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, 1999 ( )  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.

                             (Exact name of issuer as specified in its charter)

            Delaware                                                  11-2510138
         ------------------                                           ----------
  (State or other jurisdiction of                               (I.R.S. Employer
   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.

                               __X__ Yes _____ No

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

The issuer's revenues for its most recent fiscal year were $5,670,600


The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates of the registrant at March 15, 2000 was $10,145,127


                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

The number of shares of common stock outstanding at March 15, 2000 was 1,253,631
Transitional Small Business Disclosure Format (check one):  Yes _____; No  __X__
                                                                           -----

                    DOCUMENTS INCORPORATED BY REFERENCE: None


                                       1
<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.  (herein  either the "Company" or  "Telebyte") is focused in two
separate business segments.  In the first segment (data communications  business
segment),  the  Company  designs,  manufactures,  and  markets  electronic  data
communications  products  that operate over copper and fiber optic  cables.  The
Company's  operations in this segment are carried out in a single  location and,
except for sales to foreign  distributors,  the  Company  does not  conduct  any
foreign  operations.   The  second  segment  (e-commerce  business  segment)  is
concentrated  in a  wholly  owned  subsidiary,  DeliverNextday.com,  Inc.  d/b/a
Nextday.com ("Nextday.com"). This subsidiary's activity entails the reselling of
business-to-business  products manufactured  principally by other companies. The
reselling  is   accomplished   through  an  electronic   commerce   (e-commerce)
marketplace.  This e-commerce  marketplace has the Internet  Universal  Resource
Locator (URL) of http://www.Nextday.com.  Operations of this segment are carried
out in  several  locations  with each  devoted  to a  separate  activity  of the
segment.  Nextday.com was launched as a separate business segment of the Company
in October  1999.  The  Company  was formed as a New York  corporation  in 1983,
re-incorporated  in Nevada in 1987,  and  re-incorporated  in  Delaware in 1999.
DeliverNextday.com, Inc. was incorporated in New York in 1999.


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


                                       2
<PAGE>


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


The Company's  products  meet a variety of needs of a total data  communications
network  architecture.  These  products are the "glue" that allow many different
network elements to function together properly. The Company's prospective market
is  increasing  as  the   ubiquitous   personal   computer  (PC)  embraces  more
applications.  The  Company  endeavors  to maintain  the market  position of its
product line by developing  both improved  versions of current  products and new
products.  Fiber optic and Digital Subscriber Line (DSL) test equipment products
are important factors in the Company's  business and future product  development
is expected to continue to emphasize these areas.

The  Company's  e-commerce  business  segment is involved  with the reselling of
business-to-business products through its cross industry e-marketplace available
on the Internet at  http://www.Nextday.com.  In carrying out the  activities  of
this  segment  the  Company  procures  products  from  various  suppliers  on  a
consignment  and/or  purchase  basis and  stocks  them as  inventory  items in a
warehouse.  Suppliers  currently are principally in the computer  peripheral and
networking equipment industries.  The Company procures these items at a discount
from the price to which  they are sold to the final  customer.  This  e-commerce
marketplace can provide  multi-tier  pricing.  Thus,  products can be priced for
single unit sale to an end-user or with multiple unit quantity  discounts or for
indeterminate  quantity to other resellers of the product  suppliers'  products.
Products  can be ordered  through  Nextday.com  at any time.  If the  product is
ordered by 12 Midnight  Central  Time it can be  delivered in most places in the
United States and Canada by the end of the next business  day.  Nextday.com  can
obtain  customer  payment both by credit card and through  purchase  order.  The
Company is carrying  out various  activities  in order to increase  the depth of
products available through Nextday.com and to promote the Nextday.com e-commerce
marketplace.  Such activities include attendance at trade shows, use of a public
relations  firm,  bulk and selective  e-mail and the  development of software to
enhance the capability of this e-commerce marketplace.


Business Developments for  1998 and 1999


During 1998, the Company  concentrated efforts on visiting customers both within
and  outside  the  United  States in order to  solidify  existing  long-standing
relationships  and  uncover   opportunities  for  new  standard  and  customized
products.  In October  1998,  Joel A. Kramer,  in his capacity as  International
Sales Manager  visited Eastern Europe,  including  Russia,  in order to meet and
recruit distributors for the Company's products.  The Company's technology focus
in this period was aimed at  developing  versions of its products  with DIN rail
mounting. Such mounting had become popular for equipment in factories in Europe.
It  allowed  data  communications  devices  to be  mounted  on tracks  placed on
surfaces  rather  than to be left  free-standing  or put in card  cages.  It was
expected  that this  popularity  would  migrate  to the  United  States and then
elsewhere around the world.


During the  second  half of 1998 the  Company  began  negotiations  with Joel A.
Kramer,  then the Company's  Chairman of the Board and Chief Executive  Officer,
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 Technology, Inc. resigned such positions. 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.  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. See "Certain Relationships and Related Transactions."

                                        3
<PAGE>

With the departure of Mr. Kramer,  Company leadership transferred to a new team.
This team is led by Dr. Kenneth S. Schneider,  a founder,  who became  Chairman/
CEO and Mr. Michael Breneisen who became President/COO.  During 1999 the Company
went through a major internal reorganization which included staff changes. These
changes  resulted in greater  efficiencies  in operations.  Product  development
activity in the Company's data  communications  product  segment was directed at
the  continued  enhancement  of the  Company's  Digital  Subscriber  Line  (DSL)
simulators.  This included the  introduction of the Model 454, 455, 456 and 457.
DSL is a popular  approach to achieving  high speed access to the Internet.  The
attention  paid to this  end of the  Company's  product  line  was  based on its
alignment for growth with the Internet.  The Company also began the  development
of a number of  Universal  Serial  Bus (USB)  converters.  In  particular,  this
included a  USB-to-fiber  optic  converter.  USB is emerging as the new and more
efficient  data  input/output   interface   standard  for  computers,   computer
peripherals  and other  data  generating  devices.  The  development  of the USB
converters  is aligned with the  Company's  continued  interest in its interface
converter  product  line.  The  Company  also  continued  to enhance and improve
existing offerings in its data communications product line in order to keep them
market  competitive.  Activity in the Company's  e-commerce  business segment in
1999 was  directed  at  beginning  operations  and other  preparatory  activity.
Significant  work was  performed in developing  the  e-commerce  marketplace  by
integrating  component  systems.  Significant  testing  of the total  e-commerce
marketplace  was then  performed  prior to its release in the fourth  quarter of
1999. Michael Breneisen,  President/COO of Telebyte,  Inc. was designated as CEO
of the Nextday.com subsidiary where these e-commerce business segment activities
are carried out.




Products

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

         Interface Converters


These transform the characteristics of the electrical interface of one device to
enable it to become  compatible with the electrical  interface of another.  This
conversion  may  also  include   modifying  the  protocol  and/or  the  physical
transmission  medium,  i.e., copper wire to fiber cable. By employing  interface
converters,  a data communications  network can be established or expanded using
heterogeneous  equipment types.  Without the use of interface  converters,  such
equipment  would be  unable to  communicate.  The sale of  interface  converters
represented  52.2% of  Telebyte's  revenue in 1999 as compared to 43.5% in 1998.
Because the 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.  Telebyte's line of interface  converters is
available in most of the  configurations now required by the market and includes
programmable  devices.  If the  appropriate  opportunity  presents  itself,  the
Company  will  attempt to  manufacture  custom  interface  converters  to meet a
particular customer's requirements.


                                       4
<PAGE>


         Short Haul Modems


These are often  alternatively  referred  to as either  line  drivers or limited
distance modems.  These are signaling devices generally used to implement a data
communications  link in the premises  environment.  The premises  environment is
that of the office  building,  campus or  industrial  site.  Data  communication
distances  here vary from a few feet to a few miles.  Short haul modems are used
to connect computers and accessory equipment such as terminals,  printers, badge
readers, scales, bar code readers, and other computer controlled machines. Short
haul modems are also used in establishing data  communications  between personal
computers and mini computers or mainframe  computers.  In some cases, short haul
modems can be used to signal on Telephone  Company  (Telco)  provided lines used
for  special  services  such as  Internet  access.  Short haul  modems are often
confused  with  `dial-up'  modems  used for wide area  network  and/or  Internet
communications.

The role of the short haul modem has been expanded from connecting  terminals to
a central processing unit to creating extensive computer to  computer/peripheral
networks.  The  Company's  short haul modem devices are designed to provide data
communications  links ranging from relatively  short distances to several miles.
The Company  manufactures  and sells a variety of short haul modems designed for
particular  applications  and the  electromagnetic  environment of the user. For
example,  Telebyte  has three  types of short  haul  modems,  with  transmission
capabilities   that  are  suited  for  (i)  factories  or  heavy   manufacturing
operations,  (ii) light  manufacturing,  and (iii)  industrial  office  areas or
general office  locations.  Due to technological  changes and  innovations,  the
Company  is always  considering  the need to modify and  improve  its short haul
modem products so that it can better meet customers' technical  requirements and
remain  competitive  in this  market.  Short haul  modems  represented  25.2% of
Telebyte's net sales in 1999 as compared to 24.1% in 1998.


         Test Equipment


This  category  consists of two  distinctly  different  product  groups,  namely
Digital Subscriber Line (DSL) local loop simulators and protocol analyzers. Test
equipment  products  represented  6.2% of the  Company's  net  sales  in 1999 as
compared to 10% in 1998.


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

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


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


                                       5
<PAGE>

         LAN Products


There has been  significant  growth in the  deployment  of Local  Area  Networks
(LANs). LANs allow a plethora of computers and computational  equipment to share
applications programs.  This leads to greater productivity.  The Ethernet LAN is
the  principal  means  by  which  computational  equipment  shares  applications
programs.  LANs are often  connected by UTP copper  cable.  However,  such cable
restricts  the  distances  separating  the various  communicating  computational
devices using the LAN to 100 meters.  By employing  multi-mode fiber optic cable
rather  than  UTP  this  communicating  distance  can  be  extended  to  several
kilometers.  For several  years,  the Company  has sold  converters,  called LAN
extenders,  that allow the  extension of Ethernet  LAN  distances by using fiber
optic cables.  These products take Ethernet  signals designed for use on UTP and
convert them for use on fiber optic cables and vice versa.  In 1998, the Company
developed several new LAN extenders. All of these operate over single-mode fiber
optic  cable.  All of these  operate  with both  standard  10BaseT and  100BaseT
Ethernet LANs. LAN products  represented 7.3% of Telebyte's net sales in 1999 as
compared with 10% in 1998.


         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.  During 1999, the Company  purchased  approximately  18% of its
products from one supplier.  If required,  raw material and supplies are readily
available from various sources.


         Research and Development


The research and new product development budget for 2000 is $550,000 compared to
approximately  $518, 000 spent in 1999. 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.



                                       6
<PAGE>


Sales and Marketing


In the years prior to 1999, the Company's data  communications  business segment
marketed its data communications  products through promotional activities on the
Internet,  catalog  circulation,   telephone  sales,  paid  advertising,   press
releases,  post card decks,  direct mail campaigns,  and  participation in trade
shows. During these years, the Company conducted its sales and marketing efforts
through an in-house sales staff and a network of distributors.

However, in 1999, the Company carried out a detailed statistical analysis of its
sales-to-lead  tracking  system.  As a result the Company believes that the most
effective  way to increase its end user business is to follow a strategy that is
based  primarily on marketing  through its Internet Web site.  Accordingly,  the
Company  plans to increase  promotional  and sales  activities  on the Internet.
While the Company has embraced an Internet Web site based  approach to sales the
Company continued printing and circulating its catalog in 1999, but at a reduced
level, compared to previous years.

During 1996,  the Company  established  a Web site on the Internet that contains
the Company's  complete  catalog.  The Company continued to make improvements to
its Web site in 1997 and 1998. In particular,  during 1998, the Company expanded
its Web site by placing an electronic version of application  articles on it for
all of the Company's products. This continued in 1999, with the placement of two
data communications  monographs,  authored by Company staff, on the Web site. In
1999, the Company also continued  placing  product manuals on the Web site. This
allowed  customers  to use the Web  site for  technical  support.  In 1998,  the
Company also  followed a strategy of judicious  placement of key words in search
engines.  These  keywords  were  associated  with  the  Company's  products  and
technical activities,  and helped direct customers to the Company's Web site. As
a result of all of these  activities the Web site produced an increasing  number
of inquiries about the Company's products. These inquiries in turn added a large
number of qualified leads to the Company's  database.  The Company's Web address
is  www.telebyteusa.com.  The Company plans regular improvement of the Company's
Web site. It plans to carry out promotional  activities to attract  customers to
its Web site.

During 1999, Company management concluded that its Internet Web site approach to
sales did not require the large sales staff that the Company had been employing.
Accordingly, there was a reorganization of sales and marketing with an attendant
reduction in overall staff.  Sales and marketing is now managed by a Director of
Sales and  Marketing,  who has three  sales  support  staff  assistants  and one
marketing staff assistant.  In contrast to previous years, the Director of Sales
and Marketing manages both domestic and international  sales and the position of
International  Sales Manager was eliminated.  Joel A.Kramer previously held this
position  along  with his  other  positions  of  Chairman  of the  Board,  Chief
Executive  Officer and President.  The Director of Sales and Marketing is paid a
combination of base salary and  commissions.  In contrast to previous years, the
Director of Sales and  Marketing  is the only member of the Sales and  Marketing
staff to receive commissions.

Domestic sales generated by all of these promotional activities are primarily to
end-users  rather  than  resellers.   Such  end-users  include  OEM's  (Original
Equipment Manufacturer),  system integrators or installers and customers who may
be employing the product for their own specific use. The Company also uses a few
distributors as resellers for domestic sales. Internationally,  the Company uses
distributors.  However,  beginning in 1999,  the Company  decided to abandon its
previous   practice  of  giving  such  distributors   countrywide   exclusivity.
Accordingly, it renegotiated its agreements with these distributors to eliminate
this exclusivity.

The Company does not depend upon sales to any single customer or a limited group
of customers.  Sales to a single customer have not, during the last three fiscal
years  accounted for 10% of net sales.  The Company's  sales are not  materially
affected by seasonal factors.

The  e-commerce  business  segment,  NextDay.com,  was launched in October 1999.
Consequently,  the sales  activities of the e-commerce  business segment in 1999
were very limited. By the very nature of e-commerce,  such sales are carried out
in a highly automated fashion,  with no personnel  directly involved.  Marketing
activities for the e-commerce  business segment  commenced in the fourth quarter
of 1999.  These  activities  included  attendance  at two  trade  shows  and the
recruitment of a public relations firm.


                                       7
<PAGE>


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 business segment. Since Telebyte's 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 and other resources than does the Company. These competitors
also have greater sales and marketing resources than does the Company.


The Company's principal competitors are RAD Data Communications,  Ltd. (which is
based in Israel with local offices in New Jersey),  Black Box (with headquarters
based  in  Pennsylvania),   Patton  Electronics  (based  in  Maryland),  B  &  B
Electronics  (based in Illinois),  Dataforth  (based in Arizona) and a number of
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.

Of these factors the Company relies principally upon the price/performance ratio
of its many  products.  However,  Telebyte  also  attracts  market  share by its
ability to fill orders quickly and provide  technical  support to its customers.
The Company does not have a  significant  market  presence  with its serial data
communications test equipment and data communications accessories.

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.'


The Company is not currently aware of any e-commerce site providing  products on
a next day delivery  basis using the same approach as the  Company's  e-commerce
business  segment,  which is the  primary  basis on  which  it  competes  in the
e-commerce segment.


Employees

As of December 31, 1999, the Company had 45 employees.  Of these employees,  six
were  executives;  four  are  in  sales  and  marketing,  six  in  research  and
engineering,  seven  in  administration  and  accounting,  and  the  balance  in
manufacturing,  shipping, and related activities.  In addition, the Company uses
subcontractors  to support its current  operations.  None of the  employees  are
represented by a labor union, and the Company  considers its employee  relations
to be good.

Backlog

At December 31,  1999,  the  Company's  backlog was  $200,669,  all of which the
Company expects to fill in fiscal 2000.  Comparable backlog at December 31, 1998
was $388,690.

Item 2.           Properties


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% through
June 1, 2000. At that time and every three years  thereafter,  the interest rate
will be adjusted to the three-year  weekly average US Treasury Constant Maturity
Rate plus 3%. The  outstanding  principal  balance of the mortgage  loan,  as of
December 31, 1999, was $864,203. 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.

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.

                                       8
<PAGE>


Item 3.           Legal Proceedings


There is one pending legal  proceeding to which the Company is a party.  On July
7, 1999 the Company  filed a complaint in the United States  District  Court for
the Eastern District of New York against  Kendaco,  Inc. d/b/a Telebyte NW. This
complaint  is directed at Kendaco as Kendaco is using the  Internet  domain name
Telebyte.com.  The Company  alleges  that  Kendaco has  obtained the use of this
domain name  improperly.  The Company  alleges that Kendaco is using this domain
name in such a way as subject  the  Company to unfair  competition.  The Company
alleges that Kendaco's use of this domain name is inappropriate because it is an
act of trademark infringement,  and that as a result the Company is and has lost
business due to deceptive  advertising on Kendaco's part. The Company is seeking
to recover  ownership of the domain name in addition to unspecified  damages for
loss of business.


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

Not applicable.


                                     PART II

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


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 1999 and 1998 as reported by NASDAQ Trading and
Market  Services.  The bid and ask prices for the common stock on March 15, 2000
were $ 7.25 and $ 8.125 respectively.

                                  1999                          1998
-------------------- -------------- --------------- -------------- -------------
-------------------- -------------- --------------- -------------- -------------
                       High           Low              High          Low
-------------------- -------------- --------------- -------------- -------------
-------------------- -------------- --------------- -------------- -------------
First Quarter         $2 5/8         $1 1/32           $5            $2
-------------------- -------------- --------------- -------------- -------------
-------------------- -------------- --------------- -------------- -------------
2nd Quarter            2 1/4          1               4 3/4           3
-------------------- -------------- --------------- -------------- -------------
-------------------- -------------- --------------- -------------- -------------
3rd Quarter            1 11/16        7/8             4 1/2           1 1/4
-------------------- -------------- --------------- -------------- -------------
-------------------- -------------- --------------- -------------- -------------
4th Quarter            3 13/16         1 1/4          2 1/8           1 1/8
-------------------- -------------- --------------- -------------- -------------



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,  2000,  there  were  approximately  239  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  which
prohibit dividends.



                                       9
<PAGE>


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

Results of Operations

Fiscal 1999 Compared to Fiscal 1998

Sales for the year ended  December 31, 1999  increased by $101,813 to $5,670,600
compared to $5,568,787 for 1998. The marginal increase in sales is due primarily
to success of the Company's Internet marketing strategy.

The gross  margin  for 1999 was 53.6% as  compared  to 52.8% for 1998.  This was
primarily a function of product mix and better capacity utilization.

Selling,  general,  and administrative costs decreased by $329,153 to $1,747,820
in 1999,  compared to  $2,076,973  in 1998.  The decrease was due primarily to a
reduction in the Company's  sales staff and other cost cutting  measures.  These
decreases reflect management's commitment to moving the Company from selling via
telephone  to  a  combination  of  telephone  and  automated,   Internet  based,
Electronic Commerce. Selling expenses during 1999 also included the distribution
of approximately  100,000 product catalogs as compared to approximately  186,000
in 1998.

During the second  half of 1999 the  Company  began  operations  of a  separate,
wholly owned,  subsidiary,  Nextday.com.  Nextday.com is a business to business,
cross industry e-marketplace focusing on express fulfillment. The new subsidiary
sells products  manufactured  by the Company and products  manufactured by other
suppliers. Nextday.com is differentiated from other e-commerce web sites in that
it is able to take  orders up until  midnight  central  time and have the orders
delivered  anywhere  in the US and most of  Canada  the next  business  day.  On
weekends,  customers  who order  before 10 am central  time on Sunday can expect
delivery on Monday morning. Sales for Nextday.com in 1999 were very limited. The
Company believes this new subsidiary will enhance its future growth.

Research and  development  expenses  increased  in 1999 to $518,096,  or 9.1% of
sales,  from $469,415,  or 8.4% of sales in 1998. The increase  illustrates  the
Company's continued commitment to new product  development.  Product development
was directed at the continued  enhancement of the Company's  Digital  Subscriber
Line (DSL) simulators. This included the introduction of the Model 454, 455, 456
and 457.  DSL is a  popular  approach  to  achieving  high-speed  access  to the
Internet. The attention paid to this end of the Company's product line was based
on its  alignment  for growth  with the  Internet.  The  Company  also began the
development of a number of Universal Serial Bus (USB) converters.


                                       10
<PAGE>


Interest  expense of  $111,738 in 1999  increased  to 2% of sales as compared to
$97,352, or 1.7% in 1998. This increase was due to higher debt.

Interest  income  decreased  by $19,070.  The  decrease in 1999 was due to lower
average  levels of cash on hand  during  1999.  In 1999,  the Company had rental
income of  $48,195,  equal to the 1998  rental  income.  For 2000,  the  Company
expects rental income of approximately $48,000.

The Company  generated net income of $423,305 or $0.34 per share, 7.5% of sales,
compared  to  $333,500  or $0.22 per  share,  and 5.9% of sales,  for 1998.  The
increase  is  primarily  attributable  to the  improved  efficiencies  and staff
reductions described above.

The  effective  tax rate in 1999 was  40.8%,  compared  with  9.7% in 1998.  The
increase in the effective tax rate is primarily due to the Company's utilization
of most of its net operating loss  carryforward in the 1998 period.  The Company
expects its effective tax rate for 2000 to be approximately 40%.

Liquidity and Capital Resources

In 1999,  the Company  invested  $167,844 in property and  equipment,  which was
financed through  internally  generated funds. The Company generated $586,536 of
cash flow from operations in 1999, compared to $274,302 in 1998.

Working  capital  decreased  as of December  31, 1999 by $290,923 to  $2,266,957
compared with  $2,557,880 at December 31, 1998.  The current ratio  decreased to
4.4 to 1 at December 31, 1999, compared to 5.6 to 1 at December 31, 1998.

The  Company  has an  agreement  with a financial  institution,  Merrill  Lynch,
expiring  July 2000,  which  provides the Company with a line of credit of up to
$500,000 ("Original Facility") based on eligible accounts receivable,  purchased
components,  materials and finished goods inventories of the Company, as defined
in the agreement between the Company and Merrill Lynch.  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%  (9.25% at  December  31,  1999).  There was no
outstanding balance against this line at December 31, 1999.

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.
Borrowings  under this loan  agreement  bear  interest at the 30-Day  Commercial
Paper Rate plus 2.90%.  (8.53% at December 31, 1999).  The  outstanding  balance
against this line at December 31, 1999 was $221,941.

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

Effect of Inflation

During the five-year  period ending  December 31, 1999,  the Company was able to
decrease  its costs of sales of its  products  to  compensate  for the effect of
inflation  on the  cost of  components.  This was  accomplished  by  changes  in
manufacturing methodology, namely, increasing the amount of product manufactured
on a sub-contractor basis.


                                       11
<PAGE>


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,  Inc. as a wholly owned subsidiary in 1999, and launched
its Web site, Nextday.com,  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:

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

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

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

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

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

      - respond to actions taken by our competitors;

      - manage our growth effectively;

      - implement our advertising and marketing strategies;

      - develop and renew strategic relationships, particularly with suppliers;

      - attract, retain and motivate qualified personnel; and

      - 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.

      Please see "Management's Discussion and Analysis of Financial Condition
        and Results of Operations."

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


                                       12
<PAGE>


    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. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

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:

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

      - traffic levels on  Telebyeusa.com and Nextday.com and on other Web sites
         that refer consumers to our Web site;

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

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

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

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

                                       13
<PAGE>

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

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

      - 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;

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

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

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

      - 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.  Please  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

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:

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

      - 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

      - 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.


                                       14
<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.


                                       15
<PAGE>


      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:

      - actual or anticipated variations in our quarterly operating results;

      - announcements of new product or service offerings;

      - technological innovations;

      - competitive developments;

      - changes in financial estimates by securities analysts;

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

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

      - general market conditions and other general factors.

      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.



                                       16
<PAGE>


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.

      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  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:

      - the competition we face in hiring sales personnel;

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

      - 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.



                                       17
<PAGE>



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:

      - brand awareness and loyalty;

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

      - a positive shopping and purchasing experience for the consumer in our
         clients sites;

      - breadth and depth of selection of product;

      - price;

       - ease of use;

         - quality of content, other service offerings, and speed of our site:

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

         - 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 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.


                                       18
<PAGE>


         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  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.


                                       19
<PAGE>



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.



                                       20
<PAGE>



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 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.


                                       21
<PAGE>



WE MAY BE UNABLE TO ACQUIRE OR MAINTAIN THE NECESSARY WEB DOMAIN NAMES.

         We  currently  hold  various  Web domain  names  relating to our brand,
including the  "Telebyteusa.com  and Nextday.com"  domain names. The acquisition
and maintenance of domain names generally is regulated by governmental  agencies
and their  designees.  For example,  in the United States,  the National Science
Foundation  has  appointed  Network  Solutions,  Inc. as the  current  exclusive
registrar  for the ". com," ".net" and ".org"  generic  top-level  domains.  The
regulation  of domain  names in the United  States and in foreign  countries  is
subject to change in the near  future.  Such  changes  in the United  States are
expected to include a  transition  from the current  system to a system which is
controlled by a non-profit  corporation and the creation of additional top-level
domains.  Governing bodies may establish additional  top-level domains,  appoint
additional  domain name registrars or modify the requirements for holding domain
names.  As a result,  we may be unable to acquire or  maintain  relevant  domain
names  in  all  countries  in  which  we  conduct  business.   Furthermore,  the
relationship  between  regulations  governing  domain names and laws  protecting
trademarks  and  similar  proprietary  rights is unclear.  Therefore,  we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our proprietary rights.

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

         Approximately 22% 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 "Principal Stockholders" and "Description of Securities."

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 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, 1999 and 1998
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 in Accounting and
Financial Disclosures

None


                                       22
<PAGE>




                                    Part III


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

The following table sets forth certain information concerning Company's officers
and directors as of December 31, 1999. Telebyte's directors are elected to serve
until the next annual  meeting of  shareholders  or until their  successors  are
elected and  qualified.  The executive  officers are appointed  annually by, and
serve at the pleasure of, the Board of Directors.


<TABLE>
<CAPTION>
Name, age, and positions          Business experience during past               Director
held with the Company             five years and principal occupation           since
---------------------             -----------------------------------           -----
<S>                               <C>                                           <C>
Kenneth S. Schneider, Ph.D.,      Dr. Schneider served as Vice President        1983
age 54, Chairman, CEO,            and Treasurer from August 1983 to
Secretary, and                    January 1999.  He was elected
Director (1)                      Secretary in June 1991.  He became
                                  Chairman of the Board and CEO in
                                  January 1999.

Jamil Sopher, age 56              Mr. Sopher is with the World Bank             1996
Director (2)                      Bank where he has been employed
                                  since 1980.

Michael Breneisen, age 35,        Mr. Breneisen served as Controller,           1999
President, COO, CFO, and          from July 1992 and Vice President
Director                          and CFO from January 1997.  He
                                  became President, COO and CFO
                                  in January 1999. He became CEO
                                  of Nextday.com, Inc. in June 1999.
</TABLE>


----------
(1)  Dr.  Schneider  received BS,  M.Eng.  (Elect.)  and Ph.D. degrees' all from
     Cornell University.

(2)  Mr. Sopher received BS and M.Eng.  (Elect.) degrees from Cornell University
     and the MBA degree from Harvard University.

Section 16 Compliance

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

                                        23
<PAGE>


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.


<TABLE>
<CAPTION>
                                                     Summary Compensation Table

                                     Annual Compensation                             Long-Term  Compensation
                                    -------------------                              -----------------------
                                                                                      Awards          Payouts
                                                                                      ------          -------
         (a)             (b)       (c)       (d)          (e)            (f)            (g)              (h)           (i)
       Name and                                      Other Annual    Restricted        Stock          Long-Term        All Other
 Principal Position     Year     Salary     Bonus    Compensation   Stock Awards   Options/SARs   Incentive Payout    Compensation
 ------------------     ----     ------     -----    ------------   ------------   ------------   ----------------    ------------
                                   ($)       ($)          ($)           (No.)          (No.)             ($)              ($)
<S>                     <C>     <C>        <C>        <C>                 <C>            <C>         <C>                <C>
   Joel A. Kramer       1999     $10,574     0.00      $1,726(2)          0              0                0             $95,243(4)
      (Former)           (1)
      President,        1998    $124,306   $25,000    $20,130(2)          0              0            $5,747(3)          $8,040
         CEO            1997    $111,631    $2,000    $16,629(2)          0              0           $12,662(3)          $4,116
          &
      Director


Kenneth S. Schneider    1999    $125,685      0          0                0              0             $4080(3)          $5,112
                         (1)
   Chairman, CEO,       1998    $112,534   $22,000    $10,170(2)          0              0            $4,080(3)          $7,104
Secretary & Director    1997    $100,686    $2,000     $8,804(2)          0              0            $4,080(3)          $2,814
</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.


             Long-Term Incentive Plans - Awards in Last Fiscal Year


<TABLE>
<CAPTION>
                                                                 Estimated Future Payouts under Non-Stock Price-Based Plans
                                           Performance or Other  ----------------------------------------------------------
                        Number of Shares,      Period Until          Threshold           Target            Maximum
                         Units or Other         Maturation
         Name              Rights (#)            Or Payout            ($ or #)          ($ or #)          ($ or #)
----------------------- ------------------ ---------------------- ----------------- ----------------- ---------------------
<S>                                           <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 1999 for such future obligations was $4,080.

                                        24
<PAGE>


                   Aggregate Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                   % of Total Options         Exercise or
                            Number of Options     Granted to Employees        Base Price             Expiration
          Name                   Granted          in Fiscal Year 1999          ($/Share)                Date
          ----                   -------          -------------------          ---------                ----
<S>                              <C>                     <C>                     <C>                   <C>
     Joel A. Kramer                 0                      0                       --                    --
  Kenneth S. Schneider           200,000                 43.5%                   $1.03                 6/29/09
</TABLE>


The following  table sets forth  information  concerning  each exercise of stock
options  during fiscal 1999 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>
                                                                               Number of        Value of Unexercised
                            Number of Shares             Value         Unexercised Options at   In-the-Money Options
          Name            Acquired on Exercise        Realized ($)         December 31, 1999    at December 31, 1999
          ----            --------------------        ------------         -----------------    --------------------
<S>                               <C>                     <C>                 <C>                     <C>
     Joel A. Kramer               0                       0                      0                       $0
  Kenneth S. Schneider            0                       0                   200,000 (2)             $394,000
</TABLE>

----------
(1)  Calculation  based upon the closing price of the Company's  Common Stock
     ($3.00 per share) as reported by Nasdaq Trading & Market  Services on
     December 31, 1999.

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

Compensation Plans and Other Compensation

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,
1999,  options to purchase an aggregate  of 418,000  shares have been granted
and there were 82,000 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 so 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 option price of the shares  subject to 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 option  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  option  price of shares  subject to 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 for 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

                                        25
<PAGE>


employees of the Company are eligible to participate in the 1993 Plan. The Board
of Directors of the Company  administers the 1993 Plan. The 1993 Plan is similar
to the 1999 Plan. As of December 31, 1999,  there were 34,750  shares  available
for  grants  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 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 10,800 shares are outstanding.

The Company has an informal bonus plan in which officers and other key personnel
participate.  The  bonus  award,  if any,  is  fixed  annually  by the  Board of
Directors. Bonuses were allocated and paid to executive officers under this plan
during fiscal 1999 and shown on the foregoing  Summary  Compensation  Table. The
Company  maintains a deferred  compensation  plan under  Internal  Revenue  Code
Section  401(k).  All  employees  are  eligible  to  participate;   the  Company
contributes  50% of the first 2% deferred by the  employee.  Each  employee  may
voluntarily contribute up to 15% of annual compensation,  or the maximum allowed
as determined by the Internal Revenue Code.

During 1997,  the Company  entered into a three-year  employment  agreement with
Kenneth S. Schneider. The employment agreement provides that Dr. Schneider would
receive a minimum salary of $105,155. 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. The
term of the agreement is for three years.

During 1999, the Company entered into employment agreement with Michael
Breneisen. The  employment  agreement provides that Mr.  Breneisen  will receive
a minimum salary of $75,000.  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.
The term of the agreement is for three years.

Except for life and medical insurance  benefit programs,  which are available to
all employees, the Company has no other compensation plans. The outside director
does  not  receive  a  per  meeting  fee.  The  outside  director  does  receive
reimbursement  of expenses for attending each meeting and is eligible to receive
stock options.


Item 11. Security Ownership of Certain Beneficial Owners and Management

The following  table sets forth as of December 31, 1999  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.

                                        26
<PAGE>


  Name and Address of                       Number of Shares        Percent of
  Beneficial Owner                          Beneficially Owned      Class
  ----------------                          ------------------      ----------
  Kenneth S. Schneider                      283,037(1)              22%
  270 Pulaski Road
  Greenlawn, NY 11740

  Jamil Sopher                              31,730(2)               2.5%
  270 Pulaksi Road
  Greenlawn, NY 11740

  Michael Breneisen                         36,900(1)(4)            2.9%
  270 Pulaksi Road
  Greenlawn, NY 11740

  All executive officers and directors      351,667                 27.4%
  As a group (5 in number)


(1)  Does not include  200,000  shares  issuable  upon exercise of stock options
     under the 1999 Plan.  Of such options  100,000  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  20,000 shares  issuable  upon  exercise of stock options  granted
     under the Company's 1993 Stock Option Plan.
(3)  Includes  10,000 shares  issuable  upon  exercise of stock options  granted
     under the Company's 1999 Stock Option Plan.
(4)  Includes 5,000 shares issuable upon exercise of stock options granted under
     the Company's 1987 Stock Option Plan.

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 of 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 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.

                                        27
<PAGE>


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 attached herein.

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

3(e) Certificate of Ownership and Merger, merging Telebyte Technology, Inc.(a
Nevada corporation) into Telebyte Technology, Inc.(a Delaware corporation)and is
attached 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,  filed as an
Exhibit to the Company's 1990 Annual Report on Form 10-K (File No.  0-11883) and
is incorporated by reference herein.

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

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

10(g)  Mortgage  Loan  Modification  Agreement  dated March 18, 1998 between the
Company and Home  Federal  Savings Bank 1997 and 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 and was filed as an exhibit to the  Company's  current  report on
Form 8K filed on January 27, 1999.

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

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

10(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.

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

                                        28
<PAGE>

10(m) The Company's 1999 Stock Option Plan and is attached 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 attached herein.

(21) Subsidiaries of the Small Business Issuer

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

(27) Financial Data Schedule.

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the fourth quarter for the fiscal
year ended December 31, 1999.


                                   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
      -------------------------
      Kenneth S. Schneider
      Chairman of the Board
      (Chief Executive Officer)


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


Date: March 30, 2000


In accordance  with the  Securities  Exchange Act of 1934,  this report has been
signed below by the following  persons on behalf of the  Registrant,  and in the
capacities and on the dates indicated.


March 30, 2000    /s/ Kenneth S. Schneider
                  ----------------------------------
                      Kenneth S. Schneider, Director


March 30, 2000   /s/  Jamil Sopher
                 ----------------------------------
                      Jamil Sopher, Director


March 30, 2000   /s/  Michael Breneisen
                 ----------------------------------
                      Michael Breneisen, Director


                                29
<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, 1999 and 1998           F-3

Consolidated Statements of Earnings for the years ended
    December 31, 1999 and 1998                                         F-5

Consolidated Statement of Shareholders' Equity for the years
    ended December 31, 1999 and 1998                                   F-6

Consolidated Statements of Cash Flows for the years ended
    December 31, 1999 and 1998                                         F-7

Notes to Consolidated Financial Statements                             F-8



                                      F-1


<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, 1999 and 1998,  and the related  consolidated
statements of earnings,  shareholders'  equity and cash flows for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Telebyte, Inc. and
Subsidiary  as of December 31, 1999 and 1998,  and the  consolidated  results of
their  operations  and their cash flows for the years then ended,  in conformity
with generally accepted accounting principles.



GRANT THORNTON LLP


Melville, New York
March 17, 1999

                                      F-2

<PAGE>


                          Telebyte, Inc. and Subsidiary

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,




                         ASSETS                       1999         1998
                                                   ----------   ----------
CURRENT ASSETS
    Cash and cash equivalents                      $  370,527   $  919,630
    Accounts receivable, net of allowance of
       $16,000 in 1999 and $15,000 in 1998            858,917      648,467
    Inventories                                     1,519,277    1,421,974
    Prepaid expenses and other                         55,124       70,977
    Deferred income taxes                             135,000       50,000
                                                   ----------   ----------
         Total current assets                       2,938,845    3,111,048

PROPERTY AND EQUIPMENT - AT COST,
    less accumulated depreciation                   1,124,583    1,064,143

OTHER ASSETS, NET                                     235,351      157,156
                                                   ----------   ----------

                                                   $4,298,779   $4,332,347
                                                   ==========   ==========


The accompanying notes are an integral part of these statements


                                      F-3

<PAGE>


                          Telebyte, Inc. and Subsidiary

                     CONSOLIDATED BALANCE SHEETS (continued)

                                  December 31,


<TABLE>
<CAPTION>
                    LIABILITIES AND SHAREHOLDERS' EQUITY                            1999           1998
                                                                                 -----------    -----------
<S>                                                                              <C>            <C>
CURRENT LIABILITIES
  Accounts payable                                                               $   272,516    $   352,009
  Accrued expenses                                                                   147,633        131,305
  Accrued taxes payable                                                              181,329          5,366
  Current maturities of long-term debt                                                70,410         64,488
                                                                                 -----------    -----------

       Total current liabilities                                                     671,888        553,168


LONG-TERM DEBT, less current maturities                                            1,015,734        862,846


DEFERRED INCOME TAXES                                                                195,000

COMMITMENTS AND CONTINGENCIES


SHAREHOLDERS' EQUITY
  Common stock - $.01 par value;  9,000,000 shares  authorized;  1,248,631 and
     1,661,066    shares  issued in 1999 and 1998,  respectively;  1,248,631 and
     1,506,266 shares outstanding in
     1999 and 1998, respectively                                                      12,486         16,611
  Capital in excess of par value                                                   1,740,472      2,760,921
  Retained earnings                                                                  663,199        239,894
  Treasury stock - 154,800 shares at cost                                                          (101,093)
                                                                                 -----------    -----------
                                                                                   2,416,157      2,916,333
                                                                                 -----------    -----------
                                                                                 $ 4,298,779    $ 4,332,347
                                                                                 ===========    ===========
</TABLE>



The accompanying notes are an integral part of these statements.


                                      F-4

<PAGE>


                          Telebyte, Inc. and Subsidiary

                       CONSOLIDATED STATEMENTS OF EARNINGS

                             Year ended December 31,



                                                   1999           1998
                                                -----------    -----------
Net sales                                       $ 5,670,600    $ 5,568,787
Cost of sales                                     2,633,510      2,630,486
                                                -----------    -----------
         Gross profit                             3,037,090      2,938,301
                                                -----------    -----------
Operating expenses
    Selling, general and administrative           1,747,820      2,076,973
    Research and development                        518,096        469,415
                                                -----------    -----------
                                                  2,265,916      2,546,388
                                                -----------    -----------
         Operating profit                           771,174        391,913
                                                -----------    -----------
Other income (expense)
    Interest income                                   7,674         26,744
    Rental income                                    48,195         48,195
    Interest expense                               (111,738)       (97,352)
                                                -----------    -----------

                                                    (55,869)       (22,413)
                                                -----------    -----------
         Earnings before income taxes               715,305        369,500

Income tax provision                                292,000         36,000
                                                -----------    -----------
         NET EARNINGS                           $   423,305    $   333,500
                                                ===========    ===========
Earnings per common share:
    Basic                                       $       .34    $       .22
                                                ===========    ===========
    Diluted                                     $       .31    $       .22
                                                ===========    ===========
Weighted average shares:
    Basic                                         1,262,159      1,501,783
                                                ===========    ===========
    Diluted                                       1,349,348      1,524,233
                                                ===========    ===========


The accompanying notes are an integral part of these statements


                                      F-5

<PAGE>


                          Telebyte, Inc. and Subsidiary

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                     Years ended December 31, 1999 and 1998


<TABLE>
<CAPTION>
                                                Number of                    Capital in      Retained
                                                 shares        Common         excess of      Earnings      Treasury
                                                 issued         stock         par value      (deficit)       stock        Total
                                               ------------   ----------   --------------    ---------   ------------- -----------
<S>                                             <C>             <C>           <C>             <C>           <C>        <C>
Balance at January 1, 1998                      1,636,566       $16,366       $2,751,988      $(93,606)     $(101,093) $2,573,655

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

Net earnings                                                                                   333,500                    333,500
                                               ------------   ---------   ---------------    ---------   ------------  ----------
Balance at December 31, 1998                    1,661,066        16,611        2,760,921       239,894       (101,093)  2,916,333

Common stock issued upon exercise of options        5,000            50            3,900                                    3,950

Purchase of treasury stock                                                                                   (927,431)   (927,431)

Retirement of treasury stock                     (417,435)       (4,175)      (1,024,349)                   1,028,524

Net earnings                                                                                  423,305                     423,305
                                               ------------   ---------   ---------------    ---------   -------------  ----------
Balance at December 31, 1999                    1,248,631       $12,486       $1,740,472     $ 663,199      $           $2,416,157
                                               ============   =========   ===============    =========   =============  ==========
</TABLE>



The accompanying notes are an integral part of this statement.



                                      F-6

<PAGE>


                          Telebyte, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,



                                                           1999          1998
                                                         ---------    ---------
Cash flows from operating activities
    Net earnings                                         $ 423,305    $ 333,500
    Adjustments to reconcile net earnings to net
       cash provided by operating activities
          Depreciation and amortization                    232,333       99,648
          Deferred income taxes                            110,000       30,000
          Decrease (increase) in operating assets
              Accounts receivable                         (210,450)     103,674
              Inventories                                  (97,303)    (200,206)
              Prepaid expenses and other                    15,853      (19,297)
          (Decrease) increase in operating liabilities
              Accounts payable                             (79,493)     (63,111)
              Accrued expenses and taxes                   192,291       (9,906)
                                                         ---------    ---------
         Net cash provided by operating activities         586,536      274,302
                                                         ---------    ---------
Cash flows from investing activities
    Additions to property and equipment                   (167,844)     (43,356)
    Cost of non-compete agreement                         (203,124)
                                                         ---------    ---------
         Net cash used in investing activities            (370,968)     (43,356)
                                                         ---------    ---------

Cash flows from financing activities
    Principal payments under mortgage obligation           (63,131)     (50,778)
    Purchase of treasury stock                            (927,431)
    Net borrowings under line-of-credit agreement          221,941
    Proceeds from exercise of stock options                  3,950        9,178
                                                         ---------    ---------
         Net cash used in financing activities            (764,671)     (41,600)
                                                         ---------    ---------
         NET (DECREASE) INCREASE IN CASH
              AND CASH EQUIVALENTS                        (549,103)     189,346

Cash and cash equivalents at beginning of year             919,630      730,284
                                                         ---------    ---------
Cash and cash equivalents at end of year                 $ 370,527    $ 919,630
                                                         =========    =========




The accompanying notes are an integral part of these statements.



                                      F-7
<PAGE>




                          Telebyte, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1999 and 1998



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Telebyte,  Inc. and Subsidiary  (formerly Telebyte  Technology,  Inc., the
      "Company")    designs,    manufactures   and   markets   electronic   data
      communications  products.  The Company's  products are  primarily  sold to
      end-users,   domestic  dealers  and  distributors,   foreign  dealers  and
      distributors and original equipment  manufacturers.  Through the Company's
      wholly  owned  subsidiary,   Nextday.com,  Inc.,  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;  however,  the e-commerce  segment,  which
      began operations in October 1999, is not reported separately as its assets
      and operating  results are not  significant  during 1999. 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 $694,000 and $770,000 in 1999 and 1998, respectively.

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

      1. Principles of Consolidation

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

      2. Inventories

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

     3.  Property and Equipment

         Property  and   equipment   are  stated  at  cost,   less   accumulated
         depreciation.  Depreciation is computed on the straight-line basis over
         the  estimated  useful  lives of the  assets,  which  are 35 years  for
         building  and  improvements,  5 years  for  equipment  and 2 years  for
         software.



                                      F-8
<PAGE>


                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE A (continued)

     4.  Other Assets

         Other assets include the unamortized costs of certain intangible assets
         including a restrictive  covenant,  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.       Income Taxes

         Deferred income taxes are recognized for temporary  differences between
         financial  statement and income tax bases of assets and liabilities and
         loss  carryforwards  for which  income tax  benefits are expected to be
         realized in future years. A valuation allowance 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.

     6.  Advertising

         Advertising  costs are  expensed  as incurred  and totaled  $37,000 and
         $69,000 in 1999 and 1998, respectively.

     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 103,200
         options  to  purchase  the  Company's  common  stock in 1998,  as their
         inclusion would have been anti-dilutive.

     8.  Stock-Based Compensation Plans

         The Company  maintains  three fixed stock option  plans,  as more fully
         described in Note G to the  financial  statements,  accounted for using
         the "intrinsic  value" method  pursuant to the provisions of Accounting
         Principles  Board  Opinion  No.  25,  "Accounting  for Stock  Issued to
         Employees," and 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."




                                      F-9
<PAGE>




                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE A (continued)

     9.  Statements of Cash Flows

         For purposes of the  statements  of cash flows,  the Company  considers
         highly  liquid  cash  investments  with an  original  maturity of three
         months or less to be cash  equivalents.  The Company  paid  interest of
         $90,579 and  $94,302 and income  taxes of $6,419 and $1,562 in 1999 and
         1998, respectively.

    10.  Revenue Recognition

         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. Use of Estimates and Fair Value of Financial Instruments

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

         Management  of the Company  believes  that the fair value of  financial
         instruments,   consisting  of  cash,   accounts  receivable  and  debt,
         approximate  carrying value due to the immediate or short-term maturity
         associated with its cash and accounts receivable and the interest rates
         associated with its debt.


NOTE B - INVENTORIES

     Inventories consist of the following at December 31:

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

      Purchased components and materials        $  555,299        $   596,171
      Work in process                              347,596            275,073
      Finished goods                               616,382            550,730
                                                ----------         ----------

                                                $1,519,277         $1,421,974
                                                ==========         ==========







                                      F-10
<PAGE>




                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE C - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following at December 31:

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

      Land                                  $   300,000             $   300,000
      Building and improvements               1,024,583               1,024,583
      Equipment                                 685,859                 595,578
      Software                                   77,563
                                            -----------             -----------

                                              2,088,005               1,920,161
      Less accumulated depreciation             963,422                 856,018
                                            -----------             -----------

                                             $1,124,583              $1,064,143
                                            ===========             ===========



NOTE D - DEBT

     1.   Line of Credit Facility

          The Company has an agreement  with a financial  institution,  expiring
          July 2000,  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%  (9.25% at
          December 31, 1999). There was no outstanding balance against this line
          at December 31, 1999.

          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, 1999 was approximately $647,000.  Borrowings
          under this loan agreement bear interest at the 30 Day Commercial Paper
          Rate plus 2.90%. (8.53% at December 31, 1999).





                                      F-11
<PAGE>



                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE D (continued)

     2.   Mortgage Note

          The  Company's  first  mortgage  note is  collateralized  by land  and
          building.  The remaining  unpaid mortgage note balance at December 31,
          1999 is payable in equal monthly installments of $12,111 (inclusive of
          interest at 9%) with a maturity date of June 2008. In March 1998,  the
          Company  modified the mortgage note  agreement,  reducing the existing
          interest  rate to 9%  through  June 1, 2000.  At that time,  and every
          three  years  thereafter,  the  interest  rate will be adjusted to the
          three-year  weekly average U.S.  Treasury  Constant Maturity Rate plus
          3%.

          Financing and other costs  aggregating  $95,122 incurred in connection
          with the  acquisition of real property and the refinancing of mortgage
          debt are stated at cost,  net of accumulated  amortization  of $58,402
          and  $53,222 at  December  31,  1999 and 1998,  respectively,  and are
          included  in  "Other  assets"  in  the  accompanying  balance  sheets.
          Amortization is provided on a straight-line basis over the life of the
          mortgage note. Long-term debt is summarized as follows at December 31:


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

    Reducing revolving line of credit                  $221,941      $

    First mortgage note payable to bank in
        equal monthly installments, including
        interest, through June 2008                     864,203       927,334
                                                     ----------      --------

                                                      1,086,144       927,334

    Less current maturities                              70,410        64,488
                                                     ----------      --------

                                                     $1,015,734      $862,846
                                                     ==========      ========

Aggregate maturities of long-term debt as of December 31, 1999 are as follows:

        2000                                            $   70,410
        2001                                                77,015
        2002                                                84,240
        2003                                                92,142
        2004                                               100,786
        Thereafter                                         661,551
                                                        ----------

                                                        $1,086,144
                                                        ----------


                                      F-12
<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



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 $6,564 and $8,285 were made to
      the plan in 1999 and 1998, respectively.

      The Company maintains deferred compensation  agreements with key officers,
      whereby the officers will receive a defined  amount  approximating  30% of
      their 1990 base salary for a period of 10 years after reaching age 65. The
      deferred  compensation  plans are funded  through life  insurance  and are
      being  provided for currently.  The expense  charged to operations in 1999
      and 1998 for such future obligations was approximately  $4,080 and $9,800,
      respectively.


NOTE F - INCOME TAXES

     The provision for income taxes is summarized as follows:

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

       Current
           Federal                            $140,000               $  2,000
           State                                42,000                  4,000
                                              --------               =-------

                                               182,000                  6,000

       Deferred tax expense                    110,000                 30,000
                                              --------               --------

                                              $292,000                $36,000
                                              ========               ========


                                      F-13
<PAGE>




                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE F (continued)

     The actual income tax expense  differs from the Federal  statutory  rate as
follows:
<TABLE>
<CAPTION>

                                                                 1999                                    1998
                                                      ---------------------------          -----------------------------
                                                       Amount                %                Amount                %
                                                      ---------          --------           -----------         --------

<S>                                                   <C>                  <C>              <C>                   <C>
      Federal statutory rate                          $243,000             34.0%            $ 126,000             34.0%
      State income taxes, net of
         Federal income tax benefit                     39,000              5.4                3,000               .8
      Officers' life insurance                           3,000               .4                8,000              2.2
      Adjustment of net operating loss
         carryforwards and other non-
         recurring items                                85,000             11.9
      Benefit of net operating loss
         carryforward and other credits                (78,000)           (10.9)            (101,000)           (27.3)
                                                      --------            ------           ----------           ------

                                                      $292,000             40.8%          $   36,000              9.7%
                                                      ========            ======           ==========           ======

</TABLE>

     The tax effects of  temporary  differences  which give rise to deferred tax
     assets  (liabilities)  at December  31, 1999 and 1998,  are  summarized  as
     follows:
<TABLE>
<CAPTION>
                                                                       1999                  1998
                                                                     --------             ---------
<S>                                                                  <C>                  <C>
      Deferred tax assets
          Net operating loss carryforwards                           $                    $  70,000
          Investment and other tax credit carryforwards                                      66,000
          Deferred compensation                                        46,000                46,000
          Inventory valuation                                          67,000                 8,000
          Allowance for doubtful accounts                               6,000                 6,000
          Accrued expenses                                             16,000                 6,000
                                                                     --------             ---------

                Gross deferred tax assets                             135,000               202,000

      Deferred tax liabilities
          Excess tax over book depreciation and amortization         (195,000)             (152,000)
                                                                     --------             ---------


      Net deferred tax asset/(liability)                                       $(60,000)            $  50,000
                                                                     ========             =========

</TABLE>



                                      F-14
<PAGE>



                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE G - STOCK OPTION PLANS

     In 1987,  the Company  adopted a plan which  provided for the granting,  to
     officers and key employees of the Company of incentive  stock  options,  as
     defined in the  Internal  Revenue  Code,  for the  purchase of a maximum of
     250,000 shares of the Company's  common stock.  Options to purchase  10,800
     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.

     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, 1999,  there were 34,750 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,  non-employee  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, 1999,  there
     were 82,000 shares available for grant under the 1999 Plan.





                                      F-15
<PAGE>

                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998


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, 1998                     61,750           .3125 to 2.04                 $.88
           Granted                                        27,500          1.25 to 3.80                   3.25
           Exercised                                     (24,500)          .3125 to .6850                 .37
           Expired                                          (200)          .75                            .75
                                                      ----------

       Outstanding at December 31, 1998                   64,550           .3125 to 3.80                 2.08
           Granted                                       460,000          1.03 to 1.28                   1.03
           Exercised                                      (5,000)          .79                            .79
           Expired                                       (34,250)          .6850 to 3.80                 2.29
                                                      ----------

       Outstanding at December 31, 1999                  485,300           .3125 to 3.80                 1.09
                                                      ==========

       Balance exercisable at December 31, 1999           53,300           .90 to 3.80                   1.26
                                                      ==========
</TABLE>


     The  following  table  summarizes  significant  ranges of  outstanding  and
     exercisable options at December 31, 1999:
<TABLE>
<CAPTION>

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

<S>                      <C>                  <C>               <C>            <C>              <C>
  Under $1.00             10,800              3.28              $ .86          10,800           $.86
  $1.01 to $1.28         465,000              9.47               1.04          37,750           1.06
  $2.05 to $3.80           9,500              8.25               3.80           4,750           3.80
</TABLE>


     The weighted-average option fair value on the grant date was $.82 and $2.63
     for  options  issued  during the years  ended  December  31, 1999 and 1998,
     respectively.


                                      F-16
<PAGE>


                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE G (continued)

     The Company has adopted the disclosure provisions of Statement of Financial
     Accounting  Standards No. 123,  "Accounting for  Stock-Based  Compensation"
     ("SFAS No.  123");  it applies APB Opinion  No. 25,  "Accounting  for Stock
     Issued to  Employees,"  and related  Interpretations  in accounting for the
     Plans and does not recognize  compensation  expense for such Plans.  If the
     Company had elected to recognize  compensation  expense based upon the fair
     value at the grant dates for awards under these plans  consistent  with the
     methodology prescribed by SFAS No. 123, the Company's reported net earnings
     and earnings  per share would be reduced to the pro forma amount  indicated
     below for the years ended December 31:

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

      Net earnings
          As reported                              $423,305             $333,500
          Pro forma                                 381,724              311,862
      Basic earnings per common share
          As reported                                  $.34                 $.22
          Pro forma                                     .30                  .21
      Diluted earnings per common share
          As reported                                  $.31                 $.22
          Pro forma                                     .28                  .20


     These pro forma  amounts may not be  representative  of future  disclosures
     because they do not take into effect pro forma compensation expense related
     to grants made before 1997.  The fair value of these  options was estimated
     at the date of grant using the Black-Scholes  option-pricing model with the
     following  weighted-average  assumptions  for the years ended  December 31,
     1999 and 1998, respectively: expected volatility of 121% and 95%; risk-free
     interest  rates ranging from 4.86% to 4.98% in 1999 and 5.602% in 1998. The
     expected  lives of  options  issued  are four and seven  years for 1999 and
     1998, respectively.

     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.



                                      F-17
<PAGE>




                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE H - COMMITMENTS AND CONTINGENCIES

     Former Chairman

     Effective January 20, 1999, then Chairman of the Board, President and Chief
     Executive  Officer of the Company  (the  "Former  Chairman")  resigned  his
     positions with the Company.  However,  the Former  Chairman will serve as a
     consultant  to the  Company  through  January  19,  2002  for an  aggregate
     consideration of $165,000 plus  reimbursement for certain expenses.  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 non-competition 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  leases  expiring  through  August  2002.  Rental
     expense  for such  equipment  was  $10,218  and  $17,247  in 1999 and 1998,
     respectively.  The minimum rental  commitments  under these  noncancellable
     operating leases, at December 31, 1999, are summarized as follows:


       2000                                $7,953
       2001                                 3,961
       2002                                 2,641
                                          -------

                                          $14,555



                                      F-18
<PAGE>


                          Telebyte, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 1999 and 1998



NOTE H (continued)

     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, 1999 under such contracts is approximately $249,000.


NOTE I - EARNINGS PER SHARE

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

                                                              December 31,
                                                        ------------------------
                                                           1999          1998
                                                        ----------    ----------
Numerator
    Net income                                          $  423,305    $  333,500
                                                        ==========    ==========

Denominator
    Denominator for basic earnings per share
       (weighted-average shares)                         1,262,159     1,501,783

    Effect of dilutive securities
      (employee stock options)                              87,189        22,450
                                                        ----------    ----------
    Denominator for diluted earnings per share
      (adjusted weighted-average shares and
      assumed conversions)                               1,349,348     1,524,233
                                                        ==========    ==========
Basic earnings per share                                $      .34    $      .22
                                                        ==========    ==========
Diluted earnings per share                              $      .31    $      .22
                                                        ==========    ==========



NOTE J - MAJOR SUPPLIERS

     The  Company  purchased  approximately  18% of its raw  materials  from one
     supplier  during the year ended December 31, 1999. The Company expects this
     relationship with this supplier to continue for the foreseeable future. The
     Company  believes  that  similar  products  could be  purchased  from other
     sources.


                                      F-19
<PAGE>