U.S. 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, 2001

[_]  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, Inc.
                 (Name of small business issuer in its charter)

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

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

Issuer's telephone number, including area code (631) 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.

                              Yes [X]     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 issuer's revenues for its most recent fiscal year were $5,775,111

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at March 15, 2002 was $1,133,948


The number of shares of common stock outstanding at March 15, 2002 was
1,253,631.

DOCUMENTS INCORPORATED BY REFERENCE: None

Transitional Small Business Disclosure Format (check one): Yes[_] No [X]


<PAGE>


                           FORWARD-LOOKING STATEMENTS

Cautionary Statements Regarding Forward-Looking Statements. Statements in this
Annual Report on Form 10-KSB under the captions "Description of Business,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Risk Factors" and elsewhere in this Form 10-KSB, as well as
statements made in press releases and oral statements that may be made by the
Company or by officers, directors or employees of the Company acting on the
Company's behalf, that are not statements of historical fact, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that could cause the actual
results of the Company to be materially different from the historical results or
from any future results expressed or implied by such forward-looking statements.
In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
"believes," "belief," "expects," "plans," "anticipates," or "intends," to be
uncertain and forward-looking. All cautionary statements made in this Form
10-KSB should be read as being applicable to all related forward-looking
statements wherever they appear.

                                     PART 1



Item 1. Description of Business

Introduction

Telebyte, Inc., formerly known as Telebyte Technology, Inc. (herein either the
"Company" or "Telebyte") was formed as a New York corporation in August 1983,
re-incorporated in Nevada in 1987, and re-incorporated in Delaware in 1999. The
Company changed its name to Telebyte, Inc. in 1999. The Company's headquarters
is located in Greenlawn, New York.

The Company is focused in two separate business segments.

The first segment is Telebyte, Inc, which is a manufacturer of technology
products. This business segment has two product lines; Data Communications and
Broadband Test Equipment. The Data Communications product line is focused on
premises and local area data communications products used with both twisted pair
copper cable and fiber optic cable transmission media. The Broadband Test
Equipment product line is focused on test equipment products to be used in the
development of signaling devices for technologies achieving broadband access to
the Internet.

The second segment is Nextday.com, Inc. ("Nextday.com") a wholly owned
subsidiary of Telebyte that concentrates on reselling products over the
Internet. Nextday.com's operations are carried out in Greenlawn, New York.
Nextday.com has formed an alliance with a third-party fulfillment company for
the warehousing and distribution of its products. Nextday.com does not conduct
any foreign operations. Nextday.com was incorporated in New York in 1999.

Business Developments for 1999, 2000 and 2001

During January 1999, the Company concluded negotiations with Joel A. Kramer for
the purchase of his equity interest in the Company. Effective January 20, 1999,
Joel A. Kramer, then the Chairman of the Board, President and Chief Executive
Officer of Telebyte resigned these positions. 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
in exchange for Mr. Kramer's restrictive covenant.

In addition, Mr. Kramer agreed not to compete with the business of the Company
until January 19, 2003 and released the Company from certain potential claims
relative to his previous employment. The Company also transferred a life
insurance policy to Mr. Kramer, previously maintained for Mr. Kramer's benefit
and having a cash value of approximately $80,000. However, it was intended that
Mr. Kramer serve as a consultant to the Company through January 19, 2002 for an
aggregate consideration of $165,000 plus reimbursement for certain expenses. See
"Certain Relationships and Related Transactions."


<PAGE>


With the departure of Mr. Kramer, Company leadership transferred to a new team
consisting of Dr. Kenneth S. Schneider, a founder, as Chairman and CEO, and Mr.
Michael Breneisen as President and COO. During 1999, the Company went through a
major internal reorganization resulting in greater efficiencies in operations.
This included restructuring the Sales and Marketing Dept. and carrying out
customer technical support from the Engineering Dept.

In 1999, the Company formed Nextday.com as a wholly owned subsidiary in order to
focus on the business-to-business e-commerce marketplace. Nextday.com was
launched in the fourth quarter of 1999 with Michael Breneisen as its CEO.

During 2000, the Company decided to focus significant attention on the growth of
its Broadband Test Equipment product line. To this end, it adopted and began
executing a detailed plan for the development of new products in this area. It
also undertook an aggressive promotional strategy, which included attendance at
tradeshows, industry trade group meetings and customer visits. The Company also
opened up a sales office in Duluth, Georgia dedicated to the marketing and sales
of its Broadband Test Equipment.

The activities of the Company's e-commerce subsidiary, Nextday.com were
significantly impacted when its Applications Service Provider ("ASP") announced
the cessation of its business in 2000. This was a major setback in the growth of
Nextday.com and as a result the Company decided not to rely on the services of
an ASP for future operations. Instead, the Company decided to obtain and own
required hardware and software for both Nextday.com and Telebyte. This became
part of an overall approach "to e-business enable" the Company as a whole on a
common platform. In large part, the Company realized the majority of the goal to
have Telebyte and Nextday.com on this new platform by the end of 2001.

During 2001, the Company's broadened its strategy to include the development,
manufacturing and sale of products allowing the realization of wireless
communication links between Internet Service Providers ("ISPs") and their
customers. To this end, the Company entered into agreements with Renaissance
Networking Inc. of Tempe Arizona for the joint development and manufacture of
such products. Activities with respect to development began in 2001 and are
continuing in 2002.

Sales declined markedly in 2001 due to a worldwide economic slowdown, especially
after the events of September 11, 2001. In responding to these challenging
conditions, the Company decided to close the office in Duluth, Georgia. The
termination of the lease on the office space and the termination of personnel
associated with this operation allowed the Company to realize savings.

Products

The Data Communications product line principally consists of Interface
Converters, Short Haul Modems, LAN Products and Surge/Lightning Protectors.
These are described below.

Interface Converters transform the characteristics of the electrical interface
of one data terminal or communication device to enable it to be compatible with
the electrical interface of another. This allows different devices to
communicate. The conversion may include modifying the protocol and/or the
physical transmission medium. By employing interface converters, a data
communications network can be established or expanded using heterogeneous
equipment types. Without the use of interface converters, such equipment would
be unable to communicate. Because the data communications industry continues to
develop new interface standards, the Company anticipates that the market may
require new varieties of interface converters. We anticipate an expansion of the
market for existing products and the creation of opportunities for new products.
Customers for these products include system and network integrators. Telebyte's
line of interface converters is available in most of the configurations now
required by the market and includes programmable devices.

Short Haul Modems (alternatively referred to as either line drivers or limited
distance modems) are communications signaling devices used to implement a data
communications link over the short distances of the premises environment.
Customers for these products include system and network integrators. The
premises environment is that of the office building, campus, industrial or other
sites. Data communication distances here vary from a few feet to a few miles.
Short haul modems are used to connect computers with 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 mainframe
computers. In some cases, short haul modems can be used to signal on telephone
company (Telco) 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.


<PAGE>


LAN Products support Local Area Network ("LAN") computer communication
connectivity in the office building, campus or manufacturing environment when
such connectivity follows the Ethernet standard.

Surge/Lightning Protectors prevent computers, modems, and computer peripherals
from damage caused by voltage and current surges. Such surges may result from
lightning or other electronic disturbances.

The Broadband Test Equipment product line principally consists of Digital
Subscriber Line ("DSL") Wire Line Simulators. These simulators are used in
engineering design, performance verification and production testing of DSL
modems and Digital Subscriber Line Access Multiplexers "DSLAMs." These products
are used by design and development engineers, laboratory test and verification
engineers and production test engineers. Primarily companies that are involved
in the manufacture of DSL modems and DSLAMs use these simulators.

The DSL modems are used as Customer Premises Equipment ("CPE"). They enable the
user or the customer, at either residence or business, to connect to the
Internet by the broadband, high speed, or DSL service. The DSLAMs are used at a
Telephone Company ("Telco") Central Office ("CO"). They are the TELCO
termination of the customer's DSL line. With one exception, the DSL Wire Line
Simulators simulate the amplitude and delay of the local loop (twisted pair of
cable) extending from the CO to the CPE. These products differ in the loop
lengths and bandwidths that they can accurately represent. The single exception
is a product that simulates the various noise and interference impairments
present on the local loop.

Manufacturing

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.

The Company does not depend upon any particular source of supply, and not more
than 10% of purchases were from a single supplier.

Research and Development

The research and new product development budget for 2002 is $750,000 compared to
approximately $727,000 spent in 2001. The cost of research and development is
not borne directly by the Company's customers.

Government Regulation

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

These activities are performed by a Company employed sales staff. Customer
contact is maintained by personal visits, telephone, fax and e-mail. Sales in
the United States and Canada are primarily direct to the end-users. The Company
utilizes a limited number of Manufacturer's Representatives for sales of
broadband test equipment in the United States. Sales outside the United States
and Canada are primarily carried out through distributors.

Marketing activities are focused on and around the Internet using several
websites. The websites include www.telebyteusa.com, www.telebytebroadband.com
and www.nextday.com. These web sites include various content for all of
Telebyte's products including product descriptions, specifications, application
notes, and product manuals. Attracting an increasing number of customers to this
web site is a high priority of the Company. To realize this end, the Company
conducts search engine optimization activities. Specifically, the Company
designs its web site pages to increase the


<PAGE>


likelihood that they will be ranked high by the major Internet search engines.
Such search engine optimization increases the likelihood that customers for
Telebyte's products may find the Company's products on the Internet before other
sources.

Marketing activities for Broadband Test Equipment rely heavily upon attendance
and participation in trade shows focused on broadband products. These include
the DSLcon and International Engineering Consortium.

The Company makes a significant effort to participate in Industry organizations
and standards bodies such as DSL Forum, ANSI subcommittee T1E1.4 and TIA's
TR-30.3. It is believed that such participation may bring this product line
greater exposure.

Competition

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

The Company's principal competitors for Data Communications products 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 smaller 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.

Telebyte is fortunate in having had and still having only one principal
competitor for its Broadband Test Equipment product line, Spirent LLC. Until
1999, the competitor was Consultronics Limited with headquarters in Concord,
Ontario Canada. In 1999, Consultronics sold its local loop simulator line to
Spirent, which placed the Consultronics products in its Communications group as
the DLS Division.

To obtain market share 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.
Historically, the Company has not relied upon patents, registered trademarks or
licenses to give it a competitive advantage. The Company does not have any
patents or copyrights. The Company has one trademark, 'Telebyte.'

Employees

As of December 31, 2001, the Company had 52 employees of which 35 were full-time
employees. None of the employees are represented by a labor union and the
Company considers its employee relations to be good. The Company also uses
subcontractors to support its current operations.

Backlog

At December 31, 2002, the Company's backlog was $254,794 all of which the
Company expects to fill in fiscal 2001. Comparable backlog at December 31, 2000
was $ 693,306.

Item 2. Description of Property

Telebyte's executive office, plant, and manufacturing facility are located in a
20,000 square foot 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 9.3% through
June 1, 2003. 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, 2001, was $713,176. Management believes that all of its properties,
plant, and equipment are well maintained and adequate for its requirements.
Management believes that the property is adequately covered by insurance.


<PAGE>


Of the 20,000 square feet, the Company has leased 5,300 square feet to an
unaffiliated 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 for the next three years.

During 2001, the Company leased 2,167 square feet of office space in Duluth,
Georgia where the sales and marketing activities of the Broadband Test Equipment
product line were carried out. In July 2001, the Company decided to reduce
expenses by eliminating the management and support activities provided by
personnel in this office. The Company closed the office and terminated the lease
agreement.

Item 3. Legal Proceedings

Not applicable.

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

Not applicable.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

The Company's common stock is traded in the over the counter bulletin board
under the symbol "TBTI."

The following table sets forth the high and low bid prices for the common stock
for each fiscal quarter during 2001 and 2000 as reported by NASDAQ Trading and
Market Services. The bid and ask prices for the common stock on March 15, 2002
were $1.01 and $1.25 respectively.

            ----------------------------------- --------------------------------
                           2001                                2000
            ----------------------------------- --------------------------------
            High              Low               High               Low
----------- ----------------- ----------------- ------------------ -------------
1st Quarter     $ 2.56              $1.44             $13.50             $2.75
----------- ----------------- ----------------- ------------------ -------------
2nd Quarter       1.88               1.45               4.00              2.00
----------- ----------------- ----------------- ------------------ -------------
3rd Quarter       1.82               0.87               3.50              2.25
----------- ----------------- ----------------- ------------------ -------------
4th Quarter       1.1                0.8                3.25              1.187
----------- ----------------- ----------------- ------------------ -------------

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 15, 2002, there were approximately 217 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. The Company has no agreements that prohibit
the payment of dividends by the Company.


<PAGE>


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

Results of Operations

Fiscal 2001 Compared to Fiscal 2000

Sales for the year ended December 31, 2001 decreased by $689,417 to $5,775,111
compared to $6,464,528 for 2000. This decrease in sales is due primarily due to
the general downturn in the economy.

With respect to the sales in each of the Company's product lines results are as
follows. For the Data Communications products; the sale of interface converters
represented 40% of Telebyte's revenue in 2001 as compared to 43.9% in 2000, the
sale of short haul modems represented 20.2% of Telebyte's net sales in 2001 as
compared to 21.7% in 2000, the sale of LAN products represented 4.6% of
Telebyte's net sales in 2001 as compared with 5.5% in 2000, the sale of
Surge/Lightning Protectors represented 2.6% of Telebyte's net sales in 2001 as
compared with 5.5% in 2000. Broadband test equipment represented 16.7% of
Telebyte's net sales in 2001 as compared with 16.8% in 2000.

The gross profit for 2001 was 41.7% as compared to 51.2% for 2000. The decrease
in our profit margin percentage was primarily due to specific customer sales
during the third and fourth quarters that had lower than normal profit margins
and product mix. In particular, as the economy slowed through 2001 and Company
sales decreased compared to 2000, the Company undertook a number of actions in
order to stimulate sales. In the 3rd and 4th Quarters of 2001 these actions
included a reduction in the price of specific products for many sales
opportunities. Such sales were heavily discounted. The result of all of these
actions was a decrease to overall gross profit for 2001 compared to 2000.

Selling, general, and administrative costs increased by $416,369 to $2,385,887
in 2001, compared to $1,969,518 in 2000. The increase was primarily due to the
cost associated with sales and marketing office located in Duluth, Georgia,
which was dedicated exclusively to the Broadband Test Equipment product line.
This location was chosen for recruitment of the sales and marketing personnel
needed for the Broadband Test Equipment product line. This office had facilities
for equipment demonstrations, training and customer contact. During the later
part of the second quarter of 2001, Company management began a review of the
efficiency associated with having this dedicated facility. As a result, on July
12, 2001, management began preparations for closing this office. The lease on
the corresponding office space was terminated.

Research and development expenses increased in 2001 to $727,062 or 12.6% of
sales, from $537,236, or 8.3% of sales in 2000. Product development was directed
at the continued enhancement of both the Company's Broadband and Datacom
products. The Company commenced an alliance with Renaissance Networks Inc. (RNi)
of Tempe Arizona in 2001. The objective of this alliance is the joint
development by both Telebyte, Inc. and RNi of an IP router. This IP router will
be suitable for use by Internet Service Providers (ISPs) that provide Internet
access to their customers through wireless links. The Company expects to
complete the development of the IP router and ship the first unit during 2002.

Interest expense, of $98,471 in 2001 increased to 1.7% of sales as compared to
$95,202, or 1.5% of sales in 2000. This increase was due to higher debt during
2001. Interest expense is primarily incurred in connection with the mortgage
note payable and the Company's lines of credit.

Interest income of $6,346 in 2001 decreased compared to $31,649 in 2000. The
decrease in 2001 was due to lower average levels of cash on hand during 2001. In
2001, the Company had rental income of $48,195, equal to the 2000 rental income.
Rental income is derived from the tenant in the Greenlawn, NY facility. For
2002, the Company expects rental income of approximately $48,000.

The Company had a net loss of $398,507 or $0.32 basic and diluted per share in
2001, compared to net earnings of $503,922 or $0.32 diluted per share, for 2000.


<PAGE>


Liquidity and Capital Resources

In 2001, the Company invested $173,999 in property and equipment, which was
financed through internally generated funds. Net cash used by operating
activities during 2001 was $574,680, compared to net cash provided by operation
of $678,268 in 2000. The decrease was principally due to the net loss and the
increase in inventory in 2001 as compared to 2000.

Working capital decreased, at December 31, 2001 by $174,795, to $2,317,098
compared with $2,491,893 at December 31, 2000. The current ratio decreased to
2.9 to 1 at December 31, 2001, compared to 4.5 to 1 at December 31, 2000.

The Company has an agreement with a financial institution, Merrill Lynch,
expiring June 30, 2002, which provides the Company with a line-of-credit
facility of up to $500,000 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% (5.5%
at December 31, 2001). Net borrowings under this line of credit totaled $399,400
at December 31, 2001.

In January 1999, the Company secured an additional Reducing Revolving Line of
Credit from Merrill Lynch, which provides for initial borrowings up to a maximum
of $1,000,000. Availability under the Reducing Revolving Line of Credit will be
reduced monthly by approximately $11,900 and will expire January 2006.
Availability under this line at December 31, 2001 was approximately $583,000.
Borrowings under this loan agreement bear interest at the 30-Day Commercial
Paper Rate plus 2.90%. (4.68% at December 31, 2001). Net borrowings under this
line of credit totaled $257,149 at December 31, 2001.

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

Effect of Inflation

During the five-year period ended December 31, 2001, 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 due in large part to changes in
manufacturing methodology, namely, increasing the amount of product manufactured
on a sub-contractor basis.

Risk Factors

WE HAVE A LIMITED OPERATING HISTORY WITH RESPECT TO THE INTERNET, AND WE EXPECT
TO ENCOUNTER RISKS FREQUENTLY FACED BY EARLY-STAGE COMPANIES IN NEW AND RAPIDLY
EVOLVING MARKETS.

We incorporated our company in 1983 and launched Telebyteusa.com in 1995. We
formed Nextday.com as a wholly owned subsidiary in 1999, and launched its Web
site that same year. Accordingly, the Internet segment of our business has a
limited operating history upon which you can evaluate that portion of our
business. In order to be successful, we must attract more traffic to
Telebyteusa.com and Nextday.com, and generate significant e-commerce revenues.
However, as a relatively recent entrant in a new and rapidly evolving market
like the Internet, we face numerous risks and uncertainties. Some of these risks
and uncertainties relate to our ability to:

     o    develop further Telebyteusa.com and Nextday.com awareness and brand
          loyalty;

     o    attract a larger audience to, and increase frequency of use of, our
          Telebyteusa.com and Nextday.com Web sites;

     o    increase customer acceptance of the online purchase of products
          through our sites;

     o    generate increased e-commerce revenues through our Web site from
          consumers and other commercial vendors;


<PAGE>


     o    anticipate and adapt to the changing market for Internet services and
          e-commerce;

     o    respond to actions taken by our competitors;

     o    manage our growth effectively;

     o    implement our advertising and marketing strategies;

     o    develop and renew strategic relationships, particularly with
          suppliers;

     o    attract, retain and motivate qualified personnel; and

     o    continue to upgrade and enhance our technologies and services to
          accommodate expanded service offerings and increased consumer traffic.

We may not be successful in accomplishing any or all of these objectives, and we
cannot be certain that we will be able to maintain our current level of revenues
from our present operations.

WE EXPECT LOSSES FROM OPERATIONS, AND OUR FUTURE PROFITABILITY OF SUCH
OPERATIONS REMAINS UNCERTAIN.

Our ability to generate significant revenue from our Web sites is uncertain. We
have incurred and will incur substantial costs to create, launch and enhance
Telebyteusa.com and Nextday.com, to build brand awareness and to grow our
business. We expect losses from operations and negative cash flows from our
Internet business for the foreseeable future because we plan to incur
significant expenses as we expand our advertising and marketing programs,
continue to develop and extend the Telebyteusa.com and Nextday.com brands,
expand our infrastructure and data collection capabilities, and seek to acquire
complementary businesses and technologies. If our revenues do not increase and
if our spending levels are not adjusted accordingly, we may not generate
sufficient revenues to achieve profitability of this segment. Even if we do
achieve profitability, we may not sustain or increase profitability on a
quarterly or annual basis in the future.

THE LOSS OF THE SERVICES OF OUR KEY PERSONNEL, OR OUR FAILURE TO ATTRACT,
ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE, COULD
SERIOUSLY HARM OUR BUSINESS.

Our future success depends, in part, on the continued services of our senior
management. Our future success also depends on our ability to retain and
motivate our key employees. The loss of the services of our Chief Executive
Officer, Dr. Kenneth S. Schneider, or any key employee would have a material
adverse effect on our business, results of operations and financial condition.
Except for Dr. Schneider and Michael Breneisen, our President, none of our
officers or key employees is currently bound by an employment agreement for any
specific term. Our relationships with these remaining officers and key employees
can be terminated at any time.

Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial, merchandising,
marketing and customer service personnel. Competition for such personnel is
intense, and we cannot be certain that we will be able to successfully attract,
assimilate or retain sufficiently qualified personnel. Our inability to do so
could have a material adverse effect on our business, results of operations and
financial condition.

OUR OPERATING RESULTS ARE VOLATILE, WHICH COULD AFFECT OUR AND YOUR ABILITY TO
PREDICT OUR OPERATING RESULTS IN ANY GIVEN PERIOD AND COULD ALSO AFFECT OUR
MARKET PRICE.

You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our results of operations may be below the expectations of public
market analysts and investors. In this event, the price of our common stock is
likely to fall. We expect our quarterly operating results to vary significantly
in the future due to a variety of factors, many of which are outside of our
control. These factors include:

     o    the demand for technology and technology-related products on the
          Internet in general, or on Telebyeusa.com or Nextday.com in
          particular;


<PAGE>


     o    traffic levels on Telebyteusa.com, Telebytebroadband.com and
          Nextday.com and on other Web sites that refer consumers to our Web
          site;

     o    the announcement or introduction of new or enhanced sites, services
          and products by our competitors, or us;

     o    our ability to attract and retain qualified personnel in a timely and
          effective manner;

     o    acceptance by consumers and companies of the Internet for technology
          and technology-related products and advertising;

     o    our ability to maintain and implement strategic alliances and
          relationships with manufacturers, suppliers, high-traffic Web sites
          and portals and other third parties;

     o    changes in product sales resulting from competition or other factors;

     o    technical difficulties or system downtime affecting the Internet or
          the operation of Telebyteusa.com and Nextday.com;

     o    the amount and timing of our costs related to advertising and
          marketing efforts, sales and other initiatives and the timing of
          revenues generated from such activities;

     o    fees we may pay for distribution or content or other costs we may
          incur as we expand our operations;

     o    changes in state and federal government regulations and their
          interpretations, especially with respect to the Internet;

     o    costs related to possible acquisitions of businesses, technologies and
          services; and

     o    general economic conditions and those conditions that specifically
          affect the Internet and Internet services.

Traffic levels on Web sites may fluctuate on a seasonal basis, which could
result in a decrease in user traffic on Telebyteusa.com and Nextday.com during
certain periods. Seasonal or other patterns may develop in our industry which
can effect the quarterly revenue of our firm within a year.

WE EXPECT TO INCUR SIGNIFICANT COSTS IN DEVELOPING OUR BRAND.

To be successful, we must continue to build the brand identity of
Telebyteusa.com and Nextday.com. To build brand awareness, which may be
particularly critical for Internet companies, we must succeed in our marketing
efforts, provide high-quality services and increase traffic to Telebyteusa.com
and Nextday.com. If our marketing efforts are unsuccessful or if we cannot
increase our brand awareness, our business, financial condition and results of
operations would be materially adversely affected. We may find it necessary to
further increase our financial commitment to creating and maintaining a strong
brand name among consumers. If we incur excessive expenses in our attempt to
promote and maintain Telebyteusa.com and Nextday.com, our business, results of
operations and financial condition could be materially adversely affected.

IF INTERNET USAGE DECREASES AS A RESULT OF DECLINES IN USER CONFIDENCE IN THE
INTEGRITY OF THE INTERNET, OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED.

Our future success is substantially dependent on the continued growth in the use
of the Internet. The Internet is relatively new and is rapidly evolving. Our
business would be adversely affected if Internet usage does not continue to
grow. Internet usage may be inhibited for a number of reasons, such as:

     o    the Internet infrastructure may not be able to support the demands
          placed on it, or its performance and reliability may decline as usage
          grows;

     o    security and authentication concerns with respect to transmission over
          the Internet of confidential information, such as credit card numbers,
          and attempts by unauthorized computer users, commonly referred to as
          hackers, to penetrate online security systems; and

     o    privacy concerns, such as those related to the placement by Web sites
          of certain information to gather user information, known as "cookies,"
          on a user's hard drive without the user's knowledge or consent.


<PAGE>


WE MAY NOT BE ABLE TO ADAPT TO RAPIDLY CHANGING TECHNOLOGIES, OR WE MAY INCUR
SIGNIFICANT COSTS IN DOING SO.

Our market is characterized by rapidly changing technologies, evolving industry
standards, frequent new service introductions and changing customer demands. To
be successful, we must adapt to our rapidly evolving market by continually
enhancing our Web site and introducing new services to address our customers'
changing demands. We may use new technologies ineffectively or we may fail to
adapt our Web site, transaction-processing systems and network infrastructure to
customer requirements, competitive pressures or emerging industry standards. We
could incur substantial costs if we need to modify our services or
infrastructure in order to adapt to these or other changes affecting providers
of Internet services. Our business, results of operations and financial
condition could be materially adversely affected if we incurred significant
costs to adapt, or cannot adapt, to these changes. Due to the rapidly changing
nature of the Internet business, we may be subject to risks, now and in the
future, of which we are not currently aware.

WE MAY BE UNABLE TO CONTINUE TO DEVELOP COMPETITIVE PRODUCTS.

The technology upon which our products are based is subject to continuous
development of materials and processes. Our business is in large part contingent
upon the continuous refinement of our technological and engineering expertise
and the development of new or enhanced products and technologies to meet the
rapidly developing demands of an evolving market and increased competition.
There can be no assurance that we will continue to be successful in our efforts
to develop new or refine existing products, that such new products will meet
with anticipated levels of market acceptance or that we will otherwise be able
to timely identify and respond to technological improvements made by our
competitors. Significant technological breakthroughs by others could also have a
material adverse effect on our business.

THE INABILITY TO RESPOND TO PRICING PRESSURES WITHIN THE INDUSTRY MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Competition in the data communications and business-to-business reselling
industries is intense and, in general, is based primarily on price. We compete
with a number of electronic data communications manufacturers who have broader
product lines and greater financial, marketing and technical resources than us.
There can be no assurance that we will be able to improve the productivity and
efficiency of our manufacturing processes in order to respond to pricing
pressures, and the failure to do so could have a material adverse effect on our
business. Our subsidiary competes with a number of providers of similar services
who offer a broader array of services and greater financial, marketing and
technical resources. There can be no assurance that we will be able to improve
the productivity and efficiency of our servicing processes in order to respond
to pricing pressures, and the failure to do so could have a material adverse
effect on our business.

OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INDIVIDUAL STOCKHOLDERS.

The price of our common stock has fluctuated substantially recently. The trading
price of our common stock may continue to be volatile in response to factors
such as:

     o    actual or anticipated variations in our quarterly operating results;

     o    announcements of new product or service offerings;

     o    technological innovations;

     o    competitive developments;

     o    changes in financial estimates by securities analysts;

     o    conditions and trends in the Internet and electronic commerce
          industries;

     o    changes in the economic performance and/or market valuations of other
          electronic data communications companies; and

     o    general market conditions and other general factors.


<PAGE>


Further, the stock markets have experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many technology companies, and have often been unrelated or
disproportionate to the operating performance of such companies. Additionally,
the market price of our common stock could be adversely affected by losses or
other negative news regarding one or more other companies, despite the fact that
such information is not related specifically to us and may even be contradictory
to information that is specifically applicable to us. These broad market factors
may adversely affect the market price of our common stock. In addition, general
economic, political and market conditions such as recessions, interest rates or
international currency fluctuations, may adversely affect the market price of
the common stock. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such a company. Such litigation, if instituted, could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on our business, results
of operations and financial condition.

WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS.

We have never paid any cash or other dividends on our common stock. Payment of
dividends on our common stock is within the discretion of the Board of Directors
and will depend upon our earnings, our capital requirements and financial
condition, and other factors deemed relevant by the Board. For the foreseeable
future, the Board intends to retain future earnings, if any, to finance our
business operations and does not anticipate paying any cash dividends with
respect to the common stock.

WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.

We may need to raise additional funds in the future in order to fund more
aggressive brand promotion or more rapid expansion, to develop new or enhanced
services, to respond to competitive pressures or to acquire complementary
businesses, technologies or services. We cannot assure you that any required
additional financing will be available on terms favorable to us, or at all. If
additional funds are raised by our issuing equity securities, stockholders may
experience dilution of their ownership interest and such securities may have
rights senior to those of the holders of our common stock. If additional funds
are raised by our issuing debt, we may be subject to certain limitations on our
operations, including limitations on the payment of dividends. If adequate funds
are not available or not available on acceptable terms, we may be unable to fund
our expansion, successfully promote our brand name, take advantage of
acquisition opportunities, develop or enhance services or respond to competitive
or business pressures, which could have a material adverse effect on our
business, results of operations and financial condition.

WE DEPEND ON RELATIONSHIPS WITH THIRD PARTIES, AND THE LOSS, OR CHANGE IN TERMS,
OF ANY RELATIONSHIP COULD ADVERSELY AFFECT US.

Our business could be adversely affected if we do not maintain our existing
commercial relationships on terms as favorable as currently in effect, if we do
not establish additional commercial relationships on commercially reasonable
terms or if our commercial relationships do not result in the expected increased
use of our Web site. We have entered into commercial relationships with various
third parties, some of which require us to feature them prominently in certain
sections of our Web site. Existing and future arrangements may prevent us from
entering into other content agreements, advertising or sponsorship arrangements
or other commercial relationships. Many companies that we may pursue for a
commercial relationship may also offer competing services. As a result, these
competitors may be reluctant to enter into commercial relationships with us.

We also depend on establishing and maintaining a number of commercial
relationships with various Web sites and networks to increase traffic on
Telebyteusa.com and Nextday.com. There may be intense competition for placements
on these sites and networks, and in the future we may not be able to enter into
distribution relationships for such placement on commercially reasonable terms
or at all. Even if we enter into distribution relationships with these Web sites
and networks, they may not attract significant numbers of consumers. Therefore,
our Web site may receive less than the number of additional consumers we expect
from these relationships. Moreover, we may have to pay significant fees to
establish or renew these or comparable relationships.

WE MAY NOT BE ABLE TO CONTINUE TO DEVELOP OUR CONTENT AND SERVICE OFFERINGS TO
REMAIN COMPETITIVE.


<PAGE>


If we fail to develop and introduce new features, functions or services
effectively, it could have a material adverse effect on our business, results of
operations and financial condition. To remain competitive, we must continue to
enhance and improve our content offerings, the ease of use, responsiveness,
functionality and features of the telebyteusa.com, telebytebroadband.com and
nextday.com sites and develop new services in addition to continuing to improve
the consumer purchasing experience on our site. These efforts may require the
development or licensing of increasingly complex technologies. We may not be
successful in developing or introducing new features, functions and services,
and these features, functions and services may not achieve market acceptance or
enhance our brand loyalty.

WE MAY NOT BE ABLE TO INCREASE OR RETAIN OUR INTERNAL DIRECT SALES FORCE TO
SUPPORT OUR ANTICIPATED GROWTH.

We rely on our sales personnel to sell our products and services. To support our
growth, we need to substantially maintain, and may need to increase, our
internal sales force over time. Our ability to do this involves a number of
risks, including:


     o    the competition we face in hiring sales personnel;

     o    our ability to integrate, motivate and retain our sales personnel; and

     o    the length of time it takes new sales personnel to become productive.

Our business, results of operations and financial condition will be adversely
affected if we do not develop, retain and grow an effective internal sales
force.

THE NUMBER OF INTERNET COMPETITORS CONTINUES TO INCREASE, AND WE MAY NOT BE ABLE
TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS.

Increased competition could result in less traffic to our Web site, and reduced
margins or loss of market share, any of which would have a material adverse
effect on our business, results of operations and financial condition. We
compete with other Web sites for Internet advertisers' and e-commerce marketers'
dollars. The number of these Web sites has increased significantly, and we
expect such competition to continue to increase. Competition may also increase
as a result of ongoing industry consolidation.

We believe that our ability to compete depends on many factors, many of which
are beyond our control. We believe that the principal competitive factors in
attracting consumers to our Web site are:

     o    brand awareness and loyalty;

     o    strategic relationships with high-traffic Web sites and networks;

     o    a positive shopping and purchasing experience for the consumer in our
          client's sites;

     o    breadth and depth of selection of product;

     o    price;

     o    ease of use;

     o    quality of content, other service offerings, and speed of our site;

     o    quality of content, fulfillment and customer service by our clients ;
          and

     o    Web site functionality, responsiveness, reliability, and speed.

Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of customer services. Such competitors may
also engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, manufacturers,
retailers, distribution partners, and advertisers and e-commerce partners. Our
competitors may develop services that are equal or superior to those of
Telebyteusa.com and Nextday.com or that achieve greater market acceptance than
Telebyteusa.com and Nextday.com. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their services to address the
needs


<PAGE>


of advertisers and e-commerce marketers. As a result, it is possible that new
competitors may emerge and rapidly acquire significant market share. We may not
be able to compete successfully or competitive pressures may have a material
adverse effect on our business, results of operations and financial condition.

IF THE INTERNET DOES NOT GROW AS A MEDIUM FOR COMMERCE, OUR BUSINESS COULD BE
MATERIALLY ADVERSELY AFFECTED.

Our future success and revenue growth will depend upon the adoption of the
Internet by consumers and manufacturers as a mainstream medium for commerce.
While we believe that our services offer significant advantages to consumers and
manufacturers and retailers, we cannot be certain that widespread acceptance of
Internet commerce in general, or of our services in particular, will occur. Our
success assumes that consumers who have historically relied upon traditional
means of commerce to purchase technology or technology-related products will
accept new methods of conducting business and exchanging information. Moreover,
critical issues concerning remote purchases on the Internet, including clarity
of picture, and the commercial use of the Internet, including ease of access,
security, reliability, cost, and quality of service, remain unresolved and may
impact the growth of Internet use. If the market for Internet-based technology
sales fails to develop, develops more slowly than expected or becomes saturated
with competitors, or if our services do not achieve market acceptance, our
business, results of operations and financial condition could be materially
adversely affected.

The market for Internet-based purchasing services has only recently begun to
develop and is rapidly evolving. While many Internet commerce companies have
grown in terms of revenue, few are profitable. We cannot assure that we will be
profitable, and we anticipate losses for the foreseeable future. As is typical
for a new and rapidly evolving industry, demand and market acceptance for
recently introduced services and products over the Internet are subject to a
high level of uncertainty and there are few proven services and products.
Moreover, as the market for selling technology products online is relatively new
and evolving, it is difficult to predict the future growth rate, if any, and
size of this market.

IF OUR SYSTEM'S OR THE INTERNET'S INFRASTRUCTURE DO NOT GROW OR IMPROVE TO MEET
INCREASED CONSUMER DEMANDS, THE GROWTH OF OUR BUSINESS COULD BE MATERIALLY
ADVERSELY AFFECTED.

Our ability to retain and attract consumers and advertisers, and to achieve
market acceptance of our services and our brand, depends significantly upon the
performance of our systems and network infrastructure. Our revenues depend on
the number of visitors to our Web site and the traffic and activity created by
those visitors. Any system or network failure that causes interruption or slower
response time of our services could result in less traffic to our Web site and,
if sustained or repeated, could reduce the attractiveness of our services to
consumers, manufacturers, retailers and advertisers. We have experienced
periodic system interruptions, which we believe may continue to occur from time
to time. An increase in the volume of our Web site traffic could strain the
capacity of our technical infrastructure, which could lead to slower response
times or system failures. This would cause the number of, advertising
impressions, click throughs to our clients and our information offerings to
decline, any of which could hurt our revenue growth and our brand loyalty. In
addition, if traffic increases, we cannot assure you that our technical
infrastructure, such as a reliable network backbone with the necessary speed and
data capacity and the development of complementary products such as high-speed
modems, will be able to increase accordingly, and we face risks related to our
ability to scale up to expected consumer levels while maintaining performance.
Further, security and authentication concerns regarding the transmission of
confidential information over the Internet, such as credit card numbers, may
continue. Any failure of our server and networking systems to handle current or
higher volumes of traffic could have a material adverse effect on our business,
results of operations and financial condition.

The recent growth in Internet traffic has caused frequent periods of decreased
performance, requiring Internet service providers and users of the Internet to
upgrade their infrastructures. If Internet usage continues to increase rapidly,
the Internet infrastructure may not be able to support the demands placed on it
by this growth and its performance and reliability may decline. If these outages
or delays on the Internet occur frequently, overall Internet usage or usage of
our Web site could increase more slowly or decline. Our ability to increase the
speed with which we provide services to consumers and to increase the scope of
such services is limited by and dependent upon the speed and reliability of the
Internet. Consequently, the emergence and growth of the market for our services
is dependent on future improvements to the entire Internet.

In addition, our operations depend upon our ability to maintain and protect our
computer systems. Our third-party provider maintains, within their own control
and to their own specifications, the only backup disaster recovery program. The
system therefore is vulnerable to damage from a disastrous event, such as fire,
flood, earthquake, power loss, telecommunications


<PAGE>


failures, hackers and similar occurrences which cannot be controlled or
corrected by the third party as well as being vulnerable to any failure by the
third party to adequately maintain or protect our equipment or their own
facilities. The occurrence of a disastrous event could have a material adverse
effect on our business, results of operations and financial condition.

WE MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH.

We could be exposed to liability for third-party information that may be
accessible through our Web site. Such claims might assert, among other things,
that, by directly or indirectly providing links to Web sites operated by third
parties, we should be liable for copyright or trademark infringement or other
wrongful actions by such third parties through such Web sites. It is also
possible that, if any third-party content information provided on our Web site
contains errors, consumers might make claims against us for losses incurred in
reliance on such information.

At times, we also enter into agreements with other companies under which any
revenue that results from the purchase of services through direct links to or
from our Web site is shared. Such arrangements may expose us to additional legal
risks and uncertainties, including local, state, federal and foreign government
regulation and potential liabilities to consumers of these services, even if we
do not provide the services ourselves. We cannot assure you that any
indemnification provided to us in our agreements with these parties, if
available, will be adequate.

Even to the extent any of the claims referred to above do not result in
liability to us, we could incur significant costs in investigating and defending
against such claims. The imposition on us of potential liability for information
carried on or disseminated through our system could require us to implement
measures to reduce our exposure to such liability, which might require the
expenditure of substantial resources or limit the attractiveness of our services
to consumers and others.

We may not be able to obtain and maintain adequate insurance. Our general
liability insurance may not cover all potential claims to which we are exposed
and may not be adequate to indemnify us for all liability that may be imposed.
Any imposition of liability that is not covered by insurance or is in excess of
insurance coverage could have a material adverse effect on our business, results
of operations and financial condition.

IF OUR ONLINE SECURITY MEASURES FAIL, OUR BUSINESS WOULD BE MATERIALLY ADVERSELY
AFFECTED.

Our network is vulnerable to computer viruses, physical or electronic break-ins
and similar disruption. We expect that these problems will occur from time to
time. The inadvertent transmission of computer viruses could expose us to
litigation or to a material risk of loss. Such security breaches and inadvertent
transmissions could have a material adverse effect on our business, results of
operations and financial condition.

In our prior offerings of certain online payment services, we relied on
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as consumer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the algorithms that we use
to protect our consumers, transaction data or our software vendors and products.
Any well-publicized compromise of security could deter use of the Internet in
general or use of the Internet to conduct transactions that involve transmitting
confidential information or downloading sensitive materials. Someone who is able
to circumvent our security measures could misappropriate proprietary information
or cause interruptions in our operations. We may be required to expend
significant capital and other resources to protect against such security
breaches or alleviate problems caused by such breaches. Such expenditures could
have a material adverse effect on our business, results of operations and
financial condition.

WE MAY BE UNSUCCESSFUL IN ENTERING NEW BUSINESS AREAS.

We may choose to expand our operations by developing new Web sites, promoting
new or complementary products or formats, expanding the breadth and depth of
products and services offered or expanding our market presence through
relationships with third parties. In addition, we may pursue the acquisition of
new or complementary businesses, products or technologies, although we have no
present plans or commitments with respect to any material acquisition or
investment. If we acquire a company, we could face difficulties in assimilating
that company's personnel and operations. In addition, key personnel of the
acquired company might decide not to work for us. Furthermore, any new business
or Web site launched by


<PAGE>


us not favorably received by consumers could damage the reputation of the
Telebyteusa.com and Nextday.com brand. The lack of market acceptance of such
efforts or our inability to generate satisfactory revenues from such expanded
services or products to offset their cost could have a material adverse effect
on our business, results of operations and financial condition.

IF GOVERNMENT REGULATION INCREASES, WE MAY NEED TO CHANGE THE MANNER IN WHICH WE
CONDUCT OUR BUSINESS.

The adoption of new legislation or regulation which impacts Internet businesses,
the application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and other online services could have a material
adverse effect on our business. We are not currently subject to direct
regulation by any domestic or foreign governmental agency, other than
regulations applicable to businesses generally, and laws or regulations directly
applicable to access to online commerce. However, due to the increasing
popularity and use of the Internet and other online services, it is possible
that laws and regulations may be adopted with respect to the Internet or other
online services covering issues such as user privacy, pricing, content,
copyrights, distribution, and characteristics and quality of products and
services. Furthermore, the growth and development of the market for online
commerce may prompt more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth of the Internet or
other online services, which could, in turn, decrease the demand for our
products and services and increase our cost of doing business. Moreover, the
applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes and personal privacy is uncertain and may take years to resolve. In
addition, as our Web site is available over the Internet in many states and
foreign countries, and as we sell to numerous consumers residing in such states
and foreign countries, such jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each such state and foreign
country. We are qualified to do business in only two states, and our failure to
qualify as a foreign corporation in a jurisdiction where such qualification is
required could subject us to taxes and penalties for the failure to qualify.

IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS IS INADEQUATE, OUR
BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED.

Although our ability to compete depends, to some extent, upon copyright law and
confidentiality agreements, we believe that the technical and creative skills of
our personnel, continued development of our proprietary systems and technology,
brand name recognition and reliable Web site maintenance are more essential in
establishing and strengthening our brand. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
services or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our proprietary rights is difficult. Other than our
registration of certain domain names, we do not have any other protection for
the "Telebyteusa.com" and "Nextday.com" names. We do not believe that we or
anyone else can obtain protection for such names in the United States. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our products and services are made available
online. In addition, litigation may be necessary in the future to enforce or
protect our intellectual property rights or to defend against claims or
infringement. As part of our confidentiality procedures, we generally enter into
agreements with our employees and consultants. We cannot assure that the steps
taken by us will prevent misappropriation of technology or that the agreements
entered into for that purpose will be enforceable. Misappropriation of our
intellectual property or the costs associated with litigation related thereto
could have a material adverse effect on our business, results of operations and
financial condition.

EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER US.

Approximately 23% of the outstanding common stock is beneficially owned by Dr.
Kenneth S. Schneider, our Chief Executive Officer. Accordingly, Dr.Schneider
will have substantial influence over the outcome of any matter submitted to a
vote of stockholders, including the election of directors and the approval of
significant corporate transactions (such as acquisitions of us or our assets).
Such influence could delay or prevent a change of control of our Company. Please
see "Security Ownership of Certain Beneficial Owners and Management."

WE MAY BE UNABLE TO RESPOND TO EVENTS OUTSIDE OUR CONTROL

Our business may also be adversely affected by matters and events affecting
businesses generally, including, without


<PAGE>


limitation, political and economic events, labor unrest, acts of God, war and
other events outside of our control.

Item 7. Financial Statements

The audited financial statements of the Company as of December 31, 2001 and 2000
and for the years then ended are included in this Annual Report on Form 10-KSB
following Item 13 thereof.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None

                                    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, 2001. 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.

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

Kenneth S. Schneider, Ph.D.,    Dr. Schneider served as Vice President    1983
age 56, Chairman, CEO,          and Treasurer from August 1983 to
Secretary, and                  January 1999. He was elected
Director                        Secretary in June 1991. He became
                                Chairman of the Board and CEO in
                                January 1999.

Michael Breneisen, age 37,      Mr. Breneisen served as Controller        1999
President, COO, CFO,            from July 1992 and Vice President
Treasurer and Director          and CFO from January 1997.  He
                                became President, COO and CFO
                                in January 1999 and Treasurer in
                                March 2000. He became CEO of
                                Nextday.com in June 1999.

Jamil Sopher, age 58            Mr. Sopher is an independent con-.        1996
Director                        sultant.  Previously, Mr. Sopher
                                worked for the World Bank where he
                                was employed from 1980 to 2000.

Jonathan D. Casher, age 57      Mr. Casher is the founder, Chairman 2000
Director                        and CEO of RECAP, Inc. and has
                                worked for RECAP, Inc. since 1989.


<PAGE>


Section 16 Beneficial Ownership Reporting

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 during the last three fiscal
years 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.

                           Summary Compensation Table

<TABLE>
<CAPTION>
------------------------------------------------------------------- ----------------------------------------------------------------
                       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        Year      Salary       Bonus       Compensation    Stock Awards    Options/SARs     Incentive        Compensation
Position                                                                                               Payout
                             ($)         ($)            ($)            (No.)           (No.)            ($)               ($)
--------------- -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
<S>              <C>      <C>             <C>            <C>             <C>             <C>         <C>               <C>
Kenneth S.       2001     $151,259        0              0               0               0           $4,080(3)         $ 4,437
Schneider
Chairman, CEO,
Secretary &
Director
--------------- -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
                 2000     $136,836        0              0               0               0           $4,080(3)         $ 5,110
--------------- -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
                 1999     $125,685        0              0               0               0           $4,080(3)         $ 5,112
                  (1)
--------------- -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
Joel A.          2001         0           0              0               0               0               0                 0
Kramer
(Former)
President, CEO &
Director
                -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
                 2000         0           0              0               0               0               0                 0
                -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
                 1999     $ 10,574       0          $1,726(2)           0               0               0             $95,243(4)
                  (1)
--------------- -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
Michael          2001     $100,000        0              0               0               0               0             $ 6,537
Breneisen
President,
COO, FO,
Treasurer &
Director
                -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
                 2000     $ 85,577        0              0               0               0               0             $ 6,503
                -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
                 1999     $ 75,000     $ 15,000          0               0               0               0             $ 3,251
--------------- -------- ------------ ----------- ----------------- ------------- ----------------- ------------- ------------------
</TABLE>

     (1)  Mr. Kramer left the employ of the Company in January 1999, at which
          time Dr. Schneider was elected the Chief Executive Officer by the
          Board of Directors, and at which time he dropped the title of Vice
          President.

     (2)  Commissions-Mr. Kramer received a 2.5% commission of net sales to
          customers not located within the United States.

     (3)  Deferred Compensation - see Long-Term Incentive Plans Table below.

     (4)  Consulting services and fringes.


<PAGE>


             Long-Term Incentive Plans - Awards in Last Fiscal Year


<TABLE>
<CAPTION>
-------------------- -------------- ---------------- --------------------------------------------------
                                                              Estimated Future Payouts under
                                                               Non-Stock Price-Based Plans
                                                     --------------------------------------------------
Name                   Number of     Performance or
                     Shares, Units    Other Period
                       or Other     Until Maturation  Threshold              Target            Maximum
                      Rights (#)       Or Payout        ($ )                  ($ )              ($ )
-------------------- -------------- ---------------- ------------------ ----------------- -------------
<S>                  <C>            <C>              <C>                <C>               <C>
Kenneth S. Schneider       --        April 16, 2010  $26,667(1)            $26,667(1)        $26,667(1)
Chairman, CEO,
Secretary & Director
-------------------- -------------- ---------------- ------------------ ----------------- -------------
</TABLE>

     (1)  In 1990, the Company entered into a deferred compensation agreement
          with Kenneth S. Schneider, pursuant to which he will receive a defined
          amount, approximately 30% of his 1990 base salary, each year for a
          period of 10 years after reaching age 65. The deferred compensation
          plan is funded through life insurance and is being provided for
          currently. The expense charged to operations in 2001 for such future
          obligations was $4,080.

                   Aggregate Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
-------------------- ----------------- -------------------- ----------- ----------
Name                 Number of Options  % of Total Options  Exercise or
                                       Granted to Employees Base Price  Expiration
                          Granted      in Fiscal Year 2001   ($/Share)     Date
-------------------- ----------------- -------------------- ----------- ----------
<S>                          <C>                <C>              <C>         <C>
Michael Breneisen            0                  --               --          --
-------------------- ----------------- -------------------- ----------- ----------
Kenneth S. Schneider         0                  --               --          --
-------------------- ----------------- -------------------- ----------- ----------
</TABLE>

The following table sets forth information concerning each exercise of stock
options during fiscal 2001 by each of the named executive officers and fiscal
year-end value of unexercised options:

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
-------------------- ------------------ -------------- --------------------- -----------------------
Name                 Shares Acquired on Value Realized Number of Unexercised   Value of Unexercised
                        Exercise (#)         ($)             Options at      In-the-Money Options at
                                                          December 31,2001         December 31, 2001 (1)
-------------------- ------------------ -------------- --------------------- -----------------------
<S>                           <C>             <C>           <C>                         <C>
Michael Breneisen             0               0             210,000 (2)                 $0
-------------------- ------------------ -------------- --------------------- -----------------------
Kenneth S. Schneider          0               0             205,000 (2)                 $0
-------------------- ------------------ -------------- --------------------- -----------------------
</TABLE>

     (1)  Calculation based upon the closing price of the Company's common stock
          ($0.81 per share) as reported by Nasdaq Trading and Market Services on
          December 31, 2001.

     (2)  60,000 option shares vest June 30, 2004, and 100,000 option shares
          vest January 1, 2005; subject, however, to accelerated events if
          certain targets are met.


<PAGE>


Compensation Plans and Other Compensation

The Company's Board of Directors, with the approval of the stockholders, has
adopted a Stock Option Plan (the "2001 Plan") and has reserved for issuance
thereunder 500,000 shares of the Company's common stock. As of December 31,
2001, there were 500,000 shares available for grants under the 2001 Plan.
Pursuant to the 2001 Plan, the Company may grant options under the 2001 Plan
which are intended either to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") ("Incentive Stock Options"), or not to qualify ("Nonstatutory Stock
Options").

The 2001 Plan provides for its administration by the Board of Directors or by a
committee (the "Stock Option Committee") consisting of at least one director
chosen by the Board of Directors. The Board of Directors or the Stock Option
Committee has authority (subject to certain restrictions) to select from the
group of eligible employees, non-employee directors, consultants and advisors
the individuals or entities to whom options will be granted, and to determine
the times at which and the exercise price for which options will be granted.

The exercise price of shares underlying an Incentive Stock Option may not be
less than the fair market value (as such term is defined in the 2001 Plan) of
the common stock on the date upon which such option is granted. In addition, in
the case of a recipient of an Incentive Stock Option who, at the time the option
is granted, owns more than 10% of the total combined voting power of all classes
of stock of the Company or of a parent or subsidiary corporation of the Company
(a "10% Stockholder"), the exercise price of the shares subject to such option
must be at least 110% of the fair market value of the common stock on the date
upon which such option is granted.

The exercise price of shares underlying a Nonstatutory Stock Option will be
determined by the Board of Directors or the Stock Option Committee at the time
of grant and need not be equal to or greater than the fair market value of the
Company's common stock.

The Company's Board of Directors, with the approval of the stockholders, has
adopted a Stock Option Plan (the "1999 Plan") and has reserved for issuance
thereunder 500,000 shares of the Company's common stock. As of December 31,
2001, options to purchase an aggregate of 454,000 shares have been granted and
there were 46,000 shares available for grants under the 1999 Plan. Pursuant to
the 1999 Plan, the Company may grant options under the 1999 Plan which are
intended either to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("Incentive Stock Options"), or not to qualify ("Nonstatutory Stock Options").

The 1999 Plan provides for its administration by the Board of Directors or by a
committee (the "Stock Option Committee") consisting of at least one director
chosen by the Board of Directors. The Board of Directors or the Stock Option
Committee has authority (subject to certain restrictions) to select from the
group of eligible employees, non-employee directors, consultants and advisors
the individuals or entities to whom options will be granted, and to determine
the times at which and the exercise price for which options will be granted.

The exercise price of shares underlying an Incentive Stock Option may not be
less than the fair market value (as such term is defined in the 1999 Plan) of
the common stock on the date upon which such option is granted. In addition, in
the case of a recipient of an Incentive Stock Option who, at the time the option
is granted, owns more than 10% of the total combined voting power of all classes
of stock of the Company or of a parent or subsidiary corporation of the Company
(a "10% Stockholder"), the exercise price of the shares subject to such option
must be at least 110% of the fair market value of the common stock on the date
upon which such option is granted.

The exercise price of shares underlying a Nonstatutory Stock Option will be
determined by the Board of Directors or the Stock Option Committee at the time
of grant and need not be equal to or greater than the fair market value of the
Company's common stock.

In 1994 the Company adopted the 1993 Stock Option Plan (the "1993 Plan") under
which options to purchase 100,000 shares of the common stock were reserved. All
directors, officers or other key employees of the Company are eligible to
participate in the 1993 Plan, which is administered by the Board of Directors of
the Company. As of December 31, 2001, there were


<PAGE>


options to purchase 32,050 shares available under the 1993 Plan. Pursuant to the
1993 Plan, the Company is permitted to issue incentive stock options.

In 1987, the Company adopted a plan, which provided for grants to officers and
key employees of the Company, of incentive stock options to purchase up to an
aggregate of 250,000 shares of the Company's common stock. Options to purchase
10,000 shares are outstanding.

In 2001, the Company adopted the Employee Stock Purchase Plan, which was
approved by our stockholders on July 12, 2001. In accordance with Section 423 of
the Internal Revenue Code, eligible employees may authorize payroll deductions
of their salary to purchase shares of the Company's common stock at the lower of
85% of the fair market value of common stock on the first or last day of the
offering period. An eligible employee may purchase up to 2,000 shares of stock
during any single offering period. No shares were purchased under the 2001
Employee Stock Purchase Plan during the year ended December 31, 2001. The
Company expects the first offering period to begin on July 1, 2002 and end on
December 31, 2002. The maximum number of shares offered under the 2001 Employee
Stock Purchase Plan is 400,000 shares.

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. There were no bonuses paid under this plan during fiscal year 2001.

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.

During 2000, the Company renewed, for an additional three-year term, the
employment agreement with Kenneth S. Schneider. The employment agreement
provides that Dr. Schneider would receive a minimum salary of $151,259 per
annum. During the employment period, Dr. Schneider is entitled upon termination
or expiration of the agreement under certain circumstances (including a change
of control) to certain severance benefits.

During 1999, the Company entered into a three year employment agreement with
Michael Breneisen. The employment agreement provides that Mr. Breneisen will
receive a minimum salary of $100,000 per annum. During the employment period Mr.
Breneisen is entitled upon termination or expiration of the agreement under
certain circumstances (including a change of control) to certain severance
benefits. During 2001, the Board of Directors voted to extend this agreement for
an additional three years when it comes up for renewal.

Except for life and medical insurance benefit programs, which are available to
all employees, the Company has no other compensation plans.

The outside directors do not receive a per meeting fee, but do receive
reimbursement of expenses for attending each meeting and is eligible to receive
stock options.


<PAGE>


Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth as of December 31, 2001 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 the Chief
Executive Officer (iii) shares owned by all executive officers and directors as
a group.

-------------- -------------------------- --------------------- ----------
Title of Class Name and Address of         Amount and Nature of Percent of
               Beneficial Owner              Beneficial Owner      Class
-------------- -------------------------- --------------------- ----------
    Common     Kenneth S. Schneider           328,037(1)           23.6%
               270 Pulaski Road
               Greenlawn, NY 11740
-------------- -------------------------- --------------------- ----------
    Common     Michael Breneisen               81,900(2)            5.9%
               270 Pulaski Road
               Greenlawn, NY 11740
-------------- -------------------------- --------------------- ----------
    Common     Jamil Sopher                    44,230(3)            3.2%
               270 Pulaski Road
               Greenlawn, NY 11740
-------------- -------------------------- --------------------- ----------
    Common     Jonathan D. Casher               6,000(4)            0.4%
               270 Pulaski Road
               Greenlawn, NY 11740
-------------- -------------------------- --------------------- ----------

               -------------------------- --------------------- ----------
               All executive officers and     460,167              33.1%
               directors
               As a group (4 in number)
               -------------------------- --------------------- ----------

     (1)  Includes 45,000 shares issuable upon exercise of stock options granted
          under the Company's 1999 Stock Option Plan. Does not include 160,000
          shares issuable upon exercise of stock options under the 1999 Plan. Of
          such options 60,000 option shares vest June 30, 2004, and the
          remaining 100,000 option shares vest January 1, 2005; subject,
          however, to acceleration if certain targets are met.

     (2)  Includes 5,000 shares issuable upon exercise of stock options granted
          under the Company's 1987 Stock Option Plan. Includes 45,000 shares
          issuable upon exercise of stock options granted under the Company's
          1999 Stock Option Plan. Does not include 160,000 shares issuable upon
          exercise of stock options under the 1999 Plan. Of such options 60,000
          option shares vest June 30, 2004, and the remaining 100,000 option
          shares vest January 1, 2005; subject, however, to acceleration if
          certain targets are met.

     (3)  Includes 20,000 shares issuable upon exercise of stock options granted
          under the Company's 1993 Stock Option Plan. Includes 15,000 shares
          issuable upon exercise of stock options granted under the Company's
          1999 Stock Option Plan.

     (4)  Includes 1,000 shares issuable upon exercise of stock options granted
          under the Company's 1993 Stock Option Plan. Includes 5,000 shares
          issuable upon exercise of stock options granted under the Company's
          1999 Stock Option Plan.

     Includes 15,000 shares issuable upon exercise of stock options granted
under the Company's 1993 Stock Option Plan.


<PAGE>


Item 12. Certain Relationships and Related Transactions

Effective January 20, 1999, Joel A. Kramer, then the Chairman of the Board,
President and Chief Executive Officer of the Company, resigned such positions.
However, it was intended that Mr. Kramer would 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
in exchange for Mr. Kramer's restrictive covenant. In addition, Mr. Kramer
agreed not to compete with the business of the Company until January 19, 2003
and released the Company from certain potential claims relative to his previous
employment. 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.

In December 1999, the Company received information indicating that Mr. Kramer
had breached certain of the non-competition provisions of the Consulting
Agreement entered into by Mr. Kramer and the Company and also of the Stock
Purchase Agreement and the Termination Agreement entered into by Mr. Kramer and
the Company. In response to this information the Company asserted its rights
under the Consulting Agreement and cancelled it for cause on January 12, 2000,
and ceased making payments thereunder. The Company is considering what further
legal action it may take if any with respect to this situation as warranted
under the circumstances.

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 and act as a
Director.

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
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.

3(c) The Company's Certificate of Incorporation under the State of Delaware and
is incorporated by reference herein.

3(d) The By-laws of the Company as a Delaware corporation and is incorporated by
reference herein.

3(e) Certificate of ownership and merger, merging Telebyte Technology, Inc. (a
Nevada corporation) into Telebyte Technology, Inc. (a Delaware corporation) and
is 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 (now known as North Fork 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, were filed as an
Exhibit to the Company's 1990 Annual Report on Form 10-K (File No. 0-11883) and

<PAGE>

are 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. 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 the Company and Kenneth S. Schneider dated
August 1, 1997 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 1997 was filed as an exhibit on Form
10-KSB for the year ended December 31, 1998 (File No. 0-11883) and is
incorporated by reference herein.

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

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

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

10(k) 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 and is incorporated by reference herein.

10(l) Employment Agreement between the Company and Michael Breneisen dated June
25, 1999 and is incorporated by reference herein.

10(m) The Company's 1999 Stock Option Plan; and is incorporated by reference
herein.

10(n) $1,000,000 Reducing Revolving Line of Credit Agreement dated January 20,
1999 between Merrill Lynch and Telebyte Technology, Inc. and is incorporated by
reference herein.

10(o) The Company's 2001 Stock Option Plan is attached herein.

10(p) The Company's 2001 Employee Stock Purchase Plan is attached herein.

(21) Subsidiaries of the Small Business Issuer.

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

(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, 2001.

<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, 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:    April 1, 2002

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.



April 1, 2002     __________\s\_____________


Kenneth S. Schneider, Director



April 1, 2002     ___________\s\____________


Jamil Sopher, Director



April 1, 2002     ___________\s\____________


Michael Breneisen, Director



April 1, 2002     ___________\s\____________


Jonathan D. Casher, Director

<PAGE>

                          Telebyte, Inc. and Subsidiary

                          INDEX TO FINANCIAL STATEMENTS

                                                                       Page
                                                                       ----

Report of Independent Certified Public Accountants                     F-2

Consolidated Balance Sheets as of December 31, 2001 and 2000        F-3 - F-4

Consolidated Statements of Operations for the years ended
    December 31, 2001 and 2000                                         F-5

Consolidated Statement of Shareholders' Equity for the years
    ended December 31, 2001 and 2000                                   F-6

Consolidated Statements of Cash Flows for the years ended
    December 31, 2001 and 2000                                         F-7

Notes to Consolidated Financial Statements                          F-8 - F-24


<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Telebyte, Inc.
and Subsidiary as of December 31, 2001 and 2000, and the related consolidated
statements of operations, 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial position of Telebyte, Inc. and
Subsidiary as of December 31, 2001 and 2000, and the consolidated results of
their operations and their consolidated cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.


Melville, New York

March 15, 2002

<PAGE>

                          Telebyte, Inc. and Subsidiary

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,

                                    ASSETS
                                                           2001           2000
                                                       ----------     ----------

CURRENT ASSETS
    Cash and cash equivalents                          $  245,057     $  433,703
    Accounts receivable, net of allowance of
       $38,000 in 2001 and $12,500 in 2000                561,723        776,668
    Inventories                                         2,089,233      1,674,693
    Prepaid expenses and other                            127,333        118,553
    Refundable income taxes                               253,961             --
    Deferred income taxes                                 282,000        193,000
                                                       ----------     ----------

         Total current assets                           3,559,307      3,196,617

PROPERTY AND EQUIPMENT, NET                             1,237,192      1,186,410

OTHER ASSETS, NET                                         137,783        232,557
                                                       ----------     ----------

                                                       $4,934,282     $4,615,584
                                                       ==========     ==========

The accompanying notes are an integral part of these statements.

<PAGE>

                          Telebyte, Inc. and Subsidiary

                     CONSOLIDATED BALANCE SHEETS (continued)

                                  December 31,

                    LIABILITIES AND SHAREHOLDERS' EQUITY

                                                            2001        2000
                                                         ----------   ----------

CURRENT LIABILITIES
    Accounts payable                                     $  464,416   $  314,939
    Accrued expenses                                        278,729      153,254
    Accrued taxes payable                                        --      154,720
    Borrowings under line of credit                         399,400           --
    Current maturities of long-term debt                     88,618       81,811
    Current maturities of capital lease obligations          11,046           --
                                                         ----------   ----------

         Total current liabilities                        1,242,209      704,724


LONG-TERM BORROWINGS UNDER LINE OF CREDIT                   257,149           --

LONG-TERM DEBT, less current maturities                     642,002      734,531

CAPITAL LEASE OBLIGATIONS, less current maturities           13,100           --

DEFERRED INCOME TAXES                                       217,000      215,000

COMMITMENTS AND CONTINGENCIES


SHAREHOLDERS' EQUITY
    Common stock - $.01 par value; 9,000,000
       shares authorized; 1,253,631 shares issued and
       outstanding in 2001 and 2000                          12,536       12,536
    Capital in excess of par value                        1,781,672    1,781,672
    Retained earnings                                       768,614    1,167,121
                                                         ----------   ----------

                                                          2,562,822    2,961,329
                                                         ----------   ----------

                                                         $4,934,282   $4,615,584
                                                         ==========   ==========

The accompanying notes are an integral part of these statements.

<PAGE>

                          Telebyte, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,

                                                        2001            2000
                                                    -----------     -----------

Net sales                                           $ 5,775,111     $ 6,464,528
Cost of sales                                         3,366,830       3,155,494
                                                    -----------     -----------

         Gross profit                                 2,408,281       3,309,034
                                                    -----------     -----------

Operating expenses
    Selling, general and administrative               2,385,887       1,969,518
    Research and development                            727,062         537,236
                                                    -----------     -----------

                                                      3,112,949       2,506,754
                                                    -----------     -----------

         Operating profit (loss)                       (704,668)        802,280
                                                    -----------     -----------

Other income (expense)
    Interest income                                       6,346          31,649
    Rental income                                        48,195          48,195
    Other income                                         78,855              --
    Interest expense                                    (98,471)        (95,202)
                                                    -----------     -----------

                                                         34,925         (15,358)
                                                    -----------     -----------

         Earnings (loss) before income taxes           (669,743)        786,922

Income tax provision (benefit)                         (271,236)        283,000
                                                    -----------     -----------

         NET EARNINGS (LOSS)                        $  (398,507)    $   503,922
                                                    ===========     ===========

Earnings (loss) per common share:
    Basic                                           $     (0.32)    $      0.40
                                                    ===========     ===========
    Diluted                                         $     (0.32)    $      0.32
                                                    ===========     ===========

Weighted-average shares:
    Basic                                             1,253,631       1,252,713
                                                    ===========     ===========
    Diluted                                           1,253,631       1,578,648
                                                    ===========     ===========


The accompanying notes are an integral part of these statements.


<PAGE>

                          Telebyte, Inc. and Subsidiary

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                     Years ended December 31, 2001 and 2000


<TABLE>
<CAPTION>
                                Number               Capital in
                               of shares   Common    excess of      Retained
                                issued      stock    par value      earnings        Total
                               ---------   -------   ----------   -----------    -----------

<S>                            <C>         <C>       <C>          <C>            <C>
Balance at January 1, 2000     1,248,631   $12,486   $1,740,472   $   663,199    $ 2,416,157

Common stock issued upon
    exercise of options            5,000        50       41,200            --         41,250

Net earnings                          --        --           --       503,922        503,922
                               ---------   -------   ----------   -----------    -----------

Balance at December 31, 2000   1,253,631    12,536    1,781,672     1,167,121      2,961,329

Net loss                              --        --           --      (398,507)      (398,507)
                               ---------   -------   ----------   -----------    -----------

Balance at December 31, 2001   1,253,631   $12,536   $1,781,672   $   768,614    $ 2,562,822
                               =========   =======   ==========   ===========    ===========
</TABLE>


The accompanying notes are an integral part of this statement.


<PAGE>

                          Telebyte, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                                  2001         2000
                                                               ---------    ---------

<S>                                                            <C>          <C>
Cash flows from operating activities
    Net earnings (loss)                                        $(398,507)   $ 503,922
    Adjustments to reconcile net earnings (loss) to net
       cash provided by (used in) operating activities
          Provision for bad debt expense                          25,500        1,351
          Depreciation and amortization                          224,090      307,620
          Provision for inventory obsolescence                    77,834        9,996
          Deferred income taxes                                  (87,000)     (38,000)
          Imputed interest                                         1,480        1,389
          Decrease (increase) in operating assets
              Accounts receivable                                189,445       80,898
              Inventories                                       (492,374)    (165,412)
              Prepaid expenses, taxes and other                 (235,380)     (44,931)
          Increase (decrease) in operating liabilities
              Accounts payable                                   149,477       42,423
              Accrued expenses and taxes payable                 (29,245)     (20,988)
                                                               ---------    ---------

         Net cash provided by (used in) operating activities    (574,680)     678,268
                                                               ---------    ---------

Cash flows from investing activities
    Additions to property and equipment                         (173,999)    (214,326)
    Purchase of intangibles                                           --     (110,000)
                                                               ---------    ---------

         Net cash used in investing activities                  (173,999)    (324,326)
                                                               ---------    ---------

Cash flows from financing activities
    Principal payments on long-term debt                         (87,202)     (68,825)
    Principal payments on capital lease obligation                (9,314)          --
    Net borrowings (payments) under line of credit
        agreements                                               656,549     (221,941)
                                                               ---------    ---------

         Net cash provided by (used in) financing activities     560,033     (290,766)
                                                               ---------    ---------

         NET INCREASE (DECREASE) IN CASH
              AND CASH EQUIVALENTS                              (188,646)      63,176

Cash and cash equivalents at beginning of year                   433,703      370,527
                                                               ---------    ---------

Cash and cash equivalents at end of year                       $ 245,057    $ 433,703
                                                               =========    =========

Noncash financing activities:
    Issuance of note payable for purchase of
        intangibles                                                         $  60,825
    Equipment acquired under capital lease obligation          $  33,460
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>


                          Telebyte, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2001 and 2000

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Telebyte, Inc. and Subsidiary (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. Through the
     Company's wholly-owned subsidiary, Nextday.com, Inc. ("Nextday.com"), the
     Company, utilizing electronic commerce (e-commerce) via the Internet,
     resells products manufactured principally by other companies in the
     business-to-business marketplace. The Company currently operates in two
     business segments, data communications and e-commerce. 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 has no foreign operations. Export
     sales were $828,000 and $967,000 in 2001 and 2000, respectively.

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

     1.   Principles of Consolidation 2.

          The accompanying consolidated financial statements include the
          accounts of Telebyte Inc. and its subsidiary, Nextday.com. All
          significant intercompany balances have been eliminated in
          consolidation.

     2.   Inventories

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

     4.   Property and Equipment

     5.   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, 5 years for equipment and 2 years for
          software.


<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE A (continued)

     4.   Other Assets

          Other assets include the unamortized costs of certain intangible
          assets including a license agreement and deferred loan costs.
          Amortization is provided for on a straight-line basis over the shorter
          of the estimated useful lives or the related contractual life.

     5.   Long-Lived Assets

          It is the Company's policy to evaluate and recognize an impairment to
          its long-lived assets if it is probable that the recorded amounts are
          in excess of anticipated undiscounted future cash flows.

     6.   Income Taxes

          Deferred income taxes are recognized for temporary differences between
          financial statement and income tax bases of assets and liabilities for
          which income tax benefits are expected to be realized in future years.
          A valuation allowance is established to reduce the deferred tax assets
          if it is more likely than not that all, or some portion, of such
          deferred tax assets will 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.

     7.   Earnings Per Share

          Basic earnings per share is determined by dividing the Company's net
          earnings by the weighted- average shares outstanding. Diluted earnings
          per share includes the dilutive effects of outstanding stock options.
          Excluded from the calculation of diluted earnings per share are
          524,000 and 28,500 options to purchase the Company's common stock in
          2001 and 2000, respectively, as their inclusion would have been
          antidilutive.

     8.   Stock-Based Compensation Plans

          The Company maintains four fixed stock option plans, as more fully
          described in Note G to the consolidated 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 related Interpretations, and,
          accordingly, recognizes no compensation expense. Therefore, the
          Company has elected the disclosure provisions only of Statement of
          Financial Accounting Standards No. 123, "Accounting for Stock-Based
          Compensation."

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE A (continued)

     9.   Consolidated Statements of Cash Flows

          For purposes of the consolidated 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 $73,092 and $94,313 and income taxes of $217,825 and $356,642 in
          2001 and 2000, respectively.

     10.  Revenue Recognition

     11.  Revenue is recognized from sales when a product is shipped and title
          passes to customers. Service fees are recognized upon the completion
          of the related service.

     11.  Advertising

          Advertising costs are expensed as incurred and totaled $6,000 and
          $63,000 in 2001 and 2000, respectively.

     12.  Research and Development

          Research and development costs are expensed as incurred.

     13.  Shipping and Handling Fees and Costs

          The Company includes fees billed to a customer relating to shipping
          and handling costs in net sales. All shipping and handling expenses
          incurred by the Company are included in cost of sales.

     14.  Use of Estimates and Fair Value of Financial Instruments

          In preparing financial statements in conformity with accounting
          principles generally accepted in the United States of America,
          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.

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE A (continued)

          Management of the Company believes that the fair value of financial
          instruments, consisting of cash, accounts receivable and debt,
          approximates 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.

     15.  New Accounting Pronouncements

          In June 2001, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standards No. 143 ("SFAS No. 143"),
          "Accounting for Asset Retirement Obligations," which is effective for
          years beginning after June 15, 2002. SFAS No. 143 addresses legal
          obligations associated with the retirement of tangible long-lived
          assets that result from the acquisition, construction, development or
          normal operation of a long-lived asset. The standard requires that the
          fair value of a liability for an asset retirement obligation be
          recognized in the period in which it is incurred if a reasonable
          estimate of fair value can be made. Any associated asset retirement
          costs are to be capitalized as part of the carrying amount of the
          long-lived asset and expensed over the life of the asset. The Company
          has elected to adopt SFAS No. 143 for the year beginning January 1,
          2002. The impact of adopting SFAS No. 143 is not expected to be
          material to the consolidated financial statements.

          In August 2001, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
          "Accounting for the Impairment or Disposal of Long-Lived Assets,"
          which is effective for fiscal years beginning after December 15, 2001.
          SFAS No. 144 clarifies accounting and reporting for assets held for
          sale, scheduled for abandonment or other disposal and recognition of
          impairment loss related to the carrying value of long-lived assets.
          The Company has elected to adopt SFAS No. 144 for the year beginning
          January 1, 2002. The impact of adopting SFAS No. 144 is not expected
          to be material to the consolidated financial statements.

     16.  Reclassification

          Certain 2000 year amounts have been reclassified to conform to the
          2001 year presentation.

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE B - INVENTORIES

     Inventories consist of the following at December 31:

                                                        2001             2000
                                                     ----------       ----------

Purchased components and materials                   $1,168,995       $  756,812
Work in process                                         313,512          369,213
Finished goods                                          606,726          548,668
                                                     ----------       ----------

                                                     $2,089,233       $1,674,693
                                                     ==========       ==========

NOTE C - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following at December 31:


                                                        2001             2000
                                                    ----------        ----------

Land                                                $  300,000        $  300,000
Building and improvements                            1,045,570         1,029,183
Equipment                                              854,766           689,494
Software                                               115,563            89,763
                                                    ----------        ----------

                                                     2,315,899         2,108,440
Less accumulated depreciation                        1,078,707           922,030
                                                    ----------        ----------

                                                    $1,237,192        $1,186,410
                                                    ==========        ==========

NOTE D - DEBT

     1.   Line of Credit Facility

          The Company has an agreement with a financial institution, expiring
          June 30, 2002, which provides the Company with a line of credit
          facility of up to $500,000 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.

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE D (continued)

          Borrowings under the line of credit bear interest at the bank's
          specified prime rate plus .75% (5.5% at December 31, 2001). Net
          borrowings under this line of credit totaled $399,400 at December 31,
          2001.

          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 be reduced monthly by
          approximately $11,900 and will expire January 2006. Availability under
          this line at December 31, 2001 was approximately $583,000. Borrowings
          under this loan agreement bear interest at the 30-Day Commercial Paper
          Rate plus 2.90% (4.68% at December 31, 2001). Net borrowings under
          this line of credit totaled $257,149 at December 31, 2001.

     2.   Mortgage Note

          The Company's first mortgage note is collateralized by land and
          building. The remaining unpaid mortgage note balance at December 31,
          2001 is payable in equal monthly installments of $12,297 (inclusive of
          interest at 9.3%) with a maturity date of June 2008. On June 1, 2000,
          the interest rate was increased to 9.3% in accordance with the terms
          of the mortgage modification agreement. 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 $68,761
          and $63,582 at December 31, 2001 and 2000, respectively, and are
          included in "Other assets" in the accompanying consolidated balance
          sheets. Amortization is provided on a straight-line basis over the
          life of the mortgage note.

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE D (continued)

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


<TABLE>
<CAPTION>
                                                                   2001       2000
                                                                 --------   --------

<S>                                                              <C>
Domain name note payable in five annual installments of $5,000
     beginning on March 8, 2001, net of imputed interest
     of $4,036                                                   $ 17,444   $ 20,964
First mortgage note payable to bank in
    equal monthly installments, including
    interest, through June 2008                                   713,176    795,378
                                                                 --------   --------

                                                                  730,620    816,342
Less current maturities                                            88,618     81,811
                                                                 --------   --------

                                                                 $642,002   $734,531
                                                                 ========   ========
</TABLE>

          Aggregate maturities of long-term debt as of December 31, 2001 are as
          follows:

                            2002                               $  88,618
                            2003                                  97,184
                            2004                                 106,577
                            2005                                 116,880
                            2006                                 122,823
                            Thereafter                           198,538
                                                                 -------

                                                                $730,620
                                                                ========

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
          $11,025 and $8,485 were made to the plan in 2001 and 2000,
          respectively.



<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE E (continued)

     The Company maintains a deferred compensation agreement with a key officer,
     whereby the officer will receive a defined amount approximating 30% of his
     1990 base salary for a period of 10 years after reaching age 65. The
     deferred compensation plan is funded through life insurance and is being
     provided for currently. The expense charged to operations in 2001 and 2000
     for such future obligations was approximately $4,080 in each year.

NOTE F - INCOME TAXES

     The provision (benefit) for income taxes is summarized as follows:

                                                   2001                  2000
                                                ---------             ---------


     Current                                    $(187,236)            $ 271,000
         Federal                                    3,000                50,000
         State                                  ---------             ---------

                                                 (184,236)              321,000

     Deferred                                     (87,000)              (38,000)
                                                ---------             ---------

                                                $(271,236)            $ 283,000
                                                =========             =========

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

                                            2001                    2000
                                     ------------------     ------------------
                                       Amount        %        Amount        %
                                     ---------     ----     ---------     ----

     Federal statutory rate          $(227,700)   (34.0)%   $ 267,500     34.0%
     State income taxes, net of
        Federal income tax benefit     (32,500)    (4.8)       33,000      4.2
     Officers' life insurance            1,500       .2         2,000       .2
     Other permanent differences       (12,536)    (1.9)      (19,500)    (2.4)
                                       -------     ----       -------     ----

                                     $(271,236)   (40.5)%   $ 283,000     36.0%
                                     =========    =====     =========     ====

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE F (continued)

     The tax effects of temporary differences which give rise to deferred tax
     assets (liabilities) at December 31, 2001 and 2000 are summarized as
     follows:

<TABLE>
<CAPTION>
                                                                 2001         2000
                                                              ---------    ---------

<S>                                                           <C>          <C>
     Deferred tax assets
         Deferred compensation                                $  85,000    $  83,000
         Inventory valuation                                    107,000       71,000
         Allowance for doubtful accounts                         15,000       18,000
         Accrued expenses                                        41,000       21,000
         Net operating loss carryforwards                        34,000           --
                                                              ---------    ---------

               Gross deferred tax assets                        282,000      193,000

     Deferred tax liabilities
         Excess tax over book depreciation and amortization    (217,000)    (215,000)
                                                              ---------    ---------

      Net deferred tax asset (liability)                      $  65,000    $ (22,000)
                                                              =========    =========
</TABLE>

NOTE G - STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN

     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. Options to purchase 10,000
     shares are outstanding under this plan. 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.



<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE G (continued)

     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, 2001, there were 28,750 shares available for grant
     under the 1993 Plan.

     In 1999, the Company adopted the 1999 Stock Option Plan (the "1999 Plan"),
     which provides for the granting, to employees, nonemployee directors,
     consultants and advisors of the Company, of incentive stock options and
     nonqualified stock options for the purchase of a maximum of 500,000 shares
     of the Company's common stock. Under the terms of the 1999 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, 2001, there
     were 48,500 shares available for grant under the 1999 Plan.

     In 2001, the Company adopted the 2001 Stock Option Plan (the "2001 Plan"),
     which provides for the granting, to employees, nonemployee directors,
     consultants and advisors of the Company, of incentive stock options and
     nonqualified stock options for the purchase of a maximum of 500,000 shares
     of the Company's common stock. Under the terms of the 2001 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, 2001, there
     were 500,000 shares available for grant under the 2001 Plan.

     In 2001, the Company adopted the Employee Stock Purchase Plan, which was
     approved by our stockholders on July 12, 2001. In accordance with Section
     423 of the Internal Revenue Code, eligible employees may authorize payroll
     deductions of their salary to purchase shares of the Company's common stock
     at the lower of 85% of the fair market value of common stock on the first
     or last day of the offering period. An eligible employee may purchase up to
     2,000 shares of stock during any single offering period. No shares were
     purchased under the 2001 Employee Stock Purchase Plan during the year ended
     December 31, 2001. The Company expects the first offering period to begin
     on July 1, 2002 and end on December 31, 2002. The maximum number of shares
     offered under the 2001 Employee Stock Purchase Plan is 400,000 shares.

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

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, 2000              485,300    $.3125 to $3.80        $1.09
         Granted                                  42,000    1.6250 to 2.875         2.21
         Expired                                  (3,300)    .3125 to 1.28          1.05
                                                  ------                            ----

     Outstanding at December 31, 2000            524,000      .90 to 3.80           1.18
         Granted                                  16,000     1.22 to 1.87           1.83
         Expired                                 (16,000)    2.75 to 2.875          2.87
                                                  ------                            ----

     Outstanding at December 31, 2001            524,000      .90 to 3.80           1.14
                                                  ======                            ====

     Balance exercisable at December 31, 2001    176,750      .90 to 3.80           1.27
                                                  ======                            ====

</TABLE>

     The following table summarizes significant ranges of outstanding and
     exercisable options at December 31, 2001:

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

     $.90 to $2.00     511,500        7.47          $1.08    166,250     $1.11
     $2.875 to $3.80    12,500        6.82           3.58     10,500      3.71


The weighted-average option fair value on the grant date was $1.45 and $1.77 for
options issued during the years ended December 31, 2001 and 2000, respectively.


<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE G (continued)

     The Company has adopted the disclosure provisions of Statement of Financial
     Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
     Compensation"; this statement 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
     earnings (loss) and earnings (loss) per share would be adjusted to the pro
     forma amount indicated below for the years ended December 31:

                                                     2001           2000
                                                 -----------    -----------

     Net earnings (loss)
         As reported                               $(398,507)      $503,922
         Pro forma                                  (440,003)       384,228
     Basic earnings (loss) per common share
         As reported                                   $(.32)          $.40
         Pro forma                                      (.35)           .31
     Diluted earnings (loss) per common share
         As reported                                   $(.32)          $.32
         Pro forma                                      (.35)           .24

     These pro forma amounts may not be representative of future disclosures
     because they do not take into account 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, 2001 and 2000: expected volatility of 120% in 2001 and 121% in
     2000; risk-free interest rates ranging from 3.86% to 4.32% in 2001 and
     5.08% to 6.15% in 2000. The expected lives of options issued are four years
     for 2001 and 2000.

     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.

<PAGE>



                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE H - BUSINESS SEGMENTS

     The Company has two reportable segments: Telebyte is a manufacturer of
     technology products and Nextday.com distributes products through
     e-commerce.

     The Company's chief operating decision maker utilizes net sales and net
     earnings (loss) information in assessing performance and making overall
     operating decisions and resource allocations. The accounting policies of
     the operating segments are the same as those described in the summary of
     significant accounting policies. Information about the Company's segments
     for the years ended December 31, 2001 and 2000 are as follows:

                                             2001           2000
                                         -----------    -----------

     Net sales from external customers
         Telebyte                        $ 5,277,990    $ 6,213,225
         Nextday.com                         497,121        251,303
                                         -----------    -----------

                                         $ 5,775,111    $ 6,464,528
                                         ===========    ===========

     Intersegment net sales
         Telebyte                        $   218,191    $   143,745
         Nextday.com                              --             --
                                         -----------    -----------

                                         $   218,191    $   143,745
                                         ===========    ===========

     Operating profit (loss)
         Telebyte                        $  (526,106)   $ 1,140,856
         Nextday.com                        (178,562)      (338,576)
                                         -----------    -----------

                                         $  (704,668)   $   802,280
                                         ===========    ===========

     Interest expense
         Telebyte                        $    98,471    $    95,202
         Nextday.com                              --             --
                                         -----------    -----------

                                         $    98,471    $    95,202
                                         ===========    ===========


<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE H (continued)

                                             2001           2000
                                         -----------    -----------

     Other income
         Telebyte                        $    53,386    $    77,239
         Nextday.com                          80,010          2,605
                                         -----------    -----------

                                         $   133,396    $    79,844
                                         ===========    ===========

     Income tax provision (benefit)
         Telebyte                        $  (231,324)   $   404,000
         Nextday.com                         (39,912)      (121,000)
                                         -----------    -----------

                                         $  (271,236)   $   283,000
                                         ===========    ===========

     Identifiable assets
         Telebyte                        $ 4,591,629    $ 4,471,001
         Nextday.com                         342,653        144,583
                                         -----------    -----------

                                         $ 4,934,282    $ 4,615,584
                                         ===========    ===========

     Capital expenditures
         Telebyte                        $   147,599    $   198,153
         Nextday.com                          26,400         16,173
                                         -----------    -----------

                                         $   173,999    $   214,326
                                         ===========    ===========

     Depreciation and amortization
         Telebyte                        $   189,850    $   218,382
         Nextday.com                          34,240         89,238
                                         -----------    -----------

                                         $   224,090    $   307,620
                                         ===========    ===========



NOTE I - COMMITMENTS AND CONTINGENCIES

     Former Chairman

     Effective January 20, 1999, the then Chairman of the Board, President and
     Chief Executive Officer of the Company (the "Former Chairman") resigned his
     positions with the Company. However, the


<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE I (continued)

     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. During 1999, the Former Chairman was paid $85,000 for
     consulting services and will earn $80,000 for future services through
     January 2002. In addition, the Company purchased all of the shares of
     common stock of the Company owned by the Former Chairman (262,835 shares)
     and the Former Chairman agreed to cancel options to purchase 10,000 shares
     of common stock of the Company for an aggregate cost (including related
     legal and professional fees of approximately $74,000) of $1,149,456, of
     which $927,431 was for such shares, $18,901 was for the cancellation of
     such options and $203,124 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.

     In December 1999, the Company received information indicating that the
     Former Chairman had breached certain of the noncompetition provisions of
     the consulting agreement entered into by the Former Chairman and the
     Company and also of the stock purchase agreement and the termination
     agreement entered into by the Former Chairman and the Company. In response
     to this information, the Company asserted its rights under the consulting
     agreement and cancelled it for cause on January 12, 2000, and ceased making
     payments thereunder. The Company is considering what further legal action
     it may take with respect to this situation as warranted under the
     circumstances.

     Lease Commitments

     The Company leases certain equipment used in its operations pursuant to
     noncancellable operating and capital leases expiring through February 2004.
     The minimum rental commitments under these noncancellable leases, at
     December 31, 2001, are summarized as follows:

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE I (continued)


                                                  Operating    Capitalized
                                                   leases        leases
                                                  ---------    ------------
     Year ending December 31,
          2002                                    $ 8,977        $12,716
          2003                                      6,336         12,716
          2004                                        792          1,060
                                                  -------        -------

                                                   16,105         26,492

     Less amount representing interest                 --          2,346
                                                  -------        -------

     Total minimum lease payments                 $16,105         24,146
                                                  =======
     Less current maturities                                      11,046
                                                                 -------

     Long-term capitalized lease obligations                     $13,100
                                                                 =======

     Rent expense for all operating leases was $62,140 and $17,453 in 2001 and
     2000, respectively.

     Employment Contracts

     The Company has employment contracts with various officers with remaining
     terms of approximately three years at amounts approximating their current
     levels of compensation. The Company's remaining aggregate commitment at
     December 31, 2001 under such contracts is approximately $590,000.

<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE J - EARNINGS (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                                                December 31,
                                                         -------------------------
                                                            2001           2000
                                                         -----------    ----------

<S>                                                      <C>            <C>
     Numerator
         Net income (loss)                               $  (398,507)   $  503,922
                                                         ===========    ==========

     Denominator
         Denominator for basic earnings (loss) per
            share (weighted-average shares)                1,253,631     1,252,713
         Effect of dilutive securities
           (employee stock options)                               --       325,935
                                                         ===========    ----------
         Denominator for diluted earnings (loss) per
           share (adjusted weighted-average shares and
           assumed conversions)                            1,253,631     1,578,648
                                                         ===========    ==========

     Basic earnings (loss) per share                     $      (.32)   $      .40
                                                         ===========    ==========
     Diluted earnings (loss) per share                   $      (.32)   $      .32
                                                         ===========    ==========
</TABLE>