SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
( X )  Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
 Act of 1934
For the fiscal year ended December 31, 1998
(    ) Transition Report Pursuant to Section 13 or 15(d) of the Securities 
 Exchange Act of 1934
For the transition period from ______________  to  _______________

Commission File Number 0-11883

                            Telebyte Technology, Inc.
(Exact name of registrant as specified in its charter)

             Nevada                                 11-2510138
             ------                                 ----------
  (State or other jurisdiction of              (I.R.S. Employer
   incorporation or organization)               Identification No.)

                   270 Pulaski Road, Greenlawn, New York 11740
                    (Address of principal executive offices)

Registrant's telephone number, including area code (516) 423-3232

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

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

                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                (Title of class)
Check  whether  the  registrant  (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 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.
                                __X__ Yes_____ No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form 10- KSB or any
amendment to this Form 10-KSB. ( X )

The registrant's revenues for its most recent fiscal year were $5,568,787

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant at March 9, 1999 was $1,223,201

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

The number of shares of common stock  outstanding at March 9, 1999 was 1,248,631
Transitional Small Business Disclosure Format (check one): Yes _____; No __X__



<PAGE>



                    DOCUMENTS INCORPORATED BY REFERENCE: None

                           FORWARD LOOKING STATEMENTS

     When used herein,  the words "believe,"  "anticipate,"  "think,"  "intend,"
"will be," "expect" and similar expressions identify forward-looking  statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are not guarantees of future  performance  and involve  certain risks
and uncertainties  discussed herein,  which could cause actual results to differ
materially from those in the forward-looking  statements.  Readers are cautioned
not to place undue reliance on the forward-looking statements,  which speak only
as of the date hereof.  Readers are also urged  carefully to review and consider
the various  disclosures made by the Company which attempt to advise  interested
parties of the factors which affect the Company's business,  including,  without
limitation,  the disclosures made under the caption "Management's Discussion and
Analysis  or Plan of  Operation."  All  references  to a fiscal  year are to the
Company's fiscal year which ends December 31.


                                     PART 1



Item 1.   Description of Business

     Introduction

     Telebyte  Technology,  Inc.  (herein  either the  "Company" or  "Telebyte")
designs,  manufactures, and markets electronic data communications products that
operate over copper and fiber optic cables.  The Company's  operations  are in a
single  business  segment  and,  except for sales to foreign  distributors,  the
Company does not conduct any foreign operations. The Company was formed as a New
York corporation in 1983 and re-incorporated in Nevada in 1987.


     The Company's  data  communications  equipment is designed  principally  to
provide  connectivity  solutions  and  maintain  data  communications  networks.
Telebyte's products effectively link computers to other computers and peripheral
devices in a manner  that  enables  them to operate  as a complete  system.  The
Company's  products are used with Local Area Networks (LAN's),  Internet access,
data  acquisition  systems,  process  control  systems,  and various  peripheral
devices such as  computerized  time  clocks,  intelligent  scales,  and bar code
reading  equipment.  The  Company's six principal  data  communications  product
categories are interface converters, short haul modems, data communications test
equipment,  Local Area Network (LAN)  products,  surge/lightning  protectors and
multiplexers.  The Company also sells a variety of data communications switching
equipment and accessories.

     In the large data communication  marketplace,  Telebyte focuses on the area
of "premises  communication" or local networks.  Telebyte addresses the needs of
customers that have computer systems with data communications applications where
distances range from a few feet to a few miles. Accordingly, Telebyte's products
are used in data communication networks in facilities such as industrial plants,
factories,  high  rise  office  buildings,  or  campus  like  environments.  The
transmission  media  used in  these  environments  are  principally,  Unshielded
Twisted Pair (UTP) copper cable and/or fiber optic cable.



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     The  Company's  products  meet  a  variety  of  needs  in an  overall  data
communications  network  architecture.  These products are the "glue" that allow
many different  network elements to function  together  properly.  The Company's
prospective  market is  increasing  as the  ubiquitous  personal  computer  (PC)
embraces more  applications.  The Company  endeavors to maintain a broad product
line by developing both improved  versions of current products and new products.
Fiber optic products have been an increasingly important factor in the Company's
business and future product development will continue to emphasize this area.


     Business Developments for 1996, 1997 and 1998

     1996 was a year in which the  Company  took a more  aggressive  approach to
establishing   itself  by  virtue  of  increased  media   attention.   This  was
accomplished by advertising,  catalog mailings and trade show attendance. It was
augmented by the single,  largest,  order for rack mounted interface converters,
in the Company's history, from a Government subcontractor.

     In 1996, due to the poor sales of the  neurocomputer and a deterioration of
the  relationship  between  the  Company  and  the  owner  of the  neurocomputer
technology,  Telebyte made the decision to terminate the relationship  with that
owner and withdrew from the  neurocomputer  technology  market.  Consistent with
this  decision  was the  decision  to focus on growing  the data  communications
product line.

     The Company's  Internet  activity began in 1996 with the establishment of a
Telebyte Web site. This Web site is regularly being improved.

     This Web site  received  in  excess  of  500,000  hits  during  1997.  This
activity,  coupled  with  increased  catalog  distribution,  news  releases  and
advertising produced record sales volumes for the Company in 1997. As an adjunct
to these  activities  management  began an  aggressive  program of customer  and
prospect  visits.  These  produced  increased  opportunities  for custom product
design and  manufacture.  Many of these efforts were in their initial phase with
production orders expected in 1998. Custom programs were initiated for Motorola,
Intel, Foxboro and Hill-Rom.

     Product development activities continued in 1997 and the Company introduced
its first  T1/E1  fiber  optic modem in the fourth  quarter.  In  addition,  The
Company  began the design of a new fiber optic product  management  platform for
use by large scale customers.

     In 1997 the Company  signed a fully paid  license  agreement  with RAD Data
Communications  for use of certain  patents  dealing  with  powering  short haul
modems and interface converters.

     During the second half of 1998 the Company began  negotiations with Joel A.
Kramer, then the Company's Chairman of the Board,  President and Chief Executive
Officer,  for the  purchase  of his equity  interest in the  Company.  Effective
January  20, 1999 Joel A.  Kramer,  resigned  his  positions  with the  Company.
However,  Mr. Kramer will serve as a consultant to the Company  through  January
19, 2002 for an  aggregate  consideration  of $165,000  plus  reimbursement  for
certain expenses. In addition, the Company purchased all of the shares of common
stock of the Company owned by Mr. Kramer and Mr. Kramer agreed to cancel options
to  purchase  10,000  shares of common  stock of the  Company  for an  aggregate
consideration  of $1,075,190 of which $867,510 was for such shares,  $17,680 was
for the  cancellation  of  such  options  and  $190,000  was  for  Mr.  Kramer's
restrictive covenant. In addition, Mr. Kramer has agreed not to compete with the
business of the Company until January 19, 2003 and has released the Company from
certain  potential  claims  relative to his previous  employment and the Company
transferred a life insurance

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<PAGE>



policy to Mr. Kramer,  previously maintained for Mr. Kramer's benefit and having
a cash value of approximately  $80,000.  See "Certain  Relationships and Related
Transactions."



          Products

     Telebyte offers products in six different categories.  These categories are
interface  converters,  short haul modems,  test  equipment,  Local Area Network
(LAN) products,  lighting/surge  protection and  multiplexers.  The Company also
sells a variety of data communications switching equipment and accessories.


         Interface Converters

     These  transform the  characteristics  of the  electrical  interface of one
device to  enable  it to become  compatible  with the  electrical  interface  of
another.  This  conversion  may also include  modifying the protocol  and/or the
physical  transmission  medium,  i.e.,  copper wire to fiber cable. By employing
interface  converters  a  data  communications  network  can be  established  or
expanded  using  heterogeneous  equipment  types.  Without the use of  interface
converters such equipments would be unable to communicate. The sale of interface
converters represented 43.5% of Telebyte's revenue in 1998. Because the industry
continues to develop new interface  standards,  the Company anticipates that the
market may require  greater  varieties  of  interface  converters.  Thereby,  it
expects an  expansion  of the  available  market for  existing  products and the
creation  of  opportunities  for new  products.  Telebyte's  line  of  interface
converters is available in most of the configurations now required by the market
and includes  programmable  devices.  When the appropriate  opportunity presents
itself,  the Company will  manufacture  custom  interface  converters  to meet a
particular customer's requirements.


          Short Haul Modems

     These are often alternatively referred to as either line drivers or limited
distance modems.  These are signaling devices generally used to implement a data
communications  link in the  premises  environment.  They  are  used to  connect
computers and accessory  equipment such as terminals,  printers,  badge readers,
scales, bar code readers,  and other computer  controlled  machines.  Short haul
modems  are also  used in  establishing  data  communications  between  personal
computers and mini computers or main frame computers.  In some cases, short haul
modems can be used to signal on Telephone  Company  (Telco)  provided lines used
for  special  services  such as  Internet  access.  Short haul  modems are often
confused  with  'dial-up'  modems  used for wide area  network  and/or  Internet
communications.

     The  role of the  short  haul  modem  has  been  expanded  from  connecting
terminals  to a  central  processing  unit to  creating  extensive  computer  to
computer/peripheral  networks.  The  Company's  short  haul  modem  devices  are
designed to provide data  communications  links  ranging from  relatively  short
distances  to several  miles.  The Company  manufactures  and sells a variety of
short haul modems designed for particular  applications and the  electromagnetic
environment  of the user.  For  example,  Telebyte has three types of short haul
modems,  with  transmission  capabilities  that are suited for (i)  factories or
heavy manufacturing operations,  (ii) light manufacturing,  and (iii) industrial
office  areas or general  office  locations.  Due to  technological  changes and
innovations,  the  Company  must  develop  new short  haul modem  products  on a
continual  basis to meet its  customers'  technical  requirements  and to remain
competitive in this market.  Short haul modems  represented  24.1% of Telebyte's
net sales in 1998.


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<PAGE>




          Test Equipment

     This category consists of two distinctly  different product groups,  namely
Digital Subscriber Line (DSL) local loop simulators and protocol analyzers. Test
equipment products represented 10% of the Company's net sales in 1998.

     The Digital Subscriber Line (DSL) Local Loop simulators manufactured by the
Company  are  principally  used in  engineering  development  and in  production
testing.  Products in this category simulate the frequency  characteristics of a
Telco  Local  Loop.  The Local Loop is the pair of copper  cables  connecting  a
telephone customer to the Telephone Company's central office. The DSL Local Loop
simulator products simulate the amplitude and delay of the Local Loop at various
frequencies and for various Local Loop lengths.

     Digital  Subscriber Line (DSL) services  encompass such new  communications
offerings as ISDN (Integrated Services Digital Network),  HDSL, ADSL (Asymmetric
Digital  Subscriber  Line) and T1. These  services are key elements in providing
high speed Internet  connections.  As evidenced by examining  industry  reports,
these  services  have  created new modem  product  opportunities  that are being
satisfied by many companies.  These modem  manufacturers  either are at present,
customers for Telebyte's  Digital Subscriber Line (DSL) Local Loop simulators or
are  potential  customers.  Present  customers or potential  customers for these
simulators also include the semi- conductor  manufacturers  that provide special
microprocessor chips sets to these modem manufacturers.  These chip sets are key
elements in these modems.  Other  customers for these Local Loop  simulators are
the common carriers that provide the ISDN, HDSL and ADSL services.

     The protocol  analyzers  are used to analyze and test the integrity of data
communications  networks.  Telebyte's  protocol  analyzer test equipment product
line includes  "plug-in"  printed  circuit  boards and stand alone units for use
with IBM personal computers and compatible clones. These items are supplied with
the  software  necessary  to enable  the  personal  computer  user to monitor or
emulate  the data line with other  devices in the data  communications  network.
This test  equipment  product  assists in  maintenance  because  it can  rapidly
identify open leads, missing signals and other errors, and intermittent problems
can be tracked and stored in memory for later analysis.


         LAN Products

     There has been significant  growth in the deployment of Local Area Networks
(LANs). LANs allow a plethora of computers and computational  equipment to share
applications programs.  This leads to greater productivity.  The Ethernet LAN is
the principal means by which  computational  equipment  shares the  applications
programs.  Using UTP copper  cable this is  convenient.  But, it puts  stringent
conditions on the distances separating the various  communicating  computational
devices using the LAN. This distance is of the order of 100 meters. By employing
multi-mode fiber optic cable rather than UTP this communicating  distance can be
extended  to the order of  kilometers.  For  several  years the  Company has had
converters,  called LAN  extenders,  that allow the  extension  of Ethernet  LAN
distances by using fiber optic cables.  These  products  take  Ethernet  signals
designed  for use on UTP and convert them for use on fiber optic cables and vice
versa.  In 1998 the Company  developed  several new LAN extenders.  All of these
operate  over  single-mode  fiber optic  cable.  All of these  operate with both
standard 10BaseT and 100BaseT  Ethernet LANs. LAN products  represented 10.9% of
Telebyte's  net sales in 1998. No other product area had sales that exceeded 10%
of net sales in 1998.


     Lightning/Surge Protectors

     Telebyte  manufactures and sells a number of lightning and surge protectors
which prevent damage

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<PAGE>



to data  communications  equipment that can be caused by high voltage surges and
transients, ground currents, and other lightning induced electrical disturbances
encountered  on data  communication  circuits.  Included  in this  category  are
lightning  and surge  suppression  products  packaged in the DIN Rail format for
sales to the factory automation market.


         Multiplexers

     The Company's multiplexers allow data from a number of different devices to
be  communicated  simultaneously  on the same cable based  transmission  medium.
Basically, a multiplexer allows a single cable to support a multiplicity of data
communications  links.  Telebyte's  multiplexer products allow simultaneous data
transfers  over  distances  of up to 8,000 feet for twisted  pair cable or 6,600
feet  over  fiber  optic  cable.  The  multiplexers   manufactured  by  Telebyte
principally employ Time Division Multiplexing (TDM). With TDM multiple terminals
share a single cable.  Each terminal uses it on a dedicated  basis during only a
limited time period.


     The Company  generally  manufactures and maintains an inventory of products
based upon historical levels of demand and sales forecasts. Most of its products
are standard or catalog items. On occasion, the Company produces custom products
manufactured to a customer's specifications or for a specific application.

     The Company has not  experienced a shortage of  manufacturing  materials or
components,  and it  purchases  raw  materials  and supplies  from  domestic and
foreign sources. During 1998, the Company purchased approximately 16% and 10% of
its products  from two  suppliers.  If  required,  raw material and supplies are
readily available from various sources.

     The  research  and new  product  development  budget  for 1999 is  $550,000
compared  to  approximately  $469,000  and  $320,000  spent  in 1998  and  1997,
respectively.  The cost of research and development is not borne directly by the
Company's customers.

     Federal,  state,  and  local  environmental  laws and  regulations  have no
material  impact on  Telebyte  or its  business.  The  Company is subject to the
governmental regulations that apply to businesses generally.

          Sales and Marketing

     The  Company  markets  its  data  communications  products  by  promotional
activities  such as the  Internet,  telephone  sales,  paid  advertising,  press
releases,  post card decks,  direct mail campaigns,  and  participating in trade
shows.  Currently,  the Company conducts its sales and marketing efforts through
an in-house sales staff and a network of distributors.

     Using a  statistical  analysis  of its  sales-to-lead  tracking  system the
Company  believes that the most  effective way to increase its end user business
is to follow a strategy that employs two approaches concurrently.

     The first  approach is to continue the  circulation  of its  catalog.  This
catalog  will be sent to the  Company's  lead/customer  database,  which in 1998
contains more than 80,000 entries.  Activities  aimed at increasing the database
and the catalog circulation will continue.

     The second  approach is to continue and increase its  promotional and sales
activities  on the Internet.  During 1996 the Company  established a Web site on
the Internet that contains the Company's complete catalog. The Company continued
to make  improvements  to its Web site in 1997 and 1998. In  particular,  during
1998 the Company expanded its Web site by the placing of

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application  articles on it for all of the Company's products.  The Company also
placed product  manuals on the Web site.  This allowed  customers to use the Web
site for technical support.  In 1998 the Company also followed a strategy of the
judicious  placement  of key  words  in  search  engines.  These  keywords  were
associated with the Company's products and technical activities.  These keywords
allowed  customers to be pulled into the  Company's Web site. As a result of all
of these  activities  this Web site produced an increasing  number of inquiries.
These added a large number of qualified leads to the Company's database. In 1998
the Web site had in excess of 76,000 unique  visitors  compared to 55,000 unique
visitors in 1997. The Company's Web address is www.Telebyteusa.com.  The Company
plans regular improvement of the Company's Web site. It plans to take out banner
advertisements on the Internet to attract customers to its Web site.

     Domestic  sales  generated  by  all of  these  promotional  activities  are
primarily  to  end-users  rather than  resellers.  Such  end-users  include OEMs
(Original  Equipment   Manufacturer),   system  integrators  or  installers  and
customers who may be employing the product for their own specific use.

     The Company also uses  distributors  as  resellers.  At the end of 1998 the
Company had 8 domestic distributors of record. Domestic distributors do not have
any territorial exclusivity. In the domestic marketplace, the Company's sales to
end-users  dominate  its sales to  distributors.  The ratio of these  sales were
9.15, 3.72 and 3.13 to 1 in 1998, 1997 and 1996, respectively.  Internationally,
the Company uses 64  distributors.  Some  products are  marketed  through  other
catalog distributors.  Foreign sales represented  approximately 14% in 1998, 14%
in 1997, and 10.6% in 1996 of net sales.

     Domestic  sales to  end-users  and  domestic  distributors  are serviced by
internal sales representatives. These sales representatives are compensated with
a combination of a base salary and  commissions.  At the end of 1998 the Company
had 5 such  representatives on its staff.  Through 1998 foreign sales were under
the  direction of the  President of the  Company.  Principally,  these sales are
carried out by a network of international distributors. For the most part, these
distributors are given territorial exclusivity.  In some countries new laws make
exclusive  sales  arrangements  illegal and  additional  distributors  are being
added.

     The Company does not depend upon sales to any single  customer or a limited
group of  customers.  There have been no sales to a single  customer  during the
last three years that  exceeded 10% of net sales.  Sales of products to the U.S.
government  are not  subject to  renegotiations  of profits  or  termination  of
contracts at the U.S.  government's  election.  For the most part such sales are
covered by the Company's  General Service  Administration  (GSA)  contract.  The
Company's sales are not materially affected by seasonal factors.

       Competition

     There are a significant  number of companies  engaged in manufacturing  and
selling data communications  equipment in the same markets as the Company. Since
Telebyte's product line is diverse,  it is difficult to define and enumerate its
competition.  Several competitors are larger and more established than Telebyte.
Such  competitors  have greater  technical and capital  resources  than does the
Company.  These competitors also have greater sales and marketing resources than
does the Company.

     The  Company's  principal  competitors  are RAD Data  Communications,  Ltd.
(which is based in Israel  with local  offices in New  Jersey),  Black Box (with
headquarters based in Pennsylvania), Patton Electronics (based in Maryland), B &
B Electronics (based in Illinois),  Dataforth (based in Arizona) and a number of
small  companies.  Telebyte  competes  with  these  companies  on the  basis  of
availability,  price,  quality,  breadth  of  product  line,  technical  support
innovation and its  willingness to accommodate  requests for  modifications  and
customization.

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     Of these factors the Company relies principally upon the  price/performance
ratio of its many products.  However, Telebyte also attracts market share by its
ability to fill orders quickly and provide  technical  support to its customers.
The Company does not have a  significant  market  presence  with its serial data
communications test equipment and data communications accessories.  However, the
Company's  capacity for innovation has made it a significant force in the market
for Digital Subscriber Line (DSL) Local Loop simulators.


     Historically,   the  Company  has  not  relied  upon  patents,   registered
trademarks or licenses to give it a competitive advantage.


Preparation for Year 2000 Problems

     The Year 2000  ("Y2K")  problem is the result of  computer  programs  being
written using two digits (rather than four) to define the  applicable  year. Any
of the Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1900  rather than the Year 2000,  which  could  result in
miscalculations or system failures.  The Company has instituted a Y2K compliance
program,  the objective of which is to determine and assess the risks of the Y2K
issue,  and plan and institute  mitigating  actions to minimize those risks. The
Company's  standard  for  compliance  requires  that for a  computer  system  or
business  process to be Y2K  compliant,  it must be designed to operate  without
error in date and date-related  data prior to, on and after January 1, 2000. The
Company  expects  to be fully Y2K  compliant  with  respect  to all  significant
business systems prior to December 31, 1999.

     The Company's Y2K plan consists of four phases: (1) assessment and analysis
of "mission  critical"  systems and  equipment;  (2)  correction  of systems and
equipment,  through  strategies that include the enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems; (3) testing of systems and equipment; and
(4) contingency  planning which will address possible adverse  scenarios and the
potential financial impact to the Company's results of operations,  liquidity or
financial position.

Information Technology (IT) Systems

     Information  technology systems ("IT Systems") account for much of the Year
2000 work and include all computer  systems and technology  used by the Company.
All core  systems  have been  assessed,  plans  are in place,  and work is being
undertaken to implement  changes where  required.  The  appropriate  vendors and
suppliers  have been  contacted  as to their  Year 2000  compliance.  Management
believes  that  all  of  the  Company's  IT  systems  and  equipment  have  been
identified,  and that  approximately  50% of the  work  necessary  to make  such
systems and equipment Y2K- compliant has been finished.

     The third  phase of the plan,  testing  of the  Company's  IT  systems,  is
expected to be completed by the end of the second quarter of 1999.  Testing will
consist  largely of the purchase and use of Y2K compliance  test  software.  All
aspects of the Company's Y2K compliance  plan have been and will be performed by
the Company's staff, at a cost that is not believed by the Company's  management
to be material.  Management  estimates that Y2K costs incurred to date, plus Y2K
costs  yet to be  incurred,  will  total  approximately  $15,000.  Y2K costs are
expensed as incurred.

          Non-IT Systems

     An  inventory  and  assessment  of all  non-IT  systems  (items  containing
embedded chips, such as elevators,  electronic door locks, telephones,  etc.) is
being undertaken. The majority of these

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non-IT  systems  are  not  believed  to  be  potential  sources  of  significant
disruption, although the contingency plans (described below) will address non-IT
Y2K failure as well as IT systems failure.

          Contingency Plans

     The  Company's  management  is in the process of  developing a  "worst-case
scenario" with respect to Y2K  non-compliance  and to develop  contingency plans
designed to minimize the effects of such scenario.  Although management believes
that it is very unlikely that the  worst-case  scenario will occur,  contingency
plans will be  developed  and will  address  both IT system  and  non-IT  system
failure.

     In the event of Y2K- related IT system failure, the Company would be unable
to ship orders because its power system would not be functioning. In such event,
the Company plans to use its own generators as a back-up power source.

     In terms of non-IT  and  third-party  Y2K  non-compliance,  the  worst-case
scenario for the Company would involve the loss of supply of component  parts or
other  materials from one or more of its major  suppliers.  The Company has made
plans to have a 100-day supply of finished goods  available if such  contingency
arises.

     There is still  uncertainty  about the broader scope of the Year 2000 issue
as it may  affect  the  Company  and  third  parties  that are  critical  to our
operations.  For example,  lack of readiness by electrical and water  utilities,
financial  institutions,  governmental  agencies or other  providers  of general
infrastructure could pose significant impediments to our ability to carry on our
normal  operations.  The Company intends to request  assurances of Y2K readiness
from  its  telephone  and  utilities  suppliers.  However,  management  has been
informed  that some  suppliers  have either  declined  to provide the  requested
assurances, or have limited the scope of assurances to which they are willing to
commit.  If suppliers of services that are critical to the Company's  operations
were to  experience  business  disruptions  as a  result  of  their  lack of Y2K
readiness,  their problems could have a material adverse affect on the financial
position and results of  operations  of the Company.  The impact of a failure of
readiness by critical  suppliers  cannot be estimated with  confidence,  and the
effectiveness of contingency plans to mitigate the effect of any such failure is
largely  untested.  Management cannot provide an assurance that there will be no
material adverse effects to the financial  condition or results of operations of
the Company as a result of Y2K issues.


          Employees

     As of December 31, 1998, the Company had 39 employees.  Of these employees,
five are executives, eight are in sales, six in research and engineering,  three
in  administration,  and the  balance in  manufacturing,  shipping,  and related
activities.  In addition,  the Company uses subcontractors and part-time help to
support its current operations. None of the employees are represented by a labor
union, and the Company considers its employee relations to be good.

          Backlog

     At December 31, 1998,  the Company's  backlog was $388,690 all of which the
Company expects to fill in fiscal 1999.  Comparable backlog at December 31, 1997
was $390,363.


Item 2. Properties

     Telebyte's executive office, plant, and manufacturing  facility are located
in a 20,000 square foot

                                       8
<PAGE>



building  on 3.2 acres,  at 270 Pulaski  Road,  Greenlawn,  New York 11740.  The
Company  purchased  the  land  and  building  in  September  1985.  The  Company
refinanced  the  existing  mortgage in March 1998 and the property now secures a
mortgage loan payable on a fully self- amortizing basis over 10 years. Under the
Mortgage Modification  Agreement interest is payable at 9% through June 1, 2000.
At that  time and  every  three  years  thereafter,  the  interest  rate will be
adjusted to the three year weekly  average US Treasury  Constant  Maturity  rate
plus 3%. The outstanding  principal balance of the mortgage loan, as of December
31, 1998, was $927,334.  Management believes that all of its properties,  plant,
and equipment are well maintained and adequate for its requirements.

     Of the 20,000  square feet the Company  has leased  5,300  square feet to a
tenant.  Management believes that Telebyte's existing  manufacturing  facilities
are  sufficient to support its present  needs and  anticipated  growth,  and the
Company  does not  foresee any  significant  capital  expansion  of its plant in
Greenlawn.



Item 3. Legal Proceedings

     There are no material  pending legal  proceedings to which the Company is a
party or by which its properties are subject.




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

     Not applicable.



                                     PART II



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

     Until  September  2, 1992,  the  Company's  common  stock was listed on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
under the  symbol  "TBTI."  After  that date the stock was moved to the Over The
Counter  Bulletin  Board  since it no longer met the  requirements  of  NASDAQ's
minimum bid price.

     The  following  table sets forth the high and low bid prices for the common
stock for each fiscal  quarter  during 1998 and 1997 as reported by the National
Association  of Securities  Dealers,  Inc. The bid and ask prices for the common
stock on March 9, 1999 were $ 1.125 and $ 1.5 respectively.



                                       9
<PAGE>
                            1998                               1997     
                            ----                               ----

                     High             Low               High            Low
                     ----             ---               ----            ---

First Quarter         5                2                 1 5/16           13/16

Second Quarter        4 3/4            3                 15/16            3/8

Third Quarter         4 1/2            1 1/4            1 1/2             7/16

Fourth Quarter        2 1/8            1 1/8            1 1/8           1 3/16



     The above  quotations  reflect  inter-dealer  prices,  and may not  include
retail  mark-up,  mark-down or  commissions  and may not  necessarily  represent
actual transactions.

     At March 9, 1999,  there were  approximately  268  holders of record of the
Company's  common  stock.  Most of the  shares of the  common  stock are held in
street name for a larger number of beneficial owners.


     To date,  Telebyte has not paid a cash dividend.  The payment and amount of
any future  dividends will  necessarily  depend upon  conditions  then existing,
including  the  Company's  earnings,   financial   condition,   working  capital
requirements,  and other  factors.  The Company does not  anticipate  paying any
dividends in the foreseeable future.



Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Results of Operations

          Fiscal 1998 Compared to Fiscal 1997

     Sales for the year ended December 31, 1998 increased by 1.6% to $5,568,787.
The sales  increase was primarily a result of the increased  sales and marketing
efforts begun by the Company in 1996.

     An  analysis  of the gross  margin  for 1998  reveals  that it was 52.8% as
compared to 53.9% for 1997.  This was  primarily a function of product mix. Cost
of sales  increased  by $104,128  and is  primarily  attributed  to the level of
sales.

     Selling,   general,  and  administrative  costs  decreased  by  $29,907  to
$2,076,973 in 1998, compared to $2,106,880 in 1997. Selling expenses during 1998
included the distribution of approximately  180,000 product catalogs as compared
to approximately 300,000 in 1997. Also, during 1998 the Company strengthened its
advertising campaign for fiber optic products,  and overhauled the Company's Web
site.

     Research and development  increased in 1998 to $469,415,  or 8.4% of sales,
from $319,996,  or 5.8% of sales in 1997. The increase illustrates the Company's
continued  commitment  to new  product  development.  The  increase  was  due to
significant  activity by the Company in the  development  of new test  equipment
products for the Digital Subscriber Line (DSL) market, specifically,  Local Loop
simulators.  The Company made improvements in the frequency  characteristics  of
existing simulator  products.  The Company began the development of units having
mechanical  packaging more  attractive for rack mounting.  The Company began the
development  of units that can be controlled  remotely by computer.  The Company
continued the development of a noise/interference  simulator that can be used as
a companion product to the Digital Subscriber Line (DSL) Local Loop simulator.


                                       10
<PAGE>



     Interest  expense of $97,352 in 1998 decreased to 1.7% of sales as compared
to $114,909, or 2.1% in 1997.

     Interest  income  increased  by  $12,574.  The  increase in 1998 was due to
higher  average  levels of cash on hand  during  1998.  In 1998 the  Company had
rental income of $48,195,  equal to the 1997 rental income. For 1999 the Company
expects rental income of approximately $48,000.

     The Company  generated  net income of  $333,500 or $.22 per share,  5.9% of
sales,  compared  to $466,825 or $.32 per share,  8.5% of sales,  for 1997.  The
decrease is primarily  attributed to the increase in research and development as
described above.

     The effective  tax rate in 1998 was 9.7 percent,  compared with 1.5 percent
in  1997.  The  increase  in the  effective  tax  rate is  primarily  due to the
Company's  utilization  of its net  operating  loss  carryforward.  The  Company
expects its effective tax rate for 1999 to be approximately 40%.


Liquidity and Capital Resources

     In 1998, the Company invested $43,356 in property and equipment,  which was
financed  through  internally  generated  funds.  The  statements  of cash flows
indicate  that the Company  generated  $274,302 in 1998  compared to $254,507 in
1997 in cash from operations.

     Working capital increased as of December 31, 1998 by $347,680 to $2,557,880
compared with  $2,210,200 at December 31, 1997.  The current ratio  increased to
5.6 to 1 at December 31, 1998, compared to 4.6 to 1 at December 31, 1997.

     The Company has an agreement  with a financial  institution,  expiring July
1999,  which  provides  the  Company  with a line of  credit  facility  of up to
$1,000,000  ("Original  Facility")  based on eligible  accounts  receivable  and
purchased  components  and  materials  and  finished  goods  inventories  of the
Company,  as defined in the agreement.  Further,  the agreement contains certain
financial  covenants  which  require the Company to maintain a minimum  level of
tangible net worth and places  limitations  on the ratio of the Company's  total
debt to Company's  tangible net worth,  as defined in the agreement.  Borrowings
under the line of credit bear interest at the bank's  specified  prime rate plus
 .75% (8.50% at December 31, 1998). There was no outstanding balance against this
line at December 31, 1998.

     In January 1999, the Company secured an additional  Reducing Revolving line
of credit from this  institution  that  provides for initial  borrowings up to a
maximum of $1,000,000.  Availability under the Reducing Revolving line of credit
will decrease  approximately  $11,900 per month and will expire January 2006. In
conjunction  with obtaining this additional line of credit financing the Company
reduced  availability under its Original Facility to $500,000.  Borrowings under
this loan agreement bear interest at the 30 Day Commercial Paper Rate plus 2.90%
(8.45% at December 31, 1998).

     The Company  believes  that cash  generated  by the  Company's  operations,
current cash and cash equivalents, and the line of credit should supply the cash
resources to meet its cash needs for the next twelve months.

                                       11
<PAGE>
          Effect of Inflation

     During the five-year  period ending December 31, 1998, the Company was able
to decrease its costs of sales of its products to  compensate  for the effect of
inflation  on the  cost of  components.  This was  accomplished  by  changes  in
manufacturing methodology, namely, increasing the amount of product manufactured
on a sub-contractor basis.

Item 7. Financial Statements


     The audited financial statements of the Company as of December 31, 1998 and
1997 and for the years then ended are  included  in this  Annual  Report on Form
10-KSB following Item 13 hereof.



Item  8.  Changes  in and  Disagreements  with  Accountants  in  Accounting  and
Financial Disclosures

None


                                       12
<PAGE>






                                    Part III



Item  9.  Directors,   Executive  Officers,   Promoters,  and  Control  Persons;
Compliance with Section 16(a) of the Exchange Act

     The following table sets forth certain information concerning the Company's
officers and directors as of December 31, 1998. Telebyte's directors are elected
to serve until the next annual meeting of shareholders or until their successors
are elected and qualified. The executive officers are appointed annually by, and
serve at the pleasure of, the Board of Directors.

<TABLE>
<CAPTION>
Name, age, and positions           Business  experience during past                  Director
held with the Company              five years and principal occupation               since
---------------------              -----------------------------------               -----

<S>                                <C>                                                <C>   
Joel A. Kramer,  age 61, (1)       Mr. Kramer has served as President                 1983  
President, CEO and Chairman of     of the Company since August 1983, 
the Board of Directors             and Chairman of the Board since February 1989.

Kenneth S. Schneider,  Ph.D.,      Dr. Schneider has served as Treasurer              1983 
age 53, Sr. Vice President,        and Vice President of the Company 
Treasurer, Secretary, and          since  August 1983;  and he was elected  
Director                           Secretary in March 1991.  Dr. Schneider 
                                   is a Senior  Member of the  Institute  of 
                                   Electrical  and  Electronic Engineers.

Jamil Sopher, age 55 (2)           Mr. Sopher is a Principal Financial                1996
Director                           Analyst with the World Bank where
                                   he has been employed for 19 years.

Robert M. Kramer, age 58 (3)       Mr. Kramer is a private investor and has           1996
Director                           been since 1987.  Prior thereto he held the
                                   position of Vice President at Drexel Burnham
                                   Lambert and Shearson-Lehman.

Michael  Breneisen,  age  34,      Mr.  Breneisen  has  served  as  Controller
Vice President,                    of the  Company  since July 1992 and 
Chief  Financial  Officer          Vice President and CFO since January 1997.
</TABLE>


(1)  Mr.  Robert M. Kramer is the brother of Mr. Joel A. Kramer,  the  President
     and Chairman of the Board of  Directors of the Company.  Mr. Joel A. Kramer
     resigned from all of his Company positions  effective January 20, 1999. See
     "Certain Relationships and Related Transactions."

(2)  Mr. Sopher received a Bachelor of Science and M.Eng.  (Elect.) from Cornell
     University and an MBA from Harvard University.

(3)  Mr.  Robert  M.  Kramer  received  a BSME  from  Polytechnic  Institute  of
     Brooklyn,  an MSME  from  City  College  of NY and an MBA from the  Wharton
     Graduate  School of the  University of  Pennsylvania.  Mr. Robert M. Kramer
     resigned as a director  of the Company  effective  January  20,  1999.  See
     "Certain Relationships and Related Transactions."


                                       13

<PAGE>
Section 16 Compliance

     Based  upon a review  of copies of the  forms  required  to be filed  under
Section 16(a) of the Securities Exchange Act of 1934 or written  representations
from officers and  directors,  the Company  believes all officers and directors,
and greater than ten percent owners of the Company's  common stock have complied
with Section 16(a.)


Item 10. Executive Compensation

     The following table provides  summary  information  concerning the cash and
certain other compensation paid or accrued by the Company to Joel A. Kramer, the
Company's  Chairman of the Board,  President and Chief  Executive  Officer until
1999 during the last three  fiscal  years and to the  executive  officers of the
Company whose cash compensation  exceeded  $100,000.  The table includes Company
contributions on the officer's behalf to the Company's 401(k) Plan.
<TABLE>
<CAPTION>
                                               Summary Compensation Table

                                Annual Compensation                                  Long-Term Compensation
                                -------------------                                  ----------------------
                                                                          Awards                Payouts
                                                                          ------                -------
                                                                 
         (a)           (b)      (c)       (d)          (e)          (f)           (g)              (h)                (i)

       Name and                                   Other Annual   Restricted       Stock         Long-Term          All Other
  Principal Position   Year   Salary     Bonus    Compensation     Stock      Options/SARs   Incentive Payout     Compensation
  ------------------   ----   ------     -----    ------------     Awards      ------------   ----------------     ------------
                                                                   -----
                                ($)       ($)          ($)         (No.)         (No.)             ($)                ($)

<S>                   <C>    <C>        <C>        <C>               <C>           <C>         <C>                   <C>   
   Joel A. Kramer     1998   $124,306   $25,000    $20,130(1)        0             0           $ 5,747(2)            $8,040

   President, CEO     1997   $111,631    $2,000    $16,629(1)        0             0           $12,662(2)            $4,116
     & Director       1996   $107,100    $4,300    $11,481(1)        0             0           $11,281(2)            $3,203



Kenneth S. Schneider  1998   $112,534   $22,000    $10,170(1)        0             0            $4,080(2)            $7,104

   Sr. V.P., Sec.     1997   $100,686    $2,000     $8,804(1)        0             0            $4,080(2)            $2,819
  Treas.& Director    1996    $95,599    $3,150     $7,256(1)        0             0            $4,080(2)            $2,819
</TABLE>

(1)  Commissions  - Mr.  Kramer  received  a 2.5%  commission  of net  sales  to
     customers not located within the United States.  Mr.  Schneider  received a
     0.2% commission of net sales to customers located within the United States.
     The amounts  paid are set forth above  under the  caption  entitled  "Other
     Annual Compensation".

(2)  Deferred Compensation - see Long-Term Incentive Plans Table below.
<TABLE>
<CAPTION>
             Long-Term Incentive Plans - Awards in Last Fiscal Year

           Estimated Future Payouts under Non-Stock Price-Based Plans
                         Number of Shares,      Performance or Other
                          Units or Other      Period Until Maturation       Threshold             Target               Maximum
         Name               Rights (#)               Or Payout               ($ or #)            ($ or #)             ($ or #)
---------------------------------------------------------------------------------------------------------------------------------

<S>                                                     <C> <C>             <C>                 <C>                  <C>       
    Joel A. Kramer                                 June 11, 2002            $26,667(1)          $26,667(1)           $26,667(1)
     Pres.,CEO &
       Director

 Kenneth S. Schneider                              April 16, 2010           $26,667(1)          $26,667(1)           $26,667(1)
 Sr.V.P. Sales, Sec.,
  Treas. & Director
</TABLE>

                                       14
<PAGE>
(1)  In 1990 the Company entered into deferred compensation  agreements with key
     officers,  pursuant to which the officers  will  receive a defined  amount,
     approximately  30% of their  1990  base  salary,  each year for a period 10
     years after  reaching  age 65. The deferred  compensation  plans are funded
     through life insurance and are being  provided for  currently.  The expense
     charged  to  operations  in 1998 for such  future  obligations  was  $9,827
     ($5,747  and  $4,080,   for  Joel  A.  Kramer  and  Kenneth  S.  Schneider,
     respectively).



<TABLE>
<CAPTION>
                                      Aggregate Option Grants in Last Fiscal Year

                                                       % of Total Options           Exercise or
                             Number of Options        Granted to Employees           Base Price                Expiration
          Name                    Granted             in Fiscal Year 1998            ($/Share)                    Date
-------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                       <C>                                                  
     Joel A. Kramer                  0                         0                         -                         -
  Kenneth S. Schneider               0                         0                         -                         -
</TABLE>

     The  following  table sets forth  information  concerning  each exercise of
stock  options  during fiscal 1998 by each of the named  executive  officers and
fiscal year-end value of unexercised options:

<TABLE>
<CAPTION>
                         Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

                                                                                     Number of            Value of Unexercised
                             Number of Shares                Value             Unexercised Options at     In-the-Money Options
          Name             Acquired on Exercise           Realized ($)           December 31, 1998        at December 31, 1998
                                                                                                                  (1)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                       <C>                   <C>    <C>                  <C>   
     Joel A. Kramer                  0                         0                     10,000 (2)                  $4,550
  Kenneth S. Schneider               0                         0                     10,000 (2)                  $4,550
</TABLE>


(1)  Calculation  based  upon the  average of the high and low bid prices of the
     Company's  Common Stock from the National  Quotation Bureau on December 31,
     1998.

(2)  All such options are currently exercisable.

Compensation Plans and Other Compensation

     The  Company  adopted a Stock  Option  Plan (the "1993  Plan")  under which
100,000 shares of the Company's common stock, par value $.01 per share have been
reserved. As of December 31, 1998, there were 32,500 shares available for grants
under the 1993 Plan.  Pursuant  to the 1993 Plan,  the Company is  permitted  to
issue incentive  stock options  ("Incentive  Stock  Options") and  non-qualified
stock  options.  Incentive  Stock  Options  under the 1993 Plan are  intended to
qualify for the tax treatment accorded under Section 422 of the Internal Revenue
Code of 1986,  as amended  (the  "Code.") All  directors,  officers or other key
employees of the Company are eligible to  participate in the 1993 Plan. The 1993
Plan is  administered  by the Board of Directors of the Company,  which,  to the
extent  it  shall  determine,  may  delegate  its  power  with  respect  to  the
administration of the 1993 Plan to a committee consisting of not less than three
directors.  Under the 1993 Plan,  Incentive  Stock Options to purchase shares of
the Company's common stock shall not be granted for less than 100 percent of the
fair market value of the common stock on the date the Incentive  Stock Option is
granted;  provided,  however,  that in the  case of an  Incentive  Stock  Option
granted to any person then owning at least 10 percent of the voting power of all
classes of the  Company's  stock,  the purchase  price per share  subject to the
Incentive Stock Option may not be less than 110 percent of the fair market value
of the stock on the date of the grant of the option.  Nonqualified stock options
to purchase the Company's  common stock are granted at prices  determined by the
Company's Board of Directors. Options under the 1993 Plan may not have a term of
more than 10 years; provided, however, that an Incentive Stock Option granted to
a person then owning more than 10 percent of

                                       15
<PAGE>

     the  voting  power  of  all  classes  of the  Company's  stock  may  not be
exercisable  more  than 5 years  after  the date  such  option  is  granted.  In
addition, the aggregate fair market value,  determined at the time the option is
granted,  of the  stock  with  respect  to which  Incentive  Stock  Options  are
exercisable  for the first time by an  employee in any  calendar  year under the
1993  Plan may not  exceed  $100,000.  The  Company's  1983  Stock  Option  Plan
terminated  in 1994.  No executive  officers or directors  have any  outstanding
options under the 1983 Stock Option Plan. The Company has an informal bonus plan
in which officers and other key personnel participate.  The bonus award, if any,
is fixed annually by the Board of Directors.  Bonuses were allocated and paid to
executive officers under this plan during fiscal 1998 and shown on the foregoing
Summary  Compensation Table. The Company maintains a deferred  compensation plan
under  Internal  Revenue  Code Section  401(k).  All  employees  are eligible to
participate;  the  Company  contributes  50% of the  first  2%  deferred  by the
employee.  Each  employee  may  voluntarily  contribute  up  to  15%  of  annual
compensation, or the maximum allowed as determined by the Internal Revenue Code.
Benefits are 100% vested and are payable upon the employee's death,  disability,
retirement,  termination, and under certain financial circumstances. At December
31, 1998, $2,368 was contributed to the plan for officers. All contributions are
reflected in all other compensation  columns in the Summary  Compensation Table.
During 1997,  the Company  entered  into  employee  agreements  with Mr. Joel A.
Kramer and  Kenneth S.  Schneider  pursuant  to which Mr.  Kramer  will serve as
President  and Mr.  Schneider  will  serve  as Vice  President.  The  employment
agreements provide that Mr. Kramer will receive a minimum salary of $117,810 and
Mr. Schneider $105,155.  During the employment period each of Mr. Kramer and Mr.
Schneider will be entitled upon  termination,  expiration of the  agreement,  or
under certain circumstances (including a change of control) to certain severance
benefits.  The initial term of the  agreements  is three years.  The  respective
agreements are affixed as exhibits hereto.

     Except for life and medical insurance benefit programs, which are available
to all employees, the Company has no other compensation plans. Outside directors
receive a per meeting fee of $500, in addition to  reimbursement of expenses for
attending each meeting. According to World Bank policy, Mr. Sopher cannot accept
the meeting fee.

     Effective  January 20, 1999 Mr. Joel A. Kramer  resigned his positions with
the Company. See 'Certain Relationships and Related Transactions.'

Item 11. Security Ownership of Certain Beneficial Owners and Management

     The  following  table  sets  forth  as of  December  31,  1998  information
concerning (i) the shares held by each person or group known to own beneficially
more than 5% of the  outstanding  shares of common  stock,  (ii) shares owned by
directors and (iii) the shares owned by all directors and officers as a group.


 Name and Address of               Number of Shares            Percent of
 Beneficial Owner                  Beneficially Owned          Class
 ----------------                  ------------------          -----

 Kenneth S. Schneider                  293,038 (1)             19.0%
 270 Pulaski Road
 Greenlawn, NY 11740


                                       16
<PAGE>

 Joel A. Kramer                        272,635 (1)             17.7%
 270 Pulaski Road
 Greenlawn, NY 11740

 Jamil Sopher                            6,730 (2)             (4)
 270 Pulaski Road
 Greenlawn, NY 11740

 Robert M. Kramer                        5,000 (2)             (4)
 270 Pulaski Road
 Greenlawn, NY 11740

 Michael Breneisen                      41,900 (3)              2.7%
 270 Pulaski Road
 Greenlawn, NY 11740

 All officers and directors            619,303                 40.2%
 As a group (5 in number)



(1)  Includes  10,000 shares issuable upon the exercise of stock options granted
     under the Company's 1993 Stock Option Plan.  Effective January 20, 1999 the
     Company purchased all of the shares of common stock of the Company owned by
     Mr.  Joel A.  Kramer and Mr.  Kramer  agreed to cancel  options to purchase
     10,000  shares of common  stock..  See "Certain  Relationships  and Related
     Transactions." 

(2)  Includes  5,000  shares that can be issued upon  exercise of stock  options
     granted under the Company's 1993 Stock Option Plan.

(3)  Includes  5,000  shares that can be issued upon  exercise of stock  options
     granted under the Company's 1987 Stock Option Plan.

(4)  Less than 1%.

Item 12. Certain  Relationships  and Related  TransactionsEffective  January 20,
1999,  Joel A.  Kramer,  Chairman of the Board,  President  and Chief  Executive
Officer of Telebyte Technology, Inc. (the "Company") resigned his positions with
the  Company.  However,  Mr.  Kramer will serve as a  consultant  to the Company
through  January  19,  2002 for an  aggregate  consideration  of  $165,000  plus
reimbursement  for certain expenses.  In addition,  the Company purchased all of
the shares of common  stock of the Company  owned by Mr.  Kramer and Mr.  Kramer
agreed  to cancel  options  to  purchase  10,000  shares of common  stock of the
Company for an aggregate  consideration  of $1,075,190 of which $867,510 was for
such shares,  $17,680 was for the  cancellation of such options and $190,000 was
for Mr. Kramer's restrictive covenant. In addition, Mr. Kramer has agreed not to
compete with the business of the Company until January 19, 2003 and has released
the Company from certain  potential  claims relative to his previous  employment
and the Company  transferred a life insurance  policy to Mr. Kramer,  previously
maintained  for Mr.  Kramer's  benefit and having a cash value of  approximately
$80,000.

     Effective January 20, 1999 Dr. Kenneth S. Schneider was elected as Chairman
of the Board and Chief Executive  Office and Michael  Breneisen as President and
Chief Operating  Officer of the Company.  Dr.  Schneider was a co-founder of the
Company  and has served as a Senior Vice  President,  Secretary,  Treasurer  and
Director.  Mr.  Breneisen  has  served as Vice  President  and  Chief  Financial
Officer, he will also continue to serve as Chief Financial Officer.

Item  13.  Exhibits  and  Reports  on Form  8-K(a)  Exhibits

3(a)      The Company's  Certificate of Incorporation  under the State of Nevada
          was filed as an Exhibit  with the Proxy  Statement  filed in June 1987
          (File No. 0-11883) and is incorporated by reference herein.

3(b)      The By-laws of the

                                       17
<PAGE>



          Company as a Nevada  corporation  were filed as an Exhibit on Form 8-K
          in third quarter of 1987 (File No.  0-11883) and are  incorporated  by
          reference herein.

10(a)     The  Company's  1993 Stock  Option Plan was filed as an Exhibit to the
          Company's  definitive 1994 proxy statement filed in May 1994 (File No.
          0-11883), and is incorporated by reference herein.

10(b)     Commercial  mortgage and  consolidation  agreement  dated May 25, 1988
          between Home Federal Savings Bank and Telebyte Technology, Inc., filed
          as an Exhibit to the  Company's  1988 Annual Report on Form 10-K (File
          No. 0-11883) and is incorporated by reference herein.


10(c)     Deferred  compensation  agreements  dated  December  12, 1990  between
          Telebyte Technology, Inc. and Joel A. Kramer and Kenneth S. Schneider,
          filed as an Exhibit to the  Company's  1990 Annual Report on Form 10-K
          (File No. 0- 11883) and is incorporated by reference herein.

10(e)     $1,000,000  Revolving  Line of Credit  agreement  dated June 23,  1994
          between Merrill Lynch and Telebyte  Technology,  Inc. and was filed as
          an exhibit on Form 10-KSB for the year ended  December  31, 1994 (File
          No. 0-11883) and is incorporated by reference herein.

10(f)     Employment  agreements  between  Mr.  Joel A.  Kramer  and  Kenneth S.
          Schneider  dated  August 1, 1997 and was filed as an  exhibit  on Form
          10-KSB for the year ended December 31, 1997 (File No.  0-11883) and is
          incorporated by reference herein.

10(g)     Mortgage Loan Modification  Agreement dated March 18, 1998 between the
          Company and Home Federal Savings Bank ("Home").

10(h)     Promissory Note and Security  Agreement dated March 18, 1998 made 
          payable to the Company to the order of Home.

10(i)     Assignment  of Leases and rights  dated  March 18,  1998  between  the
          Company and Home. 

10(j)     Stock  Purchase  Agreement  dated January 20, 1999 between the Company
          and Joel A.  Kramer  and was  filed  as an  exhibit  to the  Company's
          current report on Form 8K filed on January 27, 1999.

10(k)     Consulting  Agreement  dated  January 20, 1999 between the Company and
          Joel A.  Kramer and was filed as an exhibit to the  Company's  current
          report on Form 8K filed on January 27, 1999.

10(l)     Termination  Agreement  dated January 20, 1999 between the Company and
          Joel A.  Kramer and was filed as an exhibit to the  Company's  current
          report on Form 8K filed on January 27, 1999.

10(m)     Agreement  and Release  dated January 20, 1999 between the Company and
          Joel A.  Kramer and was filed as an exhibit to the  Company's  current
          report on Form 8K filed on January 27, 1999.

(23)      Consent  of  Grant   Thornton  LLP,   independent   certified   public
          accountants.

(27)      Financial Data Schedule.

(b) Reports on Form 8-K

     There were no reports on Form 8-K filed  during the fourth  quarter for the
fiscal year ended December 31, 1998.

                                       18


                            Telebyte Technology, Inc.

                          INDEX TO FINANCIAL STATEMENTS





                                                                      Page


Report of Independent Certified Public Accountants                    F-2

Balance Sheets as of December 31, 1998 and 1997                       F-3

Statements of Earnings for the years ended
    December 31, 1998 and 1997                                        F-5

Statement of Shareholders' Equity for the years
    ended December 31, 1998 and 1997                                  F-6

Statements of Cash Flows for the years ended
    December 31, 1998 and 1997                                        F-7

Notes to Financial Statements                                    F-8 - F-19






                                       F-1

<PAGE>


              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




To the Board of Directors and Shareholders of
    Telebyte Technology, Inc.


We have audited the accompanying balance sheets of Telebyte Technology,  Inc. as
of  December  31,  1998  and  1997,  and the  related  statements  of  earnings,
shareholders'  equity and cash flows for the years then ended.  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  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Telebyte Technology, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended,  in  conformity  with  generally  accepted  accounting
principles.





GRANT THORNTON LLP


Melville, New York
March 10, 1999

  
                                   F-2

<PAGE>
                            Telebyte Technology, Inc.

                                 BALANCE SHEETS

                                  December 31,





   ASSETS                                         1998                  1997
                                                  ----                  ----



CURRENT ASSETS
Cash and cash equivalents                   $   919,630            $   730,284
Accounts receivable, net of allowance of
$15,000                                         648,467                752,141
Inventories                                   1,421,974              1,221,768
Prepaid expenses and other                       70,977                 39,204
Deferred income taxes                            50,000                 80,000
                                                 ------                 ------
                                

Total current assets                          3,111,048              2,823,397




PROPERTY AND EQUIPMENT - AT COST,
less accumulated depreciation                 1,064,143              1,120,435








OTHER ASSETS                                 157,156                    169,632
                                             -------                   --------

                                           $4,332,347                 $4,113,464
                                            =========                  =========








The accompanying notes are an integral part of these statements.

                                       F-3

<PAGE>








                            Telebyte Technology, Inc.

                           BALANCE SHEETS (continued)

                                  December 31,




<TABLE>
<CAPTION>


                    LIABILITIES AND SHAREHOLDERS' EQUITY     

                                                                                 1998                           1997
                                                                                 ----                            ----


<S>                                                                            <C>                         <C>
CURRENT LIABILITIES
Accounts payable                                                                $   352,009                 $   415,120
Accrued expenses                                                                    136,671                     146,577
Current maturities of long-term debt                                                 64,488                      51,500
                                                                                 -----------                   ---------

Total current liabilities                                                           553,168                     613,197



LONG-TERM DEBT, less current maturities                                             862,846                     926,612


COMMITMENTS


SHAREHOLDERS' EQUITY
Common  stock - $.01 par  value;  9,000,000  
 shares  authorized;  1,661,066  and
 1,636,566 shares issued in 1998 and 1997, 
 respectively;  1,506,266 and 1,481,766
 shares outstanding in
 1998 and 1997, respectively                                                        16,611                      16,366
Capital in excess of par value                                                   2,760,921                   2,751,988
Retained earnings (deficit)                                                        239,894                     (93,606)
Treasury stock - 154,800 shares at cost,
in 1998 and 1997                                                                 (101,093)                   (101,093)
                                                                                ----------                  ----------

                                                                                 2,916,333                   2,573,655
                                                                                ---------                   ----------

                                                                                $4,332,347                  $4,113,464
                                                                                =========                   =========





</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-4

<PAGE>





<TABLE>
<CAPTION>

                            Telebyte Technology, Inc.

                             STATEMENTS OF EARNINGS

                             Year ended December 31,



                                                                         1998                          1997
                                                                        ----                          ----


<S>                                                                    <C>                             <C>       
Net sales                                                             $5,568,787                      $5,479,603
Cost of sales                                                          2,630,486                       2,526,358
                                                                       ---------                       ---------

Gross profit                                                           2,938,301                       2,953,245
                                                                       ---------                       ---------

Operating expenses
Selling, general and administrative                                    2,076,973                       2,106,880
Research and development                                                 469,415                         319,996
                                                                       ----------                      ---------

                                                                       2,546,388                       2,426,876
                                                                       ---------                       ----------

Operating profit                                                         391,913                         526,369
                                                                      ----------                         -------

Other income (expense)
Interest income                                                           26,744                          14,170
Rental income                                                             48,195                          48,195
Interest expense                                                         (97,352)                       (114,909)
                                                                       -----------                     ----------

                                                                         (22,413)                        (52,544)
                                                                       -----------                     -----------

Earnings before income taxes                                             369,500                         473,825

Income tax provision                                                      36,000                           7,000
                                                                       -----------

NET EARNINGS                                                           $   333,500                   $   466,825
                                                                        ==========                     ==========


Earnings per common share:
Basic                                                                  $.22                            $.32
                                                                        ===                             ===
Diluted                                                                $.22                            $.31
                                                                        ===                             ===

Weighted average shares:
Basic                                                                  1,501,783                       1,481,766
                                                                       =========                       =========
Diluted                                                                1,524,233                       1,503,154
                                                                       =========                       =========



</TABLE>


The accompanying notes are an integral part of these statements.

                                       F-5

<PAGE>





<TABLE>
<CAPTION>

                            Telebyte Technology, Inc.

                        STATEMENT OF SHAREHOLDERS' EQUITY

                     Years ended December 31, 1998 and 1997






                                 Number of                       Capital in     Retained
                                  shares          Common         excess of      earnings          Treasury
                                 issued           stock          par value      (deficit)          stock                  Total
                                 ------           -----          ---------      ---------          -----                  -----

<S>                            <C>               <C>              <C>            <C>            <C>                    <C> 
Balance at January 1, 1997      1,636,566        $16,366        $2,751,988     $(560,431)       $(101,093)             $2,106,830

Net earnings                                                                    466,825                                  466,825
                               ------------     ---------       ----------      --------          ---------             ---------

Balance at December 31, 1997    1,636,566       16,366           2,751,988      (93,606)          (101,093)            2,573,655

Common stock issued upon 
  exercise of options              24,500          245               8,933                                                 9,178

Net earnings                                                                    333,500                                  333,500
                               -------------    ----------     ------------     --------          ---------             --------

Balance at December 31, 1998    1,661,066       $16,611          $2,760,921   $ 239,894           $(101,093)          $2,916,333
                                =========        ======           =========     ========           ========            =========


</TABLE>





The accompanying notes are an integral part of this statement.

                                       F-6

<PAGE>





<TABLE>
<CAPTION>

                            Telebyte Technology, Inc.

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,




                                                                          1998                         1997
                                                                          ----                         ----


<S>                                                                   <C>                             <C>   
Cash flows from operating activities
 Net earnings                                                            $ 333,500                   $ 466,825
Adjustments to reconcile net earnings to net
 cash provided by operating activities
 Depreciation and amortization                                             99,648                      96,517
Deferred income taxes                                                      30,000
Decrease (increase) in operating assets
 Accounts receivable                                                       103,674                    (338,188)
Inventories                                                              (200,206)                   (143,657)
Prepaid expenses and other                                                (19,297)                    (95,921)
 (Decrease) increase in operating liabilities
 Accounts payable                                                         (63,111)                    217,097
Accrued expenses                                                           (9,906)                     51,834
                                                                         ---------                   ---------

Net cash provided by operating activities                                 274,302                     254,507
                                                                          --------

Cash flows from investing activities
 Additions to property and equipment                                      (43,356)                    (37,397)
                                                                          ---------                   ---------

Net cash used in investing activities                                     (43,356)                    (37,397)
                                                                          ---------                   ---------

Cash flows from financing activities
Principal payments of long-term debt                                      (50,778)                    (70,547)
Proceeds from exercise of stock options                                     9,178                          -     
                                                                           ---------

Net cash used in financing activities                                     (41,600)                    (70,547)
                                                                         ---------                   ---------

NET INCREASE IN CASH AND
CASH EQUIVALENTS                                                           189,346                     146,563

Cash and cash equivalents at beginning of year                             730,284                     583,721
                                                                           --------                    -------

Cash and cash equivalents at end of year                                 $ 919,630                   $ 730,284
                                                                           ========                    ========


</TABLE>


The accompanying notes are an integral part of these statements.

                                       F-7

<PAGE>
                            Telebyte Technology, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1998 and 1997


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Telebyte  Technology,  Inc. (the "Company")  designs,  manufactures  and markets
electronic data  communications  products.  The Company's products are primarily
sold to  end-users,  domestic  dealers  and  distributors,  foreign  dealers and
distributors and original equipment  manufacturers.  The Company does not depend
upon sales to a single  customer or a limited  group of customers and there were
no sales to a single  customer  during the last two years  exceeding  10% of net
sales.  The  Company  operates in a single  business  segment and has no foreign
operations.   Export  sales  were  $770,000  and  $778,000  in  1998  and  1997,
respectively.

A summary of the significant  accounting  policies  consistently  applied in the
preparation of the accompanying financial statements follows:

1.   Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

2.   Property and Equipment

Property  and  equipment  are  stated at cost,  less  accumulated  depreciation.
Depreciation is computed on the  straight-line  basis over the estimated  useful
lives of the assets,  which are 35 years for  building  and  improvements  and 5
years for equipment.

3.   Income Taxes

Deferred income taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and loss  carryforwards
for which income tax benefits  are  expected to be realized in future  years.  A
valuation allowance had been established to reduce the deferred tax assets as it
was more likely than not that all, or some portion,  of such deferred tax assets
would not be realized.  The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.

4.   Advertising

Advertising  costs are expensed as incurred  and totaled  $69,000 and $65,000 in
1998 and 1997, respectively.


                                       F-8

<PAGE>






                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997



NOTE A (continued)

5.   Earnings Per Share

Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),  "Earnings
per Share,"  replaced the calculation of primary and fully diluted  earnings per
share with basic and diluted  earnings per share.  Unlike  primary  earnings per
share,  basic  earnings  per share  excludes  any  dilutive  effects of options,
warrants and convertible securities.  Diluted earnings per share is very similar
to the previously  reported fully diluted  earnings per share.  All earnings per
share  amounts for all periods  have been  presented,  and,  where  appropriate,
restated to conform to the SFAS No. 128 requirements.

6.   Stock-Based Compensation Plans

The Company  maintains two fixed stock option plans,  as more fully described in
Note G to the financial  statements,  accounted for using the "intrinsic  value"
method pursuant to the provisions of Accounting Principles Board Opinion No. 25,
"Accounting  for Stock Issued to  Employees,"  and,  accordingly,  recognizes no
compensation  expenses.  Therefore,  the  Company  has  elected  the  disclosure
provisions  only  of  Statement  of  Financial  Accounting  Standards  No.  123,
"Accounting for Stock-Based Compensation."

7.   Statements of Cash Flows

For  purposes of the  statements  of cash flows,  the Company  considers  highly
liquid cash investments with an original  maturity of three months or less to be
cash  equivalents.  The Company paid interest of $94,302 and $114,289 and income
taxes of $1,562 and $200 in 1998 and 1997, respectively.

8.   Revenue Recognition

Revenue is  recognized  from sales when a product is shipped.  Service  fees are
recognized upon the completion of the related service.

                                      F-9

<PAGE>









                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997



NOTE A (continued)

9.       Use of Estimates and Fair Value of Financial Instruments

In  preparing  financial   statements  in  conformity  with  generally  accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

The  Company  has  estimated  the fair  value  of  financial  instruments  using
available  market  information and other valuation  methodologies  in accordance
with Financial  Accounting  Standards No. 107,  "Disclosures About Fair Value of
Financial  Instruments."  Management of the Company believes that the fair value
of financial  instruments,  consisting of cash,  accounts  receivable  and debt,
approximate   carrying  value  due  to  the  immediate  or  short-term  maturity
associated  with  its  cash  and  accounts  receivable  and the  interest  rates
associated with its debt.


NOTE B - INVENTORIES
<TABLE>
<CAPTION>

Inventories consist of the following at December 31:

                                                                        1998                       1997
                                                                        ----                       ----

<S>                                                                <C>                        <C>        
Purchased components and materials                                 $   596,171                $   581,912
Work in process                                                        275,073                    256,916
Finished goods                                                         550,730                    382,940
                                                                      ---------                   -------

                                                                     $1,421,974                 $1,221,768
                                                                      =========                  =========


</TABLE>



                                      F-10

<PAGE>



                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997

<TABLE>
<CAPTION>


NOTE C - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31:

                                                                               1998                       1997
                                                                               ----                       ----


<S>                                                                         <C>                      <C>        
Land                                                                        $ 300,000                $   300,000
Building and improvements                                                   1,024,583                  1,024,583
Equipment                                                                     595,578                    552,222
                                                                            ----------                   -------

                                                                            1,920,161                  1,876,805
Less accumulated depreciation                                                 856,018                    756,370
                                                                            ----------                  --------

                                                                           $1,064,143                 $1,120,435
                                                                            =========                   =========

</TABLE>


NOTE D - DEBT

1.   Line of Credit Facility

The Company has an agreement with a financial  institution,  expiring July 1999,
which  provides the Company with a line of credit  facility of up to  $1,000,000
("Original  Facility")  based on  eligible  accounts  receivable  and  purchased
components  and  materials and finished  goods  inventories  of the Company,  as
defined in the agreement.  Further,  the agreement  contains  certain  financial
covenants  which require the Company to maintain a minimum level of tangible net
worth  and  places  limitations  on the  ratio of the  Company's  total  debt to
Company's tangible net worth, as defined in the agreement.  Borrowings under the
line of credit bear interest at the bank's specified prime rate plus .75% (8.50%
at December 31, 1998).  There was no  outstanding  balance  against this line at
December 31, 1998.

In January 1999, the Company  secured an additional  Reducing  Revolving line of
credit from this  institution  which  provides  for initial  borrowings  up to a
maximum of $1,000,000.  Availability under the Reducing Revolving line of credit
will decrease  approximately  $11,900 per month and will expire January 2006. In
conjunction with obtaining this additional line of credit financing, the Company
reduced  availability under its Original Facility to $500,000.  Borrowings under
this loan  agreement  bear  interest  at the 30 Day  Commercial  Paper Rate plus
2.90%. (8.45% at December 31, 1998).

                                      F-11

<PAGE>

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997



NOTE D (continued)

2.   Long-Term Debt

The Company's first mortgage note is  collateralized  by land and building.  The
remaining  unpaid mortgage note balance at December 31, 1998 is payable in equal
monthly  installments  of $12,111  (inclusive of interest at 9%) with a maturity
date of June 2008.  In March  1998,  the  Company  modified  the  mortgage  note
agreement,  reducing the existing  interest  rate to 9% through June 1, 2000. At
that time, and every three years thereafter,  the interest rate will be adjusted
to the three-year  weekly average U.S.  Treasury Constant Maturity Rate plus 3%.
Financing and other costs  aggregating  $95,122  incurred in connection with the
acquisition of real property and the  refinancing of mortgage debt are stated at
cost,  net of  accumulated  amortization  of $53,222 and $48,247 at December 31,
1998  and  1997,  respectively,  and  are  included  in  "Other  assets"  in the
accompanying  balance sheets.  Amortization is provided on a straight-line basis
over the life of the mortgage note of 20 years.

Long-term debt is summarized as follows at December 31:

                                                      1998                1997
                                                      ----                ----


First mortgage note payable to bank in
 equal monthly installments, including
 interest, through June 2008                        $927,334            $978,112

Less current maturities                               64,488              51,500
                                                    --------            --------
                                                    $862,846            $926,612
                                                     =======             =======

Aggregate maturities of long-term debt as of December 31, 1998 are as follows:

1999                                 $  64,488
2000                                    70,537
2001                                    77,154
2002                                    84,392
2003                                    92,309
Thereafter                             538,454

                                      $927,334
                                      ========


                                      F-12

<PAGE>
                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997



NOTE E - EMPLOYEE BENEFIT PLANS

The Company  sponsors an employee  investment  savings 401(k) plan to which both
the Company and employees contribute. All employees are eligible to participate;
the  Company  contributes  50% of the first 2% deferred  by the  employee.  Each
employee may  voluntarily  contribute up to 15% of annual  compensation,  or the
maximum  allowed as determined by the Internal  Revenue Code.  Benefits are 100%
vested  and are  payable  upon the  employee's  death,  disability,  retirement,
termination and under certain financial circumstances. Employer contributions of
$8,285 and $7,417 were made to the plan in 1998 and 1997, respectively.

The  Company  maintains  deferred  compensation   agreements  with  several  key
officers,  whereby the officers will receive a defined amount  approximating 30%
of their 1990 base  salary for a period of 10 years after  reaching  age 65. The
deferred  compensation  plans are funded  through life  insurance  and are being
provided  for  currently.  The  expense  charged to  operations  for such future
obligations was approximately $9,800 and $16,700 in 1998 and 1997, respectively.


NOTE F - INCOME TAXES

The provision for income taxes is summarized as follows:

                                                 1998                     1997
                                                 ----                     ----


Current
Federal                                         $  2,000                 $2,000
State                                              4,000                  5,000
                                                  ------                 ------

                                                   6,000                  7,000

Deferred tax expense                              30,000                  -----

                                                 $36,000                 $7,000
                                                  ======                  =====




                                      F-13

<PAGE>





                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997
<TABLE>
<CAPTION>



NOTE F (continued)

The  actual  income tax  expense  differs  from the  Federal  statutory  rate as
follows:

                                                        1998                                       1997
                                                        ----                                       ----
                                             Amount                  %                  Amount                  %


<S>                                         <C>                     <C>                <C>                    <C>  
Federal statutory rate                      $ 126,000               34.0%              $ 161,000              34.0%
State income taxes, net of
Federal income tax benefit                      3,000                 .8                   3,000                .6
Officers' life insurance                        7,000                1.9                   7,000               1.5
Other                                           1,000                 .3                   2,000                .4
Benefit of net operating loss
carryforward                                 (101,000)             (27.3)               (166,000)            (35.0)
                                              --------              -----               ---------            ------

                                            $  36,000                9.7%              $   7,000               1.5%
                                             =========               ===               =========               === 

</TABLE>

At December 31,  1998,  the Company has net  operating  loss  carryforwards  and
General  Business Tax Credits  expiring from 1999 through 2007 of  approximately
$176,000 and $66,000, respectively, available to reduce Federal and state income
taxes resulting from future operations.

The tax effects of temporary  differences which give rise to deferred tax assets
(liabilities) at December 31, 1998 and 1997, are summarized as follows:

                                                     1998                  1997
                                                     ----                  ----


Deferred tax assets
 Net operating loss carryforwards                 $   70,000          $ 213,000
 Investment and other tax credit carryforwards        66,000             66,000
 Deferred compensation                                46,000
 Inventory valuation                                   8,000             10,000
 Allowance for doubtful accounts                       6,000              6,000
 Other                                                 6,000              5,000
                                                   ----------            ------

Gross deferred tax assets (carried forward)          202,000            300,000

                                      F-14

<PAGE>

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997



NOTE F (continued)

                                                     1998                1997
                                                     ----                ----
Gross deferred tax assets (brought forward)       $ 202,000           $ 300,000

Deferred tax liabilities
Excess tax over book depreciation                  (152,000)           (152,000)
                                                   --------            --------

Net deferred tax assets before
valuation allowance                                  50,000             148,000

Valuation allowance                                --------              68,000

Net deferred tax assets                          $   50,000          $   80,000
                                                  =========           =========



NOTE G - STOCK OPTION PLANS

In 1987, the Company  adopted a plan which provided for the granting to officers
and key employees of the Company of incentive  stock options,  as defined in the
Internal  Revenue Code,  for the purchase of a maximum of 250,000  shares of the
Company's common stock.  Under the terms of the plan, the options,  which expire
ten years after grant, are exercisable at a price equal to the fair market value
of the stock at the date of the grant.  The options  become  exercisable in four
annual installments,  the first installment  occurring within one year after the
date of grant.

In 1994, the Company adopted the 1993 Stock Option Plan (the "1993 Plan"), which
provides  for the  granting to  directors  and key  employees  of the Company of
incentive  stock  options and  nonqualified  stock options for the purchase of a
maximum of 100,000 shares of the Company's common stock.  Under the terms of the
1993 Plan, the options, which expire ten years after grant, are exercisable at a
price equal to the fair  market  value of the stock at the date of the grant for
incentive  stock options and at prices  determined by the Board of Directors for
nonqualified  stock options,  and become  exercisable  in accordance  with terms
established  at the time of the grant.  At December  31,  1998,  the Company had
reserved 32,500 shares under the 1993 Plan.

                                      F-15

<PAGE>



                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997



NOTE G (continued)

The  following is a summary of activity  with respect to stock options under the
plans:

<TABLE>
<CAPTION>
                                                                                                     Weighted average
                                                        Shares             Price per share            price per share  
                                                        ------             ---------------            ---------------  


<S>                                                     <C>                <C>                          <C> 
Outstanding at January 1, 1997                          71,750             $.3125 to 2.04               $.86
Granted                                                  5,000              .685                         .685
Expired                                                (15,000)             .3125 to .90                 .71
                                                        -------

Outstanding at December 31, 1997                         61,750            .3125 to 2.04                .88
Granted                                                  27,500             1.25 to 3.80               3.25
Exercised                                               (24,500)           .3125 to .6850               .37
Expired                                                    (200)           .75                          .75
                                                        ---------

Outstanding at December 31, 1998                         64,550            .3125 to 3.80                2.08
                                                        -------

Balance exercisable at December 31, 1998                 45,675            .3125 to 3.80                1.50
                                                        =======

</TABLE>

The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 1998:
<TABLE>
<CAPTION>

                                                 Options outstanding                             Options exercisable
                                                 -------------------                             -------------------

                                                        Weighted          Weighted                             Weighted
                                                         average          average                               average
        Ranges of                                       remaining         exercise                             exercise
     exercise prices               Shares             life in years        price               Shares            price  
     ---------------               ------             -------------        -----               ------            -----  


<S>   <C>                         <C>                     <C>             <C>                     <C>           <C>   
Under $1.00                       17,050                  5.5             $  .82                  15,800        $  .84
$1.01 to $2.04                    25,000                   7                1.48                  25,000          1.48
$2.05 to $3.80                    22,500                   9                3.69                   4,875          3.80


The weighted-average  option fair value on the grant date was $2.63 and $.53 for
options issued during the years ended December 31, 1998 and 1997, respectively.
The Company has adopted the  disclosure  provisions  of  Statement  of Financial
Accounting Standards No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS
No.  123");  it applies  APB  Opinion No. 25,  "Accounting  for Stock  Issued to
Employees," and related interpretations in accounting for the Plans and does not
recognize  compensation  expense for such  Plans.  If the Company had elected to
recognize  compensation expense based upon the fair value at the grant dates for
awards under these plans consistent with the methodology  prescribed by SFAS No.
123, the Company's reported net
</TABLE>

                                      F-16
<PAGE>


                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997

NOTE G (continued)

earnings  and  earnings  per share  would be  reduced  to the pro  forma  amount
indicated below for the years ended December 31:

                                                1998                       1997
                                                ----                       ----

Net earnings
As reported                                    $333,500                 $466,825
Pro forma                                       311,862                  466,273
Basic earnings per common share
As reported                                        $.22                    $.32
Pro forma                                           .21                     .31
Diluted earnings per common share
As reported                                        $.22                    $.31
Pro forma                                           .20                     .31

These pro forma amounts may not be representative of future disclosures  because
they do not take into effect pro forma  compensation  expense  related to grants
made before 1997.  The fair value of these  options was estimated at the date of
grant  using  the   Black-Scholes   option-pricing   model  with  the  following
weighted-average  assumptions  for the years ended  December  31, 1998 and 1997,
respectively:  expected  volatility of 95% and 80%;  risk-free interest rates of
5.602% and 6.820% and expected term of seven years for both years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option  valuation  models require the use of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
assumptions  can  materially  affect the fair value  estimate,  in  management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

NOTE H - COMMITMENTS


Lease Commitments

The  Company  leases  certain  equipment  used  in its  operations  pursuant  to
noncancellable  operating leases expiring through July, 2002. Rental expense for
such equipment was $17,247 and $13,774


                                          
                                      F-17

<PAGE>

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997



NOTE H (continued)

in 1998 and 1997,  respectively.  The  minimum  rental  commitments  under these
noncancellable  operating  leases,  at December  31,  1998,  are  summarized  as
follows:

1999                                       $21,000
2000                                        12,000
2001                                         4,000
2002                                         2,000
                                           -------

                                           $39,000
                                           =======


Employment Contracts

The Company has employment  contracts with various officers with remaining terms
of  approximately  two years at amounts  approximating  their current  levels of
compensation.  The Company's remaining aggregate commitment at December 31, 1998
under such contracts is approximately $353,000.


NOTE I - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

                                                          December 31,

                                                1998                     1997
                                                ----                     ----


Numerator
Net income                                  $   333,500                $466,825
                                              =========                 =======

Denominator
Denominator for basic earnings per share
(weighted-average shares)                     1,501,783               1,481,766
Effect of dilutive securities
(employee stock options)                         22,450                  21,388
                                              -----------             ---------
Denominator for diluted earnings per share
(adjusted weighted-average shares and
assumed conversions)                         1,524,233                1,503,154
                                             =========                =========

Basic earnings per share                        $.22                       $.32
                                                 ===                        ===
Diluted earnings per share                      $.22                       $.31
                                                 ===                        ===


                                      F-18

<PAGE>


                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1998 and 1997



NOTE J - MAJOR SUPPLIERS

The Company  purchased  approximately  16% and 10% of its raw materials from two
suppliers  during the year ended  December  31, 1998.  If required,  the Company
believes that similar products could be purchased from other sources.


NOTE K - SUBSEQUENT EVENTS

Effective  January 20, 1999,  then  Chairman of the Board,  President  and Chief
Executive Officer of the Company (the "Former Chairman")  resigned his positions
with the Company. However, the Former Chairman will serve as a consultant to the
Company through January 19, 2002 for an aggregate consideration of $165,000 plus
reimbursement  for certain expenses.  In addition,  the Company purchased all of
the shares of common stock of the Company  owned by the Former  Chairman and the
Former  Chairman  agreed to cancel  options to purchase  10,000 shares of common
stock of the Company  for an  aggregate  consideration  of  $1,075,190  of which
$867,510 was for such shares,  $17,680 was for the  cancellation of such options
and $190,000 was for the Former Chairman's  restrictive  covenant.  In addition,
the Former  Chairman  has agreed not to compete with the business of the Company
until  January 19, 2003 and has  released  the Company  from  certain  potential
claims relative to his previous  employment.  Further, the Company transferred a
life insurance policy maintained under the Company's deferred compensation plan,
to the Former Chairman, having a cash value of approximately $80,000.




                                      F-19

<PAGE>

                                   Signatures

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  Registrant had duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

TELEBYTE TECHNOLOGY, INC.



                                   By:  __________\s\_________________
                                        Kenneth S. Schneider
                                        Chairman of the Board
                                        (Chief Executive Officer)


                                   By:  ___________\s\________________
                                        Michael Breneisen
                                        President
                                        (Chief Operating Officer and Principal
                                        Financial and Accounting Officer)


Date:    March 31, 1999


     In accordance  with 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.


March 31, 1999                          __________\s\_____________
                                        Kenneth S. Schneider, Director



March 31, 1999                          ___________\s\____________
                                        Jamil Sopher, Director


March 31, 1999                          ___________\s\____________
                                        Michael Breneisen, Director