Exhibit 99.1
------------

                     SHANGHAI COPYTELE ELECTRONICS CO., LTD.
                     ---------------------------------------
                 (Registered in the People's Republic of China)
                 ----------------------------------------------
                          INDEX TO FINANCIAL STATEMENTS
                          -----------------------------
                                OCTOBER 31, 1999
                                ----------------
<TABLE>
<CAPTION>

                                                                                               Page
<S>                                                                                     <C>
Report of Independent Public Accountants                                                        F-1

Balance Sheets as of October 31, 1999 and 1998                                                  F-2

Statements of Operations for each of the three years ended
  October 31, 1999                                                                              F-3

Statements of Cash Flows for each of the three years
  ended October 31, 1999                                                                  F-4 - F-5

Statements of Owners' Equity for each of the three years ended
  October 31, 1999                                                                              F-6

Notes to Financial Statements                                                            F-7 - F-14



</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.

                                       F-1
<PAGE>



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

To the Investors of

         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, 1999
and 1998,  and the  related  statements  of  operations,  cash flows and owners'
equity for each of the three  years  ended  October 31,  1999.  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
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits to obtain  reasonable  assurance  about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Shanghai CopyTele  Electronics
Co.,  Ltd. as of October 31, 1999 and 1998,  and the results of its  operations,
cash flows and the  changes in its  owners'  equity for each of the three  years
ended  October 31,  1999,  in  conformity  with  generally  accepted  accounting
principles in the United States of America.

The accompanying  financial statements have been prepared assuming that Shanghai
CopyTele Electronics Co., Ltd. (the "Company") will continue as a going concern.
As discussed in Note 1 to the  financial  statements,  the Company  continues to
have negative  working capital and is incurring  losses from its operations that
raises  substantial doubt about its ability to continue as a going concern.  The
Company is taking  action to improve  its  liquidity  and  believes  that it has
sufficient  resources to continue in  operation.  Nevertheless,  as discussed in
Notes 3 and 8 to the financial statements, 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.  The accompanying  financial  statements do not include any adjustments
relating to the  recoverability  and classification of asset carrying amounts or
the amount and  classification  of  liabilities  that  might  result  should the
Company be unable to continue as a going concern.

Shanghai, PRC
November 24, 1999

                                       F-2
<PAGE>
<TABLE>
<CAPTION>


                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                                 BALANCE SHEETS
                                 --------------
                         AS OF OCTOBER 31, 1999 AND 1998
                         -------------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

                                                       Note       October 31, 1999      October 31, 1998
                                                    ----------   -------------------   -------------------
<S>                                                <C>              <C>                <C>
ASSETS

CURRENT ASSETS:
   Cash on hand and at banks                                              17,793                51,760
   Due from CopyTele, Inc.                              8                861,611               661,592
   Inventories                                          3              1,574,315             3,568,202
   Other current assets                                                    5,812                68,581
                                                               -------------------   -------------------

       Total current assets                                            2,459,531             4,350,135

PROPERTY, PLANT AND EQUIPMENT, net                      4              1,641,066             1,812,310

LAND USE RIGHT, net                                     5                287,055               293,273
                                                               -------------------   -------------------

TOTAL ASSETS                                                           4,387,652             6,455,718
                                                               ===================   ===================

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
   Short-term loans                                     6              1,080,268               999,316
   Accounts payable                                                      206,680               221,459
   Due to CopyTele, Inc.                                8              2,269,072             3,916,628
   Other current liabilities                                             104,046               116,593
                                                               -------------------   -------------------

       Total current liabilities                                       3,660,066             5,253,996
                                                               -------------------   -------------------

OWNERS' EQUITY

   Paid-in capital                                      1              3,500,000             3,500,000
   Accumulated deficit                                                (2,772,414)           (2,298,278)
                                                               -------------------   -------------------

       Total Owners' Equity                                              727,586             1,201,722
                                                                 -------------------   -------------------

TOTAL LIABILITIES AND OWNERS' EQUITY                                   4,387,652             6,455,718
                                                                 ===================   ===================


</TABLE>

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

                                       F-3
<PAGE>
<TABLE>
<CAPTION>


                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                            STATEMENTS OF OPERATIONS
                            ------------------------
               FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
               ---------------------------------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

                                                                For the years ended October 31,
                                                      -----------------------------------------------------
                                             Note          1999               1998              1997
                                            --------  ----------------   ---------------   ----------------
<S>                                         <C>           <C>             <C>                <C>
SALES, net                                     8                -                -                 -
                                                      ----------------   ---------------  -----------------
SELLING, GENERAL AND ADMINISTRATIVE
   EXPENSES                                                 (399,782)         (631,101)         (594,375)
                                                      ----------------   ---------------   ----------------

       Operating loss                                       (399,782)         (631,101)         (594,375)

OTHER OPERATING INCOME (EXPENSES)

   Interest expenses, net                                    (76,115)          (56,117)          (19,870)
   Foreign exchange (loss) gain, net                             551               169             5,002
   Others, net                                                 1,210             1,196              (559)
                                                      ----------------   ---------------   ----------------

       Loss before taxation                                 (474,136)         (685,853)         (609,802)

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

NET LOSS                                                    (474,136)         (685,853)         (609,802)

ACCUMULATED DEFICIT, beginning of year                    (2,298,278)       (1,612,425)       (1,002,623)
                                                      ----------------   ---------------   ----------------

ACCUMULATED DEFICIT, end of year                          (2,772,414)       (2,298,278)       (1,612,425)
                                                      ================   ===============   ================


</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>


                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                            STATEMENTS OF CASH FLOWS
                            ------------------------
               FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
               ---------------------------------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

                                                                For the years ended October 31,
                                                      -----------------------------------------------------
                                                           1999               1998              1997
                                                      ----------------   ---------------   ----------------
<S>                                                     <C>             <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

   Cash received from sales of goods                        460,113          1,111,118           455,375
   Interest received                                          1,405              2,124             6,468
   Interest paid                                            (77,520)           (58,241)          (26,338)
   Payment to suppliers, employees and others              (498,917)        (1,553,313)         (809,641)
                                                      ----------------   ---------------   ----------------

      Net cash used in operating activities                (114,919)          (498,312)         (374,136)
                                                      ----------------   ---------------   ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:

   Payment for purchases of property, plant and
     equipment                                                 -              (85,122)         (991,839)
                                                      ----------------   ---------------   ----------------

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

CASH FLOWS FROM FINANCING ACTIVITIES:

   Proceeds of short-term loans                              80,952            499,304           500,012
                                                      ----------------   ---------------   ----------------

      Net cash provided by financing activities              80,952            499,304           500,012
                                                      ----------------   ---------------   ----------------

Net Decrease in cash and cash equivalents                   (33,967)           (84,130)         (865,963)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR               51,760            135,890         1,001,853
                                                      ----------------   ---------------   ----------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                     17,793             51,760           135,890
                                                      ================   ===============   ================

</TABLE>
                                       F-5
<PAGE>
<TABLE>
<CAPTION>


                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                      STATEMENTS OF CASH FLOWS (Continued)
                      ------------------------------------
               FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
               ---------------------------------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

                                                                For the years ended October 31,
                                                      -----------------------------------------------------
                                                           1999               1998              1997
                                                      ----------------   ---------------   ----------------
<S>                                                     <C>                <C>              <C>
RECONCILIATIONS OF NET LOSS TO  NET CASH USED IN
   OPERATING ACTIVITIES:

NET LOSS                                                   (474,136)          (685,853)         (609,802)
Depreciation and amortization                               177,462            176,708           106,143
Interest income                                              (1,405)            (2,124)           (6,468)
Interest expenses                                            77,520             58,241            26,338
Decrease (increase) in inventories                        1,993,887          1,262,259        (4,830,407)
(Increase) decrease in due from CopyTele, Inc. and
   other current assets                                    (137,250)          (698,185)          212,127
(Decrease) increase in accounts payable, due to
   CopyTele, Inc. and other current liabilities          (1,674,882)          (553,241)        4,747,803
Interest received                                             1,405              2,124             6,468
Interest paid                                               (77,520)           (58,241)          (26,338)
                                                      ----------------   ---------------   ----------------

      Net cash used in operating activities                (114,919)          (498,312)         (374,136)
                                                      ================   ===============   ================


</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-6
<PAGE>
<TABLE>
<CAPTION>


                     Shanghai CopyTele Electronics Co., Ltd.
                     ---------------------------------------
                          STATEMENTS OF OWNERS' EQUITY
                          ----------------------------
               FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
               ---------------------------------------------------
                  (Amounts expressed in United States Dollars)
                  --------------------------------------------

                                                                           Accumulated

                                                      Paid-in capital        deficit            Total
                                                      ----------------   ---------------   ----------------
<S>                                                   <C>               <C>               <C>
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

Net loss for the year                                         -               (474,136)         (474,136)
                                                      ----------------   ---------------   ----------------

BALANCE, October 31, 1999                                 3,500,000         (2,772,414)          727,586
                                                      ================   ===============   ================



</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-7
<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  telecommunications
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,
1999, the joint venture partners and their respective  capital  contributions to
the Company are as follows:
<TABLE>
<CAPTION>

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

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

     Shanghai International Trade and                  PRC                 10%                350,000
        Investment Developing Corp.
                                                                     ----------------  -----------------

     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, 1999, the Company had net current liabilities of approximately
USD 1,201,000, and was incurring losses from its operations. The current working
capital includes  approximately  USD 2,459,000  (inclusive of approximately  USD
1,574,000 of  inventories)  of current  assets and  approximately  USD 3,660,000
(inclusive of  approximately  USD  2,269,000  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.

                                       F-8
<PAGE>
The Company is seeking to improve its  liquidity  through the sale of  products,
deferral 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.

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  adjustments made to conform the statutory accounts of the Company
to US GAAP were:

o          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.

o          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 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)  Cash and Cash Equivalents

           Cash and cash  equivalents  include  cash on  hand,  demand  and time
           deposits with banks and liquid  investments with on original maturity
           of three months or less.

      (b)  Inventories

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

      (c)  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:

                                       F-9
<PAGE>


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

      (d)  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

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

      (f)  Sales Recognition

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

      (g)  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.

                                       F-10
<PAGE>

      (h)  Use of estimates

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

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

                                                1999                  1998
                                      --------------------  --------------------

     Raw materials                           1,366,773             2,718,262
     Work-in-process                           173,187               681,982
     Finished goods                             34,355               167,958
                                      --------------------  --------------------
                                             1,574,315             3,568,202
                                      ====================  ====================

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 years ended October 31, 1999, 1998 and 1997, the Company
incurred a gross loss of approximately USD 192,000,  USD 189,000 and USD 225,000
respectively  for its  sales to  CopyTele,  Inc.  Management  has  recorded  the
Company's  inventories  as of October 31, 1999 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
      ------------------------------

                                             1999                  1998
                                      --------------------  --------------------

    Buildings                               908,101               908,101
    Machinery and equipment                 951,153               951,153
    Motor vehicles                           52,971                52,971
    Office equipment                        184,764               184,764

                                      --------------------  --------------------
                                          2,096,989             2,096,989
    Less: Accumulated depreciation         (455,923)             (284,679)
                                      --------------------  --------------------

    Net                                    1,641,066            1,812,310
                                      ====================  ====================


                                       F-11
<PAGE>
As of October 31, 1999 and 1998, the Company's  buildings with net book value of
approximately USD 772,000 and USD 815,000  respectively were used as mortgage of
short-term bank loans (Note 6).

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

                                              1999                  1998
                                      --------------------  --------------------

     Cost                                    309,473               309,473
     Accumulated amortization                (22,418)              (16,200)
                                      --------------------  --------------------

     Net                                    287,055                293,273
                                      ====================  ====================

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.
<TABLE>
<CAPTION>

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

                                              1999                                 1998
                               -----------------------------------  -----------------------------------
                                Interest rate                        Interest rate
                                  per annum           Amount           per annum           Amount
                               ----------------  -----------------  -----------------  ----------------
   <S>                         <C>                  <C>            <C>                  <C>
     Bank loans                  5.86%-7.13%           999,328        7.69%-8.64%            999,316
     Loan from a joint
       venture partner              5.86%               80,940                                  -
                                                 -----------------                     ----------------
                                                     1,080,268                               999,316
                                                 =================                     ================
</TABLE>

As of  October  31,  1999 and 1998,  bank loans  were  secured by the  Company's
buildings (Note 4).

Based on the borrowing  rates currently  available to the Company,  the carrying
amount of its short-term loans approximated its fair value.

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-12
<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 17% (1998: 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 three 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:
<TABLE>
<CAPTION>

                                                                     1999                  1998
                                                              --------------------  --------------------
        <S>                                                        <C>                  <C>
           Net operating loss carryforward                              702,835               500,218

           Income tax basis in excess of financial basis of
              - Pre-operating expenses                                   48,572                69,971
              - Technical know-how                                      168,213               190,902
                                                              --------------------  --------------------

           Total gross deferred tax assets                              919,620               761,091

           Less valuation allowance                                    (919,620)             (761,091)
                                                              --------------------  --------------------

           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.

</TABLE>
                                       F-13
<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, 1999,  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,  1999,  1998 and 1997,
purchase  of  materials  and  components  through  CopyTele,  Inc.  amounted  to
approximately Nil, USD 168,000 and USD 4,480,000 respectively.  Purchase returns
to  CopyTele,  Inc.  during the year ended  October  31,  1999  amounted  to USD
1,467,000 (1998 and 1997: Nil)

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,  1999,  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 17,000,  USD 37,000 and USD 18,000 for the years ended October
31, 1999, 1998 and 1997  respectively,  has been accrued and funded on a current
basis.

                                      F-14