SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

( X ) Annual Report Pursuant to Section 13 or 15 (d) of the Securities  Exchange
Act of 1934 For the fiscal year ended  December 31, 1997 ( )  Transition  Report
Pursuant to Section 13 or 15(d) of the  Securities  Exchange Act of 1934 For the
transition period from ______________ to _______________

Commission File Number 0-11883

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

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

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

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

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

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

                     Common Stock, par value $0.01 per share
                                (Title of class)

Check whether the  registrant (1) filed all reports to be filed by Section 13 or
15(d) of the  Securities  Exchange Act of 1934 during the past 12 months (or for
such shorter  period that the  registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
                               __X__ Yes _____ No

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

The registrant's revenues for its most recent fiscal year were $5,479,603.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant at March 11, 1998 was $3,431,589.

The  number  of  shares  of  common  stock  outstanding  at March  11,  1998 was
1,498,516.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None
Transitional Small Business Disclosure Format (check one):  Yes _____; No  __X__


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2


                                     PART 1

Item 1.           Business

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

Introduction

The  Company's  data  communications  equipment is used  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.  An example of
growing areas are Local Area Networks (LAN's), Internet access, data acquisition
systems,  process  control  systems,  and  various  peripheral  devices  such as
computerized time clocks,  intelligent  scales,  and bar code reading equipment.
The Company's six principal data communications product categories are interface
converters,  short haul modems, data  communications test equipment,  Local Area
Network (LAN) products, surge-lightning protectors and multiplexers. The Company
also sells a variety of data communications switching equipment and accessories.

In the large data  communication  marketplace,  Telebyte  focuses on the area of
"premises  communication"  or local  networks.  Telebyte  addresses the needs of
customers  that have  computer  systems  with data  communications  applications
including distances whose range is 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 "twisted
pair"  copper  wire  and/or  fiber  optic  cable.  Fiber  optic  based  products
represents a growing segment of the Company's product line.

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

Business Developments for 1995, 1996 and 1997

In 1995 Telebyte  devoted  efforts to redesign a significant  number of its core
short haul modems and  interface  converters  to include a new display  feature.
This display,  incorporating  liquid crystal  technology and called  DataSpy(R),
provides  a window  onto the data  link  thereby  simplifying  installation  and
maintenance of the network. DataSpy(R) is a registered trademark of Telebyte. In
addition,  Telebyte submitted a patent application to cover this feature.  It is
expected  that this feature will act as a  significant  product  differentiation
between Telebyte and its competitors.

1995 saw large  numbers of  interface  converters  shipped to Intel and AT&T.  A
system  integrator,  working for the U.S.  government,  took delivery of several
thousand  modem abort timers.  Also during 1995 the Company  decided to exit the
video market which had become  flooded with commodity  products from Asia.  This
competition  caused  margins to erode quickly and therefore the products did not
meet Telebyte's criteria for gross margin.

Many other companies availed  themselves of Telebyte's ability to design special
products or modify existing  products.  This product  "design-in" is expected to
produce  additional  volume sales as production  begins for the programs,  which
include these special Telebyte products.

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3

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

Furthermore the Company's Internet activity began in 1996 with the establishment
of a Telebyte web site.  Continuously being improved,  this web site produced in
excess of 500,000  hits during  1997.  This  activity,  coupled  with  increased
catalog  distribution,  news  releases  and  advertising  produced  record sales
volumes for the Company in 1997.  As an adjunct to these  activities  management
began an aggressive  program of customer and prospect  visits which  produced an
increase in custom product design and manufacture.  Many of these efforts are in
their  initial  phase with  production  orders  expected in 1998.  These  custom
programs were initiated for Motorola, Intel, Foxboro and Hill-Rom.

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

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

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

Products

Telebyte's   products   compete  in  six   different   product   areas  of  data
communications   networks;   Interface  Converters,   Short  Haul  Modems,  Test
Equipment, LAN Products, Lightning Protection and Multiplexers.

Interface  converters  transform the characteristics of the electrical interface
of one device to enable it to become compatible with the electrical interface of
another.  This  terminology has been expanded to include media  converters,  LAN
transceivers and opto isolators.  This conversion may also include modifying the
protocol  and/or the physical  medium,  i.e.,  copper wire to fiber cable.  As a
result,  a data  communications  network can be  established  or expanded  using
equipment  which otherwise would be unable to transmit or receive data from each
other.  Interface converters  represented 41% of Telebyte's revenue in 1997, and
because the industry continues to develop new interface  standards,  the Company
anticipates  that  the  market  may  require  greater   varieties  of  interface
converters,  thereby  expanding the available  market for existing  products and
creating opportunities for new products. Telebyte's line of interface converters
is  available  in most of the  configurations  now  required  by the  market and
includes programmable devices. When the appropriate opportunity presents itself,
the Company will manufacture  custom  interface  converters to meet a particular
customer's requirements.

Short haul modems differ from those modems which most people are familiar  with,
those that operate over the dial-up telephone network.  Short haul modem devices
provide the link over  dedicated  wires or optical  fibers among  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  communications  between micro or personal computers and mini or
main frame computers.

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4

In 1997 the Company introduced its first HDSL modem. This device,  based on High
Data Rate  Subscriber  Line  technology will be the initial product of a line of
xDSL products to support high speed data transmission for Internet  service.  In
addition, the Company introduced its first wide temperature short haul modem for
industrial applications using the DIN Rail mounting system.

The role of the short haul modem has been expanded from coupling  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 electrical environment of the user. For example,
Telebyte has three types of short haul modems,  with  transmission  capabilities
that are suited for (i) factories or heavy manufacturing operations,  (ii) light
manufacturing,  and (iii) industrial  office areas or general office  locations.
Due to technological changes and innovations, the Company must develop new short
haul  modem  products  on a  continual  basis to meet its  customers'  technical
requirements  and to  remain  competitive  in this  market.  Short  haul  modems
represented 22.5% of Telebyte's net sales in 1997.

The third most important product area by sales revenue is called Test Equipment.
This area consists of two distinctly  different product groups,  namely wireline
simulation and protocol analyzers. The wireline simulator is used in engineering
development and in production  testing.  This area is experiencing growth due to
the  availability  of new  communications  services  such  as  ISDN  (Integrated
Services  Digital   Network),   HDSL  (High  Datarate   Subscriber  Line),  ADSL
(Asymmetric  Datarate  Subscriber Line) and T1 (high-speed data services offered
by telephone companies).  These services have created new product opportunities,
which are being satisfied by a host of companies for whom the Telebyte  wireline
simulators  have  become  a  valuable  piece of  production  test  equipment  to
guarantee  their products comply with published  specifications.  These products
are also applicable to engineering product development and evaluation efforts to
determine the  character  and  limitations  of certain data  communications  and
transmission  devices.  New transmission  technologies such as ATM (Asynchronous
Transfer Mode) are creating  additional  product  opportunities for existing and
new wireline simulators.

In 1997 the Company began  development of a Loop Interference  Simulator,  which
will allow users to simulate noise and other inteference which pervades the real
world of data  communications.  This companion product to the wireline simulator
is expected to have a synergistic effect on sales of this type of equipment.

The other area of test equipment is protocol analyzers which are used to analyze
and test the  integrity of data  communications  networks.  Telebyte's  protocol
analyzer test equipment  product line includes  "plug-in" printed circuit boards
and stand alone units for use with IBM personal computers and compatible clones.
These items are  supplied  with the  software  necessary  to enable the personal
computer user to monitor or emulate the data line with other devices in the data
communications  network.  This test  equipment  product  assists in  maintenance
because it can rapidly  identify open leads,  missing  signals and other errors,
and  intermittent  problems  can be  tracked  and  stored  in  memory  for later
analysis.  During 1996  Telebyte  initiated  the  development  of a new protocol
analyzer to provide increased  performance.  This product,  called the Model 905
Comscope, was released in the first quarter of 1997.

Test equipment was  responsible for 11.3% of net sales in 1997. No other product
areas had sales that exceeded 10% of net sales in 1997.

Telebyte manufactures and sells a number of lightning and surge protectors which
prevent  damage  to data  communications  equipment  that can be  caused by high
voltage surges and transients,  ground  currents,  and other  lightning  induced
electrical disturbances  encountered on data communication circuits. In 1997 the
Company introduced  lightning and surge suppression products packaged in the DIN
Rail format for sales to the factory automation market. In addition, the Company
designed  and  produced  a large  number of high  capacity  Ethernet  protection
systems for Graybar  Electric.  The Company  believes  this area of business may
expand as more diverse systems are deployed.

<PAGE>
5

The Company's  multiplexers  allow data from a number of different devices to be
communicated  simultaneously  on the same circuit or channel.  Telebyte's  local
area multiplexers perform a task similar to its short haul modems, except that a
single  communications  link can  support  many  users.  Telebyte's  multiplexer
products  allow  simultaneous  data transfers over distances of up to 8,000 feet
for wire or 6,600 feet over fiber.

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

The  Company  has not  experienced  a shortage  of  manufacturing  materials  or
components,  and it  purchases  raw  materials  and supplies  from  domestic and
foreign  sources.  The  Company  does not depend upon any  particular  source of
supply, and not more than 15% of the purchases were from a single supplier.  Raw
material and supplies are readily available from various sources.

The research and new product development budget for 1998 is $450,000 compared to
approximately  $320,000 and $260,000 spent in 1997 and 1996,  respectively.  The
cost  of  research  and  development  is not  borne  directly  by the  Company's
customers.

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

Sales and Marketing

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

On the basis of continuing  market  research the Company  believes that the most
effective way to increase its end user business, currently the largest source of
revenues,  is to  increase  the  circulation  and  content of its  catalog,  the
Datacom/Networking  Cookbook.  The Company distributed 100,000 catalogs in 1995,
200,000  in 1996 and  more  than  300,000  in 1997.  In 1997 the  Company  again
employed a cover-wrap  over the catalog cover with a return postcard in order to
capture qualified leads from mailings whose source was rented lists. The Company
continues to build its prospect database.

While the catalog is the focus of the promotional  activities,  the Company also
uses other  techniques  in addition to those  mentioned  above.  During 1996 the
Company  established  a Web site on the INTERNET  that  contains  the  Company's
complete catalog. This Web site, www.telebyteusa.com, is producing an increasing
number  of  inquiries  which  adds a large  number  of  qualified  leads  to the
Company's  database.  In 1997  the web  site  had in  excess  of  55,000  unique
visitors.

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.

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6

The Company also uses distributors as resellers.  At the end of 1997 the Company
had 20 domestic  distributors of record.  Domestic  distributors do not have any
territorial  exclusivity.  In the domestic  marketplace,  the Company's sales to
end-users  dominates  its sales to  distributors.  The ratio of these sales were
3.72, 3.13 and 2.85 to 1 in 1997, 1996 and 1995, respectively.  Internationally,
the Company uses 64  distributors.  Some  products are  marketed  through  other
catalog distributors. Foreign sales represented approximately 14% in 1997, 10.6%
in 1996 and 11.8% in 1995 of net sales.

Domestic sales to end-users and domestic  distributors  are serviced by internal
sales  representatives  who  are  paid  commissions  on  all  sales  from  those
customers.  At the end of 1997 the  Company  had 4 such  representatives  on its
staff.  Foreign  sales are under the  direction of the  President of the Company
with the help of an  assistant.  These  sales are  carried  out by a network  of
international  distributors.  For the most  part  these  distributors  are given
territorial  exclusivity.  In some  countries  new  laws  make  exclusive  sales
arrangements illegal and additional distributors are being added.

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


Competition

There are a significant number of companies engaged in manufacturing and selling
data  communications  equipment  in  the  same  markets  as the  Company.  Since
Telebyte's product line is diverse,  it is difficult to define and enumerate its
competition. As a general matter, there are competitors that are larger and more
established than Telebyte, many with technical and capital resources,  which the
Company  does  not  possess,   and  more  well-developed   sales  and  marketing
capabilities.

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), and Patton Electronics (based in Maryland), and a number
of small  companies.  Telebyte  competes  with these  companies  on the basis of
quality,  price,  breadth of product line,  sales and marketing  capability  and
technological  support, and innovation.  The Company relies principally upon the
price/performance  ratio of its  converter,  multiplexer,  and surge  protection
products.  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  test   equipment  and  data
communications accessories.

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


Year 2000 Issue

The Company has  evaluated the impact of the Year 2000 issue on its business and
does not expect to incur  significant costs associated with Year 2000 compliance
and that Year  2000  issues  will not have a  material  impact on the  Company's
business results of operations or financial  condition.  The Company's  software
systems and applications are currently Year 2000 compliant.


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7

Employees

As of  December  31,  1997,  the Company had 35  full-time  employees.  Of these
employees,  two  are  executives,  six  are  in  sales,  four  in  research  and
engineering, four in administration, and the balance in manufacturing, shipping,
and related  activities.  The Company uses  subcontractors and part-time help to
support its current operations. None of the employees are represented by a labor
union, and the Company considers its employee relations to be good.

Backlog

At December  31,  1997,  the  Company's  backlog was  $390,363  all of which the
Company expects to fill in fiscal 1998.  Comparable backlog at December 31, 1996
was $119,780.


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 May 1988 and the  property  now
secures a mortgage loan payable on a fully  self-amortizing basis over 20 years.
Interest  under the  mortgage  is based on 2.75%  over the  bank's  prime  rate,
however,  such rate cannot be less than 10% and will be  recalculated on June 1,
2000. The outstanding principle balance of the mortgage loan, as of December 31,
1997, was $978,112.  Management believes that all of its properties,  plant, and
equipment are well maintained and adequate for its requirements.

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

Item 3.           Legal Proceedings

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

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

Not applicable.

                                     PART II


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

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

The following  table sets forth the high and low bid prices for the common stock
for  each  fiscal  quarter  during  1997 and 1996 as  reported  by the  National
Association of Securities  Dealers,  NASD. The bid and ask prices for the common
stock on March 11, 1998 were $ 3 5/8 and $ 4 1/16 respectively.


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8
                                                 1997                1996
                                                 ----                ----

                                             High    Low        High      Low

First Quarter ............................ 1 5/16    13/16       7/8      3/4

Second Quarter ...........................  15/16      3/8       7/8     7/16

Third Quarter ............................  1 1/2     7/16       7/8    23/32

Fourth Quarter ...........................  2 1/8   1 3/16     1 1/4    11/16


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

At March  11,  1998,  there  were  approximately  321  holders  of record of the
Company's  common  stock.  Most of the  shares of the  common  stock are held in
street name for a larger number of beneficial owners.

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

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

Results of Operations

Fiscal 1997 Compared to Fiscal 1996

Sales for the year ended December 31, 1997  increased by 32% to $5,479,603.  The
sales  increase  was  primarily a result of the  increased  sales and  marketing
efforts begun by the Company in 1996.

An analysis of the gross  margin for 1997  reveals that it was 53.9% as compared
to 52.5% for 1996.  This was primarily a function of product mix which  includes
newer  products that have improved  gross  margins.  Cost of sales  increased by
$560,976 and is primarily attributed to the level of sales.

Selling,  general, and administrative costs increased by $273,811.  The increase
resulted  primarily from increased  promotional  expenses of $134,000 related to
the printing and distribution of a much larger quantity of the Company's catalog
and other expenses associated with the Company's growth..

Research and development  increased in 1997 to $319,996,  or 5.8% of sales, from
$260,322,  or 6.3% of sales in  1996.  The  increase  illustrates  to  Company's
commitment to new product development.

Interest  expenses of $114,909 in 1997 increased to 2.1% of sales as compared to
$113,033, or 2.7% in 1996.

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9

Interest  income  decreased  by $4,211.  The  decrease  in 1997 was due to lower
average  levels of cash on hand  during  1997.  In 1997 the  Company  had rental
income of $48,195, equal to the 1996 rental income. For 1998 the Company expects
rental income of approximately $48,000.

The Company  generated net income of $466,825 or $0.32 per share, 8.5% of sales,
compared to $30,455 or $.02 per share,  .7% of sales,  for 1996. The increase is
primarily  attributed  to the  increased  sales  level  during  1997  offset  by
increases in inventory and receivables.

The Company  believes that all of the market  indications  for the future of the
data communications  market and for the Company's products are positive and will
increase for 1998; however there can be no assurance that this will happen.

Liquidity and Capital Resources

In 1997,  the Company  invested  $37,397 in property  and  equipment,  which was
financed  through  internally  generated  funds.  The  statements  of cash flows
indicate  that the Company  generated  $254,507 in 1997  compared to $107,760 in
1996 in cash from  operations.  The  increase  was  primarily  due to higher net
income during 1997.

Working  capital  increased  as of December  31, 1997 by $333,650 to  $2,210,200
compared with  $1,876,550 at December 31, 1996.  The current ratio  decreased to
4.6 to 1 at December 31, 1997, compared to 6.2 to 1 at December 31, 1996.

The  Company  has  renewed  its line of credit,  which now expires in July 1999,
based upon eligible  accounts  receivable,  raw  materials,  and finished  goods
inventories,  for a maximum of $1,000,000 from Merrill Lynch. The line of credit
is  available  for general  working  capital  purposes  and to finance  business
growth. As of December 31, 1997, there was no outstanding  balance due under the
line of credit.  During  the past  three  years the  Company's  operations  have
generated sufficient working capital to sustain its current levels of operations
and the  Company  believes  that cash  generated  by the  Company's  operations,
current cash and cash equivalents, and the line of credit should supply the cash
resources to meet its cash needs for the next twelve months.  The Company has no
commitments for any major capital expenditures in 1998.


Effect of Inflation

During the five-year  period ending  December 31, 1997,  the Company was able to
decrease  its costs of sales of its  products  to  compensate  for the effect of
inflation  on the  cost of  components.  This was  accomplished  by  changes  in
manufacturing methodology, namely, increasing the amount of product manufactured
on a sub-contractor basis.


Item 7.           Financial Statements

See "Index to Financial Statements" beginning on page F-1 below.

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

Not applicable.



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10


                                    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, 1997. Telebyte's directors are elected to serve
until the next annual  meeting of  shareholders  or until their  successors  are
elected and  qualified.  The executive  officers are appointed  annually by, and
serve at the pleasure of, the Board of Directors.

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

Joel A. Kramer, age 60,(1)    Mr. Kramer has served as President          1983
President and Chairman of     of the Company since August 1983,
the Board of Directors        and Chairman of the Board since
                              February 1989.

Kenneth S. Schneider, Ph.D.,  Dr. Schneider has served as Treasurer       1983
age 52, Vice President,       and Vice President, of the Company
Treasurer, Secretary, and     since August 1983; and he was elected
Director                      Secretary in March 1991.  Dr. Schneider
                              is a senior member of the Institute of
                              Electrical and Electronic Engineers.

Jamil Sopher, age 54 (2)      Mr. Sopher is a Principal Financial         1996
Director                      Analyst with the World Bank where
                              he has been employed for 18 years.

Robert M. Kramer, age 57(3)   Mr. Kramer is a private investor and has    1996
Director                      been since 1987.  Prior thereto he held
                              the position of Vice President at Drexel
                              Burnham Lambert and Shearson-Lehman.

Michael Breneisen, age 33,    Mr. Breneisen has served as Controller
Vice President,               of the Company since July 1992 and
Chief Financial Officer       Vice President since January 1997.



(1) Mr.  Robert  M.  Kramer  is the  brother  of Mr.  Joel A.  Kramer,  the
    President and Chairman of the Board of Directors of the Company.
(2) Mr.  Sopher  received a Bachelor of Science and MSEE from Cornell and an MBA
    from Harvard.
(3) Mr. Kramer received a BSME from Polytechnic  Institute, a MSME
    from City College of NY and an MBA from the Wharton Graduate School.



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.)


<PAGE>
11

Item 10. Executive Compensation

The following table sets forth the cash  compensation paid or accrued 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>
                                         Summary Compensation Table

                           Annual Compensation                                  Long-Term
                           Compensation
                                                                            Awards
                                                                       Payouts
<CAPTION>
     (a)          (b)       (c)       (d)         (e)            (f)            (g)               (h)           (i)
       Name and                                   Other Annual    Restricted        Stock          Long-Term        All Other
   Principal       Year    Salary     Bonus    Compensation   Stock Awards   Options/SARs    Incentive Payout   Compensation
    Position
                             ($)       ($)         ($)           (No.)          (No.)              ($)              ($)
<S>                <C>       <C>       <C>         <C>            <C>            <C>               <C>              <C>
Joel A. Kramer    1997    $111,631   $2,000     $16,629(1)         0              0            $16,629(2)          $4,116
President, CEO    1996    $107,100   $4,300    $ 11,481(1)         0              0            $11,281(2)          $3,203
  & Director      1995    $105,497   $13,300    $11,367(1)         0            5,000           $9,281(2)          $2,997


  Kenneth S.      1997    $100,686   $2,000     $8,804(1)          0              0             $4,080(2)          $2,819
   Schneider
   Sr. V.P.       1996     $95,599   $3,150     $7,256 (1)         0              0             $4,080(2)          $2,819
 Sales, Sec.,
   Treas. &       1995     $95,153   $9,000     $6,619(1)          0            5,000           $4,080(2)          $2,668
   Director

<FN>
(1)  Commissions  - Mr.  Kramer  received  a 2.5%  commission  of net  sales  to
customers not located within the United States.  Mr.  Schneider  received a 0.5%
commission  of net sales to  customers  located  within the United  States.  The
amounts  paid are set forth  above  under the  caption  entitled  "Other  Annual
Compensation".

(2) Deferred  Compensation - see Long-Term Incentive Plans Table
below.
</FN>
</TABLE>



<TABLE>
                   Long-Term Incentive Plans - Awards in Last Fiscal Year

                                                                    Estimated Future Payouts under Non-Stock  Price-Based Plans
                                                                    ------------------------------------------------------------
<CAPTION>
                      Number of Shares,   Performance or Other
                       Units or Other         Period Until          Threshold          Target            Maximum
                                               Maturation
        Name             Rights (#)            Or Payout             ($ or #)         ($ or #)           ($ or #)
--------------------- ------------------ ----------------------- ----------------- ---------------- -------------------
<S>                        <C>                   <C>                   <C>               <C>               <C>
   Joel A. Kramer                            June 11, 2002          $26,667(1)       $26,667(1)         $26,667(1)
Pres.,CEO & Director

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

<FN>
(1) In 1990 the Company entered into deferred  compensation  agreements with key
officers,  pursuant  to which  the  officers  will  receive  a  defined  amount,
approximately  30% of their  1990 base  salary,  each year for a period 10 years
after reaching age 65. The deferred  compensation  plans are funded through life
insurance  and  are  being  provided  for  currently.  The  expense  charged  to
operations in 1997 for such future  obligations was $16,742 ($12,662 and $4,080,
for Joel A. Kramer and Kenneth S. Schneider, respectively).
</FN>
</TABLE>


<TABLE>
                                Aggregate Option Grants in Last Fiscal Year
<CAPTION>
                                                 % of Total Options         Exercise or
                           Number of Options    Granted to Employees         Base Price             Expiration
         Name                   Granted          in Fiscal Year 1997           ($/Sh)                  Date
----------------------------------------------------------------------------------------------------------------------
 <S>                              <C>                    <C>                    <C>                     <C>
    Joel A. Kramer                 0                      0                      -                       -
 Kenneth S. Schneider              0                      0                      -                       -


<PAGE>
12

</TABLE>
The following  table sets forth  information  concerning  each exercise of stock
options  during fiscal 1997 by each of the named  executive  officers and fiscal
year-end value of unexercised options:



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

<CAPTION>

                                                                             Number of         Value of Unexercised
                           Number of Shares             Value          Unexercised Options at  In-the-Money Options
         Name            Acquired on Exercise       Realized ($)         December 31, 1997     at December 31, 1996(1)
------------------------------------------------------------------------------------------------------------------------------
 <S>                              <C>                    <C>                   <C>                     <C>
    Joel A. Kramer                 0                      0                  10,000 (2)              $19,050)
 Kenneth S. Schneider              0                      0                  10,000 (2)               $19,050
<FN>
(1)  Calculation  based  upon the  average of the high and low bid prices of the
Company's Common Stock from the National Quotation Bureau on December 31, 1997.
(2) All such options are currently exercisable.
</FN>
</TABLE>

Compensation Plans and Other Compensation

The Company adopted a Stock Option Plan (the "1993 Plan") under which options to
purchase  100,000 shares of the Company's common stock, par value $.01 per share
have been reserved.  As of December 31, 1997, there were 75,000 shares available
for  grants  under the 1993 Plan.  Pursuant  to the 1993  Plan,  the  Company is
permitted to issue  incentive  stock  options  ("Incentive  Stock  Options") and
non-qualified  stock  options.  Incentive  Stock Options under the 1993 Plan are
intended  to qualify for the tax  treatment  accorded  under  Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code.")

All  directors,  officers or other key  employees of the Company are eligible to
participate  in the 1993  Plan.  The 1993 Plan is  administered  by the Board of
Directors of the Company, which, to the extent it shall determine,  may delegate
its power with  respect to the  administration  of the 1993 Plan to a  committee
consisting of not less than three directors.

Under the 1993 Plan, Incentive Stock Options to purchase shares of the Company's
common  stock  shall not be granted for less than 100 percent of the fair market
value of the common  stock on the date the  Incentive  Stock  Option is granted;
provided,  however, that in the case of an Incentive Stock Option granted to any
person  then  owning  10  percent  of the  voting  power of all  classes  of the
Company's  stock,  the purchase  price per share subject to the Incentive  Stock
Option may be not less than 110 percent of the fair market value of the stock on
the date of the grant of the option. Non-qualified stock options to purchase the
Company's  common stock are granted at prices  determined by the Company's Board
of Directors.

Options under the 1993 Plan may not have a term of more than 10 years; provided,
however,  that an Incentive  Stock  Option  granted to a person then owning more
than 10 percent of the voting  power of all classes of the  Company's  stock may
not be exercisable  more than 5 years after the date such option is granted.  In
addition, the aggregate fair market value,  determined at the time the option is
granted,  of the  stock  with  respect  to which  Incentive  Stock  Options  are
exercisable  for the first time by an  employee in any  calendar  year under the
1993 Plan may not exceed $100,000.

The Company's 1983 Stock Option Plan  terminated in 1994. No executive  officers
or directors have any outstanding options under the 1983 Stock Option Plan.

The Company has an informal bonus plan in which officers and other key personnel
participate.  The  bonus  award,  if any,  is  fixed  annually  by the  Board of
Directors. Bonuses were allocated and paid to executive officers under this plan
during fiscal 1997 and shown on the foregoing Summary Compensation Table.

<PAGE>
13


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  employees  may
voluntarily contribute up to 15% of annual compensation,  or the maximum allowed
as  determined by the Internal  Revenue  Code.  Benefits are 100% vested and are
payable upon the employee's  death,  disability,  retirement,  termination,  and
under  certain  financial  circumstances.  At  December  31,  1997,  $2,187  was
contributed  to the plan for officers.  All  contributions  are reflected in the
salary column in the Summary Compensation Table.

During 1997,  the Company  entered  into  employee  agreements  with Mr. Joel A.
Kramer and  Kenneth S.  Schneider  pursuant  to which Mr.  Kramer  will serve as
President  and Mr.  Schneider  will  serve  as Vice  President.  The  employment
agreements provide that Mr. Kramer will receive a minimum salary of $117,810 and
Mr. Schneider $105,155.  During the employment period each of Mr. Kramer and Mr.
Schneider will be entitled upon  termination  expiration of the agreement  under
certain  circumstances  (including  a change of  control)  to certain  severance
benefits.  The initial term of the  agreements  is three years.  The  respective
agreements are fixed as exhibits hereto.

Except for life and medical insurance  benefit programs,  which are available to
all employees,  the Company has no other compensation  plans.  Outside directors
receive a per meeting fee of $500, in addition to  reimbursement of expenses for
attending each meeting. According to World Bank policy, Mr. Sopher cannot accept
the meeting fee. Item 11. Security  Ownership of Certain  Beneficial  Owners and
Management  The following  table sets forth as of December 31, 1997  information
concerning (i) the shares held by each person or group known to own beneficially
more than 5% of the  outstanding  shares of common  stock,(ii)  shares  owned by
directors and (iii) the shares owned by all directors and officers as a group.

Name and Address of ......      Number of Shares      Percent of
Beneficial Owner .........      Beneficially             Class

Kenneth S. Schneider .....      293,038(1)               19.5%
270 Pulaski Road
Greenlawn, NY 11740

Joel A. Kramer ...........      272,635(1)               18.1%
270 Pulaski Road
Greenlawn, NY 11740

Jamil Sopher .............        1,730                   (4)
270 Pulaski Road
Greenlawn, NY 11740

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

Michael Breneisen ........       36,900(3)                2.5%
270 Pulaski Road
Greenlawn, NY 11740

All officers and directors      603,303                  40.5%
As a group (5 in number)

(1)     Includes  10,000  shares  issuable  upon the  exercise of stock  options
        granted under the Company's  1993 Stock Option Plan.
(2)     Includes 5,000 shares issuable upon exercise of stock options granted
        under the
        Company's 1993 Stock Option  Plan.
(3)     Includes 5,750 shares  issuable upon exercise of stock options granted
        under the Company's 1987 Stock Option Plan.
(4)     Less than 1%.


<PAGE>
14

Item 12. Certain Relationships and Related Transactions

None.

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.

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

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

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

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

10(f) Employment  agreements between Mr. Joel A. Kramer and Kenneth S. Schneider
dated August 1, 1997 and is attached herein.

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

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the fourth quarter for the fiscal
year ended December 31, 1996.


<PAGE>
15

                                   Signatures

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

TELEBYTE TECHNOLOGY, INC.



By:      __________\s\_________________
         Joel A. Kramer, President and
         Chairman of the Board
         (Principal Executive Officer)


By:      ___________\s\________________
         Michael Breneisen, Vice President of Finance
         (Principal Financial and Accounting Officer)


Date:    March 25, 1998


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 25, 1998    __________\s\_____________
Joel A. Kramer, Director


March 25, 1998    __________\s\_____________
Kenneth S. Schneider, Director



March 25, 1998    ___________\s\____________
Jamil Sopher, Director



March 25, 1998    ___________\s\____________
Robert M. Kramer, Director



<PAGE>
F1


                            Telebyte Technology, Inc.

                          INDEX TO FINANCIAL STATEMENTS


                                                                    Page


Report of Independent Certified Public Accountants                  F-2

Balance Sheets as of December 31, 1997 and 1996                     F-3

Statements of Earnings for the years ended
    December 31, 1997 and 1996                                      F-5

Statement of Shareholders' Equity for the years
    ended December 31, 1997 and 1996                                F-6

Statements of Cash Flows for the years ended
    December 31, 1997 and 1996                                      F-7

Notes to Financial Statements                                    F-8 - F-19






<PAGE>
F2

                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS




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


We have audited the accompanying balance sheets of Telebyte Technology,  Inc. as
of  December  31,  1997  and  1996,  and the  related  statements  of  earnings,
shareholders'  equity and cash flows for the years then ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Telebyte Technology, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended,  in  conformity  with  generally  accepted  accounting
principles.





GRANT THORNTON LLP


Melville, New York
March 6, 1998


<PAGE>
F3

                            Telebyte Technology, Inc.

                                 BALANCE SHEETS

                                  December 31,






                                   ASSETS             1997                 1996
                                                 --------------        ---------

CURRENT ASSETS
    Cash and cash equivalents                   $   730,284           $  583,721
    Accounts receivable, net of allowance of
       $15,000                                      752,141              413,953
    Inventories                                   1,221,768            1,078,111
    Prepaid expenses and other                       39,204               79,083
    Deferred income taxes                            80,000               80,000
                                                -----------           ----------

         Total current assets                     2,823,397            2,234,868




PROPERTY AND EQUIPMENT - AT COST,
    less accumulated depreciation                 1,120,435            1,170,035








OTHER ASSETS                                        169,632               43,352
                                                 ----------           ----------

                                                 $4,113,464           $3,448,255
                                                  =========            =========












The accompanying notes are an integral part of these statements.



<PAGE>
F4

                            Telebyte Technology, Inc.

                           BALANCE SHEETS (continued)

                                  December 31,




                         LIABILITIES AND SHAREHOLDERS' EQUITY

                                                   1997                   1996
                                                 -------               --------

CURRENT LIABILITIES
    Accounts payable                         $   415,120             $  198,023
    Accrued expenses                             146,577                 94,743
    Current maturities of long-term debt          51,500                 65,552
                                              -----------              ---------

         Total current liabilities               613,197                358,318


LONG-TERM DEBT, less current maturities          926,612                983,107


COMMITMENTS


SHAREHOLDERS' EQUITY
    Common stock - $.01 par value; 9,000,000
      shares authorized; 1,636,566 shares
      issued; 1,481,766 shares outstanding in
      1997 and 1996                               16,366                 16,366
    Capital in excess of par value             2,751,988              2,751,988
    Accumulated deficit                          (93,606)              (560,431)
    Treasury stock - 154,800 shares at cost,
       in 1997 and 1996                         (101,093)              (101,093)
                                               ----------            -----------

                                               2,573,655              2,106,830
                                                ---------              ---------

                                              $4,113,464             $3,448,255
                                               =========              =========





The accompanying notes are an integral part of these statements.



<PAGE>
F5

                            Telebyte Technology, Inc.

                             STATEMENTS OF EARNINGS

                             Year ended December 31,



                                            1997                        1996
                                          ----------                  --------

Net sales                                 $5,479,603                 $4,136,685
Cost of sales                              2,526,358                  1,965,382
                                           ---------                  ---------

         Gross profit                      2,953,245                  2,171,303
                                           ---------                  ---------

Operating expenses
    Selling, general and administrative    2,106,880                  1,833,069
    Research and development                 319,996                    260,322
                                          ----------                 ----------

                                           2,426,876                  2,093,391
                                           ---------                  ---------

         Operating profit                    526,369                     77,912
                                          ----------                -----------

Other income (expense)
    Interest income                           14,170                     18,381
    Rental income                             48,195                     48,195
    Interest expense                        (114,909)                  (113,033)
                                           ----------                ----------
                                             (52,544)                   (46,457)
                                          -----------                -----------
         Earnings before income taxes        473,825                     31,455

Income tax provision                           7,000                      1,000
                                          -----------               ------------

         NET EARNINGS                    $   466,825               $     30,455
                                           ==========                ===========


Earnings per common share:

    Basic                                     $.32                         $.02
                                               ===                          ===
    Diluted                                   $.31                         $.02
                                               ===                          ===

Shares used in computing earnings
     per common share:

    Basic                                  1,481,766                  1,489,958
                                           =========                  =========
    Diluted                                1,503,154                  1,502,018
                                           =========                  =========



The accompanying notes are an integral part of these statements.


<PAGE>
F6
<TABLE>

                            Telebyte Technology, Inc.
                        STATEMENT OF SHAREHOLDERS' EQUITY
                     Years ended December 31, 1997 and 1996



<CAPTION>
                                Number of                        Capital in
                                 shares           Common          excess of       Accumulated       Treasury
                                 issued            stock          par value         deficit           stock            Total
<S>                               <C>               <C>             <C>               <C>              <C>              <C>
Balance at January 1, 1996     1,636,566          $16,366        $2,751,988         $(590,886)    $  (85,945)        $2,091,523

Purchase of treasury stock                                                                           (15,148)           (15,148)

Net earnings                                                                          30,455                             30,455
                               ----------     -----------      -------------       ---------      -----------         ---------

Balance at December 31, 1996   1,636,566           16,366         2,751,988          (560,431)      (101,093)         2,106,830

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

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


<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>

<PAGE>
F7

                            Telebyte Technology, Inc.

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,




                                                          1997            1996
                                                       ----------       -------

Cash flows from operating activities
    Net earnings                                        $ 466,825    $   30,455
    Adjustments to reconcile net earnings to net
       cash provided by operating activities
          Depreciation and amortization                    96,517        88,497
          (Increase) decrease in operating assets
              Accounts receivable                        (338,188)       50,735
              Inventories                                (143,657)     (114,207)
              Prepaid expenses and other                  (95,921)       12,471
          Increase (decrease) in operating liabilities
              Accounts payable                            217,097        64,956
              Accrued expenses                             51,834       (25,147)
                                                         ---------     ---------

         Net cash provided by operating activities        254,507       107,760
                                                          --------      --------

Cash flows from investing activities
    Additions to property and equipment                   (37,397)      (60,071)
                                                         ---------     ---------

         Net cash used in investing activities            (37,397)      (60,071)
                                                         ---------     ---------

Cash flows from financing activities
    Principal payments of long-term debt                  (70,547)      (58,286)
    Purchase of treasury stock                               -          (15,148)
                                                         ---------     ---------

         Net cash used in financing activities            (70,547)      (73,434)
                                                         ---------     ---------

         NET INCREASE (DECREASE) IN CASH
              AND CASH EQUIVALENTS                        146,563       (25,745)

Cash and cash equivalents at beginning of year            583,721       609,466
                                                         --------       --------

Cash and cash equivalents at end of year                $ 730,284     $ 583,721
                                                         ========      ========




The accompanying notes are an integral part of these statements.


<PAGE>
F8

                            Telebyte Technology, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1996



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Telebyte Technology, Inc. (the "Company") designs, manufactures and markets
     electronic  data  communications   products.  The  Company's  products  are
     primarily sold to end-users,  domestic  dealers and  distributors,  foreign
     dealers and distributors and original equipment manufacturers.  The Company
     does not  depend  upon  sales to a single  customer  or a limited  group of
     customers and there were no sales to a single  customer during the last two
     years exceeding 10% of net sales. The Company operates in a single business
     segment  and has no foreign  operations.  Export  sales were  $778,000  and
     $441,000 in 1997 and 1996, respectively.

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

     1.  Inventories

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

     2.  Property and Equipment

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

     3.  Income Taxes

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



<PAGE>
F9

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE A (continued)

     4.  Earnings Per Share

         In 1997,  the Company  adopted the provisions of Statement of Financial
         Accounting  Standards No. 128 ("SFAS No.  128"),  "Earnings per Share."
         SFAS No. 128  replaced  the  calculation  of primary and fully  diluted
         earnings per share with basic and diluted  earnings  per share.  Unlike
         primary  earnings  per share,  basic  earnings  per share  excludes any
         dilutive  effects of  options,  warrants  and  convertible  securities.
         Diluted  earnings per share is very similar to the previously  reported
         fully  diluted  earnings per share.  All earnings per share amounts for
         all periods have been presented,  and, where  appropriate,  restated to
         conform to the SFAS No. 128 requirements.

     5.  Stock-Based Compensation Plans

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

     6.  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
         $114,289  and  $113,033 and income taxes of $200 and $1,000 in 1997 and
         1996, respectively.

     7.  Revenue Recognition

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



<PAGE>
F10

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE A (continued)

     8.  Use of Estimates and Fair Value of Financial Instruments

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

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


NOTE B - INVENTORIES

     Inventories consist of the following at December 31:

                                                1997                    1996
                                             -----------             -------

        Purchased components and materials  $   581,912             $   519,645
        Work in process                         256,916                 222,963
        Finished goods                          382,940                 335,503
                                             ----------              ----------

                                             $1,221,768              $1,078,111
                                              =========               =========




<PAGE>
F11

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE C - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following at December 31:

                                            1997                    1996
                                          ---------               -------

        Land                           $   300,000             $   300,000
        Building and improvements        1,024,583               1,024,583
        Equipment                          552,222                 514,825
                                        ----------              ----------

                                         1,876,805               1,839,408
        Less accumulated depreciation      756,370                 669,373
                                        ----------              ----------

                                        $1,120,435              $1,170,035
                                         =========               =========


NOTE D - DEBT

     1.  Line of Credit Facility

         The Company has an agreement with a financial institution,  expiring in
         July 1999, which provides the Company with a line of credit facility of
         up to $1,000,000  based on eligible  accounts  receivable and purchased
         components and materials and finished goods inventories of the Company,
         as defined in the agreement.  Borrowings  under the line of credit bear
         interest at the bank's specified prime rate plus .75% (9.2% at December
         31,  1997).  There  was no  outstanding  balance  against  this line at
         December 31, 1997.

     2.  Long-Term Debt

         The  Company's  first  mortgage  note is  collateralized  by  land  and
         building and the other notes payable are  collateralized  by equipment.
         The  remaining  unpaid  mortgage  note  balance at December 31, 1997 is
         payable in equal monthly installments of $12,484 (inclusive of interest
         at 10%)  with a  maturity  date  of June  2008.  The  interest  rate is
         computed  based on a 2.75%  increment  over the bank's  prime  interest
         rate;  however,  such rate cannot be less than 10% and was recalculated
         on July 1, 1997.  During March 1998, the Company  modified the mortgage
         note agreement, reducing the existing interest rate to 9% and modifying
         the adjustment formula to 3%



<PAGE>
F12

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE D (continued)

         over the  three-year  Treasury  bill rate.  Financing  and other  costs
         aggregating $85,122 incurred in connection with the acquisition of real
         property and the  refinancing  of mortgage debt are stated at cost, net
         of accumulated amortization of $48,247 and $44,047 at December 31, 1997
         and 1996,  respectively,  and are  included  in "Other  assets"  in the
         accompanying   balance   sheets.   Amortization   is   provided   on  a
         straight-line basis over the life of the mortgage note of 20 years.

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

                                                   1997         1996
                                             ----------   ----------

First mortgage note payable to bank in
   equal monthly installments, including
    interest, through June 2008 ..........   $  978,112   $1,024,378
Notes payable to bank in equal monthly
    installments, including interest at 9%
    to 10%, through February 1998 ........                    24,281
                                             ----------   ----------

                                                978,112    1,048,659

Less current maturities ..................       51,500       65,552
                                             ----------   ----------

                                             $  926,612   $  983,107
                                             ==========   ==========


Aggregate maturities of long-term debt as of December 31, 1997 are as follows:

                              1998            $  51,500
                              1999               57,602
                              2000               64,427
                              2001               72,060
                              2002               80,598
                              Thereafter        651,925
                                                -------
                                               $978,112
                                               ========


<PAGE>
F13

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE E - EMPLOYEE BENEFIT PLANS

     The Company sponsors an employee investment savings 401(k) plan to which
     both the Company and employees contribute. Employer contributions of $7,417
     and $7,094 were made to the plan in 1997 and 1996, respectively.

     The Company  maintains  deferred  compensation  agreements with several key
     officers,  whereby the officers will receive a defined amount approximating
     30% of their 1990 base salary for a period of 10 years after  reaching  age
     65. The deferred  compensation  plans are funded through life insurance and
     are being provided for currently. The expense charged to operations in 1997
     and 1996 for such future obligations was approximately $16,700 and $13,400,
     respectively.


NOTE F - INCOME TAXES

     The provision for income taxes is summarized as follows:

                           1997                    1996
                         ---------               ------

         Current
             Federal     $2,000
             State        5,000                  $1,000
                          -----                   -----

                         $7,000                  $1,000
                          =====                   =====




<PAGE>
F14

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE F (continued)

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

                                       1997                          1996
                              --------------------------      ------------------
                                    Amount        %             Amount        %

Federal statutory rate           $ 161,000      34.0%         $ 10,700     34.0%
State income taxes, net of
   Federal income tax benefit        3,000        .6               700      2.1
Officers' life insurance             7,000       1.5             5,200     16.6
Other                                2,000        .4               300      1.2
Benefit of net operating loss
   carryforward                   (166,000)    (35.0)          (15,900)   (50.7)
                                  --------      -----           -------    -----

                                $    7,000       1.5%        $   1,000      3.2%
                                ==========     ======          ========  =======

     At December 31, 1997, the Company has net operating loss  carryforwards and
     tax credits expiring from 1998 through 2007 of  approximately  $530,000 and
     $29,000,  respectively,  available to reduce Federal and state income taxes
     resulting from future operations.

     The tax effects of  temporary  differences  which give rise to deferred tax
  assets (liabilities) at December 31, 1997 and 1996, are summarized as follows:

                                                      1997               1996
                                                   -----------          -------

 Deferred tax assets
    Net operating loss carryforwards                $ 213,000         $ 379,000
    Investment and other tax credit carryforwards      20,000            79,000
    Inventory valuation                                10,000            48,000
    Allowance for doubtful accounts                     6,000             6,000
    Other                                               5,000
                                                    ----------         ---------

       Gross deferred tax assets                      254,000           512,000



<PAGE>
F15

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE F (continued)

                                             1997         1996
                                        ---------    ---------

Deferred tax liabilities
    Excess tax over book depreciation   $(152,000)   $(153,000)
                                        ---------    ---------

Net deferred tax assets before
    valuation allowance                   102,000      359,000

Valuation allowance                       (22,000)    (279,000)
                                        ---------    ---------

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


NOTE G - STOCK OPTION PLANS

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

     In 1994, the Company  adopted the 1993 Stock Option Plan (the "1993 Plan"),
     which  provides  for the  granting to  directors  and key  employees of the
     Company of incentive stock options and  nonqualified  stock options for the
     purchase  of a maximum of 100,000  shares of the  Company's  common  stock.
     Under the terms of the 1993 Plan, the options, which expire ten years after
     grant,  are  exercisable  at a price equal to the fair market  value of the
     stock at the date of the grant for  incentive  stock  options and at prices
     determined by the Board of Directors for  nonqualified  stock options,  and
     become  exercisable in accordance with terms established at the time of the
     grant.  At December 31, 1997, the Company had reserved  60,000 shares under
     the 1993 Plan.



<PAGE>
F16

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE G (continued)

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

                                                                Weighted average
                                       Shares   Price per share  price per share
                                       ------   ---------------  ---------------
Outstanding at January 1, 1996        76,750    .3125 to 2.04           .95
 Granted                               5,000         .79                .79
  Expired                             (10,000)    1.03 to 2.04          1.54
                                       -------

Outstanding at December 31, 1996       71,750    .3125 to 2.04           .86
  Granted                               5,000         .685               .685
  Expired                             (15,000)   .3125 to .90            .71
                                      -------

Outstanding at December 31, 1997       61,750    .3125 to 2.04           .88
                                      =======

Balance exercisable at 12/31/97        55,500    .3125 to 2.04           .88
                                      =======


     The  following  table  summarizes  significant  ranges of  outstanding  and
exercisable options at December 31, 1997:


                            Options outstanding              Options exercisable
                          Weighted       Weighted                Weighted
                           average        average                 average
  Ranges of               remaining      exercise                exercise
exercise prices  Shares  life in years     price    Shares         price
---------------  ------  -------------     -----    ------         ------
under $1.00      41,750      4.5           $.56     38,000         $.55
$1.01 to $2.04   20,000       7            1.54     17,500         1.61

The  weighted-average  option fair value on the grant date was $.53 and $.28 for
options issued during the years ended December 31, 1997 and 1996, respectively.

     The Company has adopted the disclosure provisions of Statement of Financial
     Accounting  Standards No. 123,  "Accounting for  Stock-Based  Compensation"
     ("SFAS No.  123");  it applies APB Opinion  No. 25,  "Accounting  for Stock
     Issued to  Employees,"  and related  interpretations  in accounting for the
     Plans and does not recognize  compensation  expense for such Plans.  If the
     Company had elected to recognize  compensation  expense based upon the fair
     value at the grant dates for awards under these plans  consistent  with the
     methodology prescribed by SFAS No. 123, the Company's reported net


<PAGE>
F17

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE G (continued)

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

                                               1997                   1996
                                           ------------          ---------

        Net earnings
            As reported                     $466,825             $  30,455
            Pro forma                        466,273                29,055
        Basic earnings per common share
            As reported                         $.32                  $.02
            Pro forma                            .31                   .02
        Diluted earnings per common share
            As reported                         $.31                  $.02
            Pro forma                            .31                   .02

     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 1996.  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,
     1997 and 1996, respectively:  expected volatility of 80% and 23%; risk-free
     interest  rates of 6.82% for both years;  and expected  term of seven years
     for both years.

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


NOTE H - COMMITMENTS

     Lease Commitments

     The Company  leases certain  equipment  used in its operations  pursuant to
     noncancellable  operating  leases  expiring  through  August  2000.  Rental
     expense for such equipment was $13,774 and $17,015


<PAGE>
F18

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE H (continued)

    in 1997 and 1996, respectively.  The minimum rental commitments under these
    noncancellable operating leases, at December 31, 1997, are summarized as
    follows:

                          1998         $15,400
                          1999           6,000
                          2000           3,800
                                       -------

                                       $25,200

     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, 1997 under such contracts is approximately $576,000.


NOTE I - EARNINGS PER SHARE

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

                                                               December 31,
                                                        1997                1996

        Numerator
            Net income                                 $466,825          $30,455
                                                        =======           ======

        Denominator
            Denominator for basic earnings per share
               (weighted-average shares)              1,481,766        1,489,958
            Effect of dilutive securities
              Employee stock options)                    21,388           12,060
                                                      ---------        ---------
            Denominator for diluted earnings per share
              (adjusted weighted-average shares and
              assumed conversions)                    1,503,154        1,502,018
                                                      =========        =========
        Basic earnings per share                           $.32             $.02
                                                            ===              ===
        Diluted earnings per share                         $.31             $.02
                                                            ===              ===


<PAGE>
F19

                            Telebyte Technology, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1997 and 1996



NOTE J - MAJOR SUPPLIERS

     The  Company  purchased  approximately  13% of its raw  materials  from one
     supplier  during the year ended December 31, 1997. 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.





<PAGE>
F20

                             CONSENT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS




We have  issued  our report  dated  March 6, 1998,  accompanying  the  financial
statements  included in the Annual Report of Telebyte  Technology,  Inc. on Form
10-KSB  for  the  year  ended  December  31,  1997.  We  hereby  consent  to the
incorporation  by  reference  of said report in the  Registration  Statement  of
Telebyte  Technology,  Inc. on Form S-8 (File No. 0-11883),  effective March 29,
1996.





GRANT THORNTON LLP

Melville, New York
March 6, 1998