SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

|X|     ANNUAL REPORT UNDER SECTION 13 OR 15(d)
        OF THE SECURITIES EXCHANGE ACT OF 1934

        For the Fiscal Year Ended March 31, 2000
                                  --------------

|_|     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
        THE SECURITIES EXCHANGE ACT OF 1934

        For the transition period from          to
                                       --------     ---------

                          Commission File No.: 0-13992
                                               -------

                               CYBER DIGITAL, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

          New York                                        11-2644640
  -------------------------------                       ---------------
  (State or other jurisdiction of                      (I.R.S. Employer
  incorporation or organization)                      Identification No.)


400 Oser Avenue, Hauppaupge, New York                       11788
--------------------------------------                      -----
  (Address of principal executive offices)                (Zip Code)

Issuer's telephone number: (631) 231-1200

Securities registered under Section 12(b) of the Exchange Act:
                                                          Name of Each Exchange
Title of Classes                                          on Which Registered
----------------                                          -------------------

Common Stock, $.01 par value                       N/A



Securities registered under Section 12(g) of the Exchange Act: NONE

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        Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

        Yes  |X|  No |_|

        Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this Form 10-KSB, 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. [ ]

Issuer's revenues for its most recent fiscal year:  $6,497

        As of June 26, 1999, Registrant had 19,199,807 shares of Common Stock
outstanding ($.01 par value). On that Date, the aggregate market value of the
Common Stock held by persons other than those who may be deemed affiliates of
Registrant was $13,043,550 (based on the last sale price reported on Nasdaq's
over-the-counter market on such date).

        Transitional Small Business Disclosure Format (check one):

        Yes  |X|  No |_|

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                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

        We have provided a glossary of terms for your convenience beginning on
page 17.

The Company

        Cyber Digital, Inc. (the "Company") was incorporated under the laws of
the State of New York in 1983. We design, develop, manufacture, market and
service our Internet Protocol (IP) Frame Relay or Private Line based
infrastructure equipment for the high speed internet and Virtual Private Network
(VPN) applications including routers, gateways, firewalls and servers. We also
design, develop, manufacture, market and service our high performance
distributed, integrated packet and circuit digital switching systems, employing
SS7 or C7 signaling, for both private and public switch data and voice network
operators worldwide. Our systems enable network operators to provide cost
effective internet access, data and voice communication services with minimal or
no infrastructure cabling. Our systems are based on our proprietary software
technology.

        Cyber Digital, Inc. has forged an alliance with AT&T Corporation
("AT&T") to provide high-speed internet access and to create Virtual Private
Networks (VPN) for businesses using the Company's Internet Protocol (IP) Frame
Relay or Private Line based "broadband" technology. We have recently developed
our Internet Protocol (IP) Frame Relay or Private Line infrastructure equipment
to piggyback on AT&T's rapid deployment of Internet Protocol (IP) based
"broadband" internet backbone using either Frame Relay or Private Line
platforms. In contrast, competing networks are constructed around "narrowband"
technologies such as digital subscriber lines (DSL) modems and dial-up modems,
which use the Incumbent Local Exchange Carrier's (ILEC) voice grade lines. We
have designed our network to give our customers a high-speed broadband
connection to the internet. We offer "modem-less" end-to-end Internet Protocol
(IP) connectivity and data integrity using our proprietary Cyber Business
Internet Gateway (CBIG) located on the customer's premises. We believe that our
systems are the only ones available with this capability.

        Cyber Business Internet Gateway (CBIG) delivers Internet Protocol (IP)
Frame Relay or Private Line based high-speed symmetrical data transfer rates
ranging from 64 Kbps to 1.5 Mbps compatible with AT&T's Internet Protocol (IP)
backbone. Since Internet Protocol (IP) Frame Relay or Private Line packet
switched technology is at least ten times more efficient and many million times
more reliable than modem based technologies, a 64 Kbps Internet Protocol (IP)
Frame Relay can out perform any digital subscriber lines (DSL) modem intended to
operate at 640 Kbps and is ten times faster than any 56Kbps dial-up modem. For
customers that subscribe at the 1.5 Mbps rate, our network provides symmetrical
"true" transfer speeds at approximately 250 times the speed of the fastest
dial-up modem and over 30 times the speed of integrated services digital network
(ISDN) lines. Through our packet-based network and Cyber Internet Access Network
(CIAN) router, multiple business users can simultaneously access the internet at
a fixed committed bandwidth rate (CBR) and an "always on" basis. Beyond "true"
high-speed access, our Internet Protocol (IP) Frame Relay or Private Line based
gateway, Cyber Business Internet Gateway (CBIG), offers an ideal solution for
virtual private networks (VPN) applications that require "firewall" capability.
Cyber Business Internet Gateway's (CBIG) firewalls are created by use of
Internet Protocol (IP) packet filtering, Internet Protocol (IP) masquerading and
Internet Protocol (IP) tunneling and Internet Protocol encryption security
(IPSec). Such firewall capabilities cannot be offered by "modem" based
technologies.

        We believe our network solutions will permit users to distribute and
receive enterprise-wide, inter-networked communications and corporate materials,
conduct electronic transactions and access information resources all from the
convenience of their desktop and with the immediacy of the internet. We also
believe our network solutions can be used to increase remote office and worker
productivity and to reduce the complexity of communications for businesses.

        We made a strategic shift to the high speed internet access and Virtual
Private Network (VPN) service provision business in November 1998. In April
1999, we proceeded with this shift in business by forging an alliance with AT&T.
In conjunction with AT&T, we began marketing our high speed broadband internet
service for businesses as part of a package of services that includes AT&T's
internet backbone, which is provided through


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AT&T's Managed Internet Service. Under the terms of our agreement with AT&T, we
will resell AT&T's Managed Internet Service bundled with our own 1.5 Mbps
Internet Protocol (IP) Frame Relay or Private Line based internet gateway i.e.
Cyber Business Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN).
According to our agreement, AT&T will bring the internet backbone to commercial
buildings that we mutually serve. Cyber Digital will build, operate and own the
internet facilities in such buildings using its proprietary Cyber Business
Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN). Our agreement
with AT&T provides that AT&T will make its Internet backbone available to us
anywhere in the United States including the Commonwealth of Puerto Rico and the
U.S. Virgin Islands. We believe that Cyber Digital, as a manufacturer and
internet service provider, is the first company to have signed such an agreement
with AT&T.

        We intend to implement a scalable nationwide network over the next ten
years. We began offering commercial services in Boston in the spring of year
2000. We expect to begin services in New York city in the summer of year 2000.
We intend to focus on New York and Boston markets only for the next two fiscal
years. We intend to continue our network rollout into 31 additional markets
beginning in the year 2002. Upon completion of this network expansion
contemplated by year 2010, we anticipate providing services in 33 of the
nation's largest metropolitan areas, which we believe, contain 60% of the
nation's local area networks.

        Unlike digital subscriber line (DSL) modem technology, our services do
not use Incumbent Local Exchange Carriers (ILEC) in any way. We expect the
customer to deal only with us and AT&T. We expect AT&T to handle all regulatory
compliance issues. Our Cyber Business Internet Gateway (CBIG) and Cyber Internet
Access Network (CIAN) combination gives us the freedom to deploy internet access
rapidly in alliance with AT&T. We believe that we will recognize significant
savings from our bypass of the Incumbent Local Exchange Carrier's (ILEC)
"narrowband" local loop. Based on these favorable factors, we believe that we
will be able to achieve our goals of providing high-speed digital "broadband"
internet service nationwide as planned. We believe that the digital broadband
services will be the predominant services of the future.

        In addition, we have designed and developed a family of digital voice
switches which we believe, by interfacing with appropriate methods of wireless
transmission, can easily and rapidly provide telecommunications services to
consumers who are under-served or have no service at all, as in the case of many
developing countries. The Company's products are suitable for both
densely-packed urban areas as well as sparsely populated rural areas. In the
United States, we believe that the enactment of the Telecommunications Act of
1996 (the "Telecommunications Act") has resulted in the creation of a large
market for our voice products since such products are capable of meeting the
requirements of Competitive Local Exchange Carriers (CLEC) who are now
attempting to bypass the ILECs.

Industry Background

        In technologically advanced countries such as the United States,
extensive public voice telephone networks are already in place. Therefore,
innovation and change in internet access and data communications are now taking
place in the domain serviced by private network operators. Private networks
providing new types of internet and data services are, therefore, growing at a
much faster rate than public voice networks. On the other hand, in the
developing world (Eastern Europe, China, India, Latin America and Africa), there
is demand for voice-only public networks to serve individual and business
subscribers in cities, towns and villages. We have designed our systems to meet
the sophisticated high speed internet and data needs of private networks in the
United States and the basic voice-only needs of public networks in developing
countries.

        We believe that a substantial market opportunity exists as a result of
the convergence of seven factors in the United States:

o       The growing demand for high-speed access to the internet and Virtual
        Private Networks;

o       The inherent limitations of modems as a connection to data networks;

o       The need for large companies to create enterprise-wide networks to
        improve the productivity of their branch office workers;


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o       The need for small and medium sized businesses to have an integrated
        gateway solution for their networking requirements;

o       Emergence of Internet Protocol (IP) Frame Relay or Private Line packet
        switched "broadband" technology;

o       The need for "firewall" or data security by businesses; and

o       The 1996 Telecommunications Act, as amended.

Growing Demand for High-Speed Access to the Internet and Virtual Private
Networks

        The value of business-to-business (B2B) e-services sold through the
Internet will grow from $8 billion in 1999 to $76 billion in 2003, according to
industry analysts, International Data Corporation (IDC). Currently, business
spending for connecting remote workers, branch offices and corporate
headquarters to each other and to customers, suppliers and partners - either
through the internet or VPN - is large and growing. IDC estimates that the
investment in U.S. market for network service provision by digital "broadband"
means will grow from $17 billion in 1999 to $32 billion by 2003. Much of that
growth is expected to result from increased demand for e-mail, web hosting
services, e-commerce, B2B e-services, software application services, IT and
Web-site operations, real-time video services and applications.

Limitations of Dial-up and DSL Modems and Integrated Services Digital Networks
(ISDN)

        Only seven percent of buildings in the United States are currently
connected to high-speed fiber rings, typically large buildings in metropolitan
areas or clusters of buildings in regional campus parks. The vast majority of
internet users access data networks through slow dial-up modems connected to the
traditional circuit-switched public telephone network. These traditional dial-up
modems create a bottleneck in data communications because the data-carrying
capacity of the fastest commercially available dial-up modem is only 56 Kbps
(and operates on the average at only 6.4 Kbps). The capacity of another
alternative, an integrated services digital network (ISDN) line, is only 128
Kbps (and operates on the average at only 51.2 Kbps). While integrated services
digital network (ISDN) technology provides improved capacity relative to dial-up
modems, the cost of an ISDN solution is often prohibitive. The experimental
capacity of another alternative, a digital subscriber line (DSL) modem based
technology, ranges from 128 Kbps to 7.1 Mbps downstream and 64 Kbps upstream, in
a laboratory environment. When implemented in the field, however, the fastest
DSL modem offers bandwidth as low as 16 Kbps downstream. DSL technology is
unproven and is very sensitive to the quality of the voice grade existing lines.
DSL is based on analog voice modem technology and is therefore severely limited
by the length of wire from an Incumbent Local Exchange Carrier's (ILEC) central
office to a subscriber location; generally less than a few thousand feet. DSL
lines require precision fine tuning of the voice grade lines. Since both dial-up
and DSL modem technologies are inherently analog based transmission
technologies, they cannot support packet switched data nor can they provide the
mandatory "firewalls" for virtual private network (VPN) applications. These
impairments are created by the Incumbent Local Exchange Carrier's (ILEC)
existing voice grade lines and are incurable.

Need for Large Businesses to Create Enterprise-wide Network to Improve Branch
Office Worker Productivity

        Many large companies are currently interconnecting increasing numbers of
branch and remote offices by point-to-point high-speed T1 carrier grade lines to
their local area networks. This approach is very expensive and unaffordable by
many companies. At present, some other large businesses are incurring
significant capital expenditures to purchase equipment to support integrated
services digital network (ISDN) connections and experimenting with digital
subscriber line (DSL) modems, and paying for expensive technical support
personnel only to implement networking solutions that may fail to optimize their
worker productivity. These companies face the challenge of finding a cost
effective way to make their branch and remote office workers as productive as
those who have access to all of the high performance communications and
networking resources available to workers located at corporate headquarters. A
high-speed VPN solution, such as Cyber Virtual Private Network (CVPN) that
encompasses access to the corporate local area network, the internet, the
corporate video conferencing system, customers, suppliers and partners could
substantially increase branch office worker productivity.


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Need for Small and Medium Businesses to have an Integrated Gateway Solution

        A significant number of small and medium sized businesses have no
practical alternative to dial-up modems or ISDN or experimental DSL modems for
their workers to access the internet. As a result, these businesses suffer
productivity limitations associated with slow transmission speeds. In addition,
these companies have to pay heavy monthly subscription rates for each e-mail
address that is maintained by an Internet Service Provider (ISP) on its e-mail
servers. These businesses must contend with the cost and complexity of retaining
multiple vendors for their internet needs, such as an Incumbent Local Exchange
Carrier (ILEC) for dial-up modem or DSL modem or ISDN connection, Internet
Service Providers for internet access, and equipment integrators for on-premises
systems. We believe that these businesses can benefit from working with a single
service provider that offers an on-premise integrated gateway solution with
high-speed internet access and built-in e-mail server with automatic messaging
flags, such as CBIG.

Emergence of Internet Protocol (IP) Frame Relay or Private Line Packet Switched
"broadband" Technology

        Internet Protocol (IP) Frame Relay or Private Line is a packet switching
based "broadband" technology that dramatically increases the data-carrying
capacity over standard T1 carrier grade copper lines. It also dramatically
increases the reliability of packet data transmission because of end-to-end
Internet Protocol (IP) Frame Relay or Private Line data integrity and
connectivity. AT&T's massive long distance network is a digital "broadband"
network. AT&T has decided to deploy Internet Protocol (IP) Frame Relay or
Private Line over carrier grade T1 lines as the only solution for businesses
desiring to have high-speed internet access and to create enterprise-wide VPN.
Since AT&T has already massively deployed T1 carrier grade network in all major
cities nationwide, a broad network deployment can be implemented rapidly based
on Internet Protocol (IP) Frame Relay or Private Line internet gateways, such as
Cyber Business Internet Gateway (CBIG). This requires a lower fixed investment
than some existing alternative technologies, such as fiber, cable modems and
satellite communications systems. We believe Internet Protocol (IP) Frame Relay
or Private Line packet-based networks are significantly more efficient than
traditional point-to-point networks, and allow end users to connect to any
location that can be assigned an Internet Protocol address. Traditional
point-to-point networks, including the traditional telephone network and private
line data networks, are less efficient because they require a dedicated
connection between two locations. IP Frame Relay or Private Line packet-based
networks allow multiple users to share connections between locations.

Need for "Firewall" or Data Security for Businesses

        Security of data transmission over the public internet is of paramount
importance to businesses and is referred to in the industry as "Firewall". This
Firewall must exist at the customer's premises. It can only be supported by
packet switching technology and not by dial-up modems, DSL modems or ISDN
technologies. Among the packet switching technologies such as X.25, Frame Relay,
Private Line and Asynchronous Transmission Mode (ATM), Frame Relay and Private
Line have been selected by AT&T as the most cost effective choice for customer
end equipment interface to AT&T's internet backbone network. CBIG provides the
"Ultimate Firewall" by Internet Protocol (IP) Packet Filtering, Internet
Protocol (IP) Masquerading, Internet Protocol (IP) Tunneling and Internet
Protocol encryption security (IPSec). This Firewall capability makes an
enterprise-wide VPN a reality.

1996 Telecommunications Act

        The 1996 Telecommunications Act, as amended, allows competitive carriers
to leverage the existing Incumbent Local Exchange Carrier (ILEC) infrastructure,
as opposed to building a competing infrastructure at significant cost. The 1996
Telecommunications Act requires all ILECs to allow competitive carriers to
co-locate their equipment along with ILEC's equipment in ILEC's central offices,
which enables competitive carriers to access end users through existing
telephone line connections. ILEC's existing telephone line infrastructure is a
"narrowband" network, however, and suitable for analog voice transmission only.
The infrastructure limitation of (a) low bandwidth and (b) lack of integrated
packet switching imposed by the current ILEC's network does not make economic or
technical justification for long distance carriers (LDC), such as AT&T to enter
the internet market using ILEC's network. AT&T has announced that AT&T will
enter the lucrative internet market by building its own digital "broadband"
network based on Internet Protocol (IP) Frame Relay or Private Line technology.
As AT&T


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rolls out this internet backbone service nationwide, the end customers need a
suitable internet gateway with Firewall and e-mail server capabilities, such as
Cyber Business Internet Gateway (CBIG), to connect to AT&T's Internet backbone.

        Unlike technologically advanced countries, where the existing public
voice telephone network consists of monolithic centralized digital switches,
developing countries are seeking an alternative cost-effective approach, such as
our distributed digital switching systems. We believe that the trend in the
telecommunications industry towards distributed switching from monolithic
centralized switching is similar to the trend in the computer industry towards
distributed networking personal computers from monolithic centralized mainframe
computers. Similar to the computer industry where personal computing has been
brought closer to the users, our distributed switching systems are also being
installed closer to groups of subscribers, thereby dramatically reducing the
cost of cabling. We believe that with our distributed switching system, the
public telephone operating companies in developing countries can rapidly provide
telephone services to their customers. It is substantially easier to install
small, distributed switches than large monolithic centralized switches with
their corresponding long cabling infrastructure. We believe that our digital
voice switches are well suited for developing countries.

The Cyber Digital Solutions for Internet Services

        We believe our network solutions effectively address many of the unmet
enterprise-wide inter-networked communications needs of today's businesses by
offering an appealing combination of quality, performance, price and service.
Our network consists of:

o       High-Speed, "Always On" End-to-End IP Connectivity to AT&T Internet
        Backbone. Our network delivers high-speed, "always on" connectivity to
        AT&T Internet backbone. Using our Cyber Business Internet Gateway's
        (CBIG) Internet Protocol (IP) Frame Relay or Private Line based
        "broadband" technology over standard copper telephone lines, out network
        is capable of delivering "true" data transfer rates at speeds ranging
        from 64 Kbps to 1.5 Mbps. For customers that subscribe at the 1.5 Mbps
        rate, our network provides symmetrical data transfer speeds of
        approximately 250 times the speed of the fastest dial-up modem and over
        30 times the speed of ISDN lines. Moreover, unlike dial-up modems and
        integrated services digital network (ISDN), our CBIG's IP Frame Relay or
        Private Line packet switched based solution is "always-on" - it does not
        require users to dial-up to connect to the internet or their local area
        network for each use.

o       Simple Network. We have designed our network elements, Cyber Business
        Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN), to
        provide "direct" IP Frame Relay or Private Line based "broadband"
        connectivity to AT&T Internet backbone. There are no intermediate
        Incumbent Local Exchange Carriers (ILEC), Internet Service Providers
        (ISP) or Long Distance Carriers (LDC) networks to create traffic
        bottle-necks. Our customer premises equipment, Cyber Business Internet
        Gateway (CBIG) and Cyber Internet Access Network (CIAN), can be remotely
        maintained over the internet as well as ordinary telephone lines. We
        manage our network and monitor service levels on a nationwide basis from
        our Network Operations Center in Hauppauge, NY.

o       Virtual Private Network Applications. Our Cyber Business Internet
        Gateway (CBIG) offers built-in standard security features and enhanced
        security options, making it what we believe to be an ideal
        enterprise-wide VPN. The Firewalls are provided by Internet Protocol
        (IP) filtering, Internet Protocol (IP) masquerading, Internet Protocol
        (IP) tunneling and Internet Protocol encryption security (IPSec). We
        believe that our VPN offering is the most advanced in the industry.

o       Productivity Enhancing Features. We offer a personal e-mail service,
        that is custom e-mail delivery with automatic message-waiting flags.
        Whenever a user receives e-mail, it is shown as a flag on their personal
        computer.

o       Service Flexibility. We have designed our network so that we are able to
        individually configure each network user's features and applications.


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o       End-to-End Solution & Support. We intend to provide "hassle-free"
        connections to the AT&T Internet backbone. We perform all circuit
        ordering, on-site cabling and customer premised hardware installation.
        The equipment and infrastructure will remain our property and therefore
        will be entirely our responsibility.

o       Customer Premised Equipment. Our high speed internet access platform
        consists of the Cyber Internet Access Network (CIAN) switch (usually
        located in a switch-room) and a Cyber Business Internet Gateway (CBIG)
        located in each customer's office. Customers connect their local area
        networks (LAN) to our Cyber Business Internet Gateway (CBIG) via either
        a personal computer Network Interface Card (NIC) or a network hub for
        multiple personal computer connectivity.

Our Business Strategy

        Our goal is to become a leading national service provider of high speed
internet access and enterprise-wide inter-networked Virtual Private Networks
(VPN) in alliance with AT&T. We intend to implement the following strategies to
achieve our goal:

Exploit Early Mover Advantage

        We intend to exploit our early market entrance to deploy our Internet
Protocol (IP) Frame Relay or Private Line based network in conjunction with
AT&T. We believe that we are one of the first companies to implement Internet
Protocol (IP) Frame Relay or Private Line technology without using Incumbent
Local Exchange Carrier's (ILEC) local loop facilities. In addition, we have the
advantage that we develop and manufacture our own Cyber Business Internet
Gateway (CBIG), a fully integrated internet gateway for business applications.
Cyber Business Internet Gateway (CBIG) is a very powerful integrated internet
gateway equipment that replaces many single function equipment such as router,
network address translator, Ethernet-to-T1 converter, Internet Protocol (IP)
Frame Relay or Private Line equipment, CSU/DSU, Firewall equipment, e-mail
servers and Web servers. Since our network is simple, installation is not time
consuming nor demanding on our resources. We will streamline the construction of
our network. We expect to construct our network rapidly and be an early mover in
our target markets. We intend to exploit our early mover advantage to gain
significant market share in our target markets.

Focus on Performance-Driven Business Customers

        We believe that the under-served segment of the business networking
market that demands high performance is currently relying on dial-up modems or
ISDN for network access. Many large businesses have workers at branch offices
that are not able to take advantage of the full array of communications and
networking resources available to workers at the main office. In addition to
offering these businesses high-speed access to the internet, we intend to offer
them the ability to enjoy the cost and productivity benefits from their
enterprise-wide inter-networked Virtual Private Network. Further, we believe
that small and medium businesses are also looking for integrated gateway
equipment to reduce their monthly costs and reliance on multiple vendors. Our
Cyber Business Internet Gateway (CBIG) is ideal for all performance-driven
businesses.

Expand e-commerce Applications

        While we seek to have our network facilitate the delivery of
productivity-enhancing applications to businesses and their employees, AT&T will
offer e-commerce software and applications to our mutual end-customers. By
collaborating with AT&T, we believe that our end customers will have the best
e-commerce content and software technologies. Although AT&T develops and markets
its e-commerce applications directly to our mutual end-customers, AT&T pays us a
certain percent of their gross revenue for using our Internet Protocol (IP)
Frame Relay or Private Line network. Since our products and services are
co-branded with AT&T, we expect customer loyalty will be strengthened and
revenue per user will be increased.

Establish Strong Distribution Channels

        We intend to build strong distribution channels. As an alliance member
with AT&T, we regularly receive qualified sales leads from AT&T for businesses
that want our services. In order to serve these businesses, we intend


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to establish a strong team of independent sales agents exclusive to specific
properties or commercial buildings that they will serve locally. We will
coordinate the efforts of our local independent sales agent and AT&T sales
personnel who will sell e-commerce applications and promote our Internet
Protocol (IP) Frame Relay or Private Line based "broadband" technology. We will
establish strong distribution channels in Boston and New York City by appointing
independent sales agents in those cities. Instead of a direct sales force, we
intend to grow rapidly through aggressive recruitment of independent sales
agents nationwide. We intend to build a strong marketing, sales support and
customer care team working in harmony with AT&T. Over time, we expect to develop
additional strategic alliances, focusing on partners that can add value to our
network and give us additional meaningful distribution channels.

Provide Superior Customer Service

        As part of our strategy to obtain and retain business customers, we
intend to provide superior service and customer care. We expect to deliver
high-quality service by providing T1 carrier-grade IP Frame Relay or Private
Line based networking solutions and superior customer service. Our carrier-grade
networking solutions include end-to-end proactive network monitoring and
management through our Network Operations Center, 24 hours a day, seven days a
week. We also intend to offer multiple security features and a network that we
can scale to meet demand. Our customer service includes a personal and web-based
single point of contact, a complete packaged solution including Cyber Business
Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN) installation,
activation and network management, and specific customer service objectives
against which we measure our performance. Our objective in providing outstanding
customer service is to provide a high level of customer satisfaction, achieve
customer loyalty and accelerate the adoption rate of our service.

Our Alliance With AT&T

        In April 1999, we entered into an alliance with AT&T, pursuant to which,
among other things:

        Reseller Agreement. Under the terms of our agreement with AT&T, we will
resell AT&T's Managed Internet Service bundled or repackaged with our own 1.5
Mbps Internet Protocol (IP) Frame Relay or Private Line based internet gateway
i.e. Cyber Business Internet Gateway (CBIG) and Cyber Internet Access Network
(CIAN). We believe our alliance with AT&T is unique with respect to high speed
internet access and virtual private network (VPN) markets. AT&T will bring the
internet backbone to commercial buildings that we mutually serve. Cyber Digital
will build, operate and own the internet facilities in the building using its
proprietary Cyber Business Internet Gateway (CBIG) and Cyber Internet Access
Network (CIAN). We believe that Cyber Digital, a manufacturer of internet
infrastructure equipment, is the first company to have signed such a unique
agreement with AT&T.

        Managed Internet Service Agreement. Under the terms of our agreement,
AT&T will provide its internet backbone network at 1.5 Mbps to us on a
nationwide basis. AT&T has waived all installation charges as well as moving
fees for re-installation at another location for a period of sixteen months from
the initial contract term.

        Market Development Fund Program. Under this program AT&T will fund our
cooperative advertising in local and trade publications, collateral marketing
and sales brochures, trade shows, end user seminars and training.

        Co-branded with AT&T. Our products and services (CBIG and CIAN) are
co-branded with AT&T leveraging our ability to market our services to our mutual
end customers. All our product brochures and services reveal AT&T logo along
with ours. Our Web site is www.cyberdigitalinc.com, which includes AT&T logo
along with ours.

        AT&T Alliance Program Member. As an AT&T Alliance Program Member we
receive regular sales leads. We will also receive a certain percent of their
e-commerce gross revenue for using our Internet Protocol (IP) Frame Relay or
Private Line network.

Our Network Architecture of Internet Technologies

Network Technology


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        The key design features allowing us to be a business-class network are:

o       Carrier-Class Network Management. Our network is designed to be
        carrier-class throughout. For example, it has been designed with
        redundant network electronics and transmission paths. We have the
        ability to electronically view our entire network including the CBIG and
        CIAN at the customer's premises from our Network Operations Center in
        Hauppauge, NY. We provide our business customers with service level
        agreements that guarantee specific levels of network performance.

o       Scalable Systems. We use industry standard, off-the-shelf software to
        support preordering, ordering, provisioning, billing, network monitoring
        and trouble management. We have implemented these systems using
        distributed client-server systems architecture that operates using a
        single, integrated database. This approach allows us to increase our
        customer support and network management capabilities as customer demand
        increases by giving our personnel faster, more accurate access to a
        fully integrated business information system.

o       Network Security. Non-dedicated access, such as dial-up or digital
        subscriber line (DSL) modem or integrated services digital network
        (ISDN) lines, represents security risks for business networks. These
        security risks may be mitigated through the use of Virtual Private
        Network technologies such as authentication, tunneling, encryption, and
        through the use of permanent virtual circuits that define a logical
        dedicated connection between the end user and the corporate network. We
        believe our network enables businesses to fully employ these Virtual
        Private Network technologies by using our Cyber Business Internet
        Gateway (CBIG) or Cyber Virtual Private Network (CVPN).

Network Components

        The primary components of our network are customer end equipment, local
transport, AT&T internet backbone and our Network Operations Center.

o       Customer End Equipment. We currently offer our Cyber Business Internet
        Gateway (CBIG) as customer end equipment. We configure and install our
        CBIG with the end user's computer or local area network. CBIG is a
        powerful Internet Protocol (IP) Frame Relay or Private Line based
        gateway that can replace many single function equipment such as router,
        network address translator, Ethernet-to-T1 converter, Internet Protocol
        (IP) Frame Relay or Private Line equipment, CSU/DSU, Firewall equipment,
        e-mail server and Web server.

o       Local Transport. Our local transport consists of our in-building
        cabling. It connects customer end equipment, our Cyber Business Internet
        Gateway (CBIG), to our Cyber Internet Access Network (CIAN) switch
        located within the building.

o       AT&T Internet Backbone. Our Cyber Internet Access Network (CIAN) switch
        connects to AT&T's Internet backbone.

o       Network Operations Center. Our entire network is managed from the
        Network Operations Center located in Hauppauge, NY. From this center, we
        provide end-to-end network monitoring and management using advanced
        network management tools 24 hours a day, seven days a week. This
        enhances our ability to address performance or connection issues before
        they affect our end user. From the Network Operations Center, we monitor
        each Cyber Business Internet Gateway (CBIG), local transport and Cyber
        Internet Access Network (CIAN) switch as well as connectivity to AT&T
        Internet backbone.

Our Range of Digital Voice Switches

        We intend to constantly develop additional new technologies and
software. Our commitment to research and development has enabled us to create
new systems employing SS7 and C7 signaling such as Cyber Distributed Central
Office (CDCO), Cyber Tandem Exchange (CTSX) and Cyber Rural Exchange (CRX) for
various


                                       10
<PAGE>

applications, primarily for use in developing countries and for domestic
Competitive Local Exchange Carriers (CLEC) attempting to bypass Incumbent Local
Exchange Carriers (ILEC). We believe that these systems are capable of providing
the functions for which they have been designed.

Cyber Distributed Central Office

        We have developed and intend to market the Cyber Distributed Central
Office (CDCO) which is designed to provide digital voice communications to
subscribers in densely populated urban areas. The Cyber Distributed Central
Office (CDCO) is a digital switch with trunk and tandem exchange capabilities
enabling it to connect subscribers served by other exchanges. The Cyber
Distributed Central Office (CDCO) system is designed to interface with both
modern digital telecommunications networks and older analog telephone networks.
The Cyber Distributed Central Office (CDCO) system consists of nodes connected
by standard digital links which permit optimization of the network with respect
to specific size, required traffic capacity and desired applications. We believe
the modular nature of the nodal structure of the Cyber Distributed Central
Office (CDCO) will provide an economical digital switching exchange from as
little as a few hundred lines to as many as 1,000,000 lines of capacity.

        We expect the nodal structure of the system to permit changes to the
function of the system simply by the use of different software with the same
common hardware. The expected flexibility of Cyber Distributed Central Office
(CDCO) will offer a vast array of system configurations to telephone operating
companies and administrations to fulfill a wide range of applications, including
the following:

        o      Local Cyber Distributed Central Office (CDCO) exchange serves
               subscribers in cities and towns.

        o      Cyber Tandem Exchange (CTSX), a regional exchange connecting to
               various local exchanges.

        o      Toll and transit Cyber Distributed Central Officer (CDCO)
               exchanges for long distance national service and international
               gateway.

        o      Integrated local and tandem exchanges.

        o      Integrated local, tandem and toll exchanges.

        o       Integrated local, tandem, toll and transit exchanges.

        o      Cyber Digital Access Cross-connect (CDAC), a network management
               system providing optimal routing and control of heavy traffic
               through software.

        o      Cyber Multi-tenant exchange (CMT) for subscribers in large office
               complexes and buildings where many business tenants can be served
               by a resident exchange.

        The control functions of the Cyber Distributed Central Office (CDCO)
system are totally distributed in autonomous processing sub-systems (nodes).
Node processors are loosely coupled and exchange information through
standardized inter-nodal communication digital links. We believe the distributed
approach will permit switching systems to be located closer to groups of
subscribers or at subscribers' premises which could dramatically reduce the cost
of wiring and cabling and should result in instant installation. Moreover, a
failure in one node should not affect other nodes. In addition, the distributed
approach should eliminate bottlenecks as the system offers multiple routes for
call completion.

Cyber Rural Exchange

        We have developed and marketed the Cyber Rural Exchange (CRX), which is
a specialized version of Cyber Distributed Central Office (CDCO). Cyber Rural
Exchange (CRX) is designed to handle the traffic requirements of widely
dispersed single-line users, such as users in a small town or rural area.


                                       11
<PAGE>

Cyber Switch Exchange

        We have developed and marketed the Cyber Switch Exchange (CSX), which is
a digital switching system designed for use as a private branch exchange (PBX)
for offices, universities, hospitals and other large organizations.

Customer, Sales and Marketing

Internet Services

        We offer our internet services to large, medium and small businesses in
alliance with AT&T.

Indirect Sales Channels

        We market our internet services to businesses through indirect sales
force consisting of independent sales agents and in conjunction with AT&T. Our
target account profile is an information-intensive enterprise with multiple
locations and large numbers of distributed workers. We will appoint independent
sales agents in Boston and New York City.

        Our relationship with large business customers can involve multiple
phases. A customer typically initially agrees to a first phase commitment for a
specific bandwidth at a fixed price and a one year contract term. Thereafter, a
customer may request a Virtual Private Network (VPN) set-up or an increase in
bandwidth. We anticipate that upon receipt of an order a customer can be served
within eight weeks. It takes AT&T about six weeks after receipt of an order to
bring its internet backbone to the customer's premises. We believe this time
interval is quite short compared to industry standards and will help us to
market and build our network.

        We supplement our sales effort to our sales agents by offering marketing
support services including training, Property Manager Agreements, customer
proposal development, sales lead generation, product support materials, web
promotion, joint participation in regional customer events and press
announcements. We also offer additional sales incentives to those sales agents
who recommend other sales agents. Additionally, we support our customers by
ordering connections, installing equipment on the customer's premises,
monitoring the network, troubleshooting, making repairs and invoicing the
customer on a single bill.

Customer Care Internet Services

        We offer our business customers a single point of contact for
implementation, maintenance and billing. Our Network Operations Center provides
both proactive and customer initiated maintenance services 24 hours a day, seven
days a week. We also provide a broad range of customer service and Network
Operations Center services through our Web interface.

        o       Implementation. Our customer service technicians and sales
                engineers develop an implementation plan for each customer. The
                plan includes qualifying the customer for our service offerings,
                placing orders for the connection facilities and coordinating
                the delivery of the connection and installation.

        o       Maintenance. Our Network Operations Center in Hauppauge, NY
                provides network surveillance through standard Simple Network
                Management Protocol tools for all equipment in our network.
                Because we have complete end-to-end visibility of our network,
                we are able to proactively detect and correct the majority of
                our customer's maintenance problems remotely. Our goal is to
                proactively detect and repair 90% of our customer's maintenance
                problems before our customer is aware of a problem. Customer
                initiated maintenance and repair requests are managed and
                resolved primarily through the Customer Service Center. We
                utilize a trouble ticket management system to communicate
                customer maintenance problems from the Customer Service Center
                to the Network Operations Center engineers and the field
                services engineers. Because our Network Operations Center is
                fully staffed 24 hours a day, seven days a week, we believe our
                ability to provide superior proactive maintenance is
                significantly enhanced.


                                       12
<PAGE>

        o       Billing. Customer bills are currently issued on a monthly basis
                through an internal billing system. Customer billing inquiries
                are managed by our Customer Service Center. In the future, we
                intend also to support billing inquiries through our web
                interface.

        o       Customer Support Systems. We designed our system architecture to
                facilitate rapid service responsiveness and reduce the cost of
                customer support. We use an integrated set of standard,
                off-the-shelf systems to support our business processes. We have
                designed all business functions, including sales, ordering,
                provisioning, maintenance and repair, billing, accounting and
                decision support to use a single database, ensuring that every
                function has accurate, up-to-date information.

Digital Voice Switches

Customers

        To date, we have sold approximately 76 digital voice switches,
substantially all of which have been Cyber Switch Exchange (CSX). We have
previously sold our CSX systems to the defense agencies of the U.S. federal
government and to Tianchi Telecommunications Company ("TTC") in China. Due to
massive cut backs in defense program procurement and constrained financial
resources of TTC, we do not anticipate any further sales of our CSX to these
customers.

        In December 1995, we signed a manufacturing licensing contract with the
National Telecommunications Company (NTC) of Egypt, pursuant to which NTC will
assemble the systems in Egypt with electronic circuit cards provided by us. In
addition, NTC will market, install, maintain and service our digital voice
switches in Egypt, Kenya, Tanzania, Uganda, Sudan, Yemen, United Arab Emirates
and Qatar. Sales of our products to NTC have not yet commenced. As at present,
NTC has trained its personnel to fulfill its obligations under the contract. NTC
has been delayed in its performance for a variety of reasons, such as a lack of
a suitable assembly facility in Egypt at this time. There can be no assurance as
to when or if such an assembly facility will be available to NTC.

        Public and private telecom companies in several other developing
countries have taken an interest in our products. It is not possible to estimate
the sales revenues, which may eventually be generated from the international
market and the timing thereof since substantially long lead times are involved
even after a contract has been executed.

Markets

        In the year ended March 31, 1998, we assembled a direct sales and
marketing team to explore domestic opportunities for digital voice switches. In
the year ended March 31, 1999, we dismantled this team as our target markets
failed to materialize. We had anticipated that our target markets would be open
for competition pursuant to the Telecommunications Act of 1996. These target
markets still remain closed with significant regulatory restrictions imposed by
Incumbent Local Exchange Carriers (ILEC). Potential target markets in the United
States for our digital voice switches may be categorized as follows:

        (i) Existing national inter-exchange carriers such a AT&T, MCI and
Sprint which will be building local networks both to compete with the incumbent
local exchange carriers and also to protect their long distance market share.

        (ii) Newly formed telecommunications companies, such as ICG
Communications and GST Telecom, which are building local networks and offering
both local and long distance service.

        (iii) Start-up Competitive Local Exchange Carriers (CLEC) which we
anticipate may build local telephone networks and offer long distance service to
their customers by resale of other companies' long distance network offerings.

        (iv) Large companies such as electric utilities with certain
rights-of-way and other capabilities in place


                                       13
<PAGE>

which are studying whether and where to enter the telephone business.

        (v) Independent telephone companies that must upgrade their networks
rapidly or risk losing their franchise to aggressive competition.

Competition

Internet Services

        We expect to face competition from many competitors with significantly
greater financial resources and established brand names and reputations. We
expect to benefit from co-branding our products and services with AT&T. We
expect the level of competition to intensify in the future. We expect
significant competition from:

        o       Traditional Inter-exchange Carriers. We believe that many of the
                leading traditional inter-exchange carriers, such as MCI
                WorldCom and Sprint, are expanding their capabilities to support
                high-speed end-to-end networking services. Increasingly, their
                bundled services include high-speed local access combined with
                metropolitan and wide area networks, and a full range of
                internet services and applications. We expect them to offer
                combined data, voice and video services over these networks.

                These carriers have deployed large-scale networks, have large
                numbers of existing business and residential customers and enjoy
                strong brand recognition, and as a result represent significant
                competition. For instance, they have extensive fiber networks in
                many metropolitan areas that primarily provide high-speed data
                and voice communications to large companies. They could deploy
                Internet Protocol (IP) Frame Relay or Private Line based
                services.

        o       Newer Inter-exchange Carriers. The newer inter-exchange
                carriers, such as Williams, Qwest Communications International
                and Level 3 Communications, are building and managing high
                bandwidth, packet-based networks nationwide. They are also
                building direct sales forces and partnering with Internet
                Service Providers to offer services directly to business
                customers. They could extend their existing networks to include
                fiber metropolitan area networks and high-speed, off-net
                services using IP Frame Relay or Private Line, either alone, or
                in partnership with others.

        o       Cable Modem Service Providers. Cable modem service providers,
                like AT&T and @Home Networks and its cable partners, are
                offering or preparing to offer high-speed internet access over
                hybrid fiber coaxial cable networks to consumers. @Home Networks
                has positioned itself to do the same for businesses. Where
                deployed, these networks provide local access services similar
                to our services. They typically offer these services at lower
                prices than our services, in part by sharing the bandwidth
                available on their cable networks among multiple end users.
                Neither can they offer Internet Protocol (IP) Frame Relay or
                Private Line based technology nor can they provide the requisite
                Firewalls. Their network is more suitable for residential users,
                as it resembles a party line.

        o       Wireless and Satellite Data Service Providers. Several new
                companies are emerging as wireless and satellite-based data
                service providers, over a variety of frequency allocations.
                These include:

                o      WinStar Communications, Inc.
                o      Teligent, Inc.
                o      Teledesic LLC.
                o      Hughes Space Communications, and
                o      Iridium World Communications Ltd.

                These companies use a variety of new and emerging technologies,
                such as terrestrial wireless services, point-to-point and
                point-to-multi-point fixed wireless services, satellite-based
                networking and high-speed wireless digital communications.


                                       14
<PAGE>

        o       Internet Service Providers. Internet Service Providers provide
                internet access to residential and business customers. These
                companies generally provide such internet access over the
                incumbent carriers' circuit switched networks at integrated
                services digital network (ISDN) speeds or below. Some Internet
                Service Providers have significant and even nationwide marketing
                presence, such as Concentric Network Corporation, Mindspring
                Enterprises, Inc., PSINet Inc. and Verio.

        o       Competitive Carriers. Certain competitive carriers, including
                Covad Communications Group, Inc., NorthPoint Communications,
                Inc., MGC Communications, and Rythms NetConnections, Inc., have
                begun offering DSL-based data services piggybacking on
                "narrowband" ILEC telephone lines; but with not much success as
                DSL is extremely hard to implement and is totally unreliable.

Digital Voice Switches

        The telecommunications and related networking industries are
characterized by intense competition. We compete with numerous well-established
foreign and domestic companies, many of which possess substantially greater
financial, marketing, personnel and other resources than us. These companies
have established reputations for success in the development, sale and service of
high-speed digital switching and networking and related products.

        Products that perform many of the functions similar to our digital voice
switches are readily available from several competitors, including Lucent
Technologies, Nortel, Ericsson, DSC, Alcatel, Siemens, Fujitsu and NEC. These
competitors also have the research and development capabilities and financial
and technical resources necessary to enable them to respond to technical
advances as well as evolving industry requirements and standards.

        We believe that our products have the following three strengths in the
United States marketplace: (a) the installed cost of our digital voice switches
is less than those of the competition; (b) our switches can be engineered,
installed and put into service much more quickly; and (c) our distributed
architecture fits with the marketing strategy of the competitive local exchange
carriers who will target specific customers rather than entire geographic areas;
our switch architecture will allow these carriers to tailor their local networks
to their marketplace successes without stranding capacity and capital.

Proprietary Technology

        The Company does not hold any patents or copyrights and has no patent or
copyright applications pending. The Company regards its software technology and
certain components of its system hardware as proprietary and relies for
protection upon copyright and trade secret laws and confidentiality agreements
with its employees. In addition, the Company requires customers to enter into a
license and confidentiality agreement permitting the customer the exclusive use
of the system operating software, which is furnished to the customer in object
or binary form.

        The Company believes that these protections are sufficient to protect
the Company's rights to its systems and software. Despite these protections,
however, it is possible that competitors, employees, licensees or others may
copy one or more of the Company's products or its technology or obtain
information that the Company regards as proprietary. In addition, there can be
no assurance that others will not independently develop products or technologies
similar to those of the Company, that confidentiality agreements will not be
breached or that the Company will have adequate resources to protect its
proprietary technology. The Company believes that because of the rapid pace of
technological change in the digital switching and networking industries,
protection for its systems is less significant than the knowledge, ability and
experience of the Company's employees, the frequency of product enhancements and
the level of service and support provided to customers by the Company.

Government Regulation and Industry Standards

        The telecommunications and related networking industries in which the
Company competes are highly regulated in both the United States and
internationally. Imposition of public carrier tariffs and taxation of
telecommunications services could materially adversely affect demand for the
Company's products. Furthermore,


                                       15
<PAGE>

regulation or deregulation of public carrier services by the United States and
other governments, including permitting local carriers to manufacture switching
equipment, may determine the extent to which the Company will be able to
penetrate markets in the United States and internationally and may result in
significantly increased competition, which would significantly impact the
Company's future operating results. In addition, the Company's products must
comply with equipment, interface and installation standards promulgated by
communications regulatory authorities, including the Federal Communications
Commission.

        The Company is required to obtain a license from the Department of
Commerce prior to exporting to certain countries. A denial of an export license
to the Company, however, would probably be based upon a policy which would also
affect other U.S. companies exporting similar products.

        Industry standards organizations, such as International Telephone Union
("ITU") and Bellcore in the U.S., have created committees to address the matter
of standards within the telecommunications industry. The purpose of such
standards is to facilitate the inter-operability of products from various
vendors and, through standardization, create a competitive environment, which is
anticipated to result in lower product costs. During the past few years, many
new standards have been adopted and more are pending. The International
Standards Organization (ISO), one of the primary standard setting bodies in the
communications industry, has developed a framework for network standards called
the Open System Interconnection Reference Model (the "OSI Model"). The OSI Model
represents a standard approach by which information can be communicated
throughout a network, so that a variety of independently developed computer and
communications devices can inter-operate. The design of the Company's products
incorporates the OSI Model and accommodates most existing and pending ISDN
standards, including applicable BELLCORE and ITU specifications. In most foreign
countries, government departments or ministries set industry standards.

        Changes in government policies, regulations and interface and
installation standards or industry standards imposed by domestic and foreign
carriers in the future could require the Company to alter methods of operation,
resulting in additional costs, which could have a material adverse effect on the
Company.

Production and Supply

        The Company engages in manufacturing, software programming, assembly,
system testing and quality assurance operations at its facility in Hauppauge,
New York. The Company's operations involve the creation of the required system
software, the inspection of system components manufactured by third parties,
programming of microchips and microprocessors, assembly of the components of the
system hardware and quality control and testing to certify final performance
specification. The Company believes that it has sufficient excess production
capacity to satisfy any increased demand for the Company's systems in the
foreseeable future.

        The Company is dependent on third-party manufacturers for the production
of all of the component parts incorporated into the Company's systems. The
Company purchases its component parts from numerous third-party manufacturers
and believes that numerous alternative sources of supply for most component
parts are readily available, except for a few semiconductor components purchased
from single source vendors, such as Pentium processors manufactured by Intel
Corporation and ISDN chips manufactured by Motorola, Inc. If such semiconductor
components are discontinued by their respective manufacturers, the Company would
be required to redesign some of its products by using other vendors components,
which could cause delays in product delivery. The Company currently purchases
all of its requirements for specially designed plastic parts for the iST, the
Company's ISDN telephone, from a single source supplier. The Company believes
that alternative sources of supply for such components are available. The
Company is substantially dependent on the ability of its suppliers, among other
things, to satisfy performance and quality specifications and dedicate
sufficient production capacity for plastic parts within scheduled delivery
times. The Company does not maintain contracts with any of its suppliers and
purchases system components pursuant to purchase orders placed from time to time
in the ordinary course of business. Failure or delay by the Company's suppliers
in supplying necessary components to the Company could adversely affect the
Company's ability to deliver products on a timely and competitive basis.

        The Company offers a one-year warranty for sales in the United States
covering operating defects during which period the Company will replace parts
and make repairs to the system components at its expense.


                                       16
<PAGE>

Research and Development

        Since its inception, the Company has devoted substantial resources to
the design and development of the Company's systems. For the fiscal years ended
March 31, 2000 and 1999, the Company expended approximately $633,358 and
$650,072, respectively, on research and development. During the year ended March
31, 2000, almost all research and development expenditures were attributable to
the inclusion of Private Line packet switched technology, Web server functions
and Internet Protocol (IP) encryption security (IPSec) to Cyber Business
Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN) products for
the high speed internet access service and virtual private network (VPN)
business. Although the Company's systems are fully developed such as Cyber
Business Internet Gateway (CBIG), Cyber Internet Access Network (CIAN) and Cyber
Distributed Central Office (CDCO), the Company is continually seeking to refine
and enhance its systems, including enhancements to comply with emerging
regulatory or industry standards or the requirements of a particular customer or
country.

        The markets for the Company's products are characterized by rapidly
changing technology and evolving industry standards, often resulting in rapid
product obsolescence. Accordingly, the Company's ability to compete depends in
large part on its ability to introduce its products to the marketplace in a
timely manner, to enhance and improve continually such products and maintain
development capabilities to adapt to technological changes and advances in the
communications industry, including assuring continuing compatibility with
evolving industry standards such as IP Frame Relay or Private Line, SS7 and C7
signaling which the Company has developed. There can be no assurance that the
Company will be able to compete successfully, that competitors will not develop
technologies or products that render the Company's systems obsolete or less
marketable, or that the Company will be able to keep pace with the technological
demands of the marketplace or successfully enhance and adapt its products to
satisfy industry standards.

Service and Support

        The Company believes that service, support and training are important
factors in promoting sales and customer satisfaction. Service and support
include system planning, site preparation, installation, customer training and
maintenance.

        Since, the Company's system hardware consists of a cabinet with shelves
having printed circuit boards inserted into physical slots, a substantial part
of repair and maintenance can be accomplished by simply substituting the
component in need of repair. In addition, the Company's systems are designed to
be accessible by computer from the Company's headquarters, allowing the
Company's service personnel to remotely call up, diagnose and otherwise support
systems, thereby reducing response time and cost. In addition, the Company
intends to enter into agreements with third party service providers to provide
customer support on a local basis in foreign markets, as needed.

Employees

        As of the date hereof, the Company had twenty full time employees, of
which five were engaged in marketing and sales activities, two were engaged in
technical support, five were engaged in research and development, four were
engaged in production testing and operations and four were in administration.
None of the Company's employees is represented by a labor union. The Company
considers its employee relations satisfactory.

                                GLOSSARY OF TERMS

Analog                              Analog transmission employs continuously
                                    variable signal.

Asynchronous                        Transfer Mode High bandwidth, low-delay,
                                    connection-oriented, packet switching
                                    technique requiring 53-byte, fixed-sized
                                    cells.

Backbone                            An element of the network infrastructure
                                    that provides high-speed, high capacity
                                    connections among the network's physical
                                    points of presence. The backbone is used to
                                    transport end user traffic across the


                                       17
<PAGE>

                                    metropolitan areas and across the United
                                    States.

Bandwidth                           Refers to the maximum amount of data that
                                    can be transferred through a communication
                                    channel in a given time. It is usually
                                    measured in bits per second for digital
                                    communications.

Broadband                           Broadband systems transmit data at high
                                    speed using high bandwidth capacity
                                    communication channel.

Central                             Office Incumbent carrier facility where
                                    subscriber lines are connected to ILEC
                                    switching equipment.

Collocation                         A location where a competitive carrier
                                    network interconnects with the network of an
                                    incumbent carrier's central office.

Competitive Local Exchange
Carrier (CLEC)                      Category of telephone service provider that
                                    offers local exchange services in
                                    competition with those of the incumbent
                                    carrier.

Copper                              Line or Loop A pair of traditional copper
                                    telephone lines using electric current to
                                    carry signals.

Digital                             Digital transmission and switching
                                    technologies employ a sequence of binary
                                    digits to convey information.

DSL                                 Digital Subscriber Line. An analog
                                    transmission technology where binary digits
                                    are sent over analog transmission lines or
                                    local copper loop.

E-Commerce                          Electronic Commerce. An internet service
                                    that supports electronic transactions
                                    between customers and vendors to purchase
                                    goods and services.

Firewall                            A computer device that separates a local
                                    area network from the internet and prevents
                                    unauthorized access to the local area
                                    network through the use of electronic
                                    security mechanisms.

Frame                               Relay A form of packet switching with
                                    variable length frames that may be used with
                                    a variety of communication protocols.

Incumbent Local Exchange
Carrier (ILEC)                      A company providing local exchange services.

Interconnection                     Agreement A contract between an incumbent
                                    carrier and a competitive carrier for the
                                    connection of a competitive carrier network
                                    to the public switched telephone network.

Internet                            An array of interconnected networks using a
                                    common set of protocols defining the
                                    information coding and processing
                                    requirements that can communicate across
                                    hardware platforms and over many links.

Internet                            Protocol A standard network protocol that
                                    allows computers with different
                                    architectures and operating system software
                                    to communicate with other computers on the
                                    internet. Advanced packet systems employ the
                                    Internet Protocol (IP) standard.


                                       18
<PAGE>

ISDN                                Integrated Services Digital Network. A
                                    transmission method that provides
                                    circuit-switched access to the public
                                    network at speeds of 64 or 128 Kbps for
                                    voice or data transmission.

Internet Service Provider           A company that provides direct access to the
                                    internet.

Inter-exchange Carrier              Usually referred to as a long-distance
                                    carrier.

Kbps                                Kilobits per second. 1,000 bits per second.

Mbps                                Megabits per second. 1,000,000 bits per
                                    second.

Modem                               An abbreviation of Modulator-Demodulator. An
                                    electronic signal-conversion device used to
                                    convert digital signals from a computer to
                                    analog form for transmission over the
                                    telephone network.

Packets                             Information represented as bytes grouped
                                    together through a communication node with a
                                    common destination address and other
                                    attribute information.

Router                              A device that accepts the Internet Protocol
                                    from a local area network and
                                    switches/routes Internet Protocol packets
                                    across a network backbone.

T-1                                 This is a Bell System term for a digital
                                    transmission link with a capacity of 1.544
                                    Mbps.

ITEM 2 - Description of Property

        The Company's executive offices and assembly operations are located in
approximately 8,200 square feet of leased space in Hauppauge, New York. The
lease provides for annual rent of $55,350 and expires on March 31, 2004. The
Company believes that its facility is adequate for its current needs. The
Company believes that additional physical capacity at its current facility will
accommodate expansion, if required.

        The Company's New England sales and service offices are located in
approximately 800 square feet of leased space in Woburn, Massachusetts. The
lease provides for annual rent of $13,300 and expires on November 30, 2004.

        The Company's New York sales and service offices are located in
approximately 400 square feet of leased space in New York City, New York. The
lease provides for annual rent of $16,200 and expires on June 30, 2001.

ITEM 3 - Legal Proceedings

        On or about August 5, 1996, Brockington Securities, Inc. ("Brockington")
commenced an action, in the Supreme Court of the State of New York, County of
Suffolk, against the Company for wrongful termination of a purported agreement
for investment banking services. Brockington is seeking damages in the amount of
(i) $775,000 based upon the alleged net aggregate value of the shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), upon
which Brockington alleges it had a purchase option and (ii) $1 million for the
alleged wrongful termination.

        The Company has asserted counterclaims based upon Brockington's wrongful
conduct and is seeking damages in the amount of $428,000 or, in the alternative,
recission of the alleged contract and the return of the 100,000 shares
previously issued Brockington.

         Although,  as of the date hereof, no legal action has commenced against
the  Company  by  its  previous  counsel,  Mr.  Rajan  K.  Pillai  and  Uniworld
Communications  Co.,  ("UCC"),  a New York  company,  in which Mr. Pillai is the
principal,  Mr.  Pillai has  threatened  the Company  for a possible  litigation
arising due to the  contention  that the Company  refused to remove  restrictive
legend on 500,000 shares of common stock of the Company held by UCC. The Company
had issued 500,000 restricted shares to UCC pursuant to a stock option agreement
for the purposes of UCC to deliver "Cyber India Project". On March 23, 2000, Mr.
Pillai notified the Company  officially,  for the first time, that he or UCC did
not intend to deliver "Cyber India  Project".  Mr. Pillai was also the Company's
Managing  Director (Asia) from June 1997 until his resignation on March 9, 2000.
The Company believes that Mr. Pillai's or UCC's threatened  claims,  if any, are
without merit and the Company will vigorously  defend its position,  if and when
required.


                                       19
<PAGE>

        The Company believes that Brockington's claims are without merit and
intends to vigorously defend its position.

ITEM 4 - Submission of Matters to a Vote of Security Holders

        On March 6, 2000, the Company held its annual meeting of stockholders
(the "Meeting"). At the Meeting, the stockholders (i) approved the issuance of
the securities upon conversion of Series D1 Convertible Preferred Stock and
payment of dividends on the Company's Series D1 Convertible Preferred Stock by
the favorable vote of 98.9% of the shares voted on the proposal, (ii) approved
an amendment to the Company's 1997 Stock Incentive Plan to increase the number
of shares reserved for issuance thereunder by 2,000,000 from 850,999 shares to
2,850,999 of the Company's Common Stock, par value $.01 per share, by the
favorable vote of 97.8% of the shares voted on the proposal, (iii) elected all
five nominees as directors, each to serve until the next annual meeting of
shareholders and until their respective successors have been duly elected and
qualified, with at least 15,614,314 shares were cast in favor of each nominee
representing 99.9% of the total shares voted equal to 15,628,877, (iv) ratified
and approved the appointment of Albrecht,Viggiano, Zureck & Co., as the
Company's independent public auditors for the fiscal years ending March 31, 1999
and 2000 by the favorable vote of 99.9% of the shares voted, and (v) approved an
amendment to the Company's Certificate of Incorporation to increase the number
of shares of the Company's Common Stock, par value $.01per share, which the
Company is authorized to issue from 30,000,000 to 60,000,000, by the favorable
vote of 99.0% of the shares voted.

                                     PART II

ITEM 5 - Market for Common Equity and Related Stockholder Matters

        The Company's Common Stock has been traded in the over-the-counter
market and quoted on the electronic bulletin board (the "Bulletin Board") under
the symbol "CYBD" since its initial public offering in 1984. The following table
sets forth, for each of the fiscal periods indicated, the high and low trade
prices for the Common Stock, as reported on the Bulletin Board. These per share
quotations represent inter-dealer prices in the over-the-counter market, do not
include retail markups, markdowns or commissions and may not represent actual
transactions.

                                                      Price Per Share
                                                      ---------------
                                                      High           Low

Fiscal Year Ended March 31, 2000
        First Quarter                                 $5.53          $2.72
        Second Quarter                                 5.06           3.06
        Third Quarter                                  5.87           3.25
        Fourth Quarter                                 5.62           2.50

Fiscal Year Ended March 31, 1999
        First Quarter                                 $1.81          $1.19
        Second Quarter                                 1.56           0.50
        Third Quarter                                  0.87           0.22
        Fourth Quarter                                 3.12           0.65

        On March 31, 2000, the closing trade price of the Common Stock as
reported on the Bulletin Board was $2.50 per share. As of such date, there were
approximately 500 stockholders of record of the Company's Common Stock.

        To date, the Company has not paid any dividends on its Common Stock and
does not expect to declare or pay any dividends in the foreseeable future. The
Company intends to retain all earnings for use in the Company's business
operations.


                                       20
<PAGE>

ITEM 6 - Management's Discussion and Analysis or Plan of Operation

Forward Looking Statements

        When used in this report, press releases and elsewhere by the management
of the Company from time to time, the words "believes", "anticipates", and
"expects" and similar expressions are intended to identify forward-looking
statements that involve risks and uncertainties. Additionally, certain
statements contained in this discussion may be deemed forward-looking statements
that involve a number of risks and uncertainties. Among the factors that could
cause actual results to differ materially or adversely are the following: the
ability of the Company to meet its working capital and liquidity needs, the
status of relations between the Company, its primary customers and distributors,
the availability of long-term credit, unanticipated changes in the U.S. and
international economies, business conditions and growth in the
telecommunications industry and the level of growth in internet high speed
access sales generally, the timely development and acceptance of new products,
the impact of competitive products and pricing, changes in the cost of component
materials, changes in product mix, the outcome of litigation in which the
Company is involved, along with product delays and other risks detailed from
time to time in the Company's SEC reports, including but not limited to this
Annual Report on Form 10-KSB for the year ended March 31, 2000. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

Overview

        During the last half of year ended March 31, 1999 ("Fiscal 1999"), we
made a strategic shift to enter the fast growing, lucrative high-speed internet
access market. We rapidly developed our Cyber Business Internet Gateway (CBIG)
and Cyber Internet Access Network (CIAN) router. During the first quarter of
year ended March 31, 2000 ("Fiscal 2000), we forged an alliance with AT&T
Corporation to become a provider of high-speed internet access and to create
Virtual Private Networks (VPN) for businesses using our Internet Protocol (IP)
Frame Relay based "broadband" technology. We have recently developed our
Internet Protocol (IP) Frame Relay infrastructure equipment to piggyback on
AT&T's rapid deployment of Internet Protocol (IP) Frame Relay based "broadband"
internet backbone.

        We made a strategic shift to the high speed internet access and Virtual
Private Network (VPN) service provision business in November 1998. In April
1999, we proceeded with this shift in business by forging an alliance with AT&T.
In conjunction with AT&T, we began marketing our high speed broadband internet
service for businesses as part of a package of services that includes AT&T's
internet backbone, which is provided through AT&T's Managed Internet Service.
Under the terms of our agreement with AT&T, we will resell AT&T's Managed
Internet Service bundled with our own 1.5 Mbps Internet Protocol (IP) Frame
Relay based internet gateway i.e. Cyber Business Internet Gateway (CBIG) and
Cyber Internet Access Network (CIAN). According to our agreement, AT&T will
bring the internet backbone to commercial buildings that we mutually serve.
Cyber Digital will build, operate and own the internet facilities in such
buildings using its proprietary Cyber Business Internet Gateway (CBIG) and Cyber
Internet Access Network (CIAN). Our agreement with AT&T provides that AT&T will
make its internet backbone available to us anywhere in the United States
including the Commonwealth of Puerto Rico and the U.S. Virgin Islands. We
believe that Cyber Digital, as a manufacturer and internet service provider, is
the first company to have signed such an agreement with AT&T.

        We intend to implement a scalable nationwide network over the next ten
years. We began offering commercial services in Boston area in the spring of
year 2000. We expect to begin services in New York City in the summer of year
2000. We intend to focus on New York and Boston markets only for the next two
fiscal years. We intend to continue our network rollout into 31 additional
markets beginning in the year 2002. Upon completion of this network expansion
contemplated by year 2010, we anticipate providing services in 33 of the
nation's largest metropolitan areas, which we believe, contain 60% of the
nation's local area networks.

        During fiscal 2000, our primary activities have consisted of:

o       In April 1999 we forged an alliance with AT&T to enter the high speed
        internet access and Virtual Private


                                       21
<PAGE>

        Network markets.

o       We rapidly developed our Cyber Business Internet Gateway (CBIG) and
        Cyber Internet Access Network (CIAN) products for the internet business.
        We realigned our Company to become a leader in high speed internet
        access business. We are working with AT&T, building our internet sales
        and support people and appointing independent sales agents. We have
        appointed independent wiring and cable contractors in Boston area and
        built a management information system at Hauppauge, NY to support our
        customer care and other administrative functions.

o       We developed and enhanced our digital "broadband" products, CIAN and
        CBIG, to expand our bandwidth offerings to include (i) Platinum Business
        Class Carrier Grade Service for mission critical applications, (ii) Gold
        Business Class Carrier Grade Service for designated connectivity, and
        (iii) Copper Business Class Carrier Grade Service for basic
        connectivity. International Data Corporation (IDC) estimates that the
        investment in U.S. market for network service provision by digital
        "broadband" means will grow from $17 billion in 1999 to $32 billion by
        2003. Most of the investment in 1999 has been in the implementation of
        fiber optic Internet Protocol (IP) backbone network connecting major
        cities, such as AT&T's IP backbone. The next growth in investment is
        expected towards the implementation of digital "broadband" local
        transport, such as Cyber Digital's offerings, to connect corporate local
        area networks and PCs to IP backbone.

o       We developed and enhanced our products to expand our Internet Protocol
        (IP) service offerings to include (i) B2B IP Private Line packet
        switched services in addition to Frame Relay services, and (ii) B2B IP
        Frame Relay to Private Line packet switched services and vice versa.
        International Data Corporation (IDC) forecasts packet switched services
        to hit $12.8 billion by 2003 and expects Frame Relay and Private Line
        services to gain more than 83% of the market share by 2003.

o       We developed and enhanced our products to expand our firewall service
        offerings to include Internet Protocol encryption security (IPSec) in
        addition to previously developed IP tunneling, IP masquerading and IP
        packet filtering based firewall products for virtual private network
        (VPN) applications. According to International Data Corporation (IDC)
        U.S. IP VPN Service Market will grow from $0.2 billion in 1998 to $2.0
        billion in 2002. In addition, IDC security survey indicates that 65% of
        users choose VPNs directly from product vendors, such as Cyber Digital.

o       In the fourth quarter of fiscal year 2000, we completed development and
        delivery of three new rackmount Linux servers based on Red Hat Linux OS.
        (i) Our Cyber Web Server (CWEB) is a customer premise oriented Web
        Server. (ii) Our Cyber News Server (CNEWS) is an Internet Service
        Provider premise oriented News Server. (iii) Our Cyber Name Server
        (CNAME) is an Internet Service Provider premise oriented Name Server.
        Red Hat Linux OS is Red Hat, Inc.'s Linux Operating System software.
        International Data Corporation (IDC) estimates that outsourcing of
        storage services by companies will grow from $11 million in 1999 to $5.5
        billion in 2003.

o       According to International Data Corporation (IDC), there are six
        emerging new technology drivers, namely software application service
        providers, storage service providers, IT and web-site operations
        providers, network service providers, information appliances and B2B
        e-services. We are engaged in three out of six of these emerging new
        technology driven markets. These accomplishments by our company are
        significant, especially when viewed from the standpoint of rapid
        development of our proven products and services. We are early movers and
        we intend to take advantage of this position.

o       Our business model was proven in last quarter of fiscal year 2000 when
        we rolled out our digital broadband services in Boston area and began
        generating recurring monthly revenues. We established our New England
        sales and service office in Woburn, MA. We expect to roll out our
        services in New York City in the summer of year 2000. We have just
        recently established our sales and service office in New York City.


                                       22
<PAGE>

Results of Operations

Year Ended March 31, 2000, Compared to Year Ended March 31, 1999

Net sales

        The Company's net sales for the year ended March 31, 2000 ("Fiscal
2000"), were $6,497 representing a decrease of $273,429 or approximately 97%
from $279,926 for the year ended March 31, 1999 ("Fiscal 1999"). Decreases in
sales were due to our strategic shift to enter digital "broadband" business from
technical consulting services. Net sales for Fiscal 2000 and Fiscal 1999 were
insignificant, primarily attributable to lack of digital voice switch sales to
CLECs in Fiscal 1999 and management's focus on strategic shift towards
high-speed internet access business and completing the development of Cyber
Business Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN)
products in Fiscal 2000.

Gross margin

        The Company includes in its cost of goods sold the materials and labor
used, subcontractor costs and overhead incurred in the manufacture of its
systems. The Company's average gross margins decreased from approximately 52% to
approximately 44% of net sales from Fiscal 1999 to Fiscal 2000. Decrease in
gross margins was primarily attributable to insignificant volume of Internet
services rendered to customers, which were generated during the last 45 days of
the Fiscal 2000.

Selling, general and administrative

        Selling, general and administrative expenses decreased from $1,682,368
in Fiscal 1999 to $1,379,924 in Fiscal 2000, representing a decrease of
$302,444. The absolute dollar selling, general and administrative expenses in
Fiscal 1999 and Fiscal 2000 were principally the result of increased selling
expenses incurred with respect to introductory and exploratory marketing efforts
in the U.S. Such efforts have not resulted in any significant sales to date.

Research and development

        Research and development expenses decreased from $650,072 in Fiscal 1999
to $633,358 in Fiscal 2000, representing a decrease of $16,714 or approximately
3%. This research and development expenses was primarily due to the development
of Cyber Business Internet Gateway (CBIG), Cyber Internet Access Network (CIAN),
firewall and server products for the high speed internet access business. All
development costs are expensed in the period incurred.

Income (loss) from operations

        Loss from operations in Fiscal 2000 was $(2,010,457) or $(.11) per share
as compared with $(2,187,413) or $(.13) per share in Fiscal 1999. The Company
incurred these losses in Fiscal 2000 and Fiscal 1999 primarily due to lack of
sales and sustained selling, general and administrative expenses as well as
increases in research and development expenses.

Provision for bad debt

        Bad debt expense amounted to $0 in Fiscal 2000 versus $355,012 in Fiscal
1999. Accounts receivable are presented net of a zero allowance for doubtful
accounts in Fiscal 2000 and Fiscal 1999.

Net income (loss) available to Common Stockholders

        As a result of the foregoing, the net loss in Fiscal 2000 was
$(2,089,756) or $(.11) per share as compared to a net loss of $(2,761,812) or
$(.16) per share in Fiscal 1999.


                                       23
<PAGE>

Liquidity and Capital Resources

        The Company's ability to generate cash adequate to meet its needs
results primarily from sale of preferred and common stock and cash flow from
operations. Total working capital increased by $1,383,088 to $2,017,762 at March
31, 2000 from $634,674 at March 31, 1999, primarily due to increase in cash from
sale of preferred and common stock. The current ratio of current assets to
current liabilities increased to 8.1 to 1 as at March 31, 2000 from 6.1 to 1 as
at March 31, 1999. Current levels of inventory are adequate to meet sales for
the next 6 months. The Company believes that its current sources of liquidity
will be sufficient to meet its needs for the next 12 months. The Company
believes that, if needed, it will be able to obtain additional funds required
for future needs.

        The Company used $29,305 and $92,442 during Fiscal 2000 and Fiscal 1999
respectively, for investing activities. The cash used for investing activities
relates primarily to purchases of equipment in Fiscal 2000 and Fiscal 1999.
During Fiscal 2000 production equipment capacity was expanded to include testing
of Internet products.

        Net cash provided in financing activities was $3,302,160 and $0 for
Fiscal 2000 and Fiscal 1999, respectively.

        On July 11, 1996, the Company concluded a private placement of its
Series A Preferred Stock and accompanying warrants to accredited institutional
investors and received net proceeds of approximately $7.1 million. The Series A
Preferred Stock was issued without registration in reliance on Regulation S
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended. Some of the proceeds from this offering have been used to
retire long-term debt, redeem Series A Preferred Shares prior to conversion and
to fund research and development, marketing and production expenses. All of the
Series A Preferred Stock has been converted or redeemed and there are no such
shares outstanding. However, there are 824,013 warrants outstanding in
connection with the offering of Series A preferred stock at an exercise price of
$6.35 per share for an aggregate amount of $5,232,482.

        On December 30, 1996, the Company concluded a private placement of 2,000
shares of its Series B-1 Preferred Stock to Syndicated Communications Venture
Partners III, L.P. and received net proceeds of $1.7 million. The Series B-1
Preferred Stock was issued without registration in reliance on Section 4(2) of
the Securities Act of 1933, as amended.  On each of December 30, 1997 and
December 30, 1998, the Series B-1 preferred stockholders received a 10% stock
dividend of 200 and 220 shares, respectively, of Series B-1 Preferred Stock in
accordance with the terms of the private placement. On April 14, 1999, all of
the Company's outstanding Series B-1 Preferred Stock was converted into 861,230
shares of the Company's Common Stock at a conversion price of $2.89 per share.

        On July 12, 1999, the Company concluded a private placement of 310
shares of its Series C Preferred Stock, par value $.05 per share, and
accompanying warrants to accredited investors and received net proceeds of
approximately $310,000. In connection with this placement, the Company issued
warrants to accredited investors to purchase an aggregate of 12,710 shares of
the Company's Common Stock, par value $.01 per share, at an exercise price of
$6.00 per share. The Series C Preferred Stock was issued without registration in
reliance on Section 4(2) of the Securities Act of 1933, as amended.

        On October 5, 1999, the Company concluded a private placement of 3,000
shares of its Series D1 Preferred Stock, par value $.05 per share, and
accompanying warrants to an accredited institutional investor and received net
proceeds of approximately $2.7 million. In connection with this placement, the
Company issued warrants to the accredited institutional investor to purchase an
aggregate of 190,678 shares of the Company's Common Stock, par value $.01 per
share, at an exercise price of $5.70 per share for an aggregate amount of
$1,086,865. In connection with this transaction, the Zanett Securities
Corporation, financial advisor to the Company, has been issued a warrant to
purchase 45,000 shares of the Company's Common Stock, par value $.01 per share,
at an exercise price of $5.70 per share. The Series D1 Preferred Stock was
issued without registration in reliance on Section 4(2) of the Securities Act of
1933, as amended. As of the date hereof, all of the Series D1 Preferred Stock
has been converted or redeemed and there are no such shares outstanding.
However, all the accompanying warrants are outstanding.

        Due to the completion of the Series A, Series B, Series C and Series D1
Preferred Stock transactions,


                                       24
<PAGE>

expected exercise of options and warrants and together with expected cash flow
from operations, the Company believes its liquidity will be sufficient to meets
its needs for the next 12 months.

Impact of Inflation

        Inflation has historically not had a material effect on the Company's
operations.

Impact of the Year 2000 ("Y2K") Issue

        The Company conducted a review of its operating and computer systems to
identify the areas, which could be affected by the Y2K issue. The Company
presently believes the Year 2000 problem will not pose significant operational
problems for the Company and the estimated cost of achieving compliance is
minimal and is not expected to have a material adverse effect on the financial
condition, liquidity or results of operations of the Company.

        The Company's internet gateway, digital voice switching and networking
systems which it designs, develops, manufactures, markets and services have been
designed to be Y2K compliant and the Y2K issue is not expected to have a
material effect on the Company's ability to serve its customers.

        As part of the Company's assessment of the Y2K issue, consideration was
given to the possible impact upon the Company from using purchased software,
suppliers and outside service providers. The Company's efforts with regard to
Y2K issues are dependent in part on information received from such suppliers and
vendors upon which the Company has relied. While it is not possible for the
Company to predict all future outcomes and events, the Company is not aware, at
this time, of any Y2K non-compliant situations with regard to any of its
purchased software or its use of suppliers and outside service providers.

ITEM 7 - Financial Statements

        The Financial Statements of the Company are filed as part of this Form
10-KSB.

ITEM 8 - Changes In and Disagreements With Accountants on Accounting and
         Financial Disclosure.

None.

                                    PART III

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

        The directors, executive officers and key employees of the Company are:

Name                    Age               Office
----                    ---               ------

Jawahar C. Chatpar      52      Chairman of the Board, President, and
                                  Chief Executive Officer

Jack P. Dorfman         62      Director

Jatinder V. Wadhwa      65      Director

Terry L. Jones          52      Director

Andrew Van Etten        38      Director

Larry S. Shluger        61      Vice President of Operations and Secretary


                                       25
<PAGE>

Dale A. Johnson         36      Controller and Treasurer

Thomas D. Moylan        35      Vice President of Sales, Internet Technologies

Donald H. Lang          47      Director of Engineering

Ronald Siegal           53      Director of Technical Support and Customer Care

        Jawahar C. Chatpar is a founder of the Company and has served as
Chairman of the Board, Chief Executive Officer and President since March 1991,
as Chairman of the Board, Chief Executive Officer and Secretary from November
1986 until March 1991, and as President and Chief Executive Officer since
inception until November 1986. Mr. Chatpar has also served as a director since
inception. Mr. Chatpar founded the Company in 1983 as a successor to a Canadian
corporation of the same name, which he founded in 1982. From 1980 to 1982, Mr.
Chatpar was employed by Bayly Engineering Limited, a manufacturer of digital
telecommunication systems and a member of A.E.G. Telefunken Group, as a General
Manager of Digital Transmission and Fiber Optics Engineering (research and
development). From 1974 to 1980, Mr. Chatpar served in various engineering,
general management and marketing positions with Northern Telecom. He holds an
B.Tech (honors) degree in Electrical Engineering from the Indian Institute of
Technology, Bombay, India and an M.S. degree in Electrical Engineering from the
University of Waterloo, Canada.

        Jack P. Dorfman joined the Company as a Director in November 1993, and
has served as Secretary from October 1995 until March 2000. Mr. Dorfman has
otherwise been retired since June 1996. Prior thereto, since 1992, Mr. Dorfman
served as consultant and manager for a number of pharmacies. From 1990 to 1992,
he served as a management consultant for Clark Container, a division of Mark IV
Industries, a conglomerate. From 1988 to 1990, he served as Vice President and
Treasurer of US Distribution, a transportation company. Prior to 1988, he owned,
managed and operated an independent community pharmacy for over fifteen years.

        Jatinder Wadhwa has served as a Director of the Company since 1986 and
as Treasurer of the Company from August 1997 until March 2000. He had been the
Secretary of the Company from 1993 to 1995. Since 1994, Mr. Wadhwa has served as
the Chief Executive Officer of Security First Financial Corp., a financial
institution dealing with first and second mortgages on residential and
commercial properties. From 1989 to 1994, Mr. Wadhwa had served as a management
consultant to Gibbons Goodwin van Amerongen, an investment banking firm, Wells
Aluminum Corporation, a manufacturer of aluminum extrusion products and Sealy
Mattress Company. From 1970 to 1990, Mr. Wadhwa had served as Chief Operating
Officer and Vice President of Operations of EZ Por Corporation, a manufacturer
of aluminum products.

        Terry L. Jones has served as a Director of the Company since November
1997. He has been the President of Syndicated Communications, Inc. ("Syncom"), a
communications venture capital investment company, since 1990. He joined Syncom
in 1978 as a Vice President. Mr. Jones serves in various capacities, including
director, president, general partner and vice president for various other
entities affiliated with Syncom. He also serves on the Board of Directors of
Radio One, Inc. Mr. Jones earned his B.S. degree from Trinity College, his M.S.
from George Washington University and his M.B.A. from Harvard Business School.

        Andrew Van Etten joined the Company as a Director in March 2000. He is
currently serving as Senior Director, Strategic Business Development,
Electronics and Information Business Division at Mitsui & Company, (USA) Inc. He
joined Mitsui & Company in 1988. Mitsui & Company is one of the oldest and
largest international trading companies headquartered in Japan. Mr. Etten is
Mitsui's representative as shareholder for PageMart Wireless, Inc. and portfolio
manager for America Online, Inc. and America Online Japan. He also serves on the
Board of Directors of Lana Film Company. Mr. Etten holds an B.S. degree in
Business Administration from Plymouth State College of the University of New
Hampshire.

        Larry S. Shluger has been Vice President of Operations of the Company
from August 1996 and Secretary since March 2000. From 1991 to 1996, Mr. Shluger
was Director of Purchasing and Operations at Cashtek Corporation, a company
which designs, develops and manufactures computerized gaming systems. From 1975
to


                                       26
<PAGE>

1991, he was Director of Purchasing and Operations at Kenilworth Systems
Corporation until its acquisition by Cashtek Corporation. Prior to 1975 he was
employed in various management positions at Ecologic Instruments Corporation, a
company which designs, develops and manufactures test equipment for the
environment and pollution control fields, and Dynamic Instruments Corporation, a
manufacturer of battery chargers.

        Dale A. Johnson has been Controller of the Company from March 1998, and
Treasurer since March 2000. She joined the Company on March 1995 as an
Accountant. From 1984 to 1994, she worked as Accountant for various CPA firms.
She holds a B.B.A. degree in Accounting from Dowling College, NY.

        Thomas D. Moylan joined the Company in August 1999 as Vice President of
Sales, Internet Technologies. From 1997 to 1999, he was senior account executive
at Kivex.com, an Internet service company. From 1991 to 1997, he was President,
owner and operator of Greystone Printing, Inc., a commercial printing business.
He holds a B.B.A. degree in business from the University of Massachusetts.

        Donald H. Lang joined the Company in September 1997 as Director of
Engineering. From 1994 to 1997, he was employed by American Institute of Physics
as Programmer/Analyst. From 1982 to 1993, he was employed by Harris Corporation,
a defense contractor, as a staff engineer. He holds a B.S. degree in Electrical
Engineering from Fairleigh Dickinson University and an M.S. degree in Computer
Engineering from Rutgers University.

        Ronald Siegal has been Director of Technical Support and Customer Care
since August 1996. He joined the Company in 1990 as Contract Sales Manager for
Digital Voice Switches selling to the U.S. government. From 1988 to 1990, he
served as Sales Manager for Computerland. From 1981 to 1988, he was employed as
President of Meridian Communications. From 1968 to 1981, he held various sales
and engineering positions with Executone Corporation. He holds a B.A. degree
from Hofstra University.

        There is no family relationship among the Directors and Officers of the
Company. All our executive officers are appointed annually by and serve at the
discretion of the Board of Directors. All our executive officers and key
employees are at-will employees.

        Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires the Company's directors and executive officers, and
persons who own more than ten (10%) percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
(the "Commission") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Reporting
persons are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.

        To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, all such persons, on a timely basis, filed the
reports required by Section 16(a) of the 1934 Act:

Summary Compensation Table

        The following table sets forth information concerning the compensation
for services in all capacities for the fiscal years ended March 31, 2000, 1999
and 1998 of those persons who were, at March 31, 2000, the chief executive
officer (the "Named Officer"). During such periods, no executive officer of the
Company received compensation in excess of $100,000 other than J.C. Chatpar.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                        Annual Compensation            Long Term Compensation          All
                        -------------------                                            Other
                                                                                       Compen-
                                                       ------------------------------- sation
                                                                              Payouts
                                                       Awards
               ------ ----------- ----------- -------- ---------- ----------- --------
Name and       Year   Salary      Bonus       Other    Restricted Securities  LTIP
Principal             ($)         ($)         Annual   Stock      Underlying  Payouts
Position                                      Compens- Awards     Options/    ($)
                                              ation    ($)        SARs(#)
                                              ($)(1)
-------------- ------ ----------- ----------- -------- ---------- ----------- -------- -------
<S>            <C>    <C>         <C>         <C>      <C>        <C>          <C>      <C>
J.C.           2000   $181,500    None        None     None       1,000,000(4) None     None
Chatpar,       1999   $165,000    None        None     None         120,000(3) None     None
Chairman of    1998   $150,000    None        None     None         140,000(2) None     None
the Board,
President
and Chief
Executive
Officer
-------------- ------ ----------- ----------- -------- ---------- ----------- -------- -------
</TABLE>

                                       27
<PAGE>

(1) The Company has concluded that the aggregate amount of perquisites and other
personal benefits paid to each of the Named Officers named in the table did not
exceed the lesser of 10% of such officer's total annual salary and bonus for the
2000, 1999 and 1998 fiscal years or $50,000, thus, such amounts are not included
in the table.

(2) Mr. Chatpar was granted 110,000 options each to purchase one share of Common
Stock exercisable at $2.56 and 30,000 options each to purchase one share of
Common Stock exercisable at $2.43 in Fiscal 1998.

(3) Mr. Chatpar was granted 120,000 options each to purchase one share of Common
Stock exercisable at $0.75 in Fiscal 1999.

(4) Mr. Chatpar was granted 1,000,000 options each to purchase one share of
Common Stock exercisable at $2.72 in Fiscal 2000.

Option Grants In Last Fiscal Year

        The following table sets forth information concerning stock option
grants made during Fiscal 2000 to the Named Officers. The Company has not
granted any stock appreciation rights.

                                    Individual Grants
                                    -----------------
                Number of           % of Total Options   Exercise   Expiration
                Securities          Granted              Price      Date
                Underlying Options  To Employees in      ($/Share)
                Granted             Fiscal Year 2000
Name            (#)                 (1)                  (2)        (3)
----            ---                 ---                  ---        ---

J.C. Chatpar    1,000,000             98%                $2.72      3/31/2009

-----------------
(1) During Fiscal 2000, options to purchase an aggregate of 1,000,000 shares of
Common Stock were granted to Mr. Chatpar and options to purchase an aggregate of
20,000 shares of Common Stock were granted to two other employees.

(2) The exercise price of the options granted was equal to the fair market value
of the underlying stock on the date of grant.

(3) Options are immediately exercisable.

Aggregated Fiscal Year End Option Values

        The following table sets forth information concerning the number of
unexercised options and the Fiscal 2000 year end value of unexercised options on
an aggregated basis held by the Named Officers. The Company has not granted any
stock appreciation rights in Fiscal 2000.

<TABLE>
<CAPTION>
                    Number of Securities                 Value of
                    Underlying Unexercised               Unexercised In-The-Money
                    Options at Fiscal Year-End (#)       Options at Fiscal Year-End ($)
                    ----------------------------------   -------------------------------------
Name                Exercisable      Unexercisable       Exercisable        Unexercisable
<S>                 <C>              <C>                 <C>                <C>
J.C. Chatpar        1,620,000        0                   $752,100           0
</TABLE>

(1) Options are "in-the-money" if, on March 31, 2000, the market price of the
Common Stock ($2.50) exceeded the exercise price of such options. The value of
such options is calculated by determining the difference between the aggregate
market price of the Common Stock underlying the options on March 31, 2000 and
the aggregate exercise


                                       28
<PAGE>

price of such options.

Compensation of Directors

        The directors of the Company are paid $250 per Board meeting. During
Fiscal 2000, the Board of Directors met two times and each director attended at
least 75% of the meetings of the Board of Directors. In addition, the Company
currently reimburses each director for expenses incurred in connection with his
attendance at each meeting of the Board of Directors.

Committees of the Board of Directors

        As of the date hereof, we have a standing compensation committee
composed of all members of the Board of Directors. The compensation committee
reviews and acts on matters relating to compensation levels and benefit plans
for our executive officers and key employees, including salary and stock
options. The compensation committee is also responsible for granting stock
awards, stock options and stock appreciation rights and other awards to be made
under our existing incentive compensation plans. We also have a standing audit
committee composed of Messrs. Jones, Etten and Dorfman. The audit committee
assists in selecting our independent auditors and in designating services to be
performed by, and maintaining effective communication with, those auditors.

Employment Agreements and Insurance

        The Company has entered into an Amended and Restated Employment
Agreement with Mr. J.C. Chatpar dated as of August 4, 1997 (the "Employment
Agreement") for a three year term. Such three-year term shall be automatically
extended for successive three-year terms unless either party gives the other
party 120 days prior written notice of termination before the end of any such
three-year period. The Board, however, has the authority to terminate such
extension upon cause. "Cause" is defined as conviction of a felony or willful
misconduct. Mr. Chatpar is entitled to receive a salary of $150,000 per annum,
with an annual increase of 10%. In recognition of the complex scientific and
technical leadership which Mr. Chatpar brings to the Company. The Company has
also agreed that its Board of Directors may raise his salary during the term of
his employment as soon as the financial resources of the Company and other
business conditions permit. In such event, Mr. Chatpar's salary shall be at a
level comparable to that of chief executive officers of other comparable
technology-driven publicly held companies.

        In addition to his base salary, Mr. Chatpar shall be entitled to receive
a bonus based upon the following formula: (a) 1% of gross revenues for each
fiscal year in excess of $3 million provided, however, that the Company shall be
profitable, plus (b) 5% of net income after deduction of the bonus provided for
in (a) above, and plus (c) 10% of the increase in net income over that of the
prior fiscal year after deduction of the bonus provided for in (a) above.

        In the event of a termination of Mr. Chatpar's employment due to
disability, he shall receive royalty payments of 5% of the gross revenues earned
by the Company ("Royalties") for a period of 15 years following termination. In
the event of Mr. Chatpar's death, his wife, if any, or his estate, shall receive
a payment equal to six months of his base salary and Royalties for 15 years. In
the event of a termination of Mr. Chatpar's employment for any reason other than
pursuant to disability, death or for cause, or if there is a change of control
(as defined in the Employment Agreement) of the Company which results in an
actual or constructive termination of employment (as defined therein), he shall
receive a payment equal to three years of his base salary plus three times his
prior year's bonus, Royalties for 15 years, and all of his outstanding options
will be deemed immediately vested and exercisable for a period of one year from
the effective termination date.

        The Company does not have employment contracts with any other officer or
director. The Company offers basic health, major medical and life insurance to
its employees. No retirement, pension or similar program has been adopted by the
Company.

ITEM 11 - Security Ownership of Certain Beneficial Owners and Management

        The following table sets forth certain information known to the Company
regarding beneficial ownership of


                                       29
<PAGE>

the Company's Common Stock as of March 31, 2000, for (i) each person or group
that is known by the Company to be a beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the Named Officers and
directors, and (iii) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that such beneficial
owners, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws,
where applicable.

Names and Address
of Beneficial Owners            Number of Shares        Percentage Owned (1)(2)
--------------------            ----------------        -----------------

J.C. Chatpar(3)                  6,465,712               31.9%
c/o Cyber Digital, Inc.
400 Oser Avenue
Hauppauge, NY 11788

Jack P. Dorfman(4)                 220,000               1.1%

Jatinder V. Wadhwa(5)              217,812               1.1%

Terry L. Jones (6)                  20,000               *

Andrew Van Etten                         0               *

All directors and executive
officers as a group:  (5)
persons                          6,923,524              34.2%
*less than 1%

(1) For purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security which
such person or persons have or have the right to acquire within 60 days is
deemed to be outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage of ownership of any other person.

(2) Assumes the exercise of the warrants to purchase 824,013 shares of Common
Stock issued in connection with the offering of the Company's Series A Preferred
stock. Assumes the exercise of the warrants to purchase 235,678 shares of Common
Stock issued in connection with the offering of the Company's Series D1
Preferred stock.

(3) Does not include 476,000 shares owned by Sylvie Chatpar, his wife, and
175,000 shares owned by certain other relatives, to which shares Mr. Chatpar
disclaims beneficial ownership. Includes 1,620,000 shares as to which Mr.
Chatpar holds non-qualified stock options, which are exercisable at any time.

(4) Includes 100,000 shares as to which Mr. Dorfman holds a non-qualified stock
option, which are exercisable at any time. Does not include 360,000 shares owned
by his wife, Sandra Dorfman, to which shares Mr. Dorfman disclaims beneficial
ownership.

(5) Includes 60,000 shares as to which Mr. Wadhwa holds non-qualified stock
options which are exercisable at any time.

(6) Terry Jones is a general partner of a limited partnership that is the
general partner of Syndicated Communications Venture Partners III, L.P. ("Syncom
III"), a fund which on April 14, 1998, Syncom III converted all of its
outstanding Series B-1 Preferred Stock into 861,230 shares of Common Stock at a
conversion price of $2.89 per share. Includes 20,000 shares as to which Mr.
Jones holds non-qualified stock options which are exercisable at any time.


                                       30
<PAGE>

ITEM 12 - Certain Relationships and Related Transactions

        On December 30, 1996, the Company consummated a private placement of its
Series B-1 Convertible Preferred Stock, par value $.05 per share, to Syncom III.
The Company issued 2,000 shares of its Series B-1 Stock to Syncom III in return
for $2,000,000. On April 14, 1998, Syncom III converted all of its outstanding
Series B-1 Preferred Stock into 861,230 shares of Common Stock at a conversion
price of $2.89 per share.

        Terry Jones, a director, is the general partner of WJM Partners III,
L.P. ("WJM"), the general partner of Syncom III. Pursuant to the terms of the
Stock Purchase Agreement so long as Syncom III holds Common Stock, the Company's
Board of Directors shall consist of not less than five members and the Company
shall use its best efforts to cause Terry Jones (or another partner of WJM) to
be elected as a director.


                                       31
<PAGE>

ITEM 13 - Exhibits and Reports on Form 8-K

(a)   Exhibits.
      ---------

3.1     Composite Amended and Restated Certificate of Incorporation
        (incorporated herein by reference to Exhibit 3.1 to the Company's
        Quarterly Report on Form 10-QSB for the period ended December 31, 1996).

3.2     Composite Amended and Restated By-Laws (incorporated herein by reference
        to Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the
        period ended September 30, 1997 (the "September 1997 Form 10-QSB")).

10.1    Cyber Digital, Inc. 1993 Stock Incentive Plan (incorporated herein by
        reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K
        for the fiscal year ended March 31, 1994).

10.2    Amended and Restated Employment Agreement, dated as of August 4, 1997,
        between the Company and J.C. Chatpar (incorporated herein by reference
        to Exhibit 10.1 to the September 1997 Form 10-QSB).

10.3    Manufacturing License Contract between the Company and National
        Telecommunications Co., dated as of December 4, 1995 (incorporated
        herein by reference to Exhibit 10(c) to the Company's Annual Report on
        Form 10-KSB/A for the fiscal year ended March 31, 1996)).

10.4    Manufacturing License Contract between the Company and Gujarat
        Communications and Electronics, Ltd. dated as of May 30, 1996
        (incorporated herein by reference to Exhibit 10.5 to the Company's
        Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997).

10.5    Cyber Digital, Inc. 1997 Stock Incentive Plan (incorporated herein by
        reference to Exhibit 10.5 to the Company's Annual Report on Form 10-KSB
        for the fiscal year ended March 31, 1998).

10.6    Contractor Agreement between the Company and GTE Data Services GmbH,
        dated as of December 9, 1997 (incorporated herein by reference to
        Exhibit 10.6 to the Company's Annual Report on Form 10-KSB for the
        fiscal year ended March 31, 1998).

10.7    Amendment to the Company's 1997 Stock Incentive Plan (incorporated
        herein by reference to Exhibit 10.7 to the Company's Proxy Statement for
        Annual Meeting of Shareholders dated February 14, 2000).

10.8    Amendment to the Company's Certificate of Incorporation (incorporated
        herein by reference to Exhibit 10.8 to the Company's Proxy Statement for
        Annual Meeting of Shareholders dated February 14, 2000).

27      Financial Data Schedule.


(b) Reports of Form 8-K. No reports on Form 8-K were filed for the three months
ended March 31, 2000.


                                       32
<PAGE>

                               CYBER DIGITAL, INC.
                              FINANCIAL STATEMENTS

<PAGE>

                                TABLE OF CONTENTS

                                                                        Page No.
                                                                        --------

Independent Auditors' Report.......................................        F-1

Financial Statements

   Balance Sheets..................................................        F-2

   Statements of Operations........................................        F-3

   Statements of Changes in Shareholders' Equity...................        F-4

   Statements of Cash Flows........................................        F-5

   Notes to Financial Statements................................... F-6 - F-16



  All schedules omitted are not required, not applicable, or the information is
  provided in the financial statements or notes therein.

<PAGE>

A L B R E C H T , V I G G I A N O , Z U R E C K
       & C O M P A N Y , P . C .

                                                    CERTIFIED PUBLIC ACCOUNTANTS
                                                                25 SUFFOLK COURT
                                                             HAUPPAUGE, NY 11788
                                                                  (631) 434-9500


                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Cyber Digital, Inc.
Hauppauge, New York

We have audited the accompanying balance sheets of Cyber Digital, Inc. as of
March 31, 2000 and 1999 and the related statements of operations, shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 accompanying financial statements referred to in the first
paragraph presents fairly, in all material respects, the financial position of
Cyber Digital, Inc. as of March 31, 2000 and 1999 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

Albrecht, Viggiano, Zureck and Company, P. C.


Hauppauge, New York
June 20, 2000


                                      F-1
<PAGE>

                               CYBER DIGITAL, INC.
                                 BALANCE SHEETS
                                    March 31,

<TABLE>
<CAPTION>
                                                                        2000           1999
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
ASSETS

Current Assets
  Cash and cash equivalents                                         $  1,650,801    $    246,832
  Accounts receivable, net                                                 5,078             -0-
  Inventories                                                            592,125         482,633
  Prepaid and other current assets                                        52,990          29,190
                                                                    ------------    ------------

                                     Total Current Assets              2,300,994         758,655

Property and Equipment, net                                              201,781         250,809

Other Assets                                                              21,750          14,350
                                                                    ------------    ------------
                                                                    $  2,524,525    $  1,023,814
                                                                    ============    ============
LIABILITIES AND SHAREHOLDERS'  EQUITY

Current Liabilities
  Accounts payable, accrued expenses, and taxes                     $    283,232    $    123,981
                                                                    ------------    ------------
                                Total Current Liabilities                283,232         123,981
                                                                    ------------    ------------

Commitments and Contingencies

Shareholders' Equity
  Preferred stock - $.05 par value; cumulative,
    convertible and participating; authorized 10,000,000 shares
      Series A;  issued  and  outstanding -none at March 31, 2000
        and 1999                                                             -0-             -0-
      Series  B-1 issued and outstanding -0- and 2,420 shares
        at March 31, 2000 and 1999, respectively                             -0-             121
      Series B-2 issued and outstanding - none at March 31, 2000
        and 1999                                                             -0-             -0-
      Series C; issued and outstanding - 310 and -0- shares at
        March 31, 2000 and 1999, respectively                                 16             -0-
      Series  D-1; issued and outstanding - 851 and -0- shares at
        March 31, 2000 and 1999, respectively                                 43             -0-
Common stock - $.01 par value; authorized 60,000,000
    shares; issued and outstanding 19,199,807 and 17,386,053
      shares at March 31, 2000 and 1999, respectively                    191,998         173,861
  Additional paid-in capital                                          17,574,905      14,161,764
  Accumulated deficit                                                (15,525,669)    (13,435,913)
                                                                    ------------    ------------
                                                                       2,241,293         899,833
                                                                    ------------    ------------
                                                                    $  2,524,525    $  1,023,814
                                                                    ============    ============
</TABLE>

                 See accompanying notes to financial statements.


                                      F-2
<PAGE>

                               CYBER DIGITAL, INC.
                            STATEMENTS OF OPERATIONS
                              Years ended March 31,

<TABLE>
<CAPTION>
                                                                   2000           1999
                                                              ------------    ------------
<S>                                                           <C>             <C>
Net Sales                                                     $      6,497    $    279,926

Cost of Sales                                                        3,672         134,899
                                                              ------------    ------------

                                             Gross Profit            2,825         145,027
                                                              ------------    ------------

Operating Expenses
  Selling, general and administrative expenses                   1,379,924       1,682,368
  Research and development                                         633,358         650,072
                                                              ------------    ------------


                                 Total Operating Expenses        2,013,282       2,332,440
                                                              ------------    ------------
                                     Loss from Operations       (2,010,457)     (2,187,413)
                                                              ------------    ------------

Other Income (Expense)
  Interest income                                                   56,126          58,395
  Loss on disposal of fixed assets                                  (6,670)            -0-
  Other expense                                                        -0-          (4,361)
  Bad debt expense                                                     -0-        (355,012)
                                                              ------------    ------------

                             Total Other Income (Expense)           49,456        (300,978)

                                 Loss Before Income Taxes       (1,961,001)     (2,488,391)

Provision (Benefit) for Income Taxes                                  (301)          4,513
                                                              ------------    ------------

                                                 Net Loss     $ (1,960,700)   $ (2,492,904)

                                 Preferred Stock Dividend         (129,056)       (268,908)
                                                              ------------    ------------

                  Income Available to Common Shareholders       (2,089,756)     (2,761,812)
                                                              ============    ============

Net Loss Per Share of Common Stock (See Note 5)

                               Loss from Operations - Basic   $       (.11)   $       (.13)
                                                              ============    ============
                                                    Diluted   $       (.11)   $       (.13)
                                                              ============    ============
                                           Net Loss - Basic   $       (.11)   $       (.16)
                                                              ============    ============
                                                   Diluted    $       (.11)   $       (.16)
                                                              ============    ============
Weighted average number of common shares outstanding            18,517,456      17,386,053
                                                              ============    ============
</TABLE>

     See accompanying notes to financial statements.


                                      F-3
<PAGE>

                               CYBER DIGITAL, INC.
                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                       Years ended March 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                               Preferred Stock
                                                    --------------------------------------------------------------------------
                                                         Series A            Series B-1        Series B-2           Series C
                                                    -----------------     ----------------   ---------------    --------------
                                                    Shares     Amount     Shares    Amount   Shares   Amount    Shares   Amount
                                                    ------     ------     ------    ------   ------   ------    ------   ------
<S>                                                    <C>  <C>   <C>    <C>     <C>             <C>     <C>      <C> <C>  <C>
Balance at April 1, 1998                              -0-   $    -0-     2,200   $    110       -0-     -0-      -0-  $   -0-

10% Preferred stock dividend - Series B-1                                  220         11

Net Loss

Balance at March 31, 1999                             -0-   $    -0-     2,420   $    121       -0-   $ -0-      -0-  $   -0-

Exercise of stock options

Preferred stock dividend - Series B-1

Conversion of Series B-1 Preferred Stock                                (2,420)      (121)

Issuance of 6% Series C Preferred Stock                                                                         310       16

Issuance of 8% Series D-1 Preferred Stock

Preferred stock dividend - Series D-1

Conversion of Series D-1 Preferred Stock

Net Loss
                                                     ------ --------        ---  ---------      ---   -----     ---   -----------
Balance at March 31, 2000                             -0-   $    -0-        -0-  $     -0-      -0-   $ -0-     310   $   16
                                                     ====== ========        ===  =========      ===   =====     ===   ===========

<CAPTION>
                                             Preferred Stock
                                             ---------------
                                               Series D-1           Common Stock          Additional                      Total
                                             -------------        -----------------        Paid-in     Accumulated     Shareholders
                                             Shares  Amount       Shares     Amount        Capital       Deficit          Equity
                                             ------  ------       ------     ------        -------       -------          ------
<S>                                              <C> <C>  <C>   <C>          <C>        <C>            <C>             <C>
Balance at April 1, 1998                        -0-  $   -0-    17,386,053   $173,861   $ 13,892,867   $(10,674,101)   $  3,392,737

10% Preferred stock dividend - Series B-1                                                    268,897       (268,908)            -0-

Net Loss                                                                                                 (2,492,904)     (2,492,904

Balance at March 31, 1999                       -0-  $   -0-    17,386,053    173,861   $ 14,161,764   $(13,435,913)   $    899,833

Exercise of stock options                                          242,000      2,420        289,740                        292,160

Preferred stock dividend - Series B-1                               23,860        238         69,608        (69,846)            -0-

Conversion of Series B-1 Preferred Stock                           837,370      8,374         (8,253)                           -0-

Issuance of 6% Series C Preferred Stock                                                      309,984                        310,000

Issuance of 8% Series D-1 Preferred Stock    3,000      150                                2,699,850                      2,700,000

Preferred stock dividend - Series D-1                              19,395        194          59,016        (59,210)            -0-

Conversion of Series D-1 Preferred Stock    (2,149)    (107)      691,129      6,911          (6,804)                           -0-

Net Loss                                                                                                 (1,960,700)     (1,960,700
                                               ---   ------     ----------   --------   ------------   ------------    ------------
Balance at March 31, 2000                      851   $   43     19,199,807   $191,998   $ 17,574,905   $(15,525,669)   $  2,241,293
                                               ===   ======     ==========   ========   ============   ============    ============
</TABLE>

                 See accompanying notes to financial statements.


                                      F-4
<PAGE>

                               CYBER DIGITAL, INC.
                            STATEMENTS OF CASH FLOWS
                              Years ended March 31,

<TABLE>
<CAPTION>
                                                                2000            1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
Cash Flows from Operating Activities
  Net loss                                                    $(1,960,700)   $(2,492,904)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
    Depreciation                                                   71,663         69,598
    Loss on disposal of property and equipment                      6,670            -0-
    Bad debt expense                                                  -0-        355,012
    (Increase) decrease in operating assets:
     Accounts receivable                                           (5,078)        28,591
     Inventories                                                 (109,492)       (34,883)
     Prepaid and other current assets                             (23,800)        (5,645)
     Other assets                                                  (7,400)           -0-
    Increase (decrease) in operating liabilities:

     Accounts payable, accrued expenses, and taxes                159,251        (16,968)
                                                              -----------    -----------

                    Net Cash Used in Operating Activities      (1,868,886)    (2,097,199)
                                                              -----------    -----------

Cash Flows from Investing Activities
  Purchase of equipment                                           (29,305)       (92,442)
                                                              -----------    -----------

                    Net Cash Used in Investing Activities         (29,305)       (92,442)
                                                              -----------    -----------

Cash Flows from Financing Activities
  Exercise of common stock options                                292,160            -0-
  Issuance of preferred stock                                   3,010,000            -0-
                                                              -----------    -----------

                Net Cash Provided by Financing Activities       3,302,160            -0-
                                                              -----------    -----------

       Net Increase (Decrease) in Cash and Cash Equivalents     1,403,969     (2,189,641)

Cash and Cash Equivalents at Beginning of Period                  246,832      2,436,473
                                                              -----------    -----------

               Cash and Cash Equivalents at End of Period     $ 1,650,801    $   246,832
                                                              ===========    ===========

Supplemental Disclosures of Cash Flow Information
  Cash paid during the period for:
    Income taxes                                              $     4,424    $     4,140
    Interest                                                          -0-            -0-
</TABLE>

     See accompanying notes to financial statements.


                                      F-5
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Description of Business

Cyber Digital, Inc. (the "Company") was incorporated in the state of New York in
April 1983. The Company designs, develops, manufactures and markets digital
switching, internet and networking systems that enable simultaneous
communication of voice and data to a large number of users. The Company's
systems are based on its proprietary software technology which permits
"modemless" transmission of data between a variety of incompatible and
dissimilar end-user equipment, such as personal computers, printers, work
stations and data terminals, over standard telephone lines.

Operating and Financing Matters

Since inception, the Company has devoted substantial resources to the design and
development of the Company's systems and technology. As such, the Company has
not achieved revenue growth and has incurred operating losses. At March 31,
2000, the Company had an accumulated deficit of $15,525,669 and a shareholders'
equity of $2,241,293. The increase in equity from March 31, 1999 to March 31,
2000 is due mainly to a private placement of Series C and Series D-1 preferred
stock completed during the fiscal year ended March 31, 2000. The Company had
working capital of $2,017,762 at March 31, 2000 relating largely to cash and
cash equivalents from this year's stock issuances as discussed in Note 7. The
Company historically has generated sufficient cash flow to support its
operations mainly from these issuances of debt and equity securities. The
Company anticipates additional issuances of debt and/or equity in the future.

Estimates

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

Fair Value of Financial Instruments

The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, prepaid expenses, accounts payable and accrued
expenses, approximate fair value due to the relatively short maturity of these
instruments. The estimated fair value amounts have been determined by the
Company using available market information and the appropriate valuation
methodologies. Considerable judgment is necessarily required in the interpreting
of market data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers highly liquid
temporary cash investments with an original maturity of three months or less to
be cash equivalents.


                                      F-6
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note  1  -  Summary  of  Significant  Accounting  Policies (continued)

Accounts Receivable

Accounts receivable are presented net of a zero allowance for doubtful accounts
at March 31, 2000 and 1999. The allowance is based on prior experience and
management's evaluation of the collectibility of accounts receivable. Management
believes that the allowance is adequate. However, additions to the allowance may
be necessary based on changes in economic conditions.

Inventories

The Company uses a cost system which approximates the first-in, first-out
method. Inventories are valued at the lower of cost or market.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation and amortization are computed by the straight-line method over
their estimated useful lives. Repairs and maintenance are charged against
operations as incurred.

Revenue Recognition

The Company recognizes product system sales upon shipment and acceptance by the
customer. Component parts and software sales are recognized upon shipment to the
customer. The company also recognizes monthly income from the billing of
internet services to its customers.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of assets and liabilities for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled.

Deferred taxes also are recognized for operating losses that are available to
offset future federal income taxes. The Company accounts for investment tax
credits using the flow-through method, and thus reduces income tax expense in
the year the related assets are placed in service.

Research and Development Costs

Research and development costs are charged to expense when incurred.

Warranty Expense

The Company records warranty expense as incurred and does not make a provision
as shipments are made. Such expense is not significant.


                                      F-7
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note  1  -  Summary  of  Significant  Accounting  Policies (continued)

Impairment of Long-Lived Assets

The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" (FASB 121), which the Company has adopted effective April 1, 1996.
FASB No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for possible impairment
whenever events or changes in circumstance indicate that the carrying amount of
an asset may not be recoverable. FASB No. 121 also requires that long-lived
assets and certain identifiable intangibles held for sale be reported at the
lower of carrying amount of fair value less cost to sell. The Company determined
that no impairment loss need be recognized for the applicable assets.

Earnings (Loss) Per Share

Effective for the Company's financial statements for the year ended March 31,
1998, the Company adopted SFAS No. 128, "Earnings per Share," which replaces the
presentation of primary earnings per share ("EPS") and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS assumes conversion of the convertible
preferred stock, the elimination of the related preferred stock dividend
requirement, and the issuance of common stock for all other potentially dilutive
equivalent shares outstanding.

Note 2 - Inventories

At March 31, inventories consist of:

                                                     2000         1999
                                                  ----------   ---------
               Raw materials                      $  528,221   $ 345,024
               Finished goods                         63,904     137,609
                                                  ----------   ---------
                                                  $  592,125   $ 482,633
                                                  ==========   =========


                                      F-8
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 3 - Property and Equipment

Major classes of property and equipment consist of the following at March 31:

                                        2000          1999       Useful Lives
                                    -----------   ------------   ------------
       Machinery and equipment      $   385,743   $    366,395        5 years
       Furniture and fixtures            66,262         68,271        7 years
       Leasehold improvements             4,786          4,786     lease term
                                    -----------   ------------

                                        456,791        439,452
       Less:  Accumulated depreciation  255,010        188,643
                                    -----------   ------------
                                    $   201,781   $    250,809
                                    ===========   ============

Note 4 - Other Assets

Other assets consist of various security deposits.

Note 5 - Earnings (Loss) Per Share

Earnings per share ("EPS") has been computed and presented pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, Earnings per
Share.

                                                      2000           1999
                                                  ------------   --------

Net Loss                                          $ (1,960,700) $ (2,492,904)
Dividends paid on Preferred Stock                     (129,056)     (268,908)
                                                  ------------   ------------

Income Available to Common Shareholders           $ (2,089,756) $ (2,761,812)
                                                  ------------   ------------
Weighted Average Common Shares Outstanding          18,517,456     17,386,053
                                                  ------------   ------------

Basic EPS                                         $       (.11) $        (.16)
Diluted EPS                                       $       (.11) $        (.16)

Diluted earnings per share does not include any stock warrants, options, or
convertible preferred stock as the inclusion of these items would be
antidilutive to earnings per share.


                                      F-9
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 6 - Stock Option Plans

The Company's Board of Directors adopted, on November 7, 1997, the 1997 Stock
Incentive Plan (the "1997 Plan"). The 1997 plan is a successor to the 1993 plan,
which has been terminated. Under the terms of the 1997 Plan, 850,999 shares were
reserved for issuance to officers, directors, other employees and consultants
meeting certain qualifications. During March 2000, the 1997 plan was amended to
increase the number of shares reserved for issuance from 850,999 to 2,850,999.
Under the 1997 Plan, incentive stock options are granted at 100% of fair market
value on the date of grant. The right to exercise the options accrues equally on
each of the first, second, third and fourth anniversaries of the date of grant.
Options granted under the plan expire on the day before the tenth anniversary of
the plan.

Pursuant to the 1997 Plan, incentive stock options, nonqualified stock options,
restricted stock and stock appreciation rights may be granted to such officers,
directors, and employees of the Company, and to such consultants to the Company
and such other persons or entities, as the Stock Option Committee of the Board
of Directors (the "Committee") shall select. All incentive stock options
("ISO"), which may be granted only to employees and which provide certain tax
advantages to the optionee, must have an exercise price of at least 100 percent
of the fair market value of a share of common stock on the date the option is
granted. No ISOs will be exercisable more than 10 years after the date of grant.
ISOs granted to ten percent shareholders must have an exercise price of at least
110 percent of fair market value and may not be exercisable after the expiration
of five years from grant. The exercise price and the term of nonqualified stock
options will be determined by the Committee at the time of grant.

Stock appreciation rights ("SARS") may be granted independently or in connection
with all or any part of any option granted under the 1997 Plan, either at the
time of grant of the option or at any time thereafter. The holder of an SAR has
the right to receive from the Company, in cash or in shares as the Committee
shall determine, an amount equal to the excess of the fair market value of the
shares covered by the SAR at the date of exercise over the exercise price set at
the date of grant of the SAR. At the request of the holder of an option, the
committee may at its discretion substitute for the exercise of the option,
compensation (in cash or in shares) in an amount equal to or less than the
excess of the fair market value of the shares covered by the option at the
request date over the exercise price set at the grant of the option.

A restricted stock award, entitling the recipient to acquire shares of common
stock for a purchase price at least equal to par value may be granted to such
persons and in such amounts and subject to such terms and conditions as the
Committee may determine. Shares of restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as specified
in the 1997 Plan or the written agreement governing the grant. The Committee, at
the time of grant, will specify the date or dates on which the
nontransferability of the restricted stock shall lapse. During the 90 days
following the termination of the grantee's employment for any reason, the
Company has the right to require the return of any shares to which restrictions
on transferability apply, in exchange for which the Company shall repay to the
grantee any amount paid by the grantee for such shares.


                                      F-10
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 6 - Stock Option Plans (continued)

Unless sooner terminated by the Board, the provisions of the 1997 Plan regarding
the grant of ISOs shall terminate on the tenth anniversary of the adoption of
the 1997 Plan by the Board. No ISOs shall thereafter be granted under the Plan,
but all ISOs granted theretofore shall remain in effect in accordance with their
terms.

In addition to these plans, the Company has issued non-qualified stock options
and warrants upon the approval by the Board of Directors. Such options and
warrants are granted at 100% of fair market value on the date of the grant.
Information with respect to non-qualified stock options and warrants are
summarized as follows:

                                                    Price           Shares

      Outstanding, April 1, 1999                $.38 to $10.00   2,559,013
       Granted                                  $2.72 to $6.00   1,521,888
       Canceled                                 $1.38 to $2.72    ( 18,000)
       Exercised                                $ .38 to $2.43    (242,000)
                                                               -----------
      Outstanding March 31, 2000                                 3,820,901
                                                               ===========
A summary of options and warrants as of March 31, 2000 follows:

<TABLE>
<CAPTION>
                             Options Outstanding                   Options Exercisable
                 ------------------------------------------       -------------------
                                    Weighted
                                     Average     Weighted                 Weighted
                                    Remaining     Average   Exercisable   Average
    Range of        Outstanding    Contractual   Exercise      as of      Exercise
Exercise Prices     at 3/31/00        Life         Price     3/31/00       Price
---------------     ----------        ----         -----     -------       -----
<S>                 <C>                <C>  <C>              <C>         <C>
   $0.75 to $1.43   1,015,000          5.35 $       0.96     902,500     $  0.98
   $2.43 to $3.00   1,275,000          8.56         2.68     421,146        2.65
   $3.31 to $3.31      10,000          9.33         3.31       1,250        3.31
   $4.00 to $4.50      20,000          4.29         4.25      15,833        4.28
   $5.70 to $6.00     651,888          3.48         5.89     194,256        5.96
   $6.35 to $10.00    849,013          1.28         6.46     777,741        6.46
                   ----------  ------------ ------------  ------------
                    3,820,901          5.20 $       3.62   2,312,726      $ 3.57
                   ==========  ============ ============  ============  ========
</TABLE>

In October 1995, the Financial Accounting Standards Board issued Statement No.
123 "Accounting for Stock-Based Compensation" ("FASB 123"), which is effective
for the Company's year beginning April 1,1996. As permitted under FASB 123, the
Company has elected not to adopt the fair value based method of accounting for
its stock-based compensation plans, but will continue to account for such
compensation under the provisions of Accounting Principles Board Opinion No. 25.
Pro forma information regarding net income and earnings per share is required by
FASB 123, and has been determined as if the Company had accounted for its stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes option
pricing model.

The following assumptions were employed to estimate the fair value of stock
options granted:

                                      Fiscal Years Ended March 31,
                                      ----------------------------
                                          2000          1999
                                      -----------    -------
      Expected dividend yield             0.00%         0.00%
      Expected price volatilities        95.50%        96.00%
      Risk-free interest rate             6.30%         4.40%
      Expected life (years)               9.00          5.20


                                      F-11
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 6 - Stock Option Plans (continued)

For pro forma purposes, the estimated fair value of the Company's stock options
is amortized over the options' vesting period. The Company pro forma information
follows:

                                         2000            1999
                                      -----------    ------------
      Weighted average fair value of
        Options granted               $       0.46   $      0.05
      Net Loss
       As reported                    $(1,960,700)   $(2,492,904)
       Pro Forma                       (1,995,271)   (2,524,906)
      Net Loss Per Share
       As reported
         Basic                        $      (.11)  $     (0.16)
         Diluted                      $      (.11)  $     (0.16)
       Pro Forma
         Basic                        $      (.11)  $     (0.16)
         Diluted                      $      (.11)  $     (0.16)

Note  7  -  Convertible,   Cumulative  and   Participating Preferred Stock

In the fiscal year ended March 31, 1997, the Company completed two private
placements of preferred stock. The Company sold 805 shares of 10% Series A
preferred stock, priced at $10,000 per share. The Company also sold 2,000 shares
of 10% Series B-1 preferred stock, priced at $1,000 per share.

In December 1998 and 1997, the Board of Directors declared and distributed a
stock dividend on the preferred Series B-1 stock. The stock amounted to 220 and
200 shares of preferred Series B-1 stock at $1,000 per share, respectively. The
stock dividends were equivalent to the 10% annual dividend on the preferred
Series B-1 stock, plus $48,908 and $32,610 representing the beneficial
conversion feature on the preferred stock dividend, respectively. During April
1999, all of the Company's outstanding Series B-1 preferred stock (2,420 shares)
was converted into 837,370 shares of the Company's common stock. During April
1999, the Company paid a dividend to the Series B-1 preferred stockholders in
the amount of $69,846. The Company paid this dividend through the issuance of
23,860 shares of the Company's common stock.

The 10% Series B-2 preferred stock is convertible into restricted common shares
at a price which is the greater of (a) $7.50 per share or (b) 85% of the average
closing price for the five days prior to the conversion date. As of March 31,
2000, this preferred stock remains unissued.

In July 1999, the Company completed a private placement of its 6% Series C
preferred stock. The Company sold 310 shares at $1,000 per share. The private
placement resulted in the Company receiving proceeds of $310,000. As of March
31, 2000, there are undeclared dividends of $13,850 on the Series C preferred
stock.

The 6% Series C preferred stock is convertible into restricted common shares at
a price to be determined based upon the following:

A.    If the notice of conversion is given within ninety (90) days of issuance
      of the preferred shares, the conversion will be $6.00 per restricted
      common share.


                                      F-12
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note  7  -  Convertible,   Cumulative  and   Participating
Preferred Stock (continued)

     B.   If the notice of conversion is given after ninety (90) days of the
          issuance of the preferred shares, the conversion price will be the
          lesser of the fixed conversion price of $6.00 per restricted common
          share or eighty-five percent (85%) of the average closing price of the
          Company's common stock for the five trading days prior to the
          conversion date, but not less than 50% of the fixed conversion price.

The Company has a right to redeem the Series C preferred stock at a price of
120% of the original Series C issue price, plus all unpaid dividends at the date
of redemption. However, the holder has the right to block the redemption by
delivering a notice of conversion to the Company within seven (7) trading days
of the stockholder's receipt of a notice of general redemption.

In September 1999, the Company completed a private placement of its 8% Series
D-1 preferred stock. The Company sold 3,000 shares at $1,000 per share. The
private placement resulted in proceeds of $2,700,000, which is net of the stock
issuance costs. As of December 31, 1999, there are $33,947 of undeclared
dividends on the outstanding Series D-1 preferred stock.

The 8% Series D-1 preferred stock is convertible into common shares at a price
to be determined based upon the following:

     A.   If the Company fails to list all its shares of common stock on the New
          York Stock Exchange, the NASDAQ SmallCap Market or the NASDAQ National
          Market within ninety (90) days of the original issuance date, the
          conversion price will be the lesser of:

          1)   115% of the arithmetic average of the closing bid price of the
               common stock for the ten (10) trading days preceding the issuance
               date.

          2)   80% of the lesser of the average of the three lowest closing
               sales prices of common stock during the twenty (20) consecutive
               trading days prior to the conversion or the closing bid price on
               such date.

     B.   The Company has a right to redeem the Series D-1 preferred stock if
          the conversion price drops below $3.00 per share at the following
          prices:

          1)   Prior to April 4, 2000, a price of $1,150 per share plus all
               accrued dividends.

          2)   Between April 5, 2000 and October 4, 2000, a price of $1,200 per
               share plus all accrued dividends.

After October 4, 2000, the preferred stock cannot be redeemed by the Company.
Subsequent to year end the Company redeemed 572 shares of the Series D-1
preferred stock, as discussed in Note 12.

During the fiscal year ended March 31, 2000, pursuant to an optional conversion
of Series D-1 preferred stock, 2,149 shares were converted into 691,129 of
common stock, leaving 851 shares outstanding. These shares were converted based
upon the average closing price of the three lowest closing prices during the
twenty (20) days prior to the conversion.

During the fiscal year ended March 31, 2000, the Company paid dividends in the
amount of $59,210 to the Series D-1 preferred stockholders who converted their
Series D-1 preferred stock. This dividend was paid through the issuance of
19,395 shares of the Company's common stock.


                                      F-13
<PAGE>

                   CYBER DIGITAL, INC.

              NOTES TO FINANCIAL STATEMENTS

Note 8 - Income Taxes

The Company has net operating loss carryforwards for tax purposes amounting to
approximately $13 million that may be offset against future taxable income which
expire through 2015. In addition, the Company has investment and research and
development tax credits for tax purposes amounting to approximately $196,000
which expire through 2003.

Deferred income taxes are recognized for differences between the bases of assets
and liabilities for financial statement and income tax purposes. The utilization
of these tax attributes is contingent upon the Company's ability to generate
future taxable income and tax before the tax attributes expire as well as
Internal Revenue Code limitations. As a result, a valuation allowance equal to
the full extent of the deferred tax asset has been established. The change in
the deferred tax asset (as well as the valuation account) was approximately
$784,000 for the fiscal year ended March 31, 2000.

The Company was subject to capital based taxes for New York State for the years
ended March 31, 2000 and 1999.

Note 9 - Commitments and Contingencies

Employment Contract

During the year ended March 31, 1998, the Company entered into a new employment
agreement with the Chairman. The new agreement is for a three year period
covering August 4, 1997 through August 3, 2000. This agreement is renewable for
successive three year periods.

Under this employment agreement, the Company is obligated to pay the Chairman
$150,000 for the period ending August 3, 1998 with an annual increase of 10% for
each subsequent year under the terms of employment. The Company also agrees that
its Board of Directors may raise the Chairman's salary as soon as the financial
resources of the Company and other business conditions permit. In such event,
the Chairman's salary shall be comparable to that of chief executive officers of
other technology driven publicly held companies.

This employment agreement can terminate for one of the following reasons: (1)
disability, (2) death, (3) for cause, and (4) without cause, change in control.

The following payout terms apply if this agreement is terminated:

     1.   In the case of disability, the Chairman shall be paid until the end of
          the month in which such disability occurs. The Chairman will receive
          royalties of 5% of the gross revenues earned by the Company each month
          for a period of fifteen years from the effective date of termination.

     2.   If the agreement terminates due to the death of the Chairman, the
          agreement shall terminate immediately, except that the Chairman's
          wife, if any, or otherwise his estate, shall receive the Chairman's
          salary until the termination date, payments in the amount of the
          Chairman's base salary for a period of six months from the date of
          termination and the aforementioned royalty.

     3.   If the agreement terminates due to cause. Cause is defined as willful
          misconduct by the executive or the conviction of a felony, the
          Chairman shall receive his regular salary until the end of the month
          in which such termination occurs. The Chairman must be notified at
          least ten days prior of his termination.


                                      F-14
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 9 - Commitments and Contingencies (continued)

     4.   If the agreement terminates due to a change in control or without
          cause, the Chairman shall receive his salary until the end of the
          month in which he is terminated, an amount equal to three years base
          salary plus three times the prior year bonus, the aforementioned
          royalties and all of the Chairman's outstanding options will be deemed
          immediately vested and exercisable for a period of one year from the
          effective date of termination.

Operating Leases

Effective April 1, 1999, the Company renewed its noncancelable operating lease
that expired on March 31, 1999. This lease was renewed for a five year period
with respect to the Company's executive offices and operations. Rent expense was
$55,638 and $55,688 for the years ended March 31, 2000 and 1999, respectively.

In January 1998, the Company commenced a noncancelable operating lease that
expires on February 28, 2000, with a renewal option for two additional, two year
periods, with respect to the Company's Indiana office. In October 1998, the
Company began subleasing their Indiana office on a month-to-month basis. Rent
expense was $14,850 and $9,450 for the year ended March 31, 2000 and 1999,
respectively. The expense for 1999 is net of sublease income. This lease was not
renewed on February 28, 2000.

The Company also has noncancelable operating leases for vehicles. The monthly
rental on the vehicles $1,404. The amount charged to expense was $14,217 and
$12,676 for the years ended March 31, 2000 and 1999, respectively.

Effective December 1, 1999, the Company commenced a noncancelable operating
lease that expires on November 30, 2004 with respect to the Company's offices in
Woburn, Massachusetts. Rent expense was $7,951 for the fiscal year ended March
31, 2000.

Effective December 31, 1999, the Company commenced a noncancelable license
agreement that expires on November 30, 2004 to install its telecommunications
equipment in buildings in Woburn, Massachusetts. The monthly license fee of
$2,600 is subject to various discounts if the Company meets certain criteria.
The expense for the license agreement was $4,750 for the fiscal year ended March
31, 2000.

Future minimum rentals are as follows:

            For years ending March 31, 2001        $  112,361
                                       2002           109,712
                                       2003           110,028
                                       2004           109,637
                                       2005            29,923
                                                   ----------
                                                   $  471,661
                                                   ==========

Government Regulation

The Company's operations are highly sensitive to regulations promulgated by the
United States and throughout the world in which the Company has targeted its
marketing efforts. These regulations or deregulations could affect both the
competition for the Company's product as well as the costs associated with doing
business abroad.


                                      F-15
<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 9 - Commitments and Contingencies (continued)

Pending Litigation

The Company is a defendant in an action arising from an alleged wrongful
termination of a purported agreement with Brockington Securities, Inc. The
Company has asserted counter claims and intends to vigorously defend its
position. The outcome and range of damages or settlement (if any) is unknown.

Although, as of the issuance date, no legal action has commenced against the
Company or its directors by Uniworld Communications Co., ("UCC"), a New York
company, they have threatened the Company and its directors for a possible
litigation arising due to the contention that the Company refused to remove
restrictive legend on 500,000 shares of common stock of the Company held by UCC.
The Company had issued 500,000 restricted shares to UCC pursuant to a stock
option agreement. The Company believes that UCC's threatened claims, if any, are
without merit and the Company will vigorously defend its position.

Note 10 - Segment Information and Significant Customers

Significant Customers

For the fiscal years ended March 31, 2000 and 1999, the Company had sales
representing -0-% and 99% of its revenue from two customers, namely GTE Data
Services GMBH and Sprint representing 79% and 20%, respectively, for the year
ended March 31, 1999. The accounts receivable for these customers accounted for
0% of the total accounts receivable at March 31, 2000 and 1999.

Note 11 - Foreign Operations

During the fiscal year ended March 31, 1998, the Company formed a wholly owned
subsidiary, Cyber Digital (India) Private Limited, under the rules and
regulations of the Government of India. The subsidiary has not begun operations
and has no assets as of March 31, 2000 and 1999.

Note 12 - Subsequent Events

Preferred Stock Conversion

During April 2000, 279 shares of the Company's outstanding Series D-1 preferred
stock in accordance with terms discussed in Note 7 was converted into 179,811
shares of the Company's common stock.

During April 2000, the Company paid $11,600 of dividends through the issuance of
7,477 shares of the Company's common stock to the Series D-1 preferred
stockholders who converted their preferred stock.

During April 2000, the Company redeemed 572 shares of its Series D-1 preferred
stock in accordance with the terms discussed in Note 7. The redemption included
a dividend of $23,820.

During June 2000, the Company entered into a noncancelable lease agreement for
one year for premises located in New York, New York. The monthly lease payment
is $1,200.

                                      F-16
<PAGE>





                                   SIGNATURES

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

Dated:  June 27, 2000

                                             CYBER DIGITAL, INC.


                                             By:   /s/ J.C. Chatpar
                                                   -------------------
                                                    J.C. Chatpar
                                             Chairman of the Board, President
                                               and Chief Executive Officer

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

Signature                            Title                              Date

/s/ J.C. Chatpar              Chairman of the Board, President     June 27, 2000
------------------            and Chief Executive Officer
     J.C. Chatpar             (Principal Executive and
                              Financial Officer)


/s/ Dale A. Johnson           Controller and Treasurer             June 27, 2000
-------------------           (Principal Accounting Officer)
     Dale A. Johnson

/s/ Jack P. Dorfman           Director                             June 27, 2000
--------------------
     Jack P. Dorfman

/s/ Jatinder Wadhwa           Director                             June 27, 2000
-------------------
     Jatinder Wadhwa

/s/ Terry Jones               Director                             June 27, 2000
    -----------
     Terry Jones

/s/  Andrew Van Etten         Director                             June 27, 2000
---------------------
      Andrew Van Etten


                                       33
<PAGE>

Index to Exhibits

Exhibit Number                              Description
--------------                              -----------

3.1     Composite Amended and Restated Certificate of Incorporation
        (incorporated herein by reference to Exhibit 3.1 to the Company's
        Quarterly Report on Form 10-QSB for the period ended December 31, 1996).

3.2     Composite Amended and Restated By-Laws (incorporated herein by reference
        to Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the
        period ended September 30, 1997 (the "September 1997 Form 10-QSB")).

10.1    Cyber Digital, Inc. 1993 Stock Incentive Plan (incorporated herein by
        reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K
        for the fiscal year ended March 31, 1994).

10.2    Amended and Restated Employment Agreement, dated as of August 4, 1997,
        between the Company and J.C. Chatpar (incorporated herein by reference
        to Exhibit 10.1 to the September 1997 Form 10-QSB).

10.3    Manufacturing License Contract between the Company and National
        Telecommunications Co., dated as of December 4, 1995 (incorporated
        herein by reference to Exhibit 10(c) to the Company's Annual Report on
        Form 10-KSB/A for the fiscal year ended March 31, 1996)).

10.4    Manufacturing License Contract between the Company and Gujarat
        Communications and Electronics, Ltd. dated as of May 30, 1996
        (incorporated herein by reference to Exhibit 10.5 to the Company's
        Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997).

10.5    Cyber Digital, Inc. 1997 Stock Incentive Plan (incorporated herein by
        reference to Exhibit 10.5 to the Company's Annual Report on Form 10-KSB
        for the fiscal year ended March 31, 1998).

10.6    Contractor Agreement between the Company and GTE Data Services GmbH,
        dated as of December 9, 1997 (incorporated herein by reference to
        Exhibit 10.6 to the Company's Annual Report on Form 10-KSB for the
        fiscal year ended March 31, 1998).

10.7    Amendment to the Company's 1997 Stock Incentive Plan (incorporated
        herein by reference to Exhibit 10.7 to the Company's Proxy Statement for
        Annual Meeting of Shareholders dated February 14, 2000).

10.8    Amendment to the Company's Certificate of Incorporation (incorporated
        herein by reference to Exhibit 10.8 to the Company's Proxy Statement for
        Annual Meeting of Shareholders dated February 14, 2000).

27      Financial Data Schedule.