FORM 10-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

 For the fiscal year ended December 31, 1999 Commission file number 000-20709
--------------------------------------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                            D&E Communications, Inc.
             ------------------------------------------------------
             (exact name of registrant as specified in its charter)

                  Pennsylvania                         23-2837108
       ---------------------------------           ------------------
       (State or other jurisdiction of             (I. R. S. Employer
          incorporation or organization)           Identification No.)

                              124 East Main Street
                                  P. O. Box 458

                  Ephrata, Pennsylvania                 17522-0458
         ----------------------------------------       ----------
         (Address of principal executive offices)       (zip code)

        Registrant's Telephone Number, including area code (717) 733-4101
                                                           --------------

        Securities registered pursuant to Section 12(b) of the Act: None

               Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.16 per share
                     --------------------------------------
                                (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 the 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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]

The aggregate market value of the Registrant's Common Stock held by
non-affiliates on March 7, 2000 (based upon the closing price of such stock as
of such date) was $100,692,030.

The number of shares outstanding of the Registrant's common stock, $.16 par
value, was 7,337,119 at March 7, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Registrant's 2000 Annual Meeting
of the Shareholders to be held on April 27, 2000, are incorporated herein by
reference in Part III hereof.


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                                TABLE OF CONTENTS

                                     PART I

Item 1.  Business............................................................. 1

Item 2.  Properties........................................................... 6

Item 3.  Legal Proceedings.................................................... 7

Item 4.  Submission of Matters to a Vote of Security Holders.................. 8

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
           Matters............................................................ 9

Item 6.  Selected Financial Data..............................................10

Item 7.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations..............................................11

Item 7a. Quantitative and Qualitative Disclosure About Market Risks...........21

Item 8.  Financial Statements and Supplementary Data..........................21

Item 9.  Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure................................21

                                    PART III

Item 10. Directors and Executive Officers of the Registrant...................22

Item 11. Executive Compensation...............................................22

Item 12. Security Ownership of Certain Beneficial Owners and
           Management.........................................................22

Item 13. Certain Relationships and Related Transactions.......................22

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....23


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                                     PART I

Item 1. Business.

     (a) General Development of Business.

     D&E Communications, Inc., a telecommunications holding company, became the
successor parent company to its telephone operating subsidiary, Denver and
Ephrata Telephone and Telegraph Company (D&E Telephone) in June 1996. In
addition, D&E Telephone and Data Systems, Inc. (TDS), and D&E Marketing Corp.
(Marketing), which later merged with another subsidiary, became subsidiaries of
D&E Communications, Inc. D&E Communications, Inc., its subsidiaries and
affiliates (hereinafter collectively referred to as D&E) provide
telecommunications services in the south central Pennsylvania area and in
certain areas of Eastern Europe.

     During 1997, D&E further expanded its corporate structure to facilitate the
continuing growth in less regulated businesses. D&E formed D&E Wireless, Inc.
(Wireless) to design, construct and operate a Personal Communications Services
(PCS) digital network. Additionally, D&E Investments, Inc. (Investments) was
originally formed to hold various PCS licenses acquired by D&E, and D&E
Holdings, L.P., dissolved during 1999, was formed to hold various cellular
partnership interests owned by D&E Telephone. Late in 1997, D&E formed a joint
venture, between subsidiaries of Omnipoint Corporation (Omnipoint) and Wireless,
to provide wireless communications services throughout south central
Pennsylvania. The D&E/Omnipoint Wireless Joint Venture, L.P. does business as
PCS ONE.

     In July 1998, D&E formed D&E Systems, Inc. (D&E CLEC) to provide
competitive telecommunications services outside the D&E Telephone regulated
area. On January 29, 1999, the Pennsylvania Public Utility Commission (PUC)
granted authority to D&E CLEC to operate as a competitive local exchange carrier
(CLEC) within the service territories of Bell Atlantic - Pennsylvania and GTE
North Incorporated. Subsequently, D&E CLEC was also certified to operate in
Sprint/United Telephone service areas. D&E CLEC initiated its services during
the fourth quarter of 1999.

     In addition to the above U.S. activities, D&E provided telephone and cable
television services in Hungary through its part ownership of Monor Telephone
Company (MTT) until it was sold in December 1999. D&E also has an indirect
ownership interest in Pilicka Telephonia S.A. (Pilicka) in Poland which has
constructed and operates a telephone network in a region south of Warsaw.
PenneCom, B.V.(PenneCom), Pilicka's direct owner, received an offer to buy
Pilicka during 1999. A dispute arose under the Agreement of Sale and such
dispute is currently in binding arbitration by the International Court of
Arbitration at the International Chamber of Commerce.

     (b) Financial Information about Industry Segments.

     Financial information about D&E and its subsidiaries is contained in the
consolidated Financial Statements included herein. In the fourth quarter of
1998, D&E adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). The business of D&E was analyzed by the nature of its products and
services, method of production and delivery of services, regulatory environment
and types of customers serviced. Based on that analysis, D&E reports four
business segments in a format similar to information provided to management. The
segments reported are: (i) Telecommunication Services, (ii) Telephone & Data
Services, (iii) Wireless Services, and (iv) International Communication
Services. See Note 15 to the financial statements.

     (c) Narrative Description of Business.

     (1) Overview. D&E Telephone, the Telecommunication Services segment,
furnishes telephone service through 58,985 access lines to an estimated
population in excess of 100,000 in an area of approximately 227 square miles
covering parts of Berks, Lancaster and Lebanon Counties in Pennsylvania.
National and international communications services are also furnished through
interconnection with the facilities of other companies.

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     The area served by D&E Telephone is mostly rural and suburban in nature,
with an agricultural and small business economic base. In addition, the business
elements serviced include manufacturing, distribution, retail and service
establishments. Of the 58,985 access lines serviced by D&E Telephone as of
December 31, 1999, service is provided to 42,882 residential customer lines
(73%) and to 16,103 business customer lines (27%).

     The principal categories of service rendered by D&E Telephone are:

     (i) Local Network Services -- provide local exchange (dial tone), custom
calling features and local private line services to residential and business
customers in D&E Telephone's service area.

     (ii) Network Access Services -- provide local exchange carriers, wireless
companies and interexchange carriers, with the use of D&E Telephone's local
network facilities for the completion of long distance calls. Payment for
providing these facilities comes directly from the users or from settlement
pools administered by the National Exchange Carrier Association, Inc. (NECA).

     (iii) Long Distance Network Services -- provide long distance service
within the Capital (south central) Region of Pennsylvania to residential and
business customers.

     D&E Telephone constructed, installed and now maintains, an Enhanced 911
(E911) system in Lancaster County pursuant to an Agreement for D&E Telephone to
furnish the County's 911 system with an Automatic Location Identification (ALI)
network. The E911 backup system, required by the Public Safety Emergency Act of
1990, is located at D&E Telephone's Ephrata Central Office. Under the E911
system, a dispatcher is provided with the phone number and address of the caller
automatically. During 1999, D&E Telephone extended its contract with Lancaster
County until December 31, 2019.

     TDS, the Telephone & Data Services segment, sells, installs and maintains
telecommunications equipment. In this capacity, TDS provides service primarily
to business customers in central and eastern Pennsylvania. TDS operates a retail
store that specializes in communications equipment such as telephones and
accessories. TDS d/b/a D&E Long Distance provides long distance telephone
services on an equal access basis within the D&E Telephone service area and,
since mid-1997, throughout the Bell Atlantic - Pennsylvania franchise area of
Lancaster County. Also, TDS d/b/a D&E Computer Networking Services provides
Local and Wide Area Network sales and services to area businesses that need to
connect computers together in working groups.

     The Wireless Services segment revenues derive from Wireless providing
support services to PCS ONE to design, construct and provide PCS services in the
four markets of Lancaster, Harrisburg, York-Hanover and Reading. In November
1997, PCS ONE began providing PCS services and equipment with features such as
voice mail, pager, fax, and Internet access. Wireless owns 50% of the joint
venture and records its share of equity in the earnings or losses of PCS ONE on
the equity accounting method.

     Through Investments, which merged Marketing, the International
Communication Services segment provides support services to Pilicka in Europe.
Pilicka provides telephone service in a region of Poland through a system using
fixed wireless and wireline technologies. Investments sold its 16% interest in
MTT in December 1999, and is in binding arbitration regarding the sale of its
33% interest in Pilicka. In March 1999, Investments sold its shares in D&E
SuperNet, Inc. in exchange for cash and shares of OneMain.com, Inc. (OneMain),
representing less than 5% of OneMain shares. D&E no longer reports equity in the
earnings of this investment, but now holds it on the balance sheet as
available-for-sale.

     (2) Regulatory Matters. A substantial portion of D&E's operations are
subject to regulation at both the federal and state levels. The
Telecommunications Act of 1996 (the 1996 Act), signed into law on February 8,
1996, has

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major ramifications throughout both federal and state jurisdictions and
therefore affects the strategic direction of D&E. The Congressional intent of
the 1996 Act was to encourage advanced technology and enable competition in
heretofore monopolistic markets. However, in many aspects, there may be even
more regulatory constraints today than prior to 1996, especially for incumbent
local exchange carriers (ILECs). While competition is slowly emerging in
specific market segments within limited geographic areas, the transition from a
monopolistic to a competitive market is being carefully monitored by the
regulators.

     (i) Federal. D&E has three businesses subject to regulation by the Federal
Communications Commission (FCC): D&E Telephone, D&E Long Distance and D&E CLEC.

     D&E Telephone, as an ILEC, has interstate revenues mainly derived from
network access services, i.e., transmission and switching services provided at
each end of a toll call that connect telephone subscribers to long distance
companies. D&E Telephone participates in FCC tariffs and interstate settlement
pools administered by NECA. Established at the direction of the FCC, NECA uses
settlement formulas to redistribute revenues among NECA members. Under FCC
rules, D&E Telephone is allowed to earn up to 11.25% return on its investment in
property, plant and equipment used to furnish interstate service. The FCC rate
of return enforcement rules require telephone companies to refund, to NECA,
earnings in excess of their allowable return.

     D&E Long Distance operates in the interstate and international arena as a
long distance reseller and, as such, maintains the appropriate tariffs with the
FCC for its interstate and international toll rates.

     D&E CLEC, operating as a CLEC, has the option of filing an FCC tariff for
interstate network access services or negotiating separate contracts with
parties who desire to purchase D&E CLEC services. Since this would entail
negotiating with virtually every long distance carrier operating in the D&E CLEC
local service area, D&E CLEC has elected to file an FCC tariff. D&E CLEC
initiated its services during the fourth quarter of 1999.

     (ii) State. D&E has three businesses subject to regulation by the PUC: D&E
Telephone, D&E Long Distance and D&E CLEC.

     D&E Telephone files its own tariff rates with the PUC for such services as
dial tone and calling features. Rates for regional toll calls and intrastate
access are contained in filed tariffs issued by the Pennsylvania Telephone
Association, a state trade association. The following notable activities
occurred in 1999 involving D&E Telephone.

o    In compliance with state statutes, commonly known as Chapter 30, D&E
     Telephone joined in a petition to the PUC in July 1998 for an alternative
     form of regulation. Litigation costs for this proceeding are being shared
     with 18 other rural ILECs. Although the statute defines Chapter 30 as a ten
     month process, voluntary postponement to incorporate mediation and analysis
     of other regulatory proceedings delayed the issuance of the PUC's Chapter
     30 Order from June 1999 to January 2000. In January 2000, D&E Telephone
     filed a petition for reconsideration, and management is optimistic that D&E
     will eventually accept a PUC authorized alternative form of regulation, in
     which case an accelerated network modernization plan will be adopted along
     with a new ratemaking process in which, instead of a rate base/rate of
     return methodology, prices are adjusted in accordance with the Gross
     Domestic Product Price Index with a productivity offset.

o    In September 1998, the PUC launched a Global Telecommunications proceeding
     aimed at settling multiple regulatory issues, such as access charge reforms
     needed to establish a universal service fund, among ILECs, CLECs and long
     distance companies. Regulatory participation for this proceeding is being
     shared by D&E Telephone and 27 other ILECs. The PUC entered an order in
     September 1999 followed by a clarification order in November. Petitions for
     reconsideration and court appeals are pending before the PUC, the
     Pennsylvania Commonwealth Court, The Pennsylvania Supreme Court and the U.
     S. District Court for the Eastern District of Pennsylvania.

     D&E Long Distance is required to maintain an intrastate toll tariff with
the PUC. This simply assures consumers that rates will not exceed the highest
daytime rate charged by the most prominent long distance company operating in
the state.

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     D&E CLEC was certified by the PUC in January 1999 to operate in the areas
throughout the state serviced by GTE North and Bell Atlantic of Pennsylvania.
Subsequently, D&E CLEC was fully certified to operate in the areas throughout
Pennsylvania served by Sprint/United Telephone. D&E CLEC is required to maintain
a local exchange services tariff as well as an intrastate network access
services tariff with the PUC.

     (3) Employees. D&E had 475 employees as of December 31, 1999. No individual
employee, or group of employees, is organized or represented by any labor union
for collective bargaining purposes with D&E management.

     (4) Significant Customers. There are no significant telephone subscribers,
whose loss would have a material adverse effect on D&E. AT&T, however, is D&E's
most significant customer in terms of total revenue received from a single
entity.

     During each of the last three fiscal years, AT&T purchased network access
services and billing and collection services from D&E which, in 1999, 1998 and
1997, produced $5,496,000, $5,014,000 and $5,521,000, respectively, in annual
revenues, or approximately 8.7%, 9.4% and 11.4%, respectively, of total
consolidated operating revenues.

     Although D&E's revenue stream relies heavily upon services furnished to
AT&T, management believes the chance of losing a significant portion of AT&T
revenues is remote for the following reasons:

     D&E provides network access services within its franchised service area to
interexchange carriers such as AT&T, MCI WorldCom, Sprint and others who use
D&E's switching and transmission facilities for the completion of long distance
calls. Certain long distance carriers have occasionally (i) limited the use of
D&E's facilities by converting the use of service from switched access service
to special access service (Service Bypass), or (ii) bypassed the use of D&E's
facilities entirely (Facility Bypass), both of which result in less revenue.
Management does not expect the Company's business to be affected significantly
by either Service Bypass or Facility Bypass within the immediate future because
such bypass normally occurs in metropolitan areas in which a significant
customer represents a large portion of business. D&E's service area is
predominantly rural and suburban in nature and constitutes a diverse customer
mix.

     To the extent that AT&T loses market share to other long distance companies
and that D&E, therefore, loses revenue from AT&T, management believes D&E should
receive approximately the same revenue from any other long distance carrier
competing with AT&T. Based on three-year comparison of data during the period
from 1996 to 1999, the number of access lines grew at an average annual rate of
4.8%, while AT&T minutes of use fluctuated within a range of plus 2.5% to a
decrease of 5.3% in the same years.

     (5) Competition. Competition is emerging in niches in Pennsylvania's local
exchange market, particularly in the service territories of larger ILECs, like
Bell Atlantic and GTE North. CLECs, such as D&E CLEC, are less regulated than
ILECs and offer an alternative for some consumers to traditional telephone
companies. D&E Telephone currently qualifies as a rural telephone company, and
has received a limited suspension until July 2000, from certain interconnection
requirements of the 1996 Act. D&E Telephone has applied for an additional
one-year extension. This suspension protects universal service in D&E
Telephone's service territory from non-facilities-based CLECs that might target
higher revenue producing customers and thus erode the subsidy flow to
residential consumers. To some extent, cellular and PCS wireless services also
offer a competitive alternative in the local exchange market.

     Network access, a service provided to long distance companies and other
telephone companies by D&E Telephone, also faces competition. Alternative
companies, called competitive access providers, originate and/or terminate calls
without the use of the local telephone company's plant. For the most part, these
competitors are found in major metropolitan areas with a higher concentration of
business customers than are found in D&E Telephone's service

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territory.

     Various other services, such as directory publication, billing and
collection of long distance toll charges to consumers and telephone system
sales, are open to competition from other suppliers. To compete in open markets,
D&E utilizes a combination of media, such as local newspaper, radio and
television advertising, to highlight D&E's competitive service and pricing
differences in order to attract customers to D&E's products and services.

     (d) Financial Information about Foreign and Domestic Operations and Export
Sales.

     On February 28, 1994, the government of Hungary awarded a concession to
MTT, a Hungarian corporation, to provide local exchange telecommunications
service for a period of 25 years in the Monor region of Hungary. D&E indirectly
owned 16% of MTT, which it sold in December 1999.

     During 1997, Pilicka, a Polish corporation, purchased three licenses to
operate a competitive duopoly telephone network for 15 years in an area south of
Warsaw. The licenses cover an area of 5,000 square miles with a population of
approximately 1.9 million people. Pilicka provides telephone service to more
than 18,600 customers. D&E indirectly owns 33% of Pilicka. The sale of Pilicka
is currently in binding arbitration with the International Court of Arbitration
at the International Chamber of Commerce.

     (e) Special Considerations.

     The risk involved in growth in competitive business activities

     Although a substantial portion of D&E's operations are subject to
regulation at both the federal and state levels, D&E continues to experience
growth in its competitive businesses. The 1996 Act, signed into law on February
8, 1996, has major ramifications throughout both state and federal jurisdictions
and therefore affects the strategic direction of D&E. While the 1996 Act
encourages development of advanced technology in the telecommunications industry
and entrance of D&E into new markets, it may also provide these same
opportunities to a new set of competitors and other entrepreneurs who have not
previously been permitted to compete in D&E Telephone's markets.

     Effect of exchange rate fluctuations

     D&E has invested in operations in Europe which have experienced exchange
translation losses in converting results from foreign currencies into U.S.
dollars. Inflation has also affected the translation between currencies. There
can be no assurance that the Company's foreign operations will be able to raise
rates in the future to offset some or all of the effects of inflation of the
local currencies. Although there has been no problem moving currency out of
foreign countries, there is no assurance that currency movement controls will
not be enacted in the future.

     New business activities

     D&E constantly evaluates opportunities to invest in new ventures to
increase shareholder value. Any new business opportunities are likely to
generate costs in excess of revenue during their development period. Although
management will carefully evaluate the viability of new ventures, these ventures
will most likely operate in competitive environments and are not assured of
becoming viable businesses.


Item 2. Properties.

     (a) Land and Buildings. D&E owns its corporate headquarters, a
multi-purpose six-story building, the Brossman Business Complex (BBC), located
at 124 East Main Street, Ephrata, Pennsylvania. It consists of approximately
85,900 square feet of floor space. The first and second floors are occupied by a
movie/live theater and a restaurant.

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Other portions of the building are leased as office space. Approximately half of
the building is currently occupied by D&E employees.

     D&E also owns its main central office switch located at 130 East Main
Street, Ephrata, Pennsylvania. This building consists of approximately 19,600
square feet and contains administrative offices and central office switching
equipment serving customers in the Adamstown, Denver, Akron and Ephrata
exchanges. In addition, space is leased to PCS ONE for its switch and computer
equipment.

     In addition, D&E owns 18 other building facilities, containing a total
floor space area of 121,200 square feet, located in various communities
throughout D&E's service area. These buildings serve a variety of functions
including: exchange central offices, remote switching units, plant operations
center, materials storage, engineering and planning, vehicle maintenance, a
parking garage and a communications tower site.

     D&E has two leased facilities. The first lease, for a five-year term ending
in 2002, is for 3,400 square feet used as a retail Telestore location. The
second lease, for five years ending in 2003, is for approximately 3,300 square
feet used as a technical support area by D&E Computer Networking Services.

     (b) Network Plant Facilities. D&E owns and operates a network of switching
and transmission facilities that is used to provide local, national and
international telecommunications services to D&E's customers. This network also
provides for advanced custom calling services and customer local area signaling
services (CLASS).

     The switching facilities consist primarily of digital electronic switching
equipment housed in D&E-owned buildings situated at various locations within the
service area. The 100% digital switching technology used by D&E is manufactured
by Nortel. Two host DMS-100 switches are located in Ephrata and Lititz; 10
remote switching centers or remote line modules are located in buildings or
controlled environmental vaults at Adamstown, Akron, Brickerville, Denver,
Durlach, Elstonville, Lincoln, Manheim, Reinholds and Pennsylvania Turnpike Exit
21. Other smaller, remote dial tone units, such as access nodes and digital loop
carrier equipment, are contained in weatherproof housings scattered throughout
the territory. D&E has also invested in Signaling System 7 (SS7) Signaling
Transfer Point equipment, SS7 Signaling Control Point equipment, and Advanced
Intelligent Network (AIN) Service Builder(TM) software, which are used to
provide AIN services. In addition, this equipment permits D&E to be a node in
the Illuminet telephone network through which other telecommunications companies
can obtain access to the national SS7 network.

     Transmission facilities, sometimes referred to as "outside plant," consist
of cables, wires, terminals and the necessary supporting structures (poles,
conduits, manholes, etc.). The cable plant in service contains mostly metallic
copper conductors and is installed in one of the following methods: aerial
construction on poles, underground in conduit or directly buried in the earth.
The "outside plant," or "local loop" facilities, connect each end user
(telephone subscriber) with one of D&E's switching units, which in turn are
interconnected with other exchange central offices or the facilities of long
distance companies such as AT&T, MCI WorldCom, Sprint and others.

     In 1994, D&E completed a four-year fiber-optic ring project. Approximately
431,000 feet of fiber-optic cable was installed in order to create three
"self-healing" fiber-optic rings. This self-healing ring technology provides an
uninterruptable communications link to each of D&E's switching centers and
larger digital remote units, thus protecting D&E's customers from any service
outage caused by a break in any major fiber-optic cable. During 1999, additional
equipment was installed to provide customers with the latest high speed data
communication. Digital subscriber line (DSL) service was added to meet the
demands for broadband data services.


Item 3. Legal Proceedings.

     (a) Sale of Pilicka Telefonia S.A. to Elektrim S.A.

     In April 1999, PenneCom B.V. (PenneCom), a Netherlands corporation which
provides communications services in

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Central Europe and is owned by EuroTel, LLC (EuroTel), a domestic limited
liability company in which D&E Investments, Inc. has a one-third ownership
interest, signed an agreement to sell, subject to Polish regulatory review, its
shares of Pilicka, a Polish corporation, to Elektrim S.A. (Elektrim), another
Polish corporation, for $140 million in cash and notes. Polish regulatory
authorities approved the proposed purchase on July 27, 1999. However, on July
28, 1999, Elektrim issued written notice that it was terminating the purchase
agreement, alleging that unspecified actions of representatives of Pilicka and
PenneCom constituted fraudulent inducement, thereby rendering the purchase
agreement void (and of no further effect). On August 2, 1999, PenneCom filed an
arbitration request with the International Court of Arbitration at the
International Chamber of Commerce seeking specific performance of the agreement
as well as compensatory and punitive damages. On September 27, 1999, Elektrim
filed an answer and counterclaim alleging that its termination of the agreement
was justified because, among other things, PenneCom altered its normal course of
business, constituting a "material adverse change" and a ground for termination
under the agreement. In its counterclaim, Elektrim requested a dismissal of all
claims brought by PenneCom, a declaration that the agreement was void or that
Elektrim was justified in terminating the agreement, and a repayment by PenneCom
of Elektrim's $10 million deposit. The parties have substantially completed the
discovery phase of the arbitration and submitted written evidence. They
presently are in the briefing phase, which will be followed by a hearing on all
relative factual issues. PenneCom considers the counterclaim to be without
merit. D&E fully expects that PenneCom will continue to vigorously pursue
enforcement of the agreement and defense of the counterclaim. However, it is not
possible at this time to predict the outcome of the arbitration.

     (b) Boles litigation

     On March 26, 1999, representatives of PenneCom informed a representative of
Boles Knop L.L.C. (Boles) that PenneCom had accepted an unsolicited offer from
Elektrim to purchase 100% of the shares of Pilicka. See Item 3. (a) above. Later
on March 26, 1999, Boles delivered a letter asserting that it was due a
substantial fee in connection with such transaction under its investment banking
agreement (the Agreement) with PenneCom. PenneCom disputed these assertions by
Boles, and following discussions among the parties, EuroTel and PenneCom
commenced an action in May 1999, in the United States District Court for the
District of Nebraska against Boles to resolve the dispute. In their federal
court action, EuroTel and PenneCom are seeking a declaratory judgment that they
have no obligation to Boles for a commission relating to the sale of Pilicka.

     On June 7, 1999, Boles filed a counterclaim against EuroTel and PenneCom
and a third-party complaint and issued service of process upon D&E and the other
two owners of EuroTel, seeking recovery for the additional fees it alleges to be
due to it under the Agreement and seeking punitive or treble damages on fraud,
conspiracy and misrepresentation theories. On August 6, 1999, D&E filed a motion
seeking to dismiss the fraud, conspiracy, and misrepresentation causes of
action, which form the basis for the punitive and treble damages claim, and for
an order requiring a more definitive complaint. On October 25, 1999, Boles filed
a motion to transfer venue from the United States District Court for the
District of Nebraska to the United States District Court for the Eastern
District of Virginia, Alexandria Division.

     On December 28, 1999, the court entered an Order denying D&E's motion to
dismiss, but requiring Boles to amend its third-party complaint to clarify its
fraud and conspiracy causes of action. Also, on December 28, 1999, the court
entered a separate Order denying Boles' motion to transfer venue. Pursuant to
the court's Order, on January 19, 2000, Boles filed an amended counterclaim
against EuroTel and PenneCom and an amended third-party complaint against D&E
and the other two owners of EuroTel. In the amended pleading, Boles voluntarily
dropped the fraud claim but continued to assert causes of action for breach of
contract and conspiracy and to request declaratory relief against EuroTel,
PenneCom, D&E and the other two owners of EuroTel. EuroTel and PenneCom have
filed a motion to dismiss only the conspiracy counts. D&E has filed a motion to
dismiss not only the conspiracy counts, but also the breach of contract and
declaratory judgment counts. The other two owners have filed a motion to dismiss
all counts except the declaratory judgment count. If D&E's motion to dismiss is
successful, it would result in Boles' third-party complaint against D&E being
dismissed in its entirety. Because the court has not ruled on the motion to
dismiss and the parties have not engaged in any discovery, the facts have not
been fully developed and it is not possible at this time to predict the
likelihood, if any, of Boles recovering damages against D&E, PenneCom, or
EuroTel.

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     D&E is involved in other various legal proceedings arising in the ordinary
course of its business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse effect on D&E's consolidated
financial condition or results of operations.


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

     There were no matters submitted to a vote of the shareholders during the
fourth quarter of 1999.


                                       8

<PAGE>



                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

     The common stock of D&E Communications, Inc. trades on The NASDAQ Stock
Market under the symbol DECC. The table below sets forth the high and low bid
prices of D&E's common stock during each of the periods indicated, as reported
daily by the NASDAQ National Market.

      1998                               Low                 High
      ----                               ---                 ----
 First Quarter                          $16.25              $19.25
 Second Quarter                         $16.75              $18.13
 Third Quarter                          $12.50              $17.13
 Fourth Quarter                         $11.50              $18.25

      1999                               Low                 High
      ----                               ---                 ----
 First Quarter                          $14.25              $18.38
 Second Quarter                         $18.38              $22.00
 Third Quarter                          $19.25              $22.38
 Fourth Quarter                         $18.63              $21.00

     The bid quotations reflect inter-dealer quotations; do not include retail
markups, markdowns, or commissions; and may not necessarily represent actual
transactions. The bid information stated is, to the knowledge of D&E management,
the best approximate value at the time indicated.

     The closing price on December 31, 1999 was $19.00. Based on the records
maintained by D&E, the approximate number of holders of D&E common stock, as of
December 31, 1999, was 1,876.

     During the two most recent fiscal years, cash dividends on D&E common stock
have been declared quarterly in the annual amount of $0.39 per share. Dividends
are paid as and when declared by D&E's Board of Directors and in accordance with
restrictions set forth in covenants contained in D&E Telephone's debt
agreements. For further discussion of such restrictions, see Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.


                                       9

<PAGE>


Item 6. Selected Financial Data.

     The following table sets forth selected consolidated summary financial
information as of December 31 and for each of the last five fiscal years ended
December 31, 1999. Certain amounts have been reclassified for comparative
purposes.

                 FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA
                  (In thousands, except per-share amounts) (1)

<TABLE>
<CAPTION>

                                                        1999               1998         1997         1996            1995
                                                        ----               ----         ----         ----            ----
<S>                                                   <C>               <C>          <C>            <C>             <C>
Income Statement Data
        Operating revenues .........................  $ 63,527          $ 53,311     $ 48,484       $44,396         $40,908
        Operating income ...........................  $  9,127          $  7,937     $  9,020       $ 8,399         $ 8,452
        Cumulative effect of accounting
          change, net of tax .......................  $    ---         ($    251)    $    ---       $   ---         $   ---
        Extraordinary loss, net of tax .............  $    ---         ($  7,901)    $    ---       $   ---         $   ---
        Net income (loss) ..........................  $  8,851         ($ 12,255)    $  9,565       $ 3,910         $ 3,343

Balance Sheet Data
        Total assets ...............................  $114,654          $110,077     $119,961       $91,556         $88,521
        Long-term debt .............................  $ 21,582          $ 22,657     $ 41,657       $24,888         $26,137

Per-Share Information
        Basic income (loss) before accounting
          change and extraordinary item ............  $1.20             ($0.55)      $1.58          $0.68           $0.59
        Cumulative effect of accounting change .....  $  ---            ($0.03)      $ ---          $  ---          $  ---
        Extraordinary item .........................  $  ---            ($1.07)      $ ---          $  ---          $  ---
        Net income (loss) per common share (2) .....  $1.20             ($1.65)      $1.58          $0.68           $0.59
        Cash dividends declared per common
          share (2) ................................  $0.39              $0.39       $0.39          $0.39           $0.36
</TABLE>


     (1) The selected financial data for fiscal year 1995 is for the
consolidated results of Denver and Ephrata Telephone and Telegraph Company (D&E
Telephone), which is now a subsidiary of D&E Communications, Inc. D&E
Communications, Inc. and its subsidiaries are defined and referenced herein as
D&E.

     (2) The per-share data is based upon the weighted average common shares
outstanding and reflects a three-for-one share exchange effective June 7, 1996.
Computations of earnings for all years are in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share."

                                       10

<PAGE>


Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

     Fiscal Years 1999, 1998 and 1997

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain forward-looking statements that
involve substantive risks and uncertainties. When used in this section, the
words "anticipates," "believes," "estimates," "expects," and similar expressions
as they relate to D&E or its management are intended to identify such
forward-looking statements. D&E's actual results, performance or achievements
could differ materially from the results expressed in or implied by these
forward-looking statements. The following should be read in conjunction with
D&E's financial statements. Monetary amounts presented in the following
discussion and the financial statements are in thousands, except earnings per
share.

RESULTS OF OPERATIONS

     Summary

     D&E's 1999 net income was $8,851, compared with a net loss of $12,255 in
1998. The increase was primarily due to a gain of $6,001 net of income tax from
the sale of D&E SuperNet, Inc. to OneMain.com, Inc. (OneMain) early in the year;
and an $11,154 after-tax gain from D&E's share of the sale, by its affiliate in
December 1999, of its investment in Monor Telephone Company (MTT) in Hungary.
Excluding the gain from the sale of the Hungarian investment, other European
operating and management oversight activity decreased net income from 1998 to
1999 by $3,010. The equity in net loss of affiliate from the D&E/Omnipoint
Wireless Joint Venture, L.P. (PCS ONE) decreased net income from 1998 to 1999 by
$1,599. During 1998, the remaining cellular partnership interest was sold for a
net-of-tax gain of approximately $1,062. Other one-time transactions in 1998
included the extinguishment of debt related to the return of a PCS license that
resulted in an extraordinary loss of $7,901 net of taxes and a change in
accounting principle related to start-up costs that resulted in a decrease of
income of $251 after tax.

     Operating activities generated $17,824, the largest source of cash flows in
1999. The major uses of cash were $13,923 for capital expenditures and $9,688
for investment in affiliates. Cash flow in 1998 was provided primarily from the
sale of 1.3 million shares of D&E common stock to Citizens Utilities Company
(Citizens), which generated net proceeds of $26,253. Funds from operations
generated $13,829.

     Business Segments

     Prior to the fourth quarter of 1998, D&E reported its activity as one
business segment. D&E adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131), in 1998. The business of D&E has been analyzed by the nature of its
products and services, method of production and delivery of services, regulatory
environment and types of customers served. Based on that analysis, D&E reports
four business segments in a format similar to information provided to
management.

     The segments reported are: (i) Telecommunication Services, (ii) Telephone &
Data Services, (iii) Wireless Services and (iv) International Communication
Services. Telecommunication Services is distinguished by services provided
primarily in a regulated market to all residences and businesses in a geographic
service area. Its services are generally delivered through traditional telephone
systems, and its revenues are earned primarily from a volume of usage and lease
of facilities. Telephone & Data Services is distinguished by services provided
with minimal geographic and regulatory restrictions. Customers include
residential and business long distance subscribers. Additionally, Telephone &
Data Services customers include businesses that purchase telephone or computer
network systems, which may be a one-time installation service as opposed to a
monthly usage service. Wireless Services is distinguished by its marketing
methods, service delivery, customer base and regulatory environment. The
International Communication Services segment records income from equity in
earnings of affiliates that operate in Europe under unique regulatory
environments.

                                       11

<PAGE>

     1999 compared to 1998 Operating Revenues

     Consolidated operating revenues for 1999 totaled $63,527, an increase of
$10,216, or 19.2%, over 1998. The increase was made up of $3,183 from telephone
services, $3,349 from support services provided to various affiliated joint
ventures and $3,684 from communication products sold.

     Telecommunication Services segment revenues increased 7.4% to $39,944 in
1999 from $37,209 in 1998. The increase was primarily related to a steady growth
in the number of access lines and continued increases in network access
services.

o    Local network services revenues increased 10.3% to $11,570 in 1999 from
     $10,494 in 1998. The 1999 increase was partially related to a 4.3% increase
     in the number of access lines, which increased revenues approximately $359.
     Local private network revenues and line connection charges increased by
     $453 as a result of PCS ONE and others contributing to the increased number
     of lines. Revenues generated by pay-per-use calling features and caller ID
     services grew by $97 in 1999 over 1998.

o    Network access services revenues increased 8.4% to $19,250 in 1999 from
     $17,751 in 1998. The 1999 increase was largely attributable to increased
     access lines, minutes of use, circuits and client ports for an increase of
     $868. The increase was primarily due to an increase in minutes-of-use call
     volumes. Rate decreases primarily from certain Interstate Carrier Access
     Billing System (CABS) settlements accounted for a $376 drop in access
     revenues.

o    Directory advertising revenues increased 5.5% to $3,274 in 1999 from $3,104
     in 1998. The increase in 1999 was primarily related to an expanded
     directory.


     Telephone & Data Services segment revenues increased 36.6% to $17,612 in
1999 from $12,890 in 1998.

o    Increased revenues from computer network installations, repairs and
     modifications generated $2,288 of the increase.

o    Telephone cabling and system installations increased $1,451 from the prior
     year.

o    The increase was partially from additional long distance service revenues.
     Minutes of use was 17% higher in 1999, accounting for approximately $275 of
     the increase.

     Wireless Services segment revenues increased 77.3% to $6,480 in 1999, from
$3,654 in 1998. The increase resulted from the growth of PCS ONE operations
after its first full year of service in 1998. Revenues were recorded primarily
for support services to PCS ONE on a cost reimbursement basis.

     International Communication Services segment revenues were $1,274 in 1999,
compared with $681 in 1998. Support services to the European ventures were
recorded on a cost reimbursement basis since 1998. Future international support
services revenues are anticipated to decrease as a result of the sale of the
Hungarian investment.

     Operating Expenses

                                       12

<PAGE>

     Consolidated operating expenses for 1999 totaled $54,400, an increase of
$9,026, or 20.0%, over 1998 operating expenses of $45,374.

     Network operations expenses are incurred in maintaining D&E's switching and
transmission facilities, including digital central office switching equipment
and outside plant cable and trunk facilities. Network operations expenses
include related employee costs, engineering expense, maintenance of land and
buildings, testing, general purpose computers, office equipment,
videoconferencing and other materials and supplies. Expenses in this category
increased 8.8% to $6,852 in 1999 from $6,297 in 1998. The 1999 increase is
primarily related to increased wages, benefits and training plus the cost of
providing computers, software and office furnishings for an expanded staff.

     Network access expense increased 0.2% to $2,967 in 1999 from $2,961 in
1998. Minor changes of increased minutes of use, rate decreases and Universal
Service Fund increases, all netted to this small expense increase.

     Directory advertising expense increased 7.1% to $2,250 in 1999 from $2,101
in 1998. The increase was related to the additional costs of publishing a larger
telephone directory, required by an increasing number of telephone lines in
service.

     Other communication services costs increased in 1999 to $8,411 from $5,048
in 1998. These costs increased primarily from providing support services to PCS
ONE, which expanded operations from 1998, its first full year of operations.

     Cost of communication products sold increased 53.6% to $8,447 in 1999 from
$5,499 in 1998. The increase in 1999 is attributable to increased telephone
system and computer networking sales volume.

     Depreciation expense increased 4.3% to $9,771 in 1999 from $9,372 in 1998.
The increase was largely due to an increase in property, plant and equipment in
service.

     Marketing and customer services expense in 1999 increased 38.9% to $4,936
from $3,555 in 1998. The 1999 increase was partially attributable to wages and
benefits involved in providing customer service to the expanding base of D&E
Telephone residential customers and to D&E Telephone and Data Systems, Inc.
computer networking and telephone systems customers. Additionally, expansion of
the corporate marketing department in preparation for operating in a competitive
environment resulted in increased wages and expenses for an aggressive marketing
campaign to expand services beyond D&E Telephone's regulated service area.

     General and administrative services expense increased 2.1% to $10,766 in
1999 from $10,541 in 1998. The increase in 1999 was partially from wage and
benefit increases. Addition of the 1999 Long-Term Incentive Plan increased
expenses by $333 in 1999. The Public Utility Realty Tax (PURTA) decreased $214
as a result of an additional assessment made during 1998.

     Operating Income

     Operating income for 1999 was $9,127, or 15.0% over the $7,937 recorded in
1998.

     Other Income (Expense)

     Other income (expense), net for 1999 was income of $3,832, compared with
expense of $10,699 in 1998. The primary reasons for this change were:

o    Losses resulting from PCS ONE, which completed its second full year of
     operations in 1999, grew by $2,422.

o    D&E's share in the equity of EuroTel, L.L.C. (EuroTel) increased $11,803
     related to the sale of MTT. Equity in EuroTel was reduced by an estimated
     cost of $512 for taxes to be assessed on the repatriation of a portion of
     the

                                       13

<PAGE>

     proceeds in January 2000. EuroTel losses increased $3,477 in 1999 primarily
     from operating expenses and interest expense increases. Operating results
     from the indirect investment in MTT in Hungary, prior to its disposition,
     increased by $1,584 due to more profitable operating results and more
     favorable currency translation rates in 1999. Operating losses related to
     the indirect investment in Pilicka Telephone (Pilicka) in Poland increased
     by $314 due to the initiation of services early in 1998 and continuing
     development in 1999.

o    Gain on the sale of D&E SuperNet, Inc. to OneMain was $9,093.

o    Gain on the sale of partnership interests in cellular investments of $1,659
     in 1998 was not repeated in 1999.

o    As a result of the sales of partnership interests during 1998, equity in
     income of cellular investments decreased $90.

o    Interest expense decreased $556, primarily as a result of the debt canceled
     upon returning a PCS license in 1998. Interest income increased $144
     related to additional advances to EuroTel offset by less interest income
     from D&E SuperNet.

     Income Taxes

     Federal and state income taxes increased $2,767 to $4,043 in 1999 from
$1,276 in 1998. The increase was primarily the result of higher pre-tax income
due to 1999 sales of D&E SuperNet shares and the MTT investment. The effective
tax rates were a positive 31.2% in 1999 and a negative 46.2% in 1998.


     1998 compared to 1997 Operating Revenues

     Consolidated operating revenues for 1998 totaled $53,311, an increase of
$4,827, or 10.0%, over 1997. Communications services revenues provided to
various affiliated joint ventures accounted for $4,433 of the increase. An
increase of $1,372 in other telephone services revenues was offset by a decrease
of $582 in communication products sold.

     Telecommunication Services segment revenues increased 1.4% to $37,209 in
1998 from $36,704 in 1997. The increase was primarily related to a steady growth
in the number of access lines and continued increases in network access
services.

o    Local network services revenues increased 8.4% to $10,314 in 1998 from
     $9,512 in 1997. The 1998 increase was primarily related to a 5.4% increase
     in the number of access lines, which increased revenues approximately $406.
     Local private network revenues increased by $133 as a result of the
     increased number of lines. Revenues generated by pay-per-use calling
     features and caller ID services grew by $195 in 1998 over 1997.

o    Network access services revenues increased 2.1% to $17,049 in 1998 from
     $16,698 in 1997. The 1998 increase was largely attributable to a National
     Exchange Carrier Association, Inc. (NECA) Traffic Sensitive settlements
     increase of $1,023 and to increased minutes of use, which generated a CABS
     increase of $521. Special access revenues increased $523 primarily as a
     result of a 51% increase in high-capacity circuits driven by demand from
     PCS ONE. These increases were partially offset by $875 resulting from a
     CABS rate decrease. Adjustments of accruals also accounted for a $923
     decrease in access revenues.

o    Long distance network services revenues decreased as a result of a rate
     decrease in May 1997 and an expansion of certain local calling areas.

                                       14

<PAGE>

o    Directory advertising revenues decreased 2.5% to $3,104 in 1998 from $3,182
     in 1997. The decrease in 1998 was primarily related to a decrease in local
     yellow-page billings and a charge of $27 for a reduction in 1997 estimated
     revenues.

o    Miscellaneous revenues decreased in 1998 due to nonrecurring revenues
     received in 1997 related to the directory publishing contract.


     Telephone & Data Services segment revenues increased 2.4% to $12,890 in
1998 from $12,583 in 1997.

o    The increase was partially from additional long distance service revenues.
     Minutes of use was 34% higher in 1998, accounting for approximately $422 of
     the increase.

o    Increased revenues from computer network installations, repairs and
     modifications generated $489 of the increase.

o    The above increases were offset by a reduction of $1,117 in telephone
     system installations, primarily from the completion of three large
     installations in 1997 which were not repeated in 1998.


     Wireless Services segment revenues were $3,654 in 1998, compared with $369
in 1997. The increase resulted from the commencement of PCS ONE operations
beginning in November 1997. Revenues were recorded primarily for support
services to PCS ONE on a cost reimbursement basis.


     International Communication Services segment revenues were $681 in 1998
with no comparable revenues in the prior year. Support services to the European
ventures were recorded on a cost reimbursement basis in 1998. No support
services revenues were recorded in 1997.


     Operating Expenses

     Consolidated operating expenses for 1998 totaled $45,374, an increase of
$5,910, or 15.0%, over 1997 operating expenses of $39,464.

     Network operations expenses are incurred in maintaining D&E's switching and
transmission facilities, including digital central office switching equipment
and outside plant cable and trunk facilities. Network operations expenses
include related employee costs, engineering expense, maintenance of land and
buildings, testing, general purpose computers, office equipment,
videoconferencing and other materials and supplies. Expenses in this category
increased 10.1% to $6,297 in 1998 from $5,722 in 1997. The 1998 increase is
primarily related to increased wages and benefits and the cost of providing
computers, software and office furnishings for an expanded staff.

     Network access expense increased 16.1% to $2,961 in 1998 from $2,551 in
1997. Approximately $253 of the increase in 1998 was the result of the
implementation of a Universal Service Fund collection requirement effective
January 1, 1998. An additional increase was related to increased minutes of use
charged by the long distance access carriers.

     Directory advertising expense increased 4.2% to $2,101 in 1998 from $2,016
in 1997. The increase was related to the additional costs of publishing a larger
telephone directory, required by an increasing number of telephone lines in
service.

                                       15

<PAGE>

     Other communication services costs increased in 1998 to $5,048 from $766 in
1997. As anticipated, these costs increased sharply, primarily from providing
support services to PCS ONE, which began operations in November 1997.

     Cost of communication products sold decreased 5.5% to $5,499 in 1998 from
$5,816 in 1997. The decrease in 1998 is attributable to decreased telephone
system sales.

     Depreciation expense increased 10.7% to $9,372 in 1998 from $8,466 in 1997.
The increase was largely due to an increase in property, plant and equipment in
service.

     Marketing and customer services expense in 1998 increased 5.7% to $3,555
from $3,365 in 1997. The 1998 increase was partially attributable to wages and
benefits involved in providing customer service to the expanding base of D&E
Telephone residential customers and to D&E Telephone and Data Systems, Inc.
computer networking and systems customers. Additionally, expansion of the
corporate marketing department added wages in preparation for operating in a
competitive environment.

     General and administrative services expense decreased 2.0% to $10,542 in
1998 from $10,762 in 1997. The decrease in 1998 was predominately from wage and
benefit decreases for planning and accounting services. Offsetting these
decreases was an increase of $222 in PURTA due to additional assessments for
1997 and 1998 made by the Pennsylvania Department of Revenue.


     Operating Income

     Operating income for 1998 was $7,937, or $1,083 below the $9,020 recorded
in 1997.


     Other Income (Expense)

     Other income (expense), net for 1998 was an expense of $10,699, compared
with an income of $8,572 in 1997. The primary reasons for this change were:

o    Losses resulting from PCS ONE, which started operations late in 1997, grew
     by $6,832.

o    Operating losses related to the indirect investment in Pilicka in Poland
     increased by $2,796 due to the initiation of services early in 1998.

o    Operating losses from the Monor Communications Group (MCG) investment in
     MTT in Hungary decreased by $1,047 due to more profitable operating results
     and more favorable currency translation rates in 1998.

o    Gain on the sale of partnership interests in cellular investments was
     $1,659 in 1998 compared with $11,971 for cellular interests sold in 1997.

o    As a result of the sales of partnership interests, equity in income of
     cellular investments decreased $1,190.

o    Interest expense increased $201 and interest income increased $939.

     Income Taxes

     Federal and state income taxes decreased $6,686 to $1,276 in 1998 from
$7,962 in 1997. The decrease was primarily the result of lower pre-tax income
due to 1998 and 1997 sales of cellular investments and increased losses from PCS
ONE. The effective tax rates were a negative 46.2% in 1998 and a positive 45.3%
in 1997.

                                       16

<PAGE>

     Accounting Changes and Extraordinary Item

     During 1999, D&E adopted AICPA Statement of Position No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
which provides guidance for determining whether computer software costs should
be expensed as incurred or capitalized and amortized. As a result of adopting
the new standard, D&E's 1999 net income increased by $345 net of income taxes.

     During 1998, D&E adopted AICPA Statement of Position No. 98-5, "Reporting
on the Costs of Start-up Activities," which provides guidance on accounting for
start-up activities and organization costs and requires these costs to be
expensed as incurred. As a result of adopting this new standard, D&E expensed
organization costs of $421, which is recorded as a cumulative effect of a change
in accounting principle, net of income taxes of $170.

     The FCC offered holders of C-Block PCS licenses several alternatives to the
original payment terms for licenses financed by the FCC. Under the terms of the
Amnesty Option selected, D&E returned the full license spectrum, reducing the
license asset by $21,417. In return, the FCC canceled the principal and accrued
interest payable on the financed portion of the license cost, thereby reducing
liabilities by $13,296. The resulting loss is reported as an extraordinary item
of $7,901, net of the related income tax benefits.


     Effects of Inflation

     It is the opinion of management that the effects of inflation on operating
expenses over the past three years have been immaterial and have been partially
offset by growth in operating and other revenues. Management anticipates that
this trend will continue in 2000.


FINANCIAL CONDITION

     Liquidity and Capital Resources

     D&E believes that it has adequate internal and external resources available
to meet ongoing operating requirements, including network expansion and
modernization and business development. D&E expects that presently foreseeable
capital requirements for its existing business will be financed primarily
through internally generated funds and additional debt. D&E had $1,674 in cash
and $11,726 of temporary investments at December 31, 1999. However, additional
short- or long-term debt or equity financing may be needed to fund new business
development activities and to enhance D&E's capital structure within
management's guidelines.

     During 1999, the primary source of funds was $17,824 provided by operating
activities. During 1998, the primary source of funds was $26,253 in net proceeds
from the sale of common stock to Citizens. Net cash provided by operating
activities was $13,829. In 1998, the sale of the one remaining cellular interest
provided $2,375 of additional cash.

     D&E invested $13,898 in capital expenditures during 1999, compared with
$7,816 of capital additions in 1998. The major capital additions in both years
were for digital switching and circuit equipment, computers and software, and
poles and cable purchases to continually upgrade the telephone operating system.
The net increase in investments and advances to affiliates was $9,688 in 1999,
compared with $2,791 in 1998.

     As of December 31, 1999, D&E had unsecured lines of credit totaling $25,000
with three domestic banks. There were no outstanding amounts borrowed under
these agreements during the year or at the end of the year. Early in January
2000, D&E received $14,051 in payments related to the sale of MTT in December
1999. The funds were placed into temporary investments, including a $7,000
portion that was restricted in accordance with terms of a pledge of collateral
D&E agreed to provide to a bank for a loan made to PenneCom B.V. (PenneCom) in
December 1999. The collateral restriction will be in force until the loan is
repaid, which management anticipates

                                       17

<PAGE>

will be in conjunction with the sale of Pilicka.

     Maturities of long-term debt over the next five years are $1,007 in 2000,
and $855 annually in 2001, 2002 and 2003. In 2004, $10,855 matures, including
the total principal balance of a note for $10,000 due in January 2004. D&E
believes it will have adequate resources or the ability to refinance its debt to
meet these obligations as they become payable. For further information regarding
the interest rates on the unsecured lines of credit and the long-term debt and
for current maturities of long-term debt during the next five years, see Note 10
to the financial statements.

     As a result of the restructuring associated with the exchange of D&E shares
for D&E Telephone shares, D&E Telephone negotiated amendments, effective June 7,
1996, to the financial covenants contained in each of its three Senior Note
Agreements. The amendments changed the limit on accumulated distribution of
dividends and restricted investments from $9,000 plus 75% of D&E Telephone's
accumulated consolidated net income to $5,000 plus 75% of D&E Telephone's
accumulated consolidated net income. The distributions, restricted investments
and consolidated net income are cumulative since June 30, 1991. These Senior
Note Agreements of D&E Telephone are guaranteed by D&E. D&E's ratio of total
debt to total debt plus capital declined to 24.4% at December 31, 1999, compared
to 26.6% at December 31, 1998.


OTHER

     Until March 25, 1999, D&E owned a 50% equity investment in D&E SuperNet,
Inc., a domestic corporate joint venture that offered Internet access services
and related equipment. On March 25, 1999, D&E sold its shares in D&E SuperNet,
Inc. in exchange for $2,420 cash and $6,814 in shares of OneMain common stock.
Additionally, D&E earned additional consideration, based upon D&E SuperNet, Inc.
meeting certain operational and earnings margin requirements. At the option of
OneMain, the amount of the additional consideration was paid $56 in cash and $56
in stock. D&E holds the investment as available-for-sale securities. OneMain was
formed for the purpose of acquiring Internet service providers in rural and
secondary markets to provide customers with Internet access services and
equipment.

     In April 1999, PenneCom, a Netherlands corporation which provides
communications services in Central Europe and is wholly-owned by EuroTel, a
domestic limited liability company in which D&E Investments, Inc. has a
one-third ownership interest, signed an agreement to sell, subject to Polish
regulatory review, its shares of Pilicka, a Polish corporation, to Elektrim S.A.
(Elektrim), another Polish corporation, for $140 million in cash and notes.
Polish regulatory authorities approved the proposed purchase on July 27, 1999.
However, on July 28, 1999, Elektrim issued written notice that it was
terminating the purchase agreement, alleging that unspecified actions of
representatives of Pilicka and PenneCom constituted fraudulent inducement,
thereby rendering the purchase agreement void (and of no further effect). On
August 2, 1999, PenneCom filed an arbitration request with the International
Court of Arbitration at the International Chamber of Commerce seeking specific
performance of the agreement as well as compensatory and punitive damages. On
September 27, 1999, Elektrim filed an answer and counterclaim alleging that its
termination of the agreement was justified because, among other things, PenneCom
altered its normal course of business, constituting a "material adverse change"
and a ground for termination under the agreement. In its counterclaim, Elektrim
requested a dismissal of all claims brought by PenneCom, a declaration that the
agreement was void or that Elektrim was justified in terminating the agreement,
and a repayment by PenneCom of Elektrim's $10 million deposit. The parties have
substantially completed the discovery phase of the arbitration and submitted
written evidence. They presently are in the briefing phase, which will be
followed by a hearing on all relative factual issues. PenneCom considers the
counterclaim to be without merit. D&E fully expects that PenneCom will continue
to vigorously pursue enforcement of the agreement and defense of the
counterclaim. However, it is not possible at this time to predict the outcome of
the arbitration.

     On March 26, 1999, representatives of PenneCom informed a representative of
Boles Knop L.L.C. (Boles) that PenneCom had accepted an unsolicited offer from
Elektrim to purchase 100% of the shares of Pilicka. Later on March 26, 1999,
Boles delivered a letter asserting that it was due a substantial fee in
connection with such

                                       18

<PAGE>

transaction under its investment banking agreement (the Agreement) with
PenneCom. PenneCom disputed these assertions by Boles, and following discussions
among the parties, EuroTel and PenneCom commenced an action in May 1999, in the
United States District Court for the District of Nebraska against Boles to
resolve the dispute. In their federal court action, EuroTel and PenneCom are
seeking a declaratory judgment that they have no obligation to Boles for a
commission relating to the sale of Pilicka.

     On June 7, 1999, Boles filed a counterclaim against EuroTel and PenneCom
and a third-party complaint and issued service of process upon D&E and the other
two owners of EuroTel, seeking recovery for the additional fees it alleges to be
due to it under the Agreement and seeking punitive or treble damages on fraud,
conspiracy and misrepresentation theories. On August 6, 1999, D&E filed a motion
seeking to dismiss the fraud, conspiracy and misrepresentation causes of action,
which form the basis for the punitive and treble damages claim, and for an order
requiring a more definitive complaint. On October 25, 1999, Boles filed a motion
to transfer venue from the United States District Court for the District of
Nebraska to the United States District Court for the Eastern District of
Virginia, Alexandria Division.

     On December 28, 1999, the court entered an Order denying D&E's motion to
dismiss, but requiring Boles to amend its third-party complaint to clarify its
fraud and conspiracy causes of action. Also, on December 28, 1999, the court
entered a separate Order denying Boles' motion to transfer venue. Pursuant to
the court's Order, on January 19, 2000, Boles filed an amended counterclaim
against EuroTel and PenneCom and an amended third-party complaint against D&E
and the other two owners of EuroTel. In the amended pleading, Boles voluntarily
dismissed the fraud claim but continued to assert causes of action for breach of
contract and conspiracy and to request declaratory relief against EuroTel,
PenneCom, D&E and the other two owners of EuroTel. EuroTel and PenneCom have
filed a motion to dismiss only the conspiracy counts. D&E has filed a motion to
dismiss not only the conspiracy counts, but also the breach of contract and
declaratory judgment counts. The other two owners have filed a motion to dismiss
all counts except the declaratory judgment count. If D&E's motion to dismiss is
successful, it would result in Boles' third-party complaint against D&E being
dismissed in its entirety. Because the court has not ruled on the motion to
dismiss and the parties have not engaged in any discovery, the facts have not
been fully developed and it is not possible at this time to determine the
likelihood, if any, of Boles recovering damages against D&E, PenneCom or
EuroTel.

     D&E became party to a loan agreement between a domestic bank and PenneCom
in December 1999. As an inducement to the bank to lend up to $40,000 to
PenneCom, D&E, along with the other investors in EuroTel, pledged security on
the loan, which management anticipates will be repaid in conjunction with the
sale of Pilicka. D&E pledged $7,000 of investments as collateral, which was
provided on January 5, 2000. PenneCom used the loan primarily to refinance
higher interest debt.

     D&E Telephone files its own tariff rates with the Pennsylvania Public
Utility Commission (PUC) for such services as dial tone and calling features. In
compliance with state statutes, commonly known as Chapter 30, D&E Telephone
joined in a petition to the PUC in July 1998 for an alternative form of
regulation. Litigation costs for this proceeding are being shared with 18 other
rural incumbent local exchange carriers (ILECs). Although the statute defines
Chapter 30 as a ten month process, voluntary postponement to incorporate
mediation and analysis of other regulatory proceedings delayed the issuance of
the PUC's Chapter 30 Order from June 1999 to January 2000. In January 2000, D&E
Telephone filed a petition for reconsideration, and management is optimistic
that D&E will eventually accept a PUC authorized alternative form of regulation,
in which case an accelerated network modernization plan will be adopted along
with a new ratemaking process in which, instead of a rate base/rate of return
methodology, prices are adjusted in accordance with the Gross Domestic Product
Price Index with a productivity offset.


     During 1998, PCS ONE entered into a $40,000 loan agreement with Nortel to
provide additional funds for continued development of the PCS network. As an
inducement to Nortel to provide the financing, D&E became a party to a Capital
Contribution Agreement whereby it became jointly and severally liable to Nortel
to contribute up to a total of $50,000 of equity to PCS ONE in the event of a
default. Omnipoint Corporation, D&E's joint venture

                                       19

<PAGE>

partner in the development of the PCS ONE system, is also a signatory to the
Capital Contribution Agreement with joint and several liability. At December 31,
1999, D&E and Omnipoint have contributed $30,922 to PCS ONE. Management
anticipates D&E may make up to $2,000 of additional capital investments in the
normal course of business during the year 2000.

     On February 25, 2000, Omnipoint Corporation merged into a wholly-owned
subsidiary of VoiceStream Wireless Holding Corporation, with Omnipoint
Corporation as the surviving entity. The result was that Omnipoint Corporation
became a wholly-owned subsidiary of VoiceStream Wireless Holdings Corporation.
In connection with the merger, Omnipoint Corporation entered into an assignment
and acceptance agreement with Nortel. Omnipoint Corporation, under the same
terms of the Nortel agreement, acquired and assumed all rights over the advances
made to PCS ONE, and all of the outstanding and committed advances under the
loan agreement. Additionally, Omnipoint Corporation waived all PCS ONE defaults
under the loan agreement resulting from the transfer of the Reading D-Block
license to an entity other than PCS ONE.

     During 1999, PCS ONE negotiated a $70,000 loan commitment with a bank to
provide additional funds for repayment of the Omnipoint loan assigned and
assumed from Nortel, and to continue development of the PCS network. The bank
commitment contains similar capital contribution requirements for PCS ONE's
owners to provide a joint and several liability to provide a $40,000 capital
contribution in the event of PCS ONE's default.

     On October 22, 1998, D&E announced that its Board of Directors authorized
the repurchase of up to $2,000 worth of D&E common stock. The shares reacquired
may be used for D&E's incentive compensation programs, Employee Stock Purchase
Plan, Dividend Reinvestment Plan and for other corporate purposes. Based on this
authorization, D&E acquired 66,000 shares of its common stock as of December 31,
1999. Separately, the Board of Directors authorized the acquisition of 80,000
shares outside of the open market repurchase program.

     On January 7, 1998, D&E closed on an agreement pursuant to which a
subsidiary of Citizens purchased 1.3 million shares of newly issued D&E common
stock. The price was $20.781 per share for 1.3 million shares, or $27,015. The
investment by Citizens initially represented 17.5%, and was 17.7% at December
31, 1999, of the combined shares outstanding. If Citizens proposes to sell any
shares of D&E common stock, Citizens must first give D&E the opportunity to
repurchase them. Citizens has the right to require D&E to register for public
sale the common stock Citizens acquired.

     Year 2000 Compliance

     D&E has not experienced any significant year 2000 problems to date and does
not expect any significant problems to impair its operations. However, due to
the magnitude and complexity of the year 2000 issue, even the most conscientious
efforts cannot guarantee every problem has been found. D&E is continuing to
monitor critical operating and business systems and its contingency plans in the
event problems should occur in the coming months. D&E's total year 2000 costs
were less than $250. Management believes the changes completed will avoid any
material impact on its financial condition or interruption to ongoing business
activities.


FORWARD-LOOKING STATEMENTS

     This annual report contains certain forward-looking statements as to year
2000 remediation, the future performance of D&E and its various domestic and
international investments, the effects of inflation and long-term contracts,
including the Lancaster County 911 system, EuroTel, Pilicka and PCS ONE. Actual
results may differ as a result of factors over which D&E has no control,
including, but not limited to, regulatory changes and factors, uncertainties and
economic fluctuations in the domestic and foreign markets in which the companies
compete, foreign currency risks and increased competition in domestic markets
due in large part to continued deregulation of the

                                       20

<PAGE>

telecommunications industry.

Item 7a. Quantitative and Qualitative Disclosure About Market Risks.

     D&E does not invest excess funds in derivative financial instruments or
other market risk sensitive instruments for the purpose of managing its foreign
currency exchange rate risk or for any other purpose.

Item 8. Financial Statements and Supplementary Data.

     Information called for by this Item is set forth beginning on page . See
Index to Financial Statements.

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

     There were no changes in or disagreements with accountants on accounting
and financial disclosure.



                                       21

<PAGE>


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

     The information required under this Item is incorporated by reference from
the material captioned "Management and Directors" in D&E's definitive proxy
statement which will be filed within 120 days after the end of the fiscal year
covered by this report.

Item 11.  Executive Compensation.

     The information required under this Item is incorporated by reference from
the material captioned "Executive Compensation" in D&E's definitive proxy
statement which will be filed within 120 days after the end of the fiscal year
covered by this report.

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

     The information required under this Item is incorporated by reference from
the material captioned "Security Ownership of Certain Beneficial Owners and
Management" in D&E's definitive proxy statement which will be filed within 120
days after the end of the fiscal year covered by this report.

Item 13.  Certain Relationships and Related Transactions.

     The information required under this Item is incorporated by reference from
the material captioned "Certain Relationships and Related Transactions" in D&E's
definitive proxy statement which will be filed within 120 days after the end of
the fiscal year covered by this report.

                                       22

<PAGE>


                                     PART IV

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

     (a) The following documents are filed as a part of this Annual Report on
Form 10-K in the following manner:

          (1) The consolidated financial statements of the Company and its
     subsidiaries filed as part of this report are listed in the attached Index
     to Financial Statements.

          (2) All schedules are omitted because the required information is not
     present or is not present in amounts sufficient to require submission of
     the schedule, or because the information required is included in the
     consolidated financial statements.

          (3) The exhibits filed as part of this Report are listed in the Index
     to Exhibits.

     (b) Reports on Form 8-K. There was one current report on Form 8-K filed by
the Registrant during the last quarter of 1999. On December 23, 1999, a Form 8-K
was filed reporting PenneCom B.V., in which D&E holds a one-third ownership
interest, had completed the sale of its 48.3% ownership in Monor Telephone
Company in Hungary for $45 million.

     (c) Exhibits. See Index to Exhibits.

     (d) Financial statement schedules of subsidiaries not consolidated and 50%
or less owned. The information called for by this Item (14) is set forth on
pages F - 1 through F - 52. See Index to Financial Statements.


                                       23

<PAGE>


                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit             Identification
   No.                of Exhibit                                                   Reference
-------             --------------                                                 ---------
<S>        <C>                                                                     <C>
2.         Plan of acquisition, reorganization, arrangement,
           liquidation or succession:

2.1        Agreement and Plan of Exchange                                          Incorporated herein by reference from
           Between Denver and Ephrata Telephone and                                Exhibit 2.1 to Amendment No. 2 to
           Telegraph Company (a Pennsylvania                                       the Registration Statement on Form
           corporation) and D&E Communications, Inc.                               S-4 (Registration No. 333-2960) filed
           (a Pennsylvania corporation).                                           by D&E on April 23, 1996.

2.2        D&E Shareholder Agreement, dated as of March                            Incorporated herein by reference from
           21, 1997, by and between D&E and various                                Exhibit 99.01 to the Form 8-K
           shareholders of D&E.                                                    Current Report filed by D&E on
                                                                                   April 7, 1997.

3.         Articles of Incorporation and By-laws:

3.1        Amended and Restated Articles of                                        Incorporated herein by reference from
           Incorporation                                                           Exhibit A to D&E's definitive proxy
                                                                                   statement for its 1997 Annual
                                                                                   Meeting of Shareholders filed April
                                                                                   2, 1997.

3.2        By-Laws                                                                 Incorporated herein by reference from
                                                                                   Exhibit 3.2 to D&E's Registration
                                                                                   Statement on Form 10 filed by D&E
                                                                                   on April 30, 1993.

4.         Instruments defining the rights of security holders,
           including debentures:

             None of the long-term debt of D&E and its consolidated subsidiaries
             exceeds 10 percent of the total assets of D&E and its subsidiaries
             on a consolidated basis. The Company will furnish a copy of the
             instrument relating to any such long-term debt to the Commission
             upon request.

9.         Voting Trust Agreement.

9.1        Voting Trust Agreement Among Shareholders                               Incorporated herein by reference from
           of Denver and Ephrata Telephone and Telegraph                           Exhibit 9.1 to D&E's 1995 Report
           Company and Kay William Shober, Anne Brossman                           on Form 10-K.
           Sweigart, W. Garth Sprecher, Ronald E. Frisbie and
           John Amos as Voting Trustees, dated as of
           November 19, 1992. ("Voting Trust Agreement")

9.2        Amendment to the Voting Trust Agreement                                 Incorporated herein by reference from
           dated as of December 31, 1995.                                          Exhibit 9.2 to D&E's 1995 Annual
                                                                                   Report on Form 10-K.
</TABLE>
                                       24
<PAGE>

<TABLE>
<CAPTION>
Exhibit                    Identification
  No.                        of Exhibit                                            Reference
------                     --------------                                          ---------
<S>        <C>                                                                     <C>
10.        Material Contracts

10.1       Denver and Ephrata Telephone and Telegraph Company                      Incorporated herein by reference
           Executive Incentive Plan as revised January 1998.*                      from Exhibit 10.1 to D&E's 1997
                                                                                   Annual Report of Form 10-K.

10.2       AT&T Communications Standard Agreement for                              Incorporated herein by reference from
           the Provision of Telecommunications Services and                        Exhibit 10.2 to D&E's Registration
           Facilities between AT&T Communications of                               Statement on Form 10 filed by D&E
           Pennsylvania, Inc. and Denver and Ephrata Telephone                     on April 30, 1993.
           and Telegraph Company;
                     Article 1 General Provisions, effective
                               May 25, 1984;
                     Article 8-2 Billing and Collection Services
                               effective April 1, 1992;

10.3       Telecommunications Services and Facilities                              Incorporated herein by reference from
           Agreement between the Bell Telephone Company of                         Exhibit 10.3 to D&E's Registration
           Pennsylvania and Denver and Ephrata Telephone and                       Statement on Form 10 filed by D&E
           Telegraph Company, effective January 1, 1986; and                       on April 30, 1993.
           Amendment to Telecommunications Services and
           Facilities Agreement and the IntraLATA Compensation
           Agreement, dated May 7, 1992;
                     Appendix 1 IntraLATA Telecommunications
                               Services, effective January 1, 1986;
                     Appendix 2 Ancillary Services, effective January 1, 1986;
                     Appendix 5 Jointly Provided Feature Group A
                               Compensation effective July 24, 1986; and
                     Appendix 7 Extended Area Service, effective
                               October 1, 1988.

10.4       IntraLATA Compensation Agreement between                                Incorporated herein by reference from
           the Pennsylvania Non-Bell Telephone Companies and                       Exhibit 10.4 to D&E's Registration
           Denver and Ephrata Telephone and Telegraph                              Statement on Form 10 filed by D&E
           Company, effective January 1, 1986; and Amendment to                    on April 30, 1993.
           Telecommunications Services and Facilities Agreement
           and the IntraLATA Compensation Agreement,
           dated May 7, 1992.

10.5       Agreement between Donnelley Directory,                                  Incorporated herein by reference from
           a division of The Reuben H. Donnelley Corporation                       Exhibit 10.5 to D&E's Registration
           Statement and Denver and Ephrata Telephone and                          Statement on Form 10 filed  by D&E
           Telegraph Company, dated April 19, 1991. Portions of                    on April 30, 1993.
           this exhibit have been omitted pursuant to a request for
           confidential treatment and have been separately filed with the
           Commission.

10.6       Agreement for the Distribution of Interstate                            Incorporated herein by reference from
           Access Revenues between the National Exchange                           Exhibit 10.6 to D&E's Registration
           Carrier Association, Inc. and Denver and Ephrata                        Statement on Form 10 filed by D&E
           Telephone and Telegraph Company, effective                              on April 30, 1993.
           May 25, 1984.
</TABLE>
                                       25
<PAGE>

<TABLE>
<CAPTION>
Exhibit                    Identification
  No.                        of Exhibit                                            Reference
------                     --------------                                          ---------
<S>        <C>                                                                     <C>

10.7       Agreement for the Provision of Enhanced                                 Filed herewith.
           9-1-1 Services between the County of
           Lancaster and Denver and Ephrata
           Telephone and Telegraph Company,
           effective upon approval of the
           Pennsylvania Public Utility Commission
           which occurred May 18, 1994
                    Attachment #1 Request for Proposal
                              as Amended;
                    Attachment #2 Best and Final Offer,
                              April 28, 1994;
                    Attachment #3 Clarifications to RFP;
                    Attachment #4 Lancaster County
                              Resolution #74, September 22, 1993;
                    Attachment #5 Lancaster County
                              Resolution #32, May 5, 1994;
                    Attachment #6 Addenda, Errata,
                      Bulletins to Contract Documents;
                    Attachment #7 Facility Lease; and
                    Attachment #8 Tariffed Local Exchange
                              Carrier Services.

10.8       Modification #2 to the Agreement for the                                Incorporated herein by reference from
           Provision of Enhanced 9-1-1 Services                                    Exhibit 10.1 to D&E's Quarterly Report
           between the County of Lancaster and                                     on Form 10-Q for the quarter ended
           D&E Telephone Company, signed                                           September 30, 1999.
           July 14, 1999.

10.9       Affiliated Interest Agreement between Denver                            Incorporated herein by reference from
           and Ephrata Telephone and Telegraph Company                             Exhibit 10.11 to D&E's 1995 Annual
           and Red Rose Systems, Inc.                                              Report on Form 10-K.

10.10      Affiliated Interest Agreement between D&E                               Incorporated herein by reference from
           Communications, Inc. and Denver and Ephrata                             Exhibit 10.21 to D&E's 1996 Annual
           Telephone and Telegraph Company and Red                                 Report on Form 10-K.
           Rose Communications, Inc.

10.11      D&E Shareholder Agreement, Exhibit D to the                             Incorporated herein by reference from
           Agreement and Plan of Merger by and between                             Exhibit B to Amendment No. 1 to the
           D&E Communications, Inc. and PCS One, Inc.                              Registration Statement on Form S-4
                                                                                   (Registration No. 333-18659) filed by
                                                                                   D&E on January 21, 1997.

10.12      D&E Communications, Inc. Officer Incentive                              Incorporated herein by reference from
           Plan as revised January 1998.  *                                        Exhibit 10.16 to D&E's 1997 Annual
                                                                                   Report on Form 10-K.

10.13      Stock Acquisition Agreement between                                     Incorporated herein by reference from
           D&E Communications, Inc. and Southwestern                               Exhibit 10.1 to D&E's Quarterly
           Investments, Inc., a subsidiary of Citizens Utilities                   Report on Form 10-Q for the
           Company, dated November 3, 1997.                                        quarter ended September 30, 1997.
</TABLE>

                                       26
<PAGE>

<TABLE>
<CAPTION>
Exhibit                    Identification
  No.                        of Exhibit                                            Reference
------                     --------------                                          ---------
<S>        <C>                                                                     <C>
10.14      Limited Partnership Agreement by and among                              Incorporated herein by reference from
           D&E Wireless, Inc., Omnipoint Venture                                   Exhibit 2.01 to the Form 8-K Current
           Partner I, L.L.C. and Omnipoint Holdings, Inc.                          Report filed by D&E on December 2,
                                                                                   1997.

10.15      Affiliated Interest Agreement between D&E                               Incorporated herein by reference from
           Telephone Company and D&E Wireless, Inc.                                Exhibit 10.21 to D&E's 1997 Annual
                                                                                   Report on Form 10-K.

10.16      Loan Agreement between D&E/Omnipoint                                    Incorporated herein by reference from
           Wireless Joint Venture, L.P. and Northern                               Exhibit 10.1 to D&E's Quarterly
           Telecom  Inc. dated September 18, 1998.                                 Report on Form 10-Q for the
                                                                                   quarter ended September 30, 1998.

10.17      Capital Contribution Agreement between                                  Incorporated herein by reference from
           Omnipoint Corporation and D&E Communications, Inc.                      Exhibit 10.2 to D&E's Quarterly
           in favor of D&E/Omnipoint Wireless Joint Venture,                       Report on Form 10-Q for the
           L.P. and Northern Telecom Inc. dated as of                              quarter ended September 30, 1998.
           September 18, 1998.


21.        Subsidiaries of the Registrant

21.1       List of all subsidiaries of D&E.                                        Filed herewith.

23         Consents

23.1       Consent of PricewaterhouseCoopers LLP, Philadelphia, PA                 Filed herewith.

23.2       Consent of PricewaterhouseCoopers LLP, Omaha, NE                        Filed herewith.

27.        Financial Data Schedule.

27.1       Financial Data Schedule.                                                Filed herewith.

-------------
* Indicates a plan or agreement relating to executive compensation.

</TABLE>

                                       27
<PAGE>

                                   SIGNATURES

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

                                        D&E Communications, Inc.

Date   March 24, 2000                   By  /s/ Anne B. Sweigart
       --------------                       ------------------------------------
                                            Anne B. Sweigart
                                            President, Chairman of the Board,
                                            and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Date   March 24, 2000                   By  /s/ Anne B. Sweigart
       --------------                       ------------------------------------
                                            Anne B. Sweigart
                                            President, Chairman of the
                                            Board, and Chief Executive
                                             Officer

Date   March 24, 2000                   By   /s/ Robert M. Lauman
       --------------                       ------------------------------------
                                            Robert M. Lauman
                                            Executive Vice President and
                                            Chief Operating Officer
                                            Member of the Board of Directors

Date   March 24, 2000                   By  /s/ Thomas E. Morell
       --------------                       ------------------------------------
                                            Thomas E. Morell
                                            Vice President, Chief Financial
                                            Officer and Treasurer
                                            (Chief Accounting Officer)

Date   March 24, 2000                   By  /s/ John Amos
       --------------                       ------------------------------------
                                            John Amos
                                            Member of the Board of Directors

Date   March 24, 2000                   By  /s/ Thomas H. Bamford
       --------------                       ------------------------------------
                                            Thomas H. Bamford
                                            Member of the Board of Directors

Date   March 24, 2000                   By  /s/ Paul W. Brubaker
       --------------                       ------------------------------------
                                            Paul W. Brubaker
                                            Member of the Board of Directors


                                       28
<PAGE>


Date    March 24, 2000                  By  /s/ Ronald E. Frisbie
        --------------                      ------------------------------------
                                             Ronald E. Frisbie
                                             Member of the Board of Directors

Date    March 24, 2000                  By  /s/ Robert A. Kinsley
        --------------                      ------------------------------------
                                             Robert A. Kinsley
                                             Member of the Board of Directors

Date    March 24, 2000                  By  /s/ G. William Ruhl
        --------------                      ------------------------------------
                                             G. William Ruhl
                                             Senior Vice President, Member of
                                             the Board of Directors

Date    March 24, 2000                  By  /s/ Steven B. Silverman
        --------------                      ------------------------------------
                                             Steven B. Silverman
                                             Member of the Board of Directors

Date    March 24, 2000                  By  /s/ W. Garth Sprecher
        --------------                      ------------------------------------
                                             W. Garth Sprecher
                                             Vice President and Secretary,
                                             Member of the Board of Directors

Date    March 24, 2000                  By  /s/ D. Mark Thomas
        --------------                      ------------------------------------
                                             D. Mark Thomas
                                             Member of the Board of Directors

                                       29
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

Item 8. D&E Communications, Inc. and Subsidiaries.                          Page
                                                                            ----
    Report of Independent Accountants.                                       F-1

    Consolidated Statements of Operations for the years ended
    December 31, 1999, 1998 and 1997.                                        F-2

    Consolidated Balance Sheets as of December 31, 1999 and 1998.            F-3

    Consolidated Statements of Cash Flows for the years ended
    December 31, 1999, 1998 and 1997.                                        F-4

    Consolidated Statements of Shareholders' Equity for the
    years ended December 31, 1999, 1998 and 1997.                            F-5

    Notes to Consolidated Financial Statements.                              F-6

    Item 14 (d) D&E/Omnipoint Wireless Joint Venture, L.P.

    Cover Page.                                                             F-21

    Table of Contents.                                                      F-22

    Report of Independent Accountants.                                      F-23

    Balance Sheets as of December 31, 1999 and 1998.                        F-24

    Statements of Operations
    For the Years Ended December 31, 1999, 1998 and the Two-Month
    Period Ended December 31, 1997.                                         F-25

    Statement of Changes in Partners' Capital For the Years Ended
    December 31, 1999, 1998 and the Two-Month Period Ended
    December 31, 1997.                                                      F-26

    Statements of Cash Flows
    For the Years Ended December 31, 1999, 1998 and the Two-Month
    Period Ended December 31, 1997.                                         F-27

    Notes to Financial Statements.                                          F-28

    Item 14 (d) EuroTel L.L.C.

    Cover Page.                                                             F-36

    Report of Independent Accountants.                                      F-37

    Consolidated Balance Sheets as of December 31, 1999 and 1998.           F-38


                                       30
<PAGE>

                                                                            Page
                                                                            ----

    Consolidated Statements of Operations
    For the Years Ended December 31, 1999, 1998 and 1997.                   F-39

    Consolidated Statements of Members' Equity (Deficit)
    and Comprehensive Income (Loss)
    For the Years Ended December 31, 1999, 1998 and, 1997.                  F-40

    Consolidated Statements of Cash Flows
    For the Years Ended December 31, 1999, 1998 and, 1997.                  F-41

    Notes to Consolidated Financial Statements.                             F-42










                                       31
<PAGE>

                        Report of Independent Accountants

To the Board of Directors and Shareholders
of D&E Communications, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of D&E
Communications, Inc. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for computer software costs in accordance with
AICPA Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective January 1, 1999.


/s/ PricewaterhouseCoopers LLP

Philadelphia, PA
March 3, 2000

                                      F-1
<PAGE>


                   D & E Communications, Inc. and Subsidiaries

                      Consolidated Statements of Operations

              For the years ended December 31, 1999, 1998 and 1997

                    (In thousands, except per-share amounts)

<TABLE>
<CAPTION>

                                                                           1999           1998           1997
                                                                         --------       --------       --------
<S>                                                                      <C>            <C>            <C>
OPERATING REVENUES
      Communication service revenues ..............................      $ 50,665       $ 44,182       $ 38,477
      Communication products sold .................................        11,667          7,983          8,565
      Other .......................................................         1,195          1,146          1,442
                                                                         --------       --------       --------
         Total operating revenues .................................        63,527         53,311         48,484

OPERATING EXPENSES
      Communication service expenses ..............................        20,480         16,407         11,055
      Cost of communication products sold .........................         8,447          5,499          5,816
      Depreciation and amortization ...............................         9,771          9,372          8,466
      Marketing and customer services .............................         4,936          3,555          3,365
      General and administrative services .........................        10,766         10,541         10,762
                                                                         --------       --------       --------
         Total operating expenses .................................        54,400         45,374         39,464
                                                                         --------       --------       --------

            Operating income ......................................         9,127          7,937          9,020

OTHER INCOME (EXPENSE)
      Equity in net losses of affiliates ..........................        (4,956)       (11,398)        (1,661)
      Interest expense ............................................        (1,818)        (2,374)        (2,173)
      Gain on sale of investments .................................         9,093          1,659         11,971
      Other, net ..................................................         1,513          1,414            435
                                                                         --------       --------       --------
         Total other income (expense) .............................         3,832        (10,699)         8,572
                                                                         --------       --------       --------
            Income (loss) before income taxes, dividends on
               utility preferred stock, cumulative effect of
               accounting change and extraordinary item ...........        12,959         (2,762)        17,592

INCOME TAXES AND DIVIDENDS ON UTILITY PREFERRED STOCK
      Income taxes ................................................         4,043          1,276          7,962
      Dividends on utility preferred stock ........................            65             65             65
                                                                         --------       --------       --------
            Total income taxes and dividends on
               utility preferred stock ............................         4,108          1,341          8,027
                                                                         --------       --------       --------
                   Income (loss) before cumulative effect of
                     accounting change and extraordinary item .....         8,851         (4,103)         9,565

      Cumulative effect of change in accounting
         principle, net of income tax benefit of $170 .............            --           (251)            --
      Extraordinary loss on early extinguishment of
         debt, net of income tax benefit of $220 ..................            --         (7,901)            --
                                                                         --------       --------       --------
NET INCOME (LOSS) .................................................      $  8,851       ($12,255)        $9,565
                                                                         ========       ========       ========
      Average common shares outstanding ...........................         7,385          7,416          6,040

BASIC EARNINGS (LOSS) PER COMMON SHARE
      Income (loss) before accounting change and extraordinary item      $   1.20       ($  0.55)      $   1.58
      Cumulative effect of accounting change ......................            --          (0.03)            --
      Extraordinary item ..........................................            --          (1.07)            --
                                                                         --------       --------       --------
           Net income (loss) per common share .....................      $   1.20       ($  1.65)      $   1.58
                                                                         ========       ========       ========
      Dividends per common share ..................................      $   0.39       $   0.39       $   0.39
                                                                         ========       ========       ========
</TABLE>

                 See notes to consolidated financial statements.

                                       F-2

<PAGE>

                   D & E Communications, Inc. and Subsidiaries

                           Consolidated Balance Sheets

                           December 31, 1999 and 1998

                                 (In thousands)
<TABLE>
<CAPTION>
                                   ASSETS                                              1999        1998
                                                                                     ---------    --------
<S>                                                                                  <C>          <C>
CURRENT ASSETS
       Cash and cash equivalents .................................................   $   1,674    $  7,192
       Temporary investments .....................................................      11,726      14,805
       Accounts receivable .......................................................       7,787       7,109
       Accounts receivable - affiliated companies ................................       5,152       2,903
       Inventories, lower of cost or market, at average cost .....................       1,302       1,028
       Prepaid expenses ..........................................................       1,088       3,658
       Other .....................................................................         310         689
                                                                                     ---------    --------
          TOTAL CURRENT ASSETS ...................................................      29,039      37,384
                                                                                     ---------    --------
INVESTMENTS
       Investments and advances in affiliated companies ..........................      11,994       9,764
       Investments available-for-sale ............................................       6,371         227
                                                                                     ---------    --------
                                                                                        18,365       9,991
                                                                                     ---------    --------
PROPERTY, PLANT AND EQUIPMENT
       In service ................................................................     131,753     123,766
       Under construction ........................................................       4,092         426
                                                                                     ---------    --------
                                                                                       135,845     124,192
       Less accumulated depreciation .............................................      69,949      62,526
                                                                                     ---------    --------
                                                                                        65,896      61,666
                                                                                     ---------    --------
OTHER ASSETS
       Other .....................................................................       1,354       1,036
                                                                                     ---------    --------

TOTAL ASSETS .....................................................................   $ 114,654    $110,077
                                                                                     =========    ========
                    LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
       Long-term debt maturing within one year ...................................   $   1,007    $  1,063
       Accounts payable and accrued liabilities ..................................       9,662       7,924
       Accrued taxes .............................................................         324         491
       Accrued interest and dividends ............................................         439         449
       Advance billings, customer deposits and other .............................       1,224       3,423
                                                                                     ---------    --------
          TOTAL CURRENT LIABILITIES ..............................................      12,656      13,350
                                                                                     ---------    --------
LONG-TERM DEBT ...................................................................      21,582      22,657
                                                                                     ---------    --------
OTHER LIABILITIES
       Deferred income taxes .....................................................       9,785       7,660
       Other .....................................................................         861         802
                                                                                     ---------    --------
                                                                                        10,646       8,462
                                                                                     ---------    --------
PREFERRED STOCK OF UTILITY SUBSIDIARY, Series A 4 1/2%,
         par value $100, cumulative, callable at par at the option
         of the Company, authorized 20,000 shares,
         outstanding 14,456 shares ...............................................       1,446       1,446
                                                                                     ---------    --------
COMMITMENTS
SHAREHOLDERS' EQUITY
       Common stock, par value $.16, authorized shares 30,000,000 ................       1,194       1,190
         Outstanding shares: 7,339,362 at December 31, 1999
                             7,422,396 at December 31, 1998
       Additional paid-in capital ................................................      37,026      36,546
       Unrealized loss on investments ............................................       (539)          --
       Unearned ESOP compensation ................................................       (153)        (429)
       Retained earnings .........................................................      33,281      27,294
       Treasury stock at cost:  146,112 shares at December 31, 1999
                                 38,480 shares at December 31, 1998 ..............      (2,485)       (439)
                                                                                     ---------    --------
                                                                                        68,324      64,162
                                                                                     ---------    --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......................................   $ 114,654    $110,077
                                                                                     =========    ========
</TABLE>
                 See notes to consolidated financial statements.

                                      F-3

<PAGE>
                   D & E Communications, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

              For the Years Ended December 31, 1999, 1998 and 1997

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                 1999          1998         1997
                                                                                -------      --------     --------
<S>                                                                              <C>         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) ......................................................     $8,851      ($12,255)      $9,565
   Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
       Extraordinary loss on early extinguishment of debt .................         --         7,901           --
       Depreciation and amortization ......................................      9,771         9,809        8,486
       Deferred income taxes ..............................................      2,309         1,230          389
       Equity in net losses of affiliates .................................      4,956        11,398        1,895
        Tax benefits applicable to ESOP ...................................          8            12           17
        Gain on sale of investments in affiliated companies ...............     (9,093)       (1,659)     (11,971)
        Loss on retirement of property, plant and equipment ...............         24            43           64
        Losses applicable to minority interest ............................         --            --          (50)
   Changes in operating assets and liabilities:
        Accounts receivable ...............................................       (678)          (45)          88
        Inventories .......................................................       (274)         (137)         119
        Prepaid expenses ..................................................      2,570          (372)        (880)
        Accounts payable and accrued liabilities ..........................      1,738        (1,899)       1,899
        Accrued taxes and accrued interest ................................       (177)           (2)         945
        Advance billings, customer deposits and other .....................     (2,200)          323          319
        Other, net ........................................................         19          (518)        (164)
                                                                               -------      --------     --------

                 Net Cash Provided By Operating Activities ................     17,824        13,829       10,721
                                                                               -------      --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES
   Capital expenditures, net of proceeds from sales and removal costs .....     (13,923)       (7,735)      (5,845)
   Proceeds from sale of temporary investments ............................      38,321        24,000           --
   Purchase of temporary investments ......................................     (35,241)      (38,805)          --
   Acquisition of other assets ............................................          --            --       (2,482)
   Proceeds from sale of investments in affiliated companies ..............       2,476         2,375       17,897
   Increase in investments and advances to affiliates .....................     (31,940)      (31,591)     (19,957)
   Decrease in investments and repayments from affiliates .................      22,252        28,800        3,373
                                                                                -------      --------     --------

                 Net Cash Used In Investing Activities ....................     (18,055)      (22,956)      (7,014)
                                                                                -------      --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES
   Dividends on common stock ..............................................      (2,690)       (2,701)      (2,220)
   Payments on long-term debt .............................................        (854)       (6,855)      (1,017)
   Net proceeds from (payments on) revolving lines of credit ..............          --            --       (1,140)
   Proceeds from issuance of common stock .................................         303        26,253          416
   Purchase of treasury stock .............................................      (2,046)         (439)          --
                                                                                -------      --------     --------

                 Net Cash Provided By (Used In) Financing Activities ......      (5,287)       16,258       (3,961)
                                                                                -------      --------     --------
INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS ....................................................      (5,518)        7,131         (254)

CASH AND CASH EQUIVALENTS
  BEGINNING OF YEAR .......................................................       7,192            61          315
                                                                                -------      --------     --------

  END OF YEAR .............................................................      $1,674      $  7,192     $     61
                                                                                =======      ========     ========
</TABLE>

                See Notes to consolidated financial statements.


                                      F-4
<PAGE>
                    D&E Communications, Inc. and Subsidiaries

                 Consolidated Statements of Shareholders' Equity

              For the years ended December 31, 1999, 1998 and 1997

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                      1999                   1998                  1997
                                                              -------------------    --------------------    ------------------
                                                               Shares     Amount      Shares      Amount     Shares     Amount
                                                              --------   --------    --------    --------    ------     -------
<S>                                                              <C>     <C>           <C>       <C>          <C>       <C>
COMMON STOCK
   Balance at beginning of year ............................     7,460   $  1,190      6,129     $    977     5,471     $   919

   Common stock issued for acquisitions ....................        --         --         --           --       362          54
   Common stock issued in private placement ................        --         --      1,300          208        --          --
   Common stock issued for Employee Stock Purchase Plan
      and Dividend Reinvestment Plan .......................        25          4         31            5        26           4

                                                              --------   --------    -------     --------    ------     -------
   Balance at end of year ..................................     7,485      1,194      7,460        1,190     6,129         977
                                                              --------   --------    -------     --------    ------     -------

ADDITIONAL PAID-IN CAPITAL
   Balance at beginning of year ............................               36,546                  10,341                 2,021

   Common stock issued for acquisitions ....................                   --                      --                 7,802
   Common stock issued in private placement ................                   --                  25,697                    --
   Common stock issued for Employee Stock Purchase Plan
      and Dividend Reinvestment Plan .......................                  480                     508                   518

                                                                         --------                --------               -------
   Balance at end of year ..................................               37,026                  36,546                10,341
                                                                         --------                --------               -------

ACCUMULATED OTHER COMPREHENSIVE INCOME
   Balance at beginning of year ............................                   --                      --                    --

   Unrealized loss on investments ..........................                 (539)                     --                    --
                                                                         --------                --------               -------
   Balance at end of year ..................................                 (539)                     --                    --
                                                                         --------                --------               -------

UNEARNED ESOP COMPENSATION
   Balance at beginning of year ............................                 (429)                   (695)                 (951)

   Reduction of ESOP trust loan ............................                  276                     266                   256

                                                                         --------                --------               -------
   Balance at end of year ..................................                 (153)                   (429)                 (695)
                                                                         --------                --------               -------

RETAINED EARNINGS
   Balance at beginning of year ............................               27,294                  42,402                35,144

   Net income (loss) .......................................                8,851                 (12,255)                9,565
   Tax benefits from dividends paid to ESOP ................                    8                      12                    17
   Dividends on common stock - $.39, $.39, $.39 per share ..               (2,872)                 (2,865)               (2,324)
                                                                         --------                --------               -------
   Balance at end of year ..................................               33,281                  27,294                42,402
                                                                         --------                --------               -------

TREASURY STOCK
   Balance at beginning of year ............................       (38)      (439)         --          --        --          --

   Treasury stock acquired .................................      (108)    (2,046)        (38)       (439)       --          --
                                                              --------   --------     -------    --------    ------     -------
   Balance at end of year ..................................      (146)    (2,485)        (38)       (439)       --          --
                                                              --------   --------     -------    --------    ------     -------

TOTAL SHAREHOLDERS' EQUITY .................................     7,339   $ 68,324       7,422     $64,162     6,129     $53,025
                                                              ========   ========     =======    ========    ======     =======

COMPREHENSIVE INCOME (LOSS)
   Net income (loss) .......................................             $  8,851                ($12,255)              $ 9,565
   Unrealized loss on investments, net of income
        tax benefit of $184 ................................                 (539)                     --                    --
                                                                         --------                --------               -------
   Total comprehensive income (loss) .......................             $  8,312                ($12,255)              $ 9,565
                                                                         ========                ========               =======
</TABLE>
                 See notes to consolidated financial statements

                                       F-5
<PAGE>

                   Notes to Consolidated Financial Statements
                (Dollars in thousands, except per-share amounts.)

1. Nature of Business

Description

     D&E Communications, Inc. is a diversified holding company that provides
communications services and equipment to customers in the south central
Pennsylvania market and in certain areas of Eastern Europe. D&E Communications,
Inc. and its consolidated subsidiaries are defined and referenced herein as D&E.

     D&E supplies local and long distance telephone services, including enhanced
calling features and high-speed data services. D&E offers computer networking
and repair services and both sells and installs communications equipment, such
as telephone systems and data communications products. D&E also provides
services for directory advertising and local billing and collection.

     Additionally, D&E offers support services to its affiliated companies. D&E
has a 50% interest in PCS ONE, a partnership that provides Personal
Communications Services (PCS) and related equipment for digital wireless voice
and data communications. D&E also has a 33% interest in EuroTel, L.L.C.
(EuroTel), a domestic joint venture that owns an international investment in
Pilicka Telephone (Pilicka), a telecommunications company located in Poland.

Regulatory Environment and Competition

     A substantial portion of D&E's operations is subject to regulation at both
the federal and state levels by the Federal Communications Commission (FCC) and
the Pennsylvania Public Utility Commission (PUC). In 1996, Congress passed and
the President signed into law the Telecommunications Act of 1996 (the 1996 Act),
which established rules to encourage and foster competition in local markets.
The implementation of the 1996 Act provided comprehensive changes to federal and
state regulations that govern telecommunications. Local exchange companies are
required to connect their telephone networks with other communications companies
and offer wholesale rates for resale of local communications services. D&E's
local exchange company currently qualifies as a rural telephone company and is
exempt until July 2000 from certain provisions of the 1996 Act. D&E expects to
request an additional one-year extension beyond July 2000 of its exemption from
certain provisions of the 1996 Act.

     D&E files its own tariff rates with the PUC for such services as dial tone
and calling features. In compliance with state statutes, commonly known as
Chapter 30, D&E joined in a petition to the PUC in July 1998 for an alternative
form of regulation. The PUC issued its Chapter 30 Order in January 2000.
Subsequently, D&E filed a petition for reconsideration, and management is
optimistic that D&E will eventually accept a PUC authorized alternative form of
regulation, in which case an accelerated network modernization plan will be
adopted along with a new ratemaking process in which, instead of a rate
base/rate of return methodology, prices are adjusted in accordance with the
Gross Domestic Product Price Index with a productivity offset.

     D&E expects both to experience an increasing amount of competitive
pressures and to encounter opportunities in new markets. No estimate can be made
of the financial impacts of these changes.

Concentrations of Credit Risk

     Financial instruments that subject D&E to concentrations of credit risk
consist primarily of trade receivables. Concentrations of credit risk with
respect to trade receivables other than AT&T are limited due to the large number
of customers in D&E's customer base. For the years ended December 31, 1999, 1998
and 1997, revenues generated from services provided to AT&T, primarily for
access to D&E's network and for billing and collection, were $5,496, $5,014 and
$5,521, respectively. At December 31, 1999 and 1998, accounts receivable from
AT&T totaled $880 and $832, respectively.

                                      F-6
<PAGE>

2. Significant Accounting Policies

Principles of Consolidation

     D&E uses three different accounting methods to report its investments in
its subsidiaries, joint ventures, partnerships and corporations: consolidation,
the equity method and the cost method.

Consolidation

     D&E uses consolidation when it owns a majority of the voting stock of the
subsidiary. This means the accounts of D&E's subsidiaries are combined with its
accounts. D&E eliminates intercompany balances and transactions when it
consolidates these accounts. D&E's consolidated financial statements include the
accounts of Denver and Ephrata Telephone and Telegraph Company (D&E Telephone);
D&E Telephone and Data Systems, Inc.; D&E Wireless, Inc. (Wireless); D&E
Investments, Inc. (Investments); D&E Systems, Inc.; and PCS Licenses, Inc. D&E
Marketing Corp. was merged into Investments in January 1999. D&E dissolved D&E
Holdings, L.P. in June 1998.

     The accounts of D&E Telephone are reported using generally accepted
accounting principles applicable to regulated entities. Long-term debt
represents the obligations of D&E Telephone. The preferred stock outstanding is
issued by D&E Telephone.

Equity Method

     D&E uses the equity method to report investments in joint ventures,
partnerships and corporations where it holds a 20% to 50% voting interest or
where it holds less than a 20% voting interest and it is able to exercise
significant influence over the operating and financial policies of these
entities. Under the equity method, D&E reports its interest in the entity as an
investment in its consolidated balance sheets and its percentage share of the
earnings or losses from the entity in its consolidated statements of operations.

     The only time D&E does not use this method is if it can exercise control
over the operations and policies of the company. If D&E has control, accounting
rules require it to use consolidation.

Cost Method

     D&E uses the cost method if it holds less than a 20% voting interest in an
investment and it does not have significant influence over the operating and
financial policies of the entity. Under the cost method, D&E reports its
investment at cost in its consolidated balance sheets.

Reclassifications

     For comparative purposes, certain amounts have been reclassified to conform
to the current-year presentation.

Use of Estimates

     The preparation of financial statements under generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts or certain disclosures. Actual results could differ from those
estimates.

Recent Pronouncements

     During 1999, D&E adopted AICPA Statement of Position No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use,"
which provides guidance for determining whether computer software costs should
be expensed as incurred or capitalized and amortized. As a result of adopting
the new standard, D&E's 1999 net income increased by $345, net of income taxes.

     During 1998, D&E adopted the provisions of three new financial accounting
standards. D&E expanded its disclosure on operating segments based on the
standards established in Statement of Financial Accounting Standards No. 131,


                                      F-7

<PAGE>

"Disclosures about Segments of an Enterprise and Related Information" (see Note
16). D&E also follows the reporting standards established in Statement of
Financial Accounting Standards No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits" (see Note 15).

     Additionally, D&E adopted AICPA Statement of Position No. 98-5, "Reporting
on the Costs of Start-up Activities," which provides guidance on accounting for
start-up activities and organization costs and requires these costs to be
expensed as incurred. As a result of adopting this new standard in 1998, D&E
expensed organization costs of $421, which is recorded as a cumulative effect of
a change in accounting principle, net of income taxes of $170.

Revenue Recognition

     Revenues are generally recognized when services are rendered or products
are delivered to customers. Long-term contracts are accounted for using the
percentage-of-completion method, with revenues recognized in the proportion of
costs incurred to total estimated costs at completion.

     D&E receives a portion of its interstate access revenues from settlement
pools in which it participates with other telephone companies through the
National Exchange Carrier Association, Inc. (NECA). These pools were established
at the direction of the FCC and are funded by access service charges, which the
FCC regulates. Revenues earned through this pooling process are initially
recognized based on estimates and are subject to adjustments that may either
increase or decrease the amount of interstate access revenues. D&E has finalized
all NECA pool settlements through 1997.

Cash and Short-Term Investments

     Cash and cash equivalents consist of all highly liquid investments
purchased with a maturity of three months or less. Cash balances may exceed
F.D.I.C. insured limits at times. Short-term investments consist of
high-quality, short-term commercial paper.

Investments Available-for-Sale

     All marketable equity securities are classified as investments
available-for-sale. Marketable securities available-for-sale are recorded at
fair market value, based on market quotes from national exchanges. Any
unrealized holding gains or losses, net of deferred taxes, are reported as a
separate component of shareholders' equity. Any realized gains or losses are
included in the statement of operations.

Prepaid Directory

     Directory advertising revenues and costs are deferred and amortized over
the 12-month period related to the directory publication.

Property, Plant and Equipment

     Property, plant and equipment is stated at cost and depreciated using the
straight-line method of depreciation over the estimated useful lives of 24 years
for buildings, 3 to 27 years for equipment and 14 to 48 years for outside plant
facilities. Depreciation as a percentage of average depreciable plant in service
amounted to 7.6% in 1999, 7.4% in 1998 and 7.1% in 1997.

     When depreciable telephone property is retired, the original cost of the
asset, net of salvage, is charged to accumulated depreciation. Any gains or
losses on disposition are amortized over the service lives of the remaining
assets. When other depreciable property is retired, the gain or loss is
recognized as an element of other income. The costs of maintenance and repairs
are charged to operating expense.

PCS License Costs

     PCS license costs were accounted for in accordance with industry practices.
Interest incurred for such licenses was

                                      F-8

<PAGE>

capitalized during construction of the PCS network and amortized over a period
of 40 years, beginning with the commencement of service to customers, which
occurred in November 1997. During 1998, D&E contributed two PCS licenses to PCS
ONE and returned one PCS license to the FCC in exchange for the early
extinguishment of an FCC note payable (see Note 9). At December 31, 1999 and
1998, D&E held no direct interest in any PCS licenses.

Intangible Assets

     The cost in excess of the fair value of net assets acquired is recorded as
goodwill. Amortization expense for goodwill and other intangibles is recorded on
a straight-line basis over the shorter of the estimated useful life or 40 years.

Impairment of Long-Lived Assets

     Based upon the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," D&E reviews assets and certain intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. A determination of
impairment is made based on estimates of future cash flows. D&E has determined
there has been no impairment to the carrying values of such assets in 1999 and
1998.

Advertising

     D&E expenses advertising costs as incurred. Advertising costs expensed were
$748 for 1999, $267 for 1998 and $240 for 1997.

Capitalized Interest

     The cost of funds used to finance construction projects is capitalized as
part of the construction costs. Additionally, capitalized interest on regulated
telephone construction projects is recorded as Allowance for Funds Used During
Construction (AFUDC), a noncash element of other income. Interest costs related
to PCS licenses and nonregulated construction projects are reflected as a cost
of assets and a reduction of interest expense. Interest costs capitalized on
assets were $46 for 1999, $58 for 1998 and $1,052 for 1997.

Income Taxes

     D&E files a consolidated federal income tax return. D&E has two categories
of income taxes: current and deferred. Current taxes are those amounts D&E
expects to pay when it files its tax returns. Since D&E must report some of its
revenues and expenses differently for its financial statements than it does for
income tax purposes, it records the tax effects of those differences as deferred
tax assets and liabilities in its consolidated balance sheets. These deferred
tax assets and liabilities are measured using the enacted tax rates that are
currently in effect. A valuation allowance is established for any deferred tax
asset for which realization is not likely.

Earnings per Common Share

     D&E calculates earnings per share in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share." This
statement establishes standards for reporting basic and diluted earnings per
share. Basic earnings per common share is calculated by dividing net income by
the weighted average number of common shares outstanding. The computation of
diluted earnings per share is similar to basic earnings per share except the
denominator is increased to include contingently issuable common shares. Diluted
earnings per share, for example, would reflect the assumed exercise of warrants
issued to purchase D&E common stock. Since the exercise price of D&E's issued
and outstanding warrants is higher than the December 31, 1999, market price of
D&E stock, there is no difference between basic and diluted earnings per share
in any of the periods presented.

Comprehensive Income

     In January 1998, D&E adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting comprehensive income and its components.
Comprehensive income consists of net income and other gains and losses from
non-owner sources affecting
                                      F-9

<PAGE>

shareholders' equity that, under generally accepted accounting principles, are
excluded from net income.


3. Cash Flow Information

     Cash paid for income taxes and interest expense for the years ended
December 31 was as follows:

                                             1999           1998           1997
                                            ------         ------         ------
Interest expense ..................         $1,815         $2,019         $2,243
Income taxes ......................          1,441          1,315          8,308

     D&E recorded noncash transactions in connection with its investing and
financing activities. On March 25, 1999, D&E exchanged its investment in D&E
SuperNet, Inc. for cash and an investment in OneMain.com, Inc. (OneMain). (See
Note 6.) The value of the OneMain shares received in the exchange was $6,870.
The adjustment to fair market value of all investments available-for-sale at
December 31, 1999, was an unrealized loss of $723, or $539 net of deferred
taxes.

     On December 31, 1998, D&E made an additional investment in PCS ONE of
$1,557 through a contribution of its PCS licenses for two Basic Trading Areas:
the D-Block license in Harrisburg and the E-Block license in York/Hanover, PA.
In August 1998, D&E acquired additional equity in EuroTel by converting $4,555
of its note receivable from EuroTel into an additional equity investment (see
Note 7).

     In March 1997, D&E acquired PCS One, Inc. (see Note 4). In connection with
the acquisition, D&E issued $7,305 of common stock in exchange for all of the
outstanding shares of PCS One, Inc. D&E acquired a C-Block PCS license having a
cost of $20,671 and assumed a note payable to the FCC for $11,879. On June 8,
1998, D&E elected the FCC's Amnesty Option for the return of the C-Block PCS
license (see Note 9), and as a result, the FCC note payable of $11,879 was
extinguished along with $1,178 of accrued interest.


4. Acquisitions

     In March 1997, D&E Communications, Inc. acquired PCS One, Inc. The
acquisition was accounted for under the purchase method of accounting. PCS One,
Inc. was a nonoperating entity which owned as its principal asset the C-Block
PCS license for the Lancaster Basic Trading Area (the Lancaster License). As a
condition of the terms of the acquisition, the FCC approved the transfer of the
Lancaster License to D&E. Pursuant to terms of the agreement, D&E issued $7,305
of its common stock in exchange for all outstanding shares of PCS One, Inc. and
the acquisition of the Lancaster License. Additionally, D&E assumed an
obligation to the FCC for an $11,879 note payable. This obligation was
extinguished in June 1998 as a result of the return of the Lancaster License to
the FCC under the terms of the Amnesty Option (see Note 9).

5. Investments Available-for-Sale

     The following is a summary of the Company's investments in equity
securities:

                                                        1999         1998
                                                       ------       -----
Marketable equity securities:
Cost basis..........................................   $7,094       $ 227
Unrealized losses...................................     (723)        ---
                                                       ------       -----
Fair value..........................................   $6,371       $ 227
                                                       ======       =====
6. Sale of Investments in Affiliated Companies

     In March 1999, D&E sold its 50% interest in D&E SuperNet, Inc. in exchange
for $2,420 in cash and $6,814 in common stock of OneMain. D&E earned additional
consideration of $112 from the exchange upon D&E SuperNet, Inc. meeting certain
operational and earnings margin requirements. The additional consideration was
paid $56 in cash and $56 in stock. D&E owns less than 5% of the outstanding
shares of OneMain. The shares of OneMain are

                                      F-10

<PAGE>

held as available-for-sale securities and are valued at market price. The
proceeds from this exchange generated a gain of $9,093, or $6,001 net of income
taxes. OneMain.com, Inc. was formed for the purpose of acquiring Internet
service providers in rural and secondary markets to provide customers with
Internet access services and equipment and became the sole owner of D&E
SuperNet, Inc. upon the exchange.

     In May 1998, D&E sold its 15% interest in Berks and Reading Area Cellular
Enterprises for $2,375. The proceeds from the sale of this investment generated
a gain of $1,659, or $1,062 net of income taxes.

     In September 1997, D&E sold its 50% partnership interest in Lancaster Area
Cellular Enterprises and its 33% limited partnership interest in the
Pennsylvania RSA 12 Limited Partnership. The proceeds from the sale of
investments in cellular partnerships of $17,897 generated a gain of $11,971, or
$7,986 net of income taxes.


7. Equity Investments in Affiliated Companies

D&E/Omnipoint Wireless Joint Venture, L.P.

     D&E owns a 50% interest in D&E/Omnipoint Wireless Joint Venture, L.P.,
doing business as PCS ONE (as opposed to PCS One, Inc., mentioned in Notes 3 and
4). PCS ONE is a domestic joint venture formed for the purpose of providing PCS
wireless communications services and equipment to customers in the Lancaster,
Harrisburg, York/Hanover and Reading Basic Trading Areas. The joint venture will
operate for an initial period of 10 years, with provisions for subsequent
renewals.

EuroTel, L.L.C.

     D&E owns a 33% investment in EuroTel, a domestic corporate joint venture.
EuroTel holds a 100% investment in PenneCom, B.V. (PenneCom), an international
telecommunications company that holds a 100% investment in Pilicka located in
Poland. In April 1999, PenneCom entered into an agreement to sell its entire
investment in Pilicka to Elektrim S.A. (Elektrim) for $140,000 in cash and
notes. In July 1999, Elektrim issued written notice to PenneCom that it was
terminating the purchase agreement. In August 1999, PenneCom filed an
arbitration request with the International Court of Arbitration seeking specific
performance of the agreement as well as compensatory and punitive damages.
Arbitration proceedings are underway as of the date of this report.

     In December 1999, PenneCom sold its 48% interest in Monor Telephone Company
(MTT). Early in January 2000, D&E received $14,051 in cash related to the sale
of MTT in December 1999. The funds were placed into temporary investments,
including a $7,000 portion which was restricted in accordance with terms of a
pledge of collateral D&E agreed to provide to a bank for a loan made to PenneCom
in December 1999 (see Note 12). Prior to a reorganization that occurred in
August 1998, D&E owned a 17% direct investment in Monor Communications Group
(MCG), a domestic corporation. MCG held an investment of 89% of MTT, a
telecommunications company in Hungary. The purpose of the reorganization was to
combine EuroTel's international investments under one main operating entity and
to acquire additional financing. On December 31, 1998, MCG dissolved its
operations.

     The equity investments in EuroTel are subject to the risks of foreign
currency translation changes, which are included in the earnings results of
PenneCom, MTT and Pilicka.

                                      F-11

<PAGE>

     In 1997, D&E loaned $4,555 to EuroTel under the terms of a financing
agreement for Pilicka to develop and construct its telephone network and provide
additional working capital. The interest rate of the loan was 15%. In August
1998, D&E converted the note receivable into an additional equity investment in
EuroTel.

     Summarized financial information for EuroTel, MCG, PCS ONE and other
affiliates is presented as follows:

EuroTel

<TABLE>
<CAPTION>
                                                                 1999             1998           1997
                                                                 ----             ----           ----
<S>                                                            <C>             <C>            <C>
At December 31:
Current assets..............................................   $ 50,141        $  9,085       $  2,957
Noncurrent assets...........................................     38,089          33,038         13,316
Current liabilities.........................................     19,769           7,578         15,548
Noncurrent liabilities......................................     63,289          37,114          2,542
Years ended December 31:
Net sales...................................................   $  3,413        $    643       $     12
Gain (loss) from joint venture..............................      1,524            (649)            --
Loss on foreign currency translation........................       (824)           (650)            --
Net income (loss)...........................................     13,853          (9,789)        (1,725)
</TABLE>

MCG

<TABLE>
<CAPTION>
                                                                 1999            1998           1997
                                                                 ----            ----           ----
<S>                                                            <C>             <C>            <C>
At December 31:
Current assets..............................................   $     --        $     --       $ 14,333
Noncurrent assets...........................................         --              --         50,236
Current liabilities.........................................         --              --          4,638
Noncurrent liabilities......................................         --              --         53,645
Minority interest...........................................         --              --          1,119
Years ended December 31:
Net sales...................................................   $     --        $  9,134       $ 14,403
Loss on foreign currency translation........................         --          (3,080)        (4,647)
Net loss....................................................         --          (1,290)        (9,633)
</TABLE>

PCS ONE

<TABLE>
<CAPTION>
                                                                 1999           1998            1997
                                                                 ----           ----            ----
<S>                                                            <C>             <C>            <C>
At December 31:
Current assets..............................................   $  1,898        $  2,381       $  8,179
Noncurrent assets...........................................     40,504          38,189         18,846
Current liabilities.........................................      7,625           6,048         12,087
Noncurrent liabilities......................................     41,964          27,026             --
Years ended December 31:
Net sales...................................................   $ 17,081        $  4,751       $    174
Net loss....................................................    (20,404)        (15,726)        (1,979)
</TABLE>

Other Affiliates

<TABLE>
<CAPTION>
                                                                 1999           1998            1997
                                                                 ----           ----            ----
<S>                                                            <C>             <C>            <C>
At December 31:
Current assets..............................................   $     --        $    297       $     94
Noncurrent assets...........................................         --           3,211          4,763
Current liabilities.........................................         --           2,956            730
Years ended December 31:
Net sales...................................................   $  1,745        $  4,027       $  1,748
Income from joint venture...................................        ---             708          1,982
Net income (loss)...........................................        (42)            879          2,013
</TABLE>

                                      F-12
<PAGE>

     The summary of changes for D&E's investments in affiliates is as follows:

<TABLE>
<CAPTION>
                                                                  1999           1998           1997
                                                                  ----           ----           ----
<S>                                                            <C>             <C>            <C>
Investments in Affiliates
Equity loss.................................................   $ (4,956)      $(11,398)      $ (1,661)
Investments.................................................      5,498         10,094          8,625
Sale of investments.........................................       (252)          (716)        (5,926)
Distributions...............................................         --             --           (234)
                                                                -------        -------        -------
Total activity..............................................   $    290       $ (2,020)      $    804
                                                                =======        =======       ========
</TABLE>

     D&E provides support services to its affiliated companies. Amounts owed to
D&E for services performed for EuroTel, PenneCom, MCG, MTT and Pilicka at
December 31, 1999 and 1998, were $2,198 and $1,185, respectively. The accounts
receivable for PCS ONE at December 31, 1999 and 1998, for working capital
provided, services performed and management fees totaled $3,394 and $1,613,
respectively. Amounts owed to D&E for services performed for D&E SuperNet, Inc.
at December 31, 1999 and 1998, were $110 and $230, respectively. These amounts
represent either short-term or long-term accounts receivable due from
affiliates.

8. Property, Plant and Equipment

     Property, plant and equipment is summarized as follows at December 31:

                                                           1999          1998
                                                           ----          ----
Land and buildings..................................    $ 30,826       $ 30,152
Digital switching equipment.........................      43,103         38,793
Outside plant facilities............................      41,712         39,755
Telecommunications equipment for rental.............       3,437          3,360
Computers and office equipment......................       8,835          8,409
Other equipment.....................................       3,840          3,297
Plant under construction............................       4,092            426
                                                        --------       --------
Total property, plant and equipment.................     135,845        124,192
Less accumulated depreciation.......................      69,949         62,526
                                                        --------       --------
Property, plant and equipment, net..................    $ 65,896       $ 61,666
                                                        ========       ========

9. Return of PCS License

     On June 8, 1998, under the terms of the FCC Amnesty Option, D&E returned to
the FCC the full license spectrum for the Lancaster License. As a result, the
Lancaster License was retired at a cost of $21,417, and the related FCC note
payable of $11,879 was extinguished along with $1,178 of accrued interest. As a
result of the early retirement, D&E recorded an extraordinary loss of $7,901,
net of the related income tax benefit, or a loss of $1.07 per common share.

10. Notes Payable and Long-Term Debt

     D&E had unsecured lines of credit with domestic banks totaling $25,000 at
December 31, 1999. These lines of credit are payable on demand and provide D&E
with the option to borrow at prevailing interest rates. There was no amount
outstanding under the lines of credit as of December 31, 1999 and 1998.

Long-term debt at December 31 consisted of the following:

                                                             1999         1998
                                                             ----         ----
8.95% ESOP Note due 2000...............................    $   153      $   429
6.49% Senior Notes due 2004............................     10,000       10,000
7.55% Senior Notes due 2007............................      3,636        4,091
9.18% Senior Notes due 2021............................      8,800        9,200
                                                            ------       ------
                                                            22,589       23,720
Less current maturities................................      1,007        1,063
                                                            ------       ------

Total long-term debt...................................    $21,582      $22,657
                                                            ======       ======

                                      F-13

<PAGE>

     In July 1992, D&E borrowed $2,080 from a local bank to finance the purchase
of 240,000 shares of D&E common stock for the Employee Stock Ownership Plan (the
ESOP Note). The loan is guaranteed by D&E as to principal and interest. Interest
is payable quarterly and principal payments of $208 are due annually through
December 15, 1999, with a final principal payment due by December 15, 2000.

     In January 1994, D&E issued $10,000 of 6.49% Senior Notes to an insurance
company, due on January 14, 2004. Interest is payable semiannually, with the
total principal balance due at maturity.

     In February 1993, D&E issued $5,000 of 7.55% Senior Notes to an insurance
company, due on November 15, 2007. Interest is payable semiannually, with annual
principal payments of $455.

     In November 1991, D&E issued $10,000 of 9.18% Senior Notes to an insurance
company, due on November 15, 2021. Interest is payable semiannually, with annual
principal payments of $400.

     Under covenants contained in D&E Telephone Senior Note Agreements, the
maximum amount of D&E Telephone's consolidated debt balance should not exceed
50% of the sum of consolidated debt plus consolidated tangible net worth. At
December 31, 1999 and 1998, D&E was in compliance with the debt covenants.

     Based on the borrowing rate currently available to D&E for bank loans, the
fair market value of long-term debt is $22,775.

     Maturities of long-term debt for each year ending December 31, 2000 through
2004, are as follows:

                           Year         Aggregate Amount
                           ----         ----------------
                           2000             $  1,007
                           2001                  855
                           2002                  855
                           2003                  855
                           2004               10,855


11. Accounts Payable and Accrued Liabilities

     Accounts payable and accrued liabilities is summarized as follows at
December 31:

                                                                 1999     1998
                                                                 ----     ----
Trade payables..............................................   $ 4,326  $ 4,087
Accrued compensation........................................     2,066    1,087
Accrued pension.............................................     1,520    1,520
Other.......................................................     1,750    1,230
                                                                ------   ------

Total accounts payable and accrued liabilities..............   $ 9,662  $ 7,924
                                                                ======   ======
12. Commitments and Contingencies

     Under the terms of the PCS ONE limited partnership agreement, D&E agreed to
provide funding to PCS ONE for up to $1,000 per year provided that the total
accumulated funding does not exceed $5,000. D&E may be requested to lend amounts
above the $1,000 annually under the terms of the limited partnership agreement.

     During 1998, PCS ONE entered into a loan agreement with a vendor for
$40,000, to obtain additional financing for the continued development of the PCS
network. In connection with this agreement, D&E is jointly and severally liable
to contribute up to a total of $50,000 of equity to PCS ONE in the event that
PCS ONE is unable to meet its obligations as they come due. At December 31,
1999, D&E and its joint venture partner have contributed a total of

                                      F-14

<PAGE>

$30,922 to PCS ONE. On February 25, 2000, the other joint venture partner
entered into an assignment and acceptance agreement with the vendor in which the
joint venture partner acquired and assumed all rights over the advances made to
PCS ONE, and all of the outstanding and committed advances under the loan
agreement.

     D&E became a party to a loan agreement between a domestic bank and PenneCom
in December 1999. As an inducement to the bank to lend up to $40,000 to
PenneCom, D&E, along with the other investors in EuroTel, pledged security on
the loan which management anticipates will be repaid in conjunction with the
sale of Pilicka. D&E pledged $7,000 of investments as collateral which was
provided on January 5, 2000. PenneCom used the loan primarily to refinance
higher interest debt.

     In June 1999, D&E, along with the other owners of Eurotel, was named in a
third-party complaint filed in United States District Court by an investment
banking firm seeking recovery of fees it alleges to be due to it in connection
with PenneCom's sale of Pilicka and punitive or treble damages on fraud,
conspiracy and misrepresentation theories. D&E filed a motion seeking to dismiss
the fraud, conspiracy and misrepresentation causes of action which form the
basis for the punitive and treble damages. In January 2000, the investment
banking firm amended its pleading and dropped the fraud claim. It is not
possible at this time to determine the likelihood, if any, of recovery of
damages against D&E, EuroTel or PenneCom.

13. Income Taxes

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                   1999             1998              1997
                                                                   ----             ----              ----
Current:
<S>                                                            <C>               <C>             <C>
     Federal................................................   $      884        $     (756)      $    6,780
     State..................................................          981               764              793
                                                                ---------         ---------        ---------
                                                                    1,865                 8            7,573
Deferred:
     Federal................................................        2,069               380              289
     State..................................................          109               888              100
                                                                ---------         ---------        ---------
                                                                    2,178             1,268              389
                                                                ---------         ---------        ---------
Total income taxes..........................................   $    4,043        $    1,276       $    7,962
                                                                =========         =========        =========
</TABLE>

     The effective income tax rate on consolidated pre-tax earnings differs from
the federal income tax statutory rate for the following reasons:

<TABLE>
<CAPTION>
                                                                       1999              1998             1997
                                                                       ----              ----             ----
<S>                                                                    <C>               <C>              <C>
Federal statutory rate......................................           34.0 %            34.0 %           34.0 %
Increase (decrease) resulting from:
   State income taxes, net of federal tax benefits..........            5.5             (28.5)             1.3
   Benefit of rate differential applied to temporary
     differences............................................           (0.6)              2.8             (0.4)
   Valuation allowance......................................           (7.3)            (45.8)            10.5
   Prior-period tax.........................................           (0.5)             (7.2)            --
   Other, net...............................................            0.1              (1.5)            (0.1)
                                                                        ---              -----            -----
Effective income tax rate...................................           31.2%            (46.2)%           45.3 %
                                                                       =====            =======           ======
</TABLE>

     Approximately $25,539 of state net operating loss carryforwards remained at
December 31, 1999. These carryforwards are due to the operations of D&E's
subsidiaries and will expire in the years 2007 through 2009. The benefit of
these carryforwards is dependent on the taxable income of these subsidiaries
during the carryforward period. A valuation allowance has been provided because
realization of tax carryforwards is not likely.

                                      F-15

<PAGE>

     The significant components of the net deferred income tax liability were as
follows at December 31:

                                                            1999          1998
                                                            ----          ----
Deferred tax liabilities:
   Depreciation.......................................    $ 5,678       $ 6,580
   Depreciation - affiliated companies................      2,046         1,113
   Investments........................................      2,073           ---
   Other, net.........................................        205           179
                                                          -------       -------
                                                           10,002         7,872
Deferred tax assets:
   Employee benefits..................................       (217)         (233)
   Net operating loss carryforwards...................     (1,684)         (821)
   Equity in net loss of affiliates...................     (1,531)       (3,340)
                                                          --------      -------
                                                           (3,432)       (4,394)
Valuation allowance...................................      3,215         4,182
                                                          -------       -------

Deferred income taxes.................................    $ 9,785       $ 7,660
                                                          =======       =======

     D&E has decreased its valuation allowance on the deferred tax assets
related to the equity loss of affiliates, as a result of changes in estimates of
the realizability of loss carryforwards. The amount of the deferred tax asset
could change if estimates of future taxable income during the carryforward
period are revised. The valuation allowance at December 31, 1999 and 1998,
amounted to $3,215 and $4,182, respectively.


14. Shareholders' Equity

     On October 22, 1998, D&E's Board of Directors authorized the repurchase of
up to $2,000 of D&E common stock. The shares reacquired may be used for D&E's
incentive compensation programs, Employee Stock Purchase Plan, Dividend
Reinvestment Plan and for other corporate purposes. As of December 31, 1999, D&E
had purchased 66,112 shares of treasury stock for a total cost of $1,284.
Separately, the Board of Directors authorized acquisition of 80,000 shares
outside of the open market repurchase plan for a cost of $1,201.

     On January 7, 1998, D&E issued 1.3 million shares of D&E common stock to a
subsidiary of Citizens Utilities Company (Citizens) in consideration for
$27,015. All such shares are unregistered but have certain registration rights.
Under the terms of the agreement, Citizens has certain restrictions relating to
future purchases or sales of D&E common stock. Additionally, in connection with
this agreement, D&E issued warrants to acquire 65,000 shares of common stock at
$20.78 per share. These warrants expire on January 7, 2003. None of these
warrants has been exercised.

     D&E has an Employee Stock Purchase Plan (ESPP), which provides eligible D&E
employees the opportunity to purchase shares of D&E common stock through payroll
deductions. There are 260,405 shares of common stock reserved for issuance
pursuant to the ESPP. The total number of shares purchased pursuant to the ESPP
during 1999 and 1998 was 7,313 and 8,721, respectively.

     D&E offers a Dividend Reinvestment and Stock Purchase Plan (DRP) to its
shareholders. The DRP provides all shareholders of D&E common stock the
opportunity to purchase additional shares of common stock by: 1) reinvesting all
cash dividends paid on their shares of common stock; 2) making optional cash
purchases of common stock, up to a maximum amount per quarter, while continuing
to receive cash dividends; or 3) both reinvesting all cash dividends and making
such optional cash purchases.

     There are 205,242 shares of common stock reserved for issuance pursuant to
the DRP. The total number of shares purchased through the DRP during 1999 and
1998 was 17,285 and 23,483, respectively.

     Shares for the ESPP and DRP may be purchased by participants at fair market
value, which is defined as the average of the highest and lowest per-share sale
prices as reported by the NASDAQ National Market on the day of the purchase. If
no shares were traded on the day of purchase, then the prices on the previous
day are used to compute the per-share price. D&E is listed on The NASDAQ Stock
Market as DECC.

     At December 31, 1999 and 1998, D&E common stock of 2,904,121 and 2,951,545
shares, respectively, was held in a voting trust. Certain trustees of the voting
trust are officers of D&E.

                                      F-16
<PAGE>

15. Employee Benefit Plans

Employees' Retirement Plan

     D&E's pension plan is a noncontributory defined benefit plan computed on an
actuarial basis covering all eligible employees. Pension benefits are based upon
length of service and the employee's compensation as the average of the highest
three consecutive years for the 10-year period prior to retirement. Accrued
benefits are vested after five years of participation in the plan. Assets of the
pension plan consist primarily of stocks and bonds.

<TABLE>
<CAPTION>
                                                                 1999               1998              1997
                                                                 ----               ----              ----
<S>                                                               <C>               <C>               <C>
Assumptions of the Plan:
Discount rates used to determine projected benefit
   obligation as of December 31.............................      8.0 %             6.5 %             7.0 %
Expected long-term rates of return on assets................      9.8 %             9.8 %             9.8 %
Rates of increase in compensation levels....................      4.5 %             4.5 %             4.5 %
</TABLE>

     The following schedules reconcile the beginning and ending balances of the
pension benefit obligation and related plan assets.

                                                             1999       1998
                                                             ----        ----
Change in Benefit Obligation:
Benefit obligation at beginning of year................    $ 21,448    $ 18,919
Service cost...........................................         831         666
Interest cost..........................................       1,362       1,311
Actuarial (gain) loss..................................      (3,734)      1,774
Benefits paid..........................................      (1,229)     (1,222)
                                                           --------    --------

Benefit obligation at end of year......................    $ 18,678    $ 21,448
                                                           ========    ========

                                                             1999        1998
                                                             ----        ----
Change in Plan Assets:
Fair value of assets at beginning of year..............    $ 16,720    $ 14,312
Actual return on plan assets...........................       2,635       2,403
Employer contributions.................................       1,520       1,227
Benefits paid..........................................      (1,229)     (1,222)
                                                           --------    --------

Fair value of assets at end of year....................    $ 19,646    $ 16,720
                                                           ========    ========

                                                             1999        1998
                                                             ----        ----
Recognition of Funded Status of the Plan:
Funded status at end of year...........................    $    968    $ (4,728)
Unrecognized net actuarial (gain) loss.................      (2,755)      2,744
Unrecognized prior service cost........................         222         277
                                                           --------    --------

Net amount recognized at end of year...................    $ (1,565)   $ (1,707)
                                                           ========    ========

<TABLE>
<CAPTION>
                                                                 1999           1998         1997
                                                                 ----           ----         ----
<S>                                                            <C>            <C>           <C>
Components of Net Periodic Benefit Cost:
Service cost................................................   $   831        $   666       $   498
Interest cost...............................................     1,362          1,311         1,252
Expected return on assets...................................    (1,284)        (1,101)       (1,021)
Amortization of:
   Transition asset.........................................       ---            (64)          (64)
   Prior service cost.......................................        55             55            55
   Actuarial loss...........................................       414            256           181
                                                                ------         ------        ------

Total net periodic benefit cost.............................   $ 1,378        $ 1,123       $   901
                                                                ======         ======        ======
</TABLE>

                                      F-17

<PAGE>

Employees' 401(k) Savings Plan

     D&E also has an employee savings plan available to all eligible employees
(Savings Plan). Participating employees may contribute a portion of their
compensation to the Savings Plan, and D&E makes matching contributions up to a
specified level. D&E may also make discretionary profit-sharing contributions.
D&E's contributions amounted to $256 in 1999, $215 in 1998 and $168 in 1997.

Employee Stock Ownership Plan

     In July 1992, D&E established the Employee Stock Ownership Plan (ESOP),
covering all eligible employees. Unallocated shares are held in a "suspense
account" in the ESOP's trust fund until allocated to participants' accounts. D&E
makes quarterly contributions to the ESOP, which, along with the dividends on
unallocated shares, are used to repay the ESOP Note. As principal payments on
the ESOP Note are made, unallocated shares held in the suspense account are
released and allocated among the participants' accounts. Participants have a
legal right to their allocated accounts upon vesting. Dividends on shares
allocated to participants' accounts are allocated to such accounts in the form
of stock released from the suspense account.

     Both unallocated and allocated shares of the ESOP are considered
outstanding for purposes of calculating earnings per share. The ESOP Note is
reflected as long-term debt with a corresponding reduction in shareholders'
equity for the unearned ESOP compensation, which represents D&E's payment of
future compensation expenses. D&E's principal and interest payments on the ESOP
Note, offset by unallocated dividends, are reported as compensation and interest
expense. The common shares allocated are measured based on the fair market value
of the shares committed to be released. Dividends on the unallocated shares held
by the ESOP are charged to retained earnings.

     Information related to the ESOP is summarized as follows:

                                              1999         1998           1997
                                              ----         ----           ----
Compensation expense.....................   $   251      $    241       $   224
Interest expense.........................        34            56            74
Dividends on unallocated shares..........       (19)          (31)          (42)




D&E shares held by the ESOP are summarized as follows at December 31:

                                                         1999          1998
                                                         ----          ----
Unallocated......................................        17,414        49,540
Allocated........................................       203,267       177,850

Postretirement Health Care Benefits

     D&E provides certain basic health care benefits to eligible individuals who
retired between the period of December 31, 1972, and July 1, 1992. Those
benefits are provided by the Employee Benefit Plan Trust, a self-insured plan,
and by individual policies from an insurance company. Additionally, an insurance
company provides specific and aggregate stop-loss coverage, the costs of which
are based on benefits paid during the year.

     Effective July 1992, retiree health care benefits were discontinued for
active employees in conjunction with the

                                      F-18

<PAGE>

establishment of the ESOP benefit plan. As a result, the annual accruals
represent the estimated cost of health care benefits for certain eligible
retired employees determined on an actuarial basis. Those costs amounted to $8
in 1999, $47 in 1998 and $90 in 1997.

1999 Long-Term Incentive Plan

     The 1999 Long-Term Incentive Plan (the Plan) was approved by the
shareholders of the Company during 1999. Officers and other key employees of the
Company are eligible for participation in the Plan. Awards under the Plan are
made at the discretion of the Board of Directors and/or the Board's Compensation
Committee. There were 525,000 shares registered for issuance under the Plan.

     Awards granted in 1999 were in the form of Performance Shares of common
stock. A performance-restricted share entitles a participant to receive a target
number of shares of common stock based upon the Company's attainment of
predetermined goals over a specified performance period. A total of 39,834
performance-restricted shares were granted to participants in 1999. If the
minimum goals are not met, no performance-restricted shares will be earned by
the participant. If the performance goals are fully achieved, 100% of the
performance-restricted shares will be earned by the participant. During the
performance period, each performance-restricted share will be considered equal
to one share of common stock for dividend (but not voting) purposes and the
participant shall be entitled to dividend equivalents. At the end of the
performance period, any performance-restricted shares that have been earned will
be converted to shares of common stock. The Company recognized $333 for the cost
of the Plan in 1999.

16. Segment Reporting

     In 1998, D&E adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). This statement changes the way public companies are required to report
financial and descriptive information about their operating segments. SFAS 131
defines operating segments as business components for which separate financial
information is available and regularly evaluated by management as a means for
assessing segment performance and allocating resources to those segments.

     D&E's business units have been aggregated into four reportable segments:
(i) Telecommunication Services, (ii) Telephone & Data Services, (iii) Wireless
Services, and (iv) International Communication Services. Telecommunication
Services is distinguished by services provided primarily in a regulated market
to all residences and businesses in a franchised geographic area. Its services
are generally delivered through traditional telephone systems, and its revenues
are earned primarily from a volume of usage and lease of facilities. Telephone &
Data Services is distinguished by services provided with minimal geographic and
regulatory restrictions. Customers include residential and business long
distance subscribers. Additionally, Telephone & Data Services customers include
businesses that purchase telephone or computer network systems, which can be a
one-time installation service as opposed to a monthly usage service. Wireless
Services is distinguished by its marketing methods, service delivery, customer
base and regulatory environment. The International Communications Services
segment records income from equity in earnings of affiliates that operate in
Europe under unique regulatory environments. For more information on significant
noncash items, see Note 3. Intersegment revenues are recorded at the same rates
charged to external customers.

                                      F-19

<PAGE>

     Financial results for D&E's four primary operating segments are as follows:

<TABLE>
<CAPTION>
                                               Tele-      Telephone                International    Corporate,
                                          communication    & Data       Wireless   Communications   Other and       Total
(In thousands)                               Services     Services      Services      Services     Eliminations    Company
--------------                               --------      --------     --------      --------     ------------    -------
<S>                                          <C>          <C>             <C>          <C>           <C>          <C>
1999
External customer revenues..............    $ 38,487      $17,218       $  6,480      $ 1,274        $    68      $ 63,527
Intersegment revenues..................        1,457          394             --           --         (1,851)           --
Depreciation and amortization..........        9,006          757             --            8             --         9,771
Equity in net income (loss) of
  affiliates...........................           --           --        (10,243)       5,267             20        (4,956)
Gain on sale of affiliates.............           --           --             --           --          9,093         9,093
Net income (loss)......................        5,131           76         (6,765)       4,124          6,285         8,851
Significant noncash items..............          941           --             --           --          5,206         6,147
Segment assets.........................      100,029        6,942          3,693       15,341        (11,351)      114,654
Investment in equity method
  affiliates...........................           --           --         (1,699)      10,353             --         8,654
Capital expenditures...................       12,052          911             --           --             935       13,898

1998
External customer revenues.............     $ 36,035      $12,459       $  3,654      $   681        $   482      $ 53,311
Intersegment revenues..................        1,174          431             --           --         (1,605)         --
Depreciation and amortization..........        8,410          690             17         --              255         9,372
Equity in net income (loss) of
  affiliates...........................           --           --         (7,821)      (3,717)           140       (11,398)
Gain on sale of affiliates.............           --           --             --           --          1,659         1,659
Net income (loss)......................        3,720          128         (5,800)      (4,153)        (6,150)      (12,255)
Significant noncash items..............           --           --          1,557           --         13,057        14,614
Segment assets.........................       94,139        6,452          7,038        5,723         (3,275)      110,077
Investment in equity method
  affiliates...........................           --           --          4,534        4,536            233         9,303
Capital expenditures...................        7,086          730             --           --             --         7,816

1997
External customer revenues.............     $ 35,622      $12,311       $    369      $    --       $    182      $ 48,484
Intersegment revenues..................        1,082          272             --           --         (1,354)           --
Depreciation and amortization..........        7,639          623              8           --            196         8,466
Equity in net income (loss) of
affiliates.............................           --           --           (989)      (1,968)         1,296        (1,661)
Gain on sale of affiliates.............           --           --             --           --         11,971        11,971
Net income (loss)......................        4,551          868         (1,163)      (3,300)         8,609         9,565
Significant noncash items..............           --           --             --           --         11,879        11,879
Segment assets.........................       99,705        6,966         11,733        7,430         (5,873)      119,961
Investment in equity method
  affiliates...........................           --           --          7,469        6,977          1,244        15,690
Capital expenditures...................        5,666          426             --           --             16         6,108

</TABLE>

                                      F-20
<PAGE>

                                  D&E/OMNIPOINT
                          WIRELESS JOINT VENTURE, L.P.

                               REPORT ON AUDITS OF
                              FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
               AND FOR THE TWO-MONTH PERIOD ENDED DECEMBER 31,1997










                                      F-21

<PAGE>


                   D&E/OMNIPOINT WIRELESS JOINT VENTURE, L.P.

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                                                           Pages
                                                                                                           -----
<S>                                                                                                          <C>
Report of Independent Accountants                                                                           F-23

Financial Statements:

    Balance Sheets, December 31, 1999 and 1998                                                              F-24

    Statements of Operations for the years ended December 31, 1999
         and 1998 and for the two-month period ended December 31, 1997                                      F-25

    Statements of Partners' Capital (Deficit) for the years ended December 31,1999
         and 1998 and for the two-month period ended December 31, 1997                                      F-26

    Statements of Cash Flows for the years ended December 31,1999 and 1998                                  F-27
         and for the two-month period ended December 31, 1997

    Notes to Financial Statements                                                                           F-28
</TABLE>


                                      F-22

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
D&E/Omnipoint Wireless Joint Venture, L.P.:

     In our opinion, the accompanying balance sheets and the related statements
of operations,changes in partners' capital (deficit) and cash flows present
fairly, in all material respects, the financial position of D&E/Omnipoint
Wireless Joint Venture, L.P. at December 31, 1999 and 1998, and the results of
its operations and its cash flows for the two years ended December 31, 1999 and
 the two-month period ended December 31, 1997 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted ouraudits of these statements in accordance with auditing standards
generally accepted in the United States which 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 testbasis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.


/s/ PricewaterhouseCoopers LLP

Philadelphia, PA
March 3, 2000


                                      F-23
<PAGE>


                   D&E/OMNIPOINT WIRELESS JOINT VENTURE, L.P.
                                 Balance Sheets
                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                          1999             1998
                                                                                       ----------      ------------
<S>                                                                                   <C>              <C>
                                     ASSETS
 CURRENT ASSETS
    Cash and cash equivalents                                                         $     1,500      $    831,653
    Accounts receivable, net of reserve for bad debts of $278,101
    and $109,787 at December 31, 1999 and 1998 respectively.                            1,074,445           547,092
    Inventories                                                                           786,678           337,276
    Prepaid expenses                                                                       35,213           334,177
                                                                                      -----------      ------------
                                                                                        1,897,836         2,050,198
                                                                                      -----------      ------------
PROPERTY, PLANT AND EQUIPMENT
    In service                                                                         46,052,805        35,039,991
    Under construction                                                                  1,472,143         5,536,065
                                                                                      -----------      ------------
                                                                                       47,524,948        40,576,056
    Less: accumulated depreciation                                                      9,767,147         3,908,319
                                                                                      -----------      ------------
                                                                                       37,757,801        36,667,737
                                                                                      -----------      ------------
OTHER ASSETS
    Unamortized debt issuance expense                                                     659,702           206,367
    FCC Licenses                                                                        2,040,559         1,625,876
    Other long-term assets                                                                 46,284            19,852
                                                                                      -----------      ------------
                                                                                        2,746,545         1,852,095
                                                                                      -----------      ------------
TOTAL ASSETS                                                                          $42,402,182      $ 40,570,030
                                                                                      ===========      ============

                        LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES
    Accounts payable                                                                  $ 1,401,322      $  2,329,452
    Due to affiliates                                                                   4,827,598         3,085,087
    Other accrued liabilities                                                           1,156,085           617,068
    Unearned revenue                                                                      233,370            69,627
    Customer deposits                                                                       7,166            16,000
                                                                                      -----------      ------------
    TOTAL CURRENT LIABILITIES                                                           7,625,541         6,117,234
                                                                                      -----------      ------------

LONG TERM LIABILITIES
    Long term debt                                                                     39,989,585        26,554,020
    Due to affiliates                                                                   1,974,474           402,394
                                                                                      -----------      ------------
    TOTAL LONG TERM LIABILITIES                                                        41,964,059        26,956,414
                                                                                      -----------      ------------
 PARTNERS' CAPITAL (DEFICIT)
    Capital contributions                                                              30,922,038        25,201,510
    Accumulated net loss                                                              (38,109,456)      (17,705,128)
                                                                                      -----------      ------------

    TOTAL PARTNERS' CAPITAL (DEFICIT)                                                  (7,187,418)        7,496,382
                                                                                      -----------      ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)                                     $42,402,182      $ 40,570,030
                                                                                      ===========      ============
</TABLE>


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

                                      F-24

<PAGE>


                   D&E/OMNIPOINT WIRELESS JOINT VENTURE, L.P.
                            Statements of Operations
             For the years ended December 31, 1999 and 1998 and the
                    two-month period ended December 31, 1997

<TABLE>
<CAPTION>
                                                                       1999                 1998                 1997
                                                                   ------------         -------------        -------------
<S>                                                                <C>                  <C>                  <C>
Operating Revenues
Communication service revenues and handset sales                  $ 19,000,310         $   5,207,717        $     178,754
Less: Allowances and discounts                                      (1,919,672)             (456,542)              (5,018)
                                                                  ------------         -------------        -------------

Net operating revenues                                              17,080,638             4,751,175              173,736

Operating Expenses
Cost of communications service revenue
   and handset sales                                                15,060,115             8,961,420              905,260
Depreciation and amortization                                        6,112,395             3,710,538              202,231
Selling, general and administrative services                        12,955,410             7,352,056            1,045,861
                                                                  ------------         -------------        -------------

Total operating expenses                                            34,127,920            20,024,014            2,153,352
                                                                  ------------         -------------        -------------

Loss from operations                                               (17,047,282)          (15,272,839)          (1,979,616)
                                                                  ------------         -------------        -------------

Other Income (Expense)
Interest expense                                                    (3,364,038)             (521,148)                  --
Interest income                                                          6,992                67,501                  974
                                                                  ------------         -------------        -------------

Total other income (expense)                                        (3,357,046)             (453,647)                 974
                                                                  ------------         -------------        -------------

Net loss                                                          $(20,404,328)        $ (15,726,486)        $ (1,978,642)
                                                                  ============         =============         ============
</TABLE>

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


                                      F-25


<PAGE>


                   D&E/OMNIPOINT WIRELESS JOINT VENTURE, L.P.
               Statement of Changes in Partners' Capital (Deficit)
             For the years ended December 31, 1999 and 1998 and the
                    two-month period ended December 31, 1997


<TABLE>
<CAPTION>
                                                            Contributed            Accumulated
                                                              Capital                Deficit              Total
                                                          ---------------         -------------        -------------
<S>                                                       <C>                     <C>                  <C>
Capital contributions                                     $    13,264,904         $          --        $  13,264,904

Net loss                                                               --            (1,978,642)          (1,978,642)
                                                          ---------------         -------------        -------------

Balance at December 31, 1997                                   13,264,904            (1,978,642)          11,286,262

Capital Contributions                                          11,936,606                    --           11,936,606

Net Loss                                                               --           (15,726,486)         (15,726,486)
                                                          ---------------         -------------        -------------

Balance at December 31, 1998                                   25,201,510           (17,705,128)           7,496,382

Capital Contributions                                           5,720,528                    --            5,720,528

Net Loss                                                               --           (20,404,328)         (20,404,328)
                                                          ---------------         -------------        -------------

Balance at December 31, 1999                              $    30,922,038         $ (38,109,456)       $  (7,187,418)
                                                          ===============         =============        =============
</TABLE>



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

                                      F-26


<PAGE>


                   D&E/OMNIPOINT WIRELESS JOINT VENTURE, L.P.
                            Statements of Cash Flows
             For the years ended December 31, 1999 and 1998 and the
                    two-month period ended December 31, 1997

<TABLE>
<CAPTION>

                                                                             1999            1998             1997
                                                                        -------------    -------------    -------------
<S>                                                                     <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                             $ (20,404,328)   $ (15,726,486)   $  (1,978,642)
   Adjustments to reconcile net loss to net cash (used in)
       provided by operating activities:
   Depreciation and amortization                                            6,112,395        3,710,538          202,231
   Amortization of debt issuance costs                                        121,776            9,369
   License use fees                                                           442,804               --               --
   Reserve for bad debts                                                      168,314          109,787               --
   Changes in operating assets and liabilities
       Accounts receivable                                                   (695,667)        (585,259)         (71,620)
       Inventories                                                           (449,402)         (24,673)        (312,603)
       Prepaid expenses                                                       298,964         (314,911)         (19,266)
       Accounts payable                                                    (1,914,287)          56,502            5,619
       Other accrued liabilities                                              539,017          249,644          367,424
       Unearned revenue and customer deposits                                 154,909           85,627                -
       Other                                                                  (26,432)         (11,779)         (28,834)
                                                                        -------------    -------------    -------------

       Net cash used in operating activities                              (15,651,937)     (12,441,641)      (1,835,691)
                                                                        -------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of equipment                                                   (1,291,254)      (8,741,583)      (2,322,120)
                                                                        -------------    -------------    -------------

CASH FLOW FROM FINANCING ACTIVITIES:
   Partners' contributions                                                  5,259,000       10,310,730        4,155,000
   Proceeds from long term debt                                             8,557,363        8,435,213               --
   Debt issuance costs                                                       (575,111)        (215,736)              --
   Due to affliates                                                         2,871,786         (680,473)       4,167,954
                                                                        -------------    -------------    -------------

       Net cash provided by financing activities                           16,113,038       17,849,734        8,322,954
                                                                        -------------    -------------    -------------

       (Decrease) increase in cash and cash equivalents                      (830,153)      (3,333,490)       4,165,143

       Cash and cash equivalents at beginning of the period                   831,653        4,165,143               --
                                                                        -------------    -------------    -------------

       Cash and cash equivalents at the end of the period               $       1,500    $     831,653    $   4,165,143
                                                                        =============    =============    =============
</TABLE>


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


                                      F-27
<PAGE>


                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

                    OMNIPOINT/D&E WIRELESS JOINT VENTURE L.P.

                          NOTES TO FINANCIAL STATEMENTS



1.   NATURE OF BUSINESS:

          DESCRIPTION:

     In November 1997, D&E Wireless, Inc., (D&E), Omnipoint Venture Partners,
     LLC (Omnipoint Venture Partner) and Omnipoint Holdings II, LLC. (Omnipoint
     Holdings), (the Partners) formed D&E/Omnipoint Wireless Joint Venture, L.P.
     doing business as PCS ONE (the Company or the Partnership). The Company was
     formed for the purpose of providing Personal Communications Services (PCS)
     and related equipment for digital wireless voice and data communications in
     the Lancaster, Harrisburg, York-Hanover and Reading Basic Trading Areas.
     The joint venture will operate for an initial period of 10 years, with
     provisions for subsequent renewals.

     The Partnership is comprised of general partners and limited partners. D&E
     and Omnipoint Venture Partner's percentage interests as general partners
     are 1% and 49%, respectively. D&E and Omnipoint Holdings's percentage
     interests as limited Partners are 49% and 1%, respectively.

          CAPITAL CONTRIBUTIONS:

     In accordance with the limited partnership agreement (the Agreement or the
     Partnership Agreement), capital contributions by the Partners are required
     as follows:

     o   Initial contributions: the Partners made initial cash and in-kind
         contributions of equipment totaling $ 9,109,904. The Partners have
         contributed an additional aggregate of $ 14,465,730 in cash for 1998
         and $ 5,259,000 in cash for 1999.

     o   Additional property contributions: Pursuant to an approval of the
         Federal Communications Commission, the Partners assigned and
         contributed three licenses to the Company with a value of $ 2,087,404
         for three Basic Trading Areas: the D-Block license in Harrisburg, Pa.,
         the E-Block license in York-Hanover, Pa. and the E-Block license in
         Lancaster, Pa. The Partnership recorded the value of the licenses in
         accordance with provisions in the Agreement which was based on the
         contributor's cost of such licenses. The D-Block license for Harrisburg
         and the E-Block license for York-Hanover were transferred to the
         Company in December, 1998; the E-Block license for Lancaster was
         transferred to the Company in July, 1999.


                                      F-28

<PAGE>


                    NOTES TO FINANCIAL STATEMENTS, CONTINUED


1.   NATURE OF BUSINESS, CONTINUED:

          DISTRIBUTIONS AND ALLOCATIONS:

     Net profits and losses are allocated to the Partners in the proportion of
     their respective percentage ownership interests in the Partnership, as
     defined by the Agreement. The amount of annual cash distributions, if any,
     is determined by the Management Committee. For purposes of all
     distributions and allocations, the respective Partner's percentage
     ownership interests are determined as outlined in the Agreement.

          CONCENTRATIONS OF CREDIT RISK:

     Financial instruments that subject the Company to concentrations of credit
     risk consist primarily of trade receivables; however concentrations of
     credit risk are limited due to the large number of relatively low revenue
     generating customers in the Company customer base. The Company also
     maintains reserves for potential credit losses and such losses have been
     within management expectations.


2.   SIGNIFICANT ACCOUNTING POLICIES:

          USE OF ESTIMATES:

     The preparation of financial statements under generally accepted accounting
     principles requires management to make estimates and assumptions that
     affect the reported amounts or certain disclosures. Actual results could
     differ from those estimates.

          REVENUE RECOGNITION:

     Usage and access charges are recorded as revenue based on the amount of
     communications services rendered as measured principally by subscriber
     usage and fees after deducting an estimate of certain allowances and
     discounts. Prepaid revenues are deferred until earned. Revenue from the
     sale of handsets and related accessories is recognized upon shipment or
     point-of-sale.

          ADVERTISING COSTS:

     The Company expenses production costs of print, radio and television
     advertisements and other advertising costs as such costs are incurred.
     Advertising expenses included in operating expenses were $2,874,914 in 1999
     and $ 2,076,908 in 1998.

                                      F-29

<PAGE>

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED


2.   SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

          CASH AND CASH EQUIVALENTS:

     The Company considers cash on hand, cash in banks, and cash investments
     with a maturity of three months or less when purchased as cash and cash
     equivalents.

          INVENTORY:

     Inventory is recorded at the lower of cost or market on the basis of
     average cost or replacement value. Inventory consists primarily of handsets
     and accessories. Consistent with industry practice, losses on sale of
     handsets and accessories are recognized in the period in which sales are
     made as a cost of acquiring subscribers. Due to the rapid turn-over of
     equipment and accessories, inventory is recorded on a FIFO accounting
     basis.

          PLANT AND EQUIPMENT AND DEPRECIATION:

     Plant and equipment are stated at cost and depreciated using the
     straight-line method of depreciation over the estimated useful lives of 3
     to 5 years for equipment and 6 to 12 years for network infrastructure.
     Depreciation begins when the fixed asset is placed into service.
     Depreciation as a percentage of average depreciable plant in service
     amounted to 15% in 1999 and 11% in 1998. Network infrastructure under
     construction consists of equipment that has not been placed in service;
     accordingly no depreciation has been recorded. The costs of maintenance and
     repairs are charged to operating expense.

          LICENSE COSTS AND DEFERRED FINANCING COSTS:

     In accordance with the partnership agreement, after obtaining the approval
     by the Federal Communications Commission, the following transactions
     occurred: on December 30, 1998, D&E contributed its PCS broadband licenses
     for two Basic Trading Areas: the D-Block license in Harrisburg and the
     E-Block license in York-Hanover, PA. to the Company, and on July 31, 1999,
     Omnipoint Venture Partner contributed its PCS broadband license for one
     Basic Trading Area: the E-Block license in Lancaster, Pa.

     License costs are accounted for in accordance with industry practices, and
     amortized over a period of 40 years. Amortization expense recorded in 1999
     totaled $ 45,841 for PCS license fees.

     PCS ONE manages operations under C-Block licenses in Lancaster, Pa.,
     Harrisburg Pa., York-Hanover, Pa. and Reading, Pa. pursuant to operating
     agreements with one of its Partners. License use fees recorded in 1999
     amounted to $ 916,272.

                                      F-30

<PAGE>

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED


2.   SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     Deferred financing costs are amortized over the life of the related
     financing agreement.

          IMPAIRMENT OF LONG-LIVED ASSETS:

     Based upon the provisions of Statement of Financial Accounting Standards
     No. 121, "Accounting for the Impairment of Long-Lived Assets and for
     Long-Lived Assets to Be Disposed Of," the Company reviews assets and
     certain intangibles for impairment whenever events or changes in
     circumstances indicate that the carrying value of the asset may not be
     recoverable. A determination of impairment is made based on estimates of
     future cash flows. The Company has determined there were no impairments to
     the carrying values of such assets in 1999 and 1998.

          CAPITALIZED INTEREST:

     The cost of funds used to finance construction projects is capitalized as
     part of the construction costs. Interest costs related to construction
     projects are reflected as a cost of the assets and reduction of interest
     expense. Interest costs capitalized were $ 47,692 in 1999 and $ 478,712 in
     1998.

          INCOME TAX:

     Federal and state income taxes are payable by the individual Partners;
     therefore, no provision or liability for income taxes is reflected in the
     financial statements. For federal income tax purposes, each item of income,
     gain, loss deduction or credit entering into the computation of the
     Partner's taxable income shall be allocated in the same proportion as
     profits and losses are allocated between the partners.

          FAIR VALUE OF FINANCIAL INSTRUMENTS:

     Financial instruments subject to fair value disclosure requirements are
     carried in the financial statements at amounts that approximate fair value.
     The only financial instrument subject to this reporting requirement is the
     financing agreement.

                                      F-31

<PAGE>

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED


3.   SUPPLEMENTAL CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
                                                                            1999            1998
                                                                            ----             ----
<S>                                                                     <C>               <C>
       Cash paid for interest                                           $ 3,280,210       $   454,762
       Non-cash investing and financing activities:
          Fixed assets funded by financing agreement                      4,878,202        10,531,571
          Licenses contributed by Partners                                  461,528         1,625,876
          Capital expenditures included in accounts payable                 986,159         2,262,881
</TABLE>

4.   INVENTORY:

     Inventory consists of the following for December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                           1999              1998
                                                                           ----              ----
<S>                                                                     <C>               <C>
       Handsets                                                         $ 706,736         $ 283,199
       Accessories                                                         79,942            54,077
                                                                        ---------         ---------

                                                                        $ 786,678         $ 337,276
                                                                        =========         =========
</TABLE>

5.   PREPAID EXPENSES:

     Prepaid expenses and other assets consist of the following at December 31,
     1999 and 1998:

<TABLE>
<CAPTION>
                                                                           1999              1998
                                                                           ----              ----
<S>                                                                     <C>               <C>
       Prepaid rent                                                      $     --         $ 137,877
       Insurance                                                               --            10,596
       Other                                                               35,213           185,704
                                                                         --------         ---------
                                                                         $ 35,213         $ 334,177
                                                                         ========         =========
</TABLE>

                                      F-32

<PAGE>

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED


6.   PLANT AND EQUIPMENT:

     Fixed assets, at cost consist of the following at December 31, 1999 and
     1998:

<TABLE>
<CAPTION>
                                                                                1999              1998
                                                                                ----              ----
<S>                                                                         <C>               <C>
              Network infrastructure                                        $ 44,369,817      $ 34,068,579
              Machinery, office and computer equipment                           782,398           280,435
              Improvement to leased properties                                   743,420           613,612
              Motor vehicles                                                     157,171            77,365
              Under construction                                               1,472,142         5,536,065
                                                                            ------------      ------------

                                                                              47,524,948        40,576,056
              Less accumulated depreciation                                    9,767,147         3,908,319
                                                                            ------------      ------------

              Fixed assets, net                                             $ 37,757,801      $ 36,667,737
                                                                            ============      ============
</TABLE>

7.   LONG-TERM DEBT:

     In September 1998 the Company entered into a $40 million financing
     agreement with Northern Telecom, Inc. (Nortel) to finance purchases and
     installations of telecommunications equipment, engineering services,
     certain related construction costs, third-party equipment and other
     expenses. Advances exercised by the Company at December 31, 1999 and 1998,
     amounted to $ 39,989,585 and $ 26,554,020, respectively. On December 30,
     1998, Nortel entered into an assignment and acceptance agreement with two
     unrelated parties (the Unrelated Parties) in which the Unrelated Parties
     acquired and assumed all rights over advances made to the Company, and all
     of Nortel's outstanding advances under the financing agreement. The Company
     has a commitment which expires in May 2000 from a major bank to provide a
     $70,000,000 credit facility. The new facility will be used to retire the
     existing long term debt and to fund future capital requirements and working
     capital needs.

     The principal amount is payable in quarterly installments beginning June
     30, 2001. Interest on the unpaid principal balance on all loans is payable
     quarterly in arrears at varying rates, at a base rate or LIBOR plus a
     margin, at the option of the Partnership.

     Interest accrued at December 31, 1999 and 1998, was $ 56,742 and $83,605,
     respectively. The Company is subject to certain financial and operational
     covenants including restrictions on the payment of distributions to the
     Partners, restrictions on additional indebtedness and attaining certain
     financial performance measurements. The Partnership was in compliance with
     these covenants at December 31, 1999.

                                      F-33

<PAGE>


                    NOTES TO FINANCIAL STATEMENTS, CONTINUED


7.   LONG-TERM DEBT, CONTINUED:


     Maturities of long-term debt for each year ending December 31, 2000 through
2004, are as follows:

                          2000                     $        --
                          2001                       4,498,828
                          2002                       5,998,438
                          2003                       7,498,047
                          2004                       9,497,526

8.   COMMITMENTS AND CONTINGENCIES:

     The Company has entered into certain noncancelable operating leases for its
     offices and retail locations. Future minimum rentals under these
     noncancelable operating leases as of December 31,1999 are as follows:


                          2000                     $   570,156
                          2001                         585,261
                          2002                         592,314
                          2003                         558,390
                          2004                         366,354
                                                   -----------

                                                   $ 2,672,475
                                                   ===========

     Total rental expense for the years ended December 31, 1999 and 1998 was
     $2,305,537 and $ 1,284,795 respectively.

9.   PARTNERS' EQUITY:

     Under the terms of the partnership agreement the management committee may
     require each general partner to advance up to $1,000,000 per year to the
     Partnership in the form of loans, and to contribute additional capital to
     the Company in proportion to their respective interest in the partnership.

     The company received initial contributions from D&E and Omnipoint Venture
     Partner of $9,109,904 and additional contributions in 1999, 1998 and 1997
     of $5,720,528, $11,936,606 and $4,155,000, respectively. In connection with
     the financing agreement the Partners are required to contribute up to
     $50,000,000 of equity to the Company in the event the Company is unable to
     meet its obligations as they come due. At December 31, 1999 the Partners
     had contributed a total of $30,922,038 to the Company.

                                      F-34

<PAGE>


                    NOTES TO FINANCIAL STATEMENTS, CONTINUED


10.  RELATED PARTIES TRANSACTIONS NOT DISCLOSED ELSEWHERE:

     As part of the Partnership Agreement, the Company entered into separate
     service agreements with the Partners covering services such as engineering,
     accounting and financing, human resources, marketing and public relations;
     billing; interconnection and telecommunications services. Costs incurred
     under such agreements during 1999 and 1998 amounted to $2,865,691 and
     $4,190,077 respectively.

     Additionally, the Partnership purchases from one of the Partners, handsets
     and accessories, at the Partner's cost, to be used in the performance of
     the Partnership's business. Purchases during 1999 and 1998 amounted to
     $5,290,538 and $4,263,775, respectively.

11.  SUBSEQUENT EVENT:

     On February 25, 2000, Omnipoint Corporation, the ultimate parent company of
     Omnipoint Venture Partner and Omnipoint Holdings, merged into a
     wholly-owned subsidiary of VoiceStream Wireless Holding Corporation, with
     Omnipoint Corporation as the surviving entity, resulting in Omnipoint
     Corporation becoming a wholly-owned subsidiary of VoiceStream Wireless
     Holding Corporation.

     Pursuant to this transaction, the C-Block license for Reading, Pa. was
     transferred to Cook Inlet/VS GSM II PCS, LLC in which VoiceStream Holding
     Corporation retains a 49.9% ownership interest. In connection with the
     transfer of the license the respective operating agreement was assigned to
     the transferee and will remain in full force and effect. Also pursuant to
     this transaction, the C-Block licenses for Lancaster, Harrisburg and
     York-Hanover were transferred to Cook Inlet/VS GSM III PCS, LLC in which
     VoiceStream Holding Corporation retains a 49.9% ownership interest. In
     connection with the transfer of these licenses the respective operating
     agreements were assigned to the transferee and will remain in full force
     and effect.

     On February 25, 2000, Omnipoint Venture Partner entered into an assignment
     and acceptance agreement with the Unrelated Parties holding the Company's
     long term debt (see Note 7). Omnipoint Venture Partner acquired and assumed
     all rights over the advances made to the Company, and all the outstanding
     and committed advances under the financing agreement.

     The Company has a commitment which expires in May 2000 from a major bank to
     provide a $70,000,000 credit facility. The new facility will be used to
     retire the existing long term debt and to fund future capital requirements
     and working capital needs.

                                      F-35

<PAGE>

EUROTEL L.L.C.

CONSOLIDATED FINANCIAL STATEMENTS

as of December 31, 1999 and 1998 and for
the years ended December 31, 1999, 1998 and 1997


                                      F-36


<PAGE>



                        Report of Independent Accountants



To the Members of
EuroTel L.L.C.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, members' equity and comprehensive income
(loss) and cash flows present fairly, in all material respects, the financial
position of EuroTel L.L.C. as of December 31, 1999 and 1998, and the results of
their operations and cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. We have not audited the consolidated financial statements of
EuroTel L.L.C. for the year ended December 31, 1997.



/s/ PricewaterhouseCoopers LLP

Omaha, Nebraska
February 29, 2000


                                      F-37


<PAGE>

EUROTEL L.L.C.
CONSOLIDATED BALANCE SHEETS
as of December 31, 1999 and 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                        ASSETS                                    1999               1998
<S>                                                           <C>                <C>
Current assets:
   Cash and cash equivalents                                  $ 48,526,747       $  6,952,788
   Receivables, net of allowance for doubtful accounts
     of $46,141 and $1,205, respectively                         1,614,569          2,132,311
                                                              ------------       ------------

           Total current assets                                 50,141,316          9,085,099
                                                              ------------       ------------

Property, plant and equipment, net                              31,376,372         23,799,913
Intangible assets, net                                           6,712,589          9,223,517
Investment in MTT                                                     --               14,553
                                                              ------------       ------------

                                                              $ 88,230,277       $ 42,123,082
                                                              ============       ============

             LIABILITIES AND MEMBERS' EQUITY

Current liabilities:
   Payable to Founders                                        $  3,568,114       $  1,733,300
   Accounts payable                                              6,956,832          5,370,197
   Accrued liabilities                                           2,501,534            475,089
   Notes and interest payable to Founders                        6,742,252               --
                                                              ------------       ------------

           Total current liabilities                            19,768,732          7,578,586
                                                              ------------       ------------

Deferred revenue                                                10,000,000               --
Notes and interest payable to Founders                                --            2,453,310
License obligation                                               1,125,562          1,961,878
Convertible bonds payable                                             --           20,000,000
Accrued interest on bonds payable                                     --            2,449,315
Long-term debt                                                  32,395,000               --
Other liabilities                                                     --            2,670,503
                                                              ------------       ------------

           Total liabilities                                    63,289,294         37,113,592
                                                              ------------       ------------
Commitments and contingencies (Note 12)

Members' equity:
   Members' capital                                             29,006,024         11,222,818
   Cumulative other comprehensive loss                          (4,065,041)        (6,213,328)
                                                              ------------       ------------

           Total members' equity                                24,940,983          5,009,490
                                                              ------------       ------------

                                                              $ 88,230,277       $ 42,123,082
                                                              ============       ============
</TABLE>



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

                                      F-38
<PAGE>

EUROTEL L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             1999              1998               1997
                                                                                               (unaudited)
<S>                                                     <C>                <C>                <C>
Operating revenue:
   Telecommunication revenue                            $  1,934,149       $    237,520       $       --
   Installation and equipment sales                        1,478,445            405,086             11,793
                                                        ------------       ------------       ------------

           Total operating revenue                         3,412,594            642,606             11,793

Operating expenses:
   Wages and benefits                                      3,038,360          2,032,254            523,816
   Interconnection charges                                   553,889             81,273               --
   Depreciation and amortization                           2,755,619          1,326,614            215,131
   General and administrative                              3,926,608          2,218,166            785,567
                                                        ------------       ------------       ------------

           Total operating expenses                       10,274,476          5,658,307          1,524,514
                                                        ------------       ------------       ------------

           Operating loss                                 (6,861,882)        (5,015,701)        (1,512,721)
                                                        ------------       ------------       ------------

Other income (expenses):
   Equity in income (loss) of affiliate                    1,524,684           (649,924)              --
   Interest income                                           444,632            366,994             28,942
   Interest expense                                       (8,724,828)        (3,822,453)          (123,807)
   Litigation costs related to sale of
      subsidiary and affiliate                              (951,651)              --                 --
   Gain on sale of affiliate                              35,410,444               --                 --
   Foreign exchange gains                                    742,989            575,421            110,785
   Foreign exchange losses                                (1,566,602)        (1,225,912)          (164,659)
   Dutch withholding tax expense                          (2,202,917)              --                 --
   Other                                                    (161,295)           (17,266)           (33,291)
                                                        ------------       ------------       ------------

           Total other income (expenses)                  24,515,456         (4,773,140)          (182,030)
                                                        ------------       ------------       ------------

           Income (loss) before extraordinary item        17,653,574         (9,788,841)        (1,694,751)

Exraordinary item - extinguishment of debt                (3,800,368)              --                 --
                                                        ------------       ------------       ------------

Net income (loss)                                       $ 13,853,206       $ (9,788,841)      $ (1,694,751)
                                                        ============       ============       ============
</TABLE>



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

                                      F-39
<PAGE>


EUROTEL L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFECIT) AND
COMPREHENSIVE INCOME (LOSS)
for the years ended December 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                Cumulative
                                                                   Other             Total           Comprehensive
                                                Members'       Comprehensive        Members'             Income
                                                Capital             Loss         Equity (Deficit)        (Loss)
                                             ------------       ------------       ------------       ------------
<S>                                         <C>                <C>                <C>                 <C>
Balance, December 31, 1996 (unaudited)       $     (8,246)      $       --         $     (8,246)

Capital contributions (unaudited)               4,690,000               --            4,690,000

Net loss (unaudited)                           (1,694,751)              --           (1,694,751)      $ (1,694,751)

Foreign currency translation adjustment
   (unaudited)                                       --              (88,189)           (88,189)           (88,189)
                                             ------------       ------------       ------------       ------------

Balances, December 31, 1997                     2,987,003            (88,189)         2,898,814       $ (1,782,940)
                                                                                                      ============

Conversion of note payable to equity           11,041,326               --           11,041,326

Capital contributions                           6,983,330         (6,006,889)           976,441

Net loss                                       (9,788,841)              --           (9,788,841)      $ (9,788,841)

Foreign currency translation adjustment              --             (118,250)          (118,250)          (118,250)
                                             ------------       ------------       ------------       ------------

Balances, December 31, 1998                    11,222,818         (6,213,328)         5,009,490       $ (9,907,091)
                                                                                                      ============

Capital contributions                           3,930,000               --            3,930,000

Net income                                     13,853,206               --           13,853,206       $ 13,853,206

Foreign currency translation adjustment              --           (3,915,964)        (3,915,964)        (3,915,964)

Reclassification adjustment:
   Foreign currency translation related
     to investment in MTT sold in 1999               --            6,064,251          6,064,251          6,064,251
                                             ------------       ------------       ------------       ------------

Balance, December 31, 1999                   $ 29,006,024       $ (4,065,041)      $ 24,940,983       $ 16,001,493
                                             ============       ============       ============       ============
</TABLE>


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

                                      F-40
<PAGE>

EUROTEL L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                            1999               1998                1997
                                                                                                               (unaudited)
<S>                                                                     <C>                <C>                <C>
Cash flows from operating activities:
   Net income (loss)                                                    $ 13,853,206       $ (9,788,841)      $ (1,694,751)
   Adjustments to reconcile net income (loss) to net cash used by
     operating activities:
       Depreciation and amortization                                       2,755,619          1,326,614            215,131
       Amortization of deferred financing costs                              916,378            381,825               --
       Gain on sale of affiliate                                         (35,410,444)              --                 --
       Extraordinary item-extinguishment of debt                           3,800,368               --                 --
       Unrealized loss for currency translation                              740,113            675,729             33,823
       Loss on sale of fixed assets                                           87,075             33,467               --
       Equity in (income) loss of affiliates                              (1,524,684)           649,924               --
       Noncash charges                                                          --               50,000             45,000
       Changes in assets and liabilities:
         Receivables                                                         287,706           (969,686)          (475,257)
         Accounts payable                                                  1,855,230           (649,674)           609,982
         Accounts payable to Founders                                      1,806,744          1,693,908            312,747
         Accrued liabilities                                               2,487,586            264,232             10,327
         Accrued interest                                                 (1,660,374)         3,206,867            123,511
                                                                        ------------       ------------       ------------

           Total adjustments                                             (23,858,683)         6,663,206            875,264
                                                                        ------------       ------------       ------------

           Net cash used in operating activities                         (10,005,477)        (3,125,635)          (819,487)
                                                                        ------------       ------------       ------------
Cash flows from investing activities:
   Deposit received on sale of Pilicka                                    10,000,000               --                 --
   Purchase of additional MTT shares                                         (50,522)              --                 --
   Proceeds from sale of MTT, net                                         43,027,372               --                 --
   Proceeds from sale of property, plant and equipment                         7,480            696,725               --
   Purchase of property, plant and equipment                             (16,400,238)       (14,551,366)        (3,919,146)
   Acquisition of intangible assets                                         (976,324)        (1,339,032)        (5,502,738)
                                                                        ------------       ------------       ------------

           Net cash provided by (used in) investing activities            35,607,768        (15,193,673)        (9,421,884)
                                                                        ------------       ------------       ------------
Cash flows from financing activities:
   Debt financing costs                                                         --           (1,832,757)          (110,431)
   Proceeds from issuance of convertible bonds                                  --           20,000,000               --
   Proceeds from issuance of notes payable to Founders                     3,500,000          4,897,573               --
   Proceeds from short-term borrowings from Founders                            --            8,762,807          7,716,000
   Payments of short-term borrowings from Founders                              --           (8,762,807)              --
   Redemption of convertible bonds                                       (23,265,814)              --                 --
   Proceeds from issuance of long-term debt                               32,300,000               --                 --
   Proceeds from issuance of common stock and member contributions         3,930,001               --            4,690,000
                                                                        ------------       ------------       ------------

           Net cash provided by financing activities                      16,464,187         23,064,816         12,295,569
                                                                        ------------       ------------       ------------

Effect of exchange rate changes on cash                                     (492,519)          (146,648)           (36,107)
                                                                        ------------       ------------       ------------

Net increase in cash and cash equivalents                                 41,573,959          4,598,860          2,018,091

Cash and cash equivalents at beginning of period                           6,952,788          2,353,928            335,837
                                                                        ------------       ------------       ------------

Cash and cash equivalents at end of period                              $ 48,526,747       $  6,952,788       $  2,353,928
                                                                        ============       ============       ============

Cash paid for interest                                                  $  9,077,260       $       --         $       --
                                                                        ============       ============       ============
</TABLE>

Supplemental disclosure of noncash activity:
   Long-term debt of $95,000 was issued for debt financing costs in 1999.
   Certain assets, net of certain liabilities with a value of $976,441 were
   contributed to the Company by its shareholders in 1998.
   Notes payable to shareholders of $11,041,326 were converted to equity during
   1998 which included $2,636,000 borrowed during 1998.

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

                                   F-41
<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

(Information related to 1997 is unaudited)

1.   Organization:

     EuroTel L.L.C. (the Company) was organized in December 1996 to act as a
     holding company for a foreign investment in Pilicka Telefonia Sp. z.o.o.
     (Pilicka). Pilicka was purchased by the Company on June 30, 1997. The
     Company directly held this investment until May 1998. The Company organized
     a wholly-owned subsidiary, PenneCom B.V. (PenneCom), to act as a Dutch
     holding company for foreign investments. During 1998 and 1999, these
     investments were comprised of Pilicka and Monor Telefon Tarasasag Rt.
     (MTT). In May 1998, Pilicka was contributed to PenneCom by the Company at
     its net book value, as the Company and PenneCom were entities under common
     control. Results of operations include the operations of the Company and
     Pilicka for the entire years ended December 31, 1999 and 1998 include
     PenneCom's operations since formation in May 1998 and Pilicka's operations
     since inception of June 30, 1997. In August 1998, the Founders (see
     definition below) contributed a 48.7% financial interest in Monor
     Communications Group, Inc. (MCG) at its book value to PenneCom. MCG held a
     92.7% interest in MTT at the time of contribution. On December 31, 1998,
     MCG was dissolved and its equity was distributed. As a result, PenneCom
     held an interest ranging from 46.4% to 48.3% in MTT during 1998 and 1999,
     prior to the sale of MTT effective December 14, 1999. PenneCom's results of
     operations include the equity in the loss of MCG and MTT for the period
     August 1, 1998 to December 31, 1998 and the equity in the income of MTT
     through December 14, 1999.

     MTT provides telecommunication services to the Monor region of Hungary.
     Pilicka is involved in the design, construction and operation of a
     telecommunications network in the Radom, Piotrkow Trybunalski and
     Tarnobrzeg regions in Poland. The Company's founding members are comprised
     of three companies: Consolidated Companies, Inc.; D&E Investments, Inc., a
     wholly-owned subsidiary of D&E Communications, Inc.; and HunTel Systems,
     Inc. (the Founders). During 1999, Pilicka was converted from a Polish S.A.
     to a Polish Sp. z o.o.

2.   Summary of Significant Accounting Policies:

     Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
     and PenneCom, its wholly-owned subsidiary. All significant intercompany
     accounts and transactions have been eliminated in consolidation. PenneCom's
     interest in MTT was accounted for by the equity method prior to its sale.
     PenneCom's interest in MCG was accounted for by the equity method prior to
     its dissolution.

                                      F-42

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

2.   Summary of Significant Accounting Policies, Continued:

     Foreign Currency Translation

     The financial position and results of operations of Pilicka are measured
     using the local currency, Polish zlotys, as the functional currency. Assets
     and liabilities of this subsidiary are translated at the exchange rate in
     effect at year-end. Income statement accounts are translated at the average
     rate of exchange prevailing during the year. Translation adjustments
     arising from differences in exchange rates from period to period are
     included in the cumulative other comprehensive income (loss) account in
     members' equity. Foreign currency transaction gains and losses, as well as
     translation adjustments for monetary assets and liabilities of Pilicka that
     are denominated in currencies other than the Polish zloty, are recognized
     in the statement of operations. Foreign exchange losses in 1999, 1998 and
     1997 include $740,113, $675,729 and $33,823, respectively, of unrealized
     foreign exchange losses resulting primarily from the translation of a
     foreign denominated payable at the balance sheet date.

     Cash and Cash Equivalents

     Cash and cash equivalents include cash and highly liquid debt instruments
     with an original maturity of three months or less and are carried at cost
     which approximates fair value due to the short maturities.

     Property, Plant and Equipment

     Property, plant and equipment are stated at cost. Construction-in-progress
     represents the accumulation of costs associated with the construction of
     telephone networks and other tangible fixed assets. The Company continually
     monitors the progress of these construction projects and tracks each
     project by location. The Company includes all costs that are directly
     attributable to the network development in construction-in-progress.
     Expenditures for repairs and maintenance which do not materially extend the
     useful lives of the related asset are charged to expense as incurred. The
     cost of assets retired or otherwise disposed of, and the accumulated
     depreciation thereon, are removed from the accounts with any gain or loss
     realized upon sale or disposal charged or credited to operations.

     Depreciation expense is recorded in the month following the commencement of
     use by applying the straight-line method over the estimated useful life of
     the assets: leasehold improvements and buildings (10-25 years),
     telecommunication equipment (10 years), and vehicles and other equipment
     (5-10 years).

                                      F-43

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

2.   Summary of Significant Accounting Policies, Continued:

     Intangible Assets

     Intangible assets include acquisition costs incurred in connection with the
     acquisition of nonexclusive licenses to provide telecommunication services,
     software and deferred financing costs. Licenses are capitalized and
     amortized over the life of each license.

     The deferred financing costs are related to long-term debt and are
     amortized over the term of the debt.

     The Company also has acquired the right for Pilicka to use a billing system
     software which is being amortized over the five-year period of use.

     Income Taxes

     The differences between the amounts included in these financial statements
     for Pilicka and the tax basis of assets and liabilities, prepared in
     accordance with the Polish Corporate Income Tax Law, have been recognized
     as temporary differences for the purpose of recording deferred income
     taxes. All net operating loss carryforwards are recognized as deferred tax
     assets. Valuation allowances are recorded for deferred tax assets resulting
     from tax losses and temporary timing differences of tax recognition when it
     is more likely than not that the benefits will not be realized.

     Dutch Tax Expense

     Dutch tax expense is recognized as a result of the distribution paid from
     PenneCom to EuroTel LLC.

     Recoverability of Long-Lived Assets

     Management periodically reviews long-lived assets, property, plant and
     equipment and intangible assets to be held and used in the business, for
     the purpose of determining and measuring impairment on a recurring basis or
     when events or changes in circumstances indicate that the carrying value of
     an asset or group of assets may not be recoverable. Assets are grouped and
     evaluated for possible impairment, and impairment is measured on the basis
     of the forecasted discounted cash flows from operating results of the
     business over the estimated remaining lives of the assets. To date, there
     have been no events or changes in circumstances that suggest that the
     recoverability of the carrying amount of long-lived assets should be
     assessed.

                                      F-44

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

2.   Summary of Significant Accounting Policies, Continued:

     Revenues

     Telecommunications revenue from access to and the usage of networks are
     recognized when services are provided. Revenue from installation fees is
     recorded when the customer is connected to the network. The Company records
     revenue from the sale of equipment when the customer accepts delivery. All
     revenues included in the consolidated statements of operations are related
     to Pilicka's operations in Poland.

     Concentration of Risk

     Financial instruments which potentially subject the Company to
     concentrations of risk include cash and cash equivalents and trade
     receivables. The Company limits its risk associated with cash and cash
     equivalents by placing its investments with highly rated financial
     institutions, usually as short-term deposits. With respect to trade
     receivables, the Company limits its credit risk by disconnecting service
     for certain customers who are past due with respect to their payments.

     Included in the consolidated balance sheets at December 31, 1999 and 1998
     are the net assets of Pilicka's operations, all of which are located in
     Poland and which total approximately $34,975,648 and $26,512,515,
     respectively.

     Comprehensive Income (Loss)

     The Company has elected to present comprehensive income (loss) in the
     statement of changes in members' equity. Comprehensive income (loss)
     consists of the income (loss) for the period and the change in the foreign
     currency translation adjustment.

     Use of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles in the United States 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 period. Actual results could differ from those
     estimates.

     Reclassifications

     Certain amounts for 1998 have been reclassified to conform to 1999
     presentation.


                                      F-45

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

3.   Receivables:

     Receivables consist of the following at December 31, 1999 and 1998:



                                                     1999            1998
     Trade receivables, net of allowance for
        doubtful accounts of $46,141 and
        $1,205, respectively                      $  657,064      $  131,119
     VAT receivables                                 694,757       1,205,681
     Due from related party                            1,001         607,175
     Other                                           261,747         188,336
                                                  ----------      ----------

                                                  $1,614,569      $2,132,311
                                                  ==========      ==========


     VAT receivable relates to tax refunds due on the purchase of property,
     plant and equipment.

4.   Property, Plant and Equipment:

     Property, plant and equipment consists of the following at December 31,
     1999 and 1998:


                                                       1999            1998

     Land, buildings and leasehold improvements   $  4,928,919    $  2,031,148
     Telecommunications equipment                   21,419,147       8,575,266
     Vehicles and other equipment                    1,014,356         835,500
     Construction-in-progress                        6,492,612      13,062,565
                                                  ------------    ------------

                                                    33,855,034      24,504,479

                  Accumulated depreciation          (2,478,662)       (704,566)
                                                  ------------    ------------

                                                  $ 31,376,372    $ 23,799,913
                                                  ============    ============


                                      F-46

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

5.   Intangible Assets:

     Intangible assets consisted of the following at December 31, 1999 and 1998:

                                                     1999               1998

     Licenses                                   $  7,468,928       $  7,938,964
     Deferred financing costs                         95,000          1,832,757
     Software and other                              739,381            673,391
                                                ------------       ------------

     Total intangible assets                       8,303,309         10,445,112
     Less:  Accumulated amortization              (1,590,720)        (1,221,595)
                                                ------------       ------------

                                                $  6,712,589       $  9,223,517
                                                ============       ============

6.   Investment in MTT:

     MTT's headquarters is located in Budapest, Hungary. A summary of MTT's
     financial information for the years ending December 31, 1999 and 1998 and
     is as follows:

                                                      1999            1998

     Net revenue                                 $ 20,422,083    $ 17,904,020
     Operating profit                               8,948,231       7,362,731
     Loss on foreign currency translation          (1,922,227)     (5,461,645)
     Net income (loss)                              3,421,611      (1,978,261)
     Company's equity in income (loss) of MTT       1,524,684        (649,924)
     Current assets                                                 8,719,289
     Noncurrent assets                                             48,664,483
     Current liabilities                                            8,942,678
     Noncurrent liabilities                                        48,409,698
     Total stockholders' equity                                        31,396


     The Company's equity in income (loss) is for the periods January 1, 1999
     through December 14, 1999 and August 1, 1998 through December 31, 1998. The
     investment in MTT was sold effective December 14, 1999 for cash and a gain
     of $35,410,444 was recognized.


                                      F-47

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997


7.   Payable to Founders:

     Payable to Founders consists of the following at December 31, 1999 and
     1998:

                                                      1999             1998

     Accounts payable to Founders                  $ 3,568,114      $ 1,733,300

     Notes payable to Founders                       5,761,573        2,261,573
     Accrued interest on notes
        payable to Founders                            980,679          191,737
                                                   -----------      -----------

                                                     6,742,252        2,453,310
                                                   -----------      -----------

              Total payable to Founders            $10,310,366      $ 4,186,610
                                                   ===========      ===========


     Accounts payable to the Founders represent operating costs paid on behalf
     of the Company by the Founders. These amounts bear interest at a fixed rate
     of 15% (7% through February 1999). Interest expense incurred by the Company
     related to these payables in 1999, 1998 and 1997 was $330,825, $48,787 and
     $-0-, respectively. Total operating expenses incurred through related party
     transactions by the Company were $1,782,594, $1,236,367 and $321,992 during
     1999, 1998 and 1997, respectively. The notes bear interest at a fixed rate
     of 15%. Interest expense related to these notes recognized during 1999,
     1998 and 1997 was $788,942, $191,737 and $123,511, respectively. These
     notes are subordinate to the long-term debt discussed in Note 9 and are due
     on demand.

8.   Convertible Bonds Payable:

     Convertible bonds payable represent amounts due to certain financial
     investors which are convertible into common stock of PenneCom B.V. Each
     $1,000 of outstanding bonds could be converted into one share of PenneCom
     B.V. common stock. The bonds accrued interest at 30% of which $6,627,948
     and $2,449,315 was expensed during 1999 and 1998, respectively. The bonds
     were repaid during 1999 in their entirety. A premium of $3,222,740 was paid
     upon the extinguishment as an incentive to the bondholders to terminate
     certain rights under the bonds and the bond subscription agreement. The
     premium, unamortized deferred financing costs and expenses related to the
     extinguishment are presented as an extraordinary item.


                                      F-48

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

9.   Long-term Debt:

     In December 1999, the Company entered a revolving credit agreement with a
     bank which provides for borrowings through December 31, 2001 of up to
     $40,000,000 with interest at the Bank's base rate (8.5% at December 31,
     1999). The Founders have guaranteed the debt and have individually pledged
     investment securities to the Bank with a total fair value of $21,000,000.
     The debt is collateralized by the Company's deposits at the Bank. The
     agreement restricts loans and advances to related parties, the use of the
     proceeds from the sale of Pilicka and other transactions with the Company's
     members. Total borrowings under the agreement at December 31, 1999 of
     $32,395,000 have been classified as noncurrent as they represent the lowest
     amount expected to be outstanding during the year ended December 31, 2000.

10.  Income Taxes:

     Pilicka incurred tax losses since June 17, 1997 and, therefore, has not
     paid income taxes in Poland.

     Below is the analysis of deferred tax balances related to taxes in Poland:


                                                   1999              1998
Assets:
   Net operating losses                        $ 3,131,403        $ 2,438,770
   Unrealized foreign exchange losses              100,041            675,729
   Accruals and provisions                         241,063            188,574
                                               -----------        -----------

                                                 3,472,507          3,303,073

Liabilities:
   Interest income and unrealized foreign
   exchange gains                                     --              (42,376)
                                               -----------        -----------

             Total temporary differences         3,472,507          3,260,697

Future enacted tax rates                                30%                34%
                                               -----------        -----------

                                                 1,041,752          1,108,637

Valuation allowance                             (1,041,752)        (1,108,637)
                                               -----------        -----------

Net deferred tax asset                         $      --          $      --
                                               ===========        ===========


                                      F-49

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

10.  Income Taxes, Continued:

     Until 1999, utilization of tax losses in Poland was limited to one-third of
     the tax loss in each of the three subsequent years. Tax losses incurred in
     1999 and subsequent years will be permitted to be utilized over five years
     with 50% utilization restricted per annum. Pilicka has lost the right to
     utilize the prior year's net operating losses due to the change in the
     legal form of Pilicka during 1999. A full valuation allowance was recorded
     for all tax assets as the Company does not expect to recover deferred tax
     assets through future taxable income.

     PenneCom is subject to 35% Dutch corporate tax. However, any benefits
     derived from "qualifying subsidiaries," which includes Pilicka and MTT, are
     exempt from Dutch tax. In conjunction with the above, all costs that are
     attributable to such qualifying subsidiaries are not deductible for Dutch
     tax purposes. As a result, PenneCom has no taxable profit or loss for 1999
     and 1998. Therefore, no Dutch taxes have been recorded related to PenneCom.

     EuroTel's taxable income passes to its members and therefore no taxes are
     recognized related to its operations.

11.  Related Party Transactions:

     Pilicka paid $247,409, $490,000 and $234,000 to an affiliated entity for
     management services and the purchase of rights to use software during the
     years ended December 31, 1999, 1998 and 1997, respectively. The amount
     payable to this affiliate at December 31, 1999 and 1998 was $33,956 and
     $13,000, respectively. Pilicka also made rental payments of $173,351 and
     $240,000 during the years ended December 31, 1999 and 1998, respectively,
     to a company partially owned by a relative of a member of Pilicka's
     management board. The amount receivable from (payable for) these
     transactions at December 31, 1999 and 1998 was $328 and $(57,000),
     respectively.

     In addition to interest related to borrowings described in Note 7, the
     Company recognized interest expense of $750,426 related to notes payable
     and short-term borrowings to Founders during 1998.

                                      F-50

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

12.  Telecommunication Licenses:

     Pilicka has three licenses for the provision of telecommunications services
     in the former Voivodships of Radom, Piotrkow Trybunalski, and Tarnobrzeg.
     Under the license agreements, Pilicka is obliged to provide public
     telecommunications services through its network for local traffic and
     through interconnection with the regional and international networks of
     Telekomunikacja Polska S.A. for long distance traffic. The terms of
     interconnection in each license area are negotiated separately subject to
     guidelines established by the Minister of Communications of Poland.

     The licenses set forth requirements as to establishing the availability of
     services to a specified number of customers. Pilicka has not met these
     specified requirements at December 31, 1999. During 1999, Pilicka sent a
     letter to the Minister of Communications of Poland requesting a change in
     the connection schedule. While no response has been received, Pilicka
     believes that the likelihood of the Ministry of Communications of Poland
     taking any action that will result in a material adverse impact on the
     financial position or results of operations of Pilicka is remote.

13.  Contingencies and Commitments:

     Pilicka has certain long-term agreements to purchase telecommunications
     equipment with domestic and foreign suppliers. The total amount of
     equipment that Pilicka has committed to purchase after December 31, 1999 is
     $2,795,582.

     Pilicka is contesting the quality of performance of telecommunications
     equipment provided by one of its principal equipment suppliers. In
     accordance with the terms of the contract, Pilicka has put the supplier on
     notice of alleged performance deficiencies and has suspended its work under
     the contract. The supplier is contesting Pilicka's assertions and has
     indicated that Pilicka would be subject to cancellation fees and penalties
     if the contract is terminated. Pilicka and the supplier are presently
     involved in negotiations. Pilicka does not expect the settlement of this
     dispute to have a material or adverse impact on the financial position or
     results of operations of Pilicka.

     The Company's future minimum lease obligations for operating leases for the
     years ending December 31 approximate:

                              2000      $428,000
                              2001       400,000
                              2002       397,000
                              2003       397,000
                              2004       397,000

     Rent expense for the years ended December 31, 1999, 1998 and 1997,
     respectively was $399,785, $150,000 and $36,800, respectively.

                                      F-51

<PAGE>

EUROTEL L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997

13.  Contingencies and Commitments, Continued:

     On April 8, 1999, PenneCom signed an agreement to sell its interest in
     Pilicka for consideration of $140,000,000, with an expected close in August
     1999. In connection with the agreement, PenneCom received a $10,000,000
     nonrefundable downpayment which has been recorded as deferred revenue. The
     counterparty failed to perform under the contract. PenneCom is engaged in
     arbitration before the International Court of Arbitration of the
     International Chamber of Commerce against the counterparty, seeking
     specific performance by the counterparty, plus damages, interest and costs.
     The counterparty denies PenneCom is entitled to specific performance or
     damages and is pursuing a counterclaim to recover the downpayment plus
     interest and costs.

     The Company and PenneCom filed a lawsuit against an investment banking firm
     (the Firm) to recover certain fees and damages incurred by the Company and
     to obtain a declaratory judgment that the Firm had no right to commissions
     or other fees related to the Company's sale of its investments in Pilicka
     and MTT. The Firm has counter-claimed, alleging breach of contract, civil
     conspiracy to injure trade, reputation and business, common law civil
     conspiracy, and seeks damages of $8,000,000, trebled to $24,000,000 as well
     as punitive damages of $10,000,000, costs, attorney fees, and declaratory
     relief. The Company and PenneCom have denied the counterclaim and is
     vigorously defending itself and pursuing its claim.

14.  Fair Value of Financial Instruments:

     Payable to Founders and Convertible bonds payable: It is not practicable to
     estimate fair value of these financial instruments due to the related party
     nature and unique features of the instruments. The convertible bonds were
     paid in full during 1999 at a premium of $3,222,740.

     Long-term debt: Based on the variable interest rate, fair value is
     estimated to approximate carrying value.

                                      F-52