's  books of record had been
initially recorded in USD. To accomplish that result, all non-monetary  accounts
are translated at historical exchange rates between USD and RMB.

     (e) Sales Recognition

Sales  represent  the invoiced  value of goods,  net of  discounts,  returns and
surtaxes. Sales are recognized upon passing of title to customers.

     (f) Taxation

The  Company  provides  for  Enterprise  Income Tax  ("EIT") on the basis of its
statutory  profit for  financial  reporting  purposes,  adjusted  for income and
expense items which are not assessable or deductible for EIT purposes.

Other taxes are provided in accordance with the prevailing PRC tax regulations.

Deferred  taxation is  provided  under the  liability  method  whereby  deferred
taxation is  recognized  for  temporary  differences  using enacted tax rates in
effect in the years in which the differences are expected to reverse.  Temporary
differences  are the  differences  between  the  carrying  amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.

     (g) Use of estimates

The  preparation  of financial  statements in  conformity  with US GAAP requires
management  to make  estimates  and  assumptions  that affect  certain  reported
amounts and  disclosures.  Accordingly,  actual  results could differ from those
estimates.

                                      F-9

<PAGE>

3.   INVENTORIES
     ------------

                                       1998                      1997
----------------------------------------------------------------------------

     Raw materials                   2,718,262                  4,297,043
     Work-in-progress                  681,982                    430,649
     Finished goods                    167,958                    102,769
                                  ---------------            ---------------
                                     3,568,202                  4,830,461
                                  ===============            ===============

As  discussed in Note 8, the Company  relies very heavily on CopyTele,  Inc. for
its purchase of the Company's products. Therefore, the ultimate realizability of
the Company's  inventories  is dependent on future sale of products to CopyTele,
Inc..  During its fiscal year ended  October 31,  1998,  the Company  incurred a
gross  loss  of  approximately  USD189,000  for its  sales  to  CopyTele,  Inc..
Management has recorded the Company's inventories as of October 31, 1998 at cost
and a provision to state  inventories at their net realizable value has not been
made on the basis that sales prices are expected to improve. To date,  shipments
of the  Company's  products  have  been  limited.  Accordingly,  there can be no
assurance  that the Company will not be required to reduce the selling  price of
its products below their current  carrying value to accomplish  certain business
strategies, which would require a reduction of such carrying value.


4.   PROPERTY, PLANT AND EQUIPMENT
     ------------------------------

                                            1998                      1997
------------------------------------------------------------------------------

     Buildings                            908,101                    858,326
     Machinery and equipment              951,153                    918,794
     Motor vehicles                        52,971                     52,934
     Office equipment                     184,764                    169,560
     Construction-in-progress                -                        12,253
                                     ---------------            ---------------
                                        2,096,989                  2,011,867

     Less: Accumulated depreciation      (284,679)                  (114,035)
                                     ---------------            ---------------
     Net                                1,812,310                  1,897,832
                                         ========                   ========


                                      F-10

<PAGE>

5.   LAND USE RIGHT
     ---------------

                                             1998                      1997
-------------------------------------------------------------------------------

     Cost                                  309,473                    309,473

     Accumulated amortization              (16,200)                   (10,136)
                                      --------------             --------------
     Net                                   293,273                    299,337
                                          ========                   ========

All land in the PRC is owned by the state or is subject to collective  ownership
and neither  individuals  nor legal entities may own land. The Company  acquired
the right to use the land on which its factory is located for USD 309,473.



6.   SHORT-TERM BANK LOANS
     ----------------------

Short-term  bank loans bore interest rates ranging from 7.69% to 8.64% per annum
in 1998 and at 6.09% per annum in 1997.

As of October 31, 1998 and 1997, all of the  short-term  bank loans were secured
by the Company's buildings and land use right.


7.   TAXATION
     ---------

     (a) Value-Added Tax ("VAT")

The Company is subject to VAT, which is charged on top of the selling price at a
general rate of 17%. An input credit is available whereby VAT previously paid on
purchases of semi-finished  products or raw materials etc. can be used to offset
the VAT on sales to determine the net VAT payable.

As  the  Company  was  established  after  January  1,  1994,  its  exports  are
"zero-rated"  for VAT  purpose.  Accordingly,  subject to the changes  described
below,  the  Company  charges no VAT on its  exports  and is entitled to claim a
refund for the input tax incurred in respect of these exports.

                                      F-11

<PAGE>

Pursuant to subsequent tax authority  circulars,  with effect from July 1, 1995,
the Company may no longer recover fully the input tax of its exports.  An amount
equivalent to "17% minus the applicable  refund rate" times the FOB value of the
exports will be noncreditable and  nonrefundable.  As the Company has a "bonded"
arrangement with the customs authority and enjoys duty-exemption on its imported
materials to be used for producing its exports,  the amount of noncreditable and
nonrefundable  input tax will be "17% minus the  applicable  refund  rate" times
"the FOB value of the  exports  minus the  (composite  assessable)  value of the
duty-exempt  imported  materials  matching the exports".  This noncreditable and
nonrefundable input tax shall be absorbed by the Company as part of the costs of
exports. The applicable refund rate is currently 11%.

     (b) Enterprise Income Tax ("EIT")

In accordance with the "Income Tax Law of the PRC for  Enterprises  with Foreign
Investment and Foreign  Enterprises",  the Company is entitled to full exemption
from EIT for the first two years and a 50%  reduction  for the next three years,
commencing  from the first  profitable  year  after  offsetting  all tax  losses
carried forward from the previous years (at most five years).

The tax effects of temporary  differences  between  financial and taxable income
that give rise to deferred tax assets are principally related to the following:

                                                   1998                1997
-----------------------------------------------------------------------------

         Net operating loss carryforward          500,218             306,260

         Income tax basis in excess of
           financial basis of
             - Pre-operating expenses              69,971              85,121
             - Technical know-how                 190,902             214,042
                                                 ---------           ---------
         Total gross deferred tax assets          761,091             605,423

         Less valuation allowance                (761,091)           (605,423)
                                                 ---------           ---------
         Net deferred tax assets                     -                    -
                                                 =========          ==========

The  valuation  allowance  refers to the portion of the deferred tax assets that
are not currently realizable. The realization of these benefits depends upon the
Company's income in future years.

                                      F-12

<PAGE>

8.   RELATED PARTY TRANSACTIONS
     --------------------------

The Company  relies  very  heavily on  CopyTele,  Inc.  for its  purchase of the
Company's products,  its supplies to the Company of raw materials and components
required for production. For the years ended October 31, 1998 and 1997, sales to
CopyTele,  Inc.  accounted  for 100 per cent of the  Company's  net  sales.  The
Company  purchases  most of the required raw materials  and imported  components
through CopyTele,  Inc. For the years ended October 31, 1998 and 1997, purchases
of materials and components through CopyTele, Inc. amounted to approximately USD
168,000 and USD 4,480,000 respectively.

The amounts due from/to CopyTele, Inc. arose mainly from the above transactions,
are interest-free and have no fixed repayment terms.


9.   COMMITMENTS
     ------------

As of October 31,  1998,  the Company had no material  rental,  capital or other
purchase commitments.


10.  EMPLOYEES' PENSION PLAN
     ------------------------

The Company contributes  annually to a  government-sponsored  pension scheme, an
amount  equivalent  to 25.5% of the total basic  salary of its  employees.  This
government  sponsored  pension  scheme  will be  responsible  for payment of the
pension liabilities relating to the retirees of the Company. Pension cost, which
approximated  USD 37,000,  USD 18,000 and USD 5,000 for the years ended  October
31, 1998, 1997 and 1996  respectively,  has been accrued and funded on a current
basis.

                                      F-13