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, 2001
                                       --------------

     [ ]     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


<PAGE>


      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:  $37,539

      As of June 29, 2001, Registrant had 20,197,349 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 $15,375,300 (based on the last sale price reported on
over-the-counter market electronic bulletin board on such date).

      Transitional Small Business Disclosure Format (check one):

      Yes         No X
         -----      ---


<PAGE>



                                    PART I

      We have provided a glossary of terms for your convenience beginning on
page 13.

ITEM 1 - DESCRIPTION OF BUSINESS

Overview

      We design, develop software, manufacture and market a vast array of high
performance Internet infrastructure systems such as routers, gateways, firewalls
and servers for the creation of next-generation digital broadband and virtual
private network (VPN) services by Internet service providers. We also design,
develop software, manufacture and market a range of advanced digital voice
switching infrastructure equipment for private and public switched voice network
operators worldwide, especially for developing countries. Our mission is to
become the leading supplier of (i) digital broadband systems in the U.S., and
(ii) digital voice switches to developing countries. We believe that service
providers can offer affordable yet modern voice and broadband Internet services
by exclusively using our vast array of voice and Internet systems without buying
any equipment from our competitors.

      Unlike our competitor's systems, our systems are neither labor nor capital
intensive but are software intensive. This capability, in contrast to that of
our competitor's, makes our systems more affordable for both voice and Internet
network operators worldwide. Our digital voice switching and Internet Protocol
(IP) infrastructure systems are based on our proprietary operating system
software, which provides high performance, reliability and functionality.

      Our vast array of both digital voice and Internet infrastructure systems
address every facet of building affordable yet modern telecommunication and
digital broadband networks. Our voice and Internet switching systems can use
fiber optic or digital wireless transmission, which enable developing countries
such as Nigeria to easily and rapidly deploy telecommunications services to
consumers within months rather than years. We believe that we are one of a very
few, if not the only, company in the world with proprietary technology of
distributed digital switching. Our systems are ideally suited for the U.S., in
the aftermath of the recent telecommunication meltdown, as well as developing
countries such as Nigeria. Just recently, we developed a strong foothold in the
Nigerian telecommunication market by having our digital wireless telephone
network solution accepted by five states. In addition, we won a bid to provide
10,000 lines telephone network against major giants such as Alcatel and Siemens
in Nigeria. Since we offer an affordable telecommunications as well as Internet
capability, the Nigerian leaders have selected us as the ideal supplier of
telephone and Internet systems. We envisage supplying $35 million of our digital
wireless switching systems to five states and $26 million of our fiber optic
landline switching systems to the government of Nigeria.

      In the aftermath of the recent telecommunication meltdown in the U.S.,
which essentially occurred due to the failure of the Telecommunication Act of
1996 and lack of local-loop digital broadband network in place, we believe that
we are poised to be the leading supplier of local-loop digital broadband
systems. Abundant capacity of optically enabled IP backbone network exists
between all major cities in the U.S., only to fall short of being distributed to
businesses or consumers. Our high-performance distribution routers are
specifically designed for the purpose of meeting the scope of local-loop digital
broadband network for Internet Service Providers. We expect to revitalize the
damage created to vast majority of e-commerce companies or companies preparing
to engage in e-commerce such as dot-com companies. Hence, we believe that our
future in the early adopter market of the U.S. looks extremely strong. We intend
to take advantage of our early mover position as this market re-builds.

      We are a New York corporation formed on April 4, 1983. Our executive
offices are located at 400 Oser Avenue, Suite 1650, Hauppauge, NY 11788 and our
telephone number is (631)-231-1200. Our Website is www.cyberdigitalinc.com.




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<PAGE>


Industry Background

A $250 Billion International Target Market

      The tremendous growth of the Internet has revolutionized the
communications industry. Today, the Internet connects millions of people around
the world who are able to share information instantly without geographic
boundaries. The Internet is bound only by the voice-network upon which it
resides; without this network in place users cannot take advantage of powerful
Internet applications.

      In developed countries, such as the United States, the requisite voice
network is already in place, hence the number of Internet users is growing at
unprecedented rates. In developing countries such as Nigeria, China, India and
Brazil, there is little or no basic voice network, leaving many of these nations
struggling to take part in the Internet revolution.

      The demand for Internet applications, such as distance learning, municipal
virtual private networks and medical/emergency communications systems have
induced developing countries to aggressively invest in communications
infrastructure. These countries must first build a basic voice network, the
platform of the Internet, before they can become part of this information
revolution.

The following table shows projected five-year communication infrastructure
spending for selected countries, according to Pyramid Research:

  Projected Communication Infrastructure Investment by 2005

  Country       Number  Lines  Built         Cumulative    Investment
                (000s)                       (US$Millions)

  China         91,042                        172,077
  India         41,387                        44,366
  Brazil        15,881                        34,009
  Nigeria       5,000                          7,000


      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 wireless 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 wireless switching systems are also
being installed closer to groups of subscribers, thereby dramatically reducing
the cost of cabling. We believe that with our distributed wireless 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 wireless voice switches are well suited for developing countries.

A $32 Billion Domestic Market

      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 failure of the 1996 Telecommunications Act, as amended.

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

      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, ISDN and DSL

      The vast majority of Internet users access data networks through slow
dial-up modems, an integrated services digital network (ISDN) line or a digital
subscriber line (DSL) line offering typically 56 Kbps, 128Kbps and 640 Kbps
respectively. DSL technology is very sensitive to the quality of the voice grade
existing lines. Therefore, DSL service is severely limited by the length of wire
from an Incumbent Local Exchange Carrier's (ILEC) central office to a subscriber
location; generally less than 12,000 feet, which represents less than 10% of the
total market. These impairments are created by the Incumbent Local Exchange
Carrier's (ILEC) existing voice grade lines and are incurable. A local loop
digital broadband solution using CIAN distribution router provides 1.5Mbps (T1)
to 45Mbps (T3) service without any distance limitations and does not use ILEC
voice lines.

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. 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.

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

      A significant number of small and medium sized businesses cannot afford to
connect to Internet at broadband speeds as they have to purchase various
expensive customer end equipment such as router, Ethernet-to-T1 converter, IP
Frame Relay and Private Line equipment, CSU/DSU, firewall, e-mail server, web
server, etc. These businesses must contend with the cost and complexity of
retaining multiple vendor products and suffer from more points of failure. We
believe that these businesses can benefit from the uniqueness of CBIG gateway
which combines all the functions and features required by a customer end network
in one box, about the size of a reference handbook.

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 or T3 carrier grade copper lines. It also



                                       5
<PAGE>

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. 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. CBIG gateway 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. CFW and 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.

Failure of 1996 Telecommunications Act

      The 1996 Telecommunications Act, as amended, allows competitive carriers
to leverage limited parts of the existing Incumbent Local Exchange Carrier
(ILEC) infrastructure, as opposed to building a competing similar
infrastructure. The 1996 Telecommunications Act requires all ILECs to allow
competitive carriers to co-locate their access (DSL) equipment only (no digital
switches, packet switches or broadband routers) 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 or DSL service limited to 12,000 feet. 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 IP backbone service providers to enter the Internet market
using ILEC's network. In the aftermath of the telecommunications meltdown in the
U.S., most DSL service providers filed bankruptcy due to poor grade of service
from ILECs and the "narrowband" nature of the network. It is now clear to most
IP backbone providers who have built an over capacity of optically enabled IP
network between major cities that in order to enter the lucrative Internet
market one must build its own local-loop digital broadband network to reach out
businesses and consumers. We believe our CIAN distribution routers are
specifically designed for the purpose of building a local-loop digital broadband
network by Internet Service Providers.

Our Range of Internet Systems

Cyber Digital has fully developed Internet infrastructure systems such as Cyber
Business Internet Gateway (CBIG), Cyber Internet Access Network (CIAN)
distribution router, Cyber Firewall (CFW) IPSec based and Cyber Web Server
(CWEB). We intend to enhance our systems by new technologies and software when
the market requires.

Cyber Business Internet Gateway

      We have developed and marketed the Cyber Business Internet Gateway (CBIG)
as customer end equipment. The CBIG is a powerful Internet Protocol (IP) Frame
Relay and Private Line based gateway that replaces many single function
equipment such as router, network address translator, Ethernet-to-T1 converter,
Internet Protocol (IP) Frame Relay and Private Line equipment, CSU/DSU, Firewall
equipment, e-mail server and web server. We believe that the CBIG gateway is
unique in the industry as it combines all the functions and features required by
a customer-end network in one box, about the size of a reference handbook. In
addition, the CBIG gateway offers a capacity of 0.05 gigabits per second that is
the industry's fastest router for customer-end applications. The CBIG
dramatically increases the reliability of the customer-end network by
eliminating many such devices while also lowering the overall cost of network
acquisition by 60% to 80%.

      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 Virtual Private Network (VPN). The



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Firewalls are provided by Internet Protocol (IP) filtering, Internet Protocol
(IP) masquerading and Internet Protocol (IP) tunneling. We believe that our VPN
offering is the most advanced in the industry.

Cyber Internet Access Network

      We have developed and marketed the Cyber Internet Access Network (CIAN)
high-end distribution router, which permits multiple business users to
simultaneously access the Internet at a fixed committed bandwidth rate (CBR) and
an "always on" basis. The CIAN creates a 'Mini-POP' (Points of Presence) and
brings the Internet closer to users thus eliminating bottlenecks, reducing
network delays and increasing reliability. The CIAN distribution router has the
capacity of 0.1Gbps and is suitable for T1 to T3 carrier grade applications. .
The CIAN distribution routers are specifically designed for the purpose of
building a local-loop digital broadband network by Internet Service Providers.

Cyber Firewall

      In January 2001, we developed and introduced simple-do-it-yourself
installation software on our proprietary standalone Cyber Firewall (CFW) series
IPSec firewall appliance for B2B e-commerce secure access and virtual private
network applications. IPSec is an industry-wide standard for assuring the
privacy, integrity and authenticity of information crossing public IP networks.
Adhering to IPSec standards makes Internet "wiretapping" entirely impractical.
Based on our proprietary software technology, our CFW IPSec firewall provides a
cost-effective way of creating an enterprise-wide virtual private network (VPN)
by enabling secure use of the Internet. Our CFW series firewall appliance is
standalone and totally independent of customer's computing operating system
platform. Our CFW firewall is fully interoperable with Cisco Systems, Check
Point Software Technologies, and Nortel Networks firewalls. The CFW series
firewalls include IP Packet Filtering, IP Masquerading, IP Tunneling and IP
Security (IPSec) capabilities. We believe that our IPSec based VPN offering is
the most advanced in the industry.

Cyber Web Server

      We have developed and marketed the Cyber Web Server (CWEB) that is based
on Linux Operating System and Intel Pentium Processors. We believe that the CWEB
servers are robust and proven-in for high performance web applications. We do
not intend to compete in the low performance server market created by the PC
manufacturers.

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 and wireless attributes. These systems are Cyber
Distributed Central Office (CDCO), Cyber Tandem Exchange (CTSX) and Cyber Rural
Exchange (CRX) for various 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 marketed 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.



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<PAGE>

      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 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.

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 Systems

      Under the AT&T Alliance program, we provided Internet services to many
medium and small businesses in Boston area for a period of one-year, until
termination of our agreement with AT&T. During this period we had successfully
proven all our Internet systems including CBIG, CIAN, CFW and CWEB for both
local-loop digital broadband and VPN applications. Our Internet systems provided
network availability in excess of 99.999%when we provided Internet services in
alliance with AT&T. We believe that our systems are ideally suited for the
next-generation of local-loop digital broadband networks requiring increased
reliability, performance, scalability, interoperability and flexibility. Our
strategy is to market our Internet systems to Internet service providers who are
willing to build the next-generation local-loop digital broadband networks in
the aftermath of the telecommunications meltdown in the U.S.



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<PAGE>

      Just recently, we developed a strong foothold in the Nigerian
telecommunication market by having our digital wireless telephone and Internet
network solution accepted by five states. In addition, we won a bid to provide
10,000 lines telephone network including 50 CBIG, 50 CFW and 2 CIAN, against
major giants such as Alcatel and Siemens in Nigeria. Since we offer an
affordable telecommunications as well as Internet capability, the Nigerian
leaders have selected us as the ideal supplier of telephone and Internet
systems.

Digital Voice Switches

      To date, we have sold approximately 76 digital voice switches to the
defense agencies of the U.S. federal government and to China serving over 60,000
lines. Due to massive cut backs in defense program procurement we do not
anticipate any further sales of our digital voice switches to this customer.

      Just recently, we developed a strong foothold in the Nigerian
telecommunication market by having our digital wireless telephone network
solution accepted by five states. In addition, we won a bid to provide 10,000
lines telephone network against major giants such as Alcatel and Siemens in
Nigeria. Since we offer an affordable telecommunications as well as Internet
capability, the Nigerian leaders have selected us as the ideal supplier of
telephone and Internet systems. We envisage supplying $35 million of our
wireless systems to five states and $26 million of our fiber optic landline
systems to the government of Nigeria.

      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.

Competition

Internet Systems

      The Internet related networking products business is characterized by
intense competition, except for certain products for niche markets such as the
market for CBIG gateway, CIAN distribution routers and CFW firewall products.
The server market faces fierce competition from commodity PC manufacturers who
have lately ventured into this market. 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
Internet products.

IP Backbone Routers

      In the area of IP backbone routers, Cisco Systems used to command 100% of
the entire market a few years ago. Today, it maintains its monopoly by holding
94% of this market. It has lost 6% of the market to newcomers such as Juniper
Networks, a niche player. Juniper Networks developed router products for the IP
backbone network or for the POP (Points of Presence). Capacities of such routers
are 1 gigabits per second, 2.5 gigabits per second and 10 gigabits per second to
match the bandwidth requirements of optical IP backbone. Juniper Network's
products are priced about 30% lower than comparable Cisco's products. Network
service providers are looking for lower cost alternatives to Cisco's products to
compete effectively in the their market and to lower their capital investment
for building Internet infrastructure.

Local-Loop Digital Broadband Systems

      In the space of local-loop digital broadband market, there is virtually no
competition at this time due to the newness of the market. Cisco Systems and
others are focusing on increasing the bandwidth capacity of their existing
centralized IP backbone routers i.e. increasing the bandwidth of the POPs. Our
focus is to introduce an intermediate stage distribution router or Mini-POP to
alleviate congestion of IP data traffic between customer-end point and POP. Our
CIAN distribution routers have a capacity of 0.1 gigabits per second, which is
more than sufficient for this application. Our CIAN distribution routers are
competitively priced to be about 50% to 65% of Juniper Networks' and Cisco
Systems' scaled down version of their products.



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Customer Premise Products

      With respect to the customer premise end router and other networking
products market, the competition is intense with numerous players ranging from
small manufacturers to giants like Cisco Systems and Nortel Networks. Our CBIG
gateway is uniquely positioned to become a leader in this market as it combines
many single purpose networking products such as customer-end router, network
address translator, Ethernet to T1 interface, IP Frame Relay or Private Line
protocol device, CSU/DSU device, e-mail server, web server and firewall device,
into one software driven universal product. Our CBIG gateway dramatically
increases the reliability of the customer-end network by eliminating many such
devices while also lowering the overall cost of network acquisition by about 60%
to 80%. Our CBIG gateway is unique in the industry as it combines all the
functions and features required by a customer-end network in one box, about the
size of a reference handbook. In addition, our CBIG gateway offers a capacity of
0.05 gigabits per second, which is industry's fastest router for customer-end
applications.

Firewalls

      Firewalls are offered in the market in two distinct forms. One set of
firewall is implemented by software only on customer's computing platform. The
other set is implemented by hardware and software on a standalone basis
independent of customer's computing platform. The current leader in the software
firewalls is Check Point Software Technologies Ltd., while Cisco Systems
maintains the number one position in standalone firewalls. Software based
firewalls are dependent on customer's computing operating system platform such
as Windows NT, Windows 95, UNIX, HP-UX, Solaris, SunOS, BSD/OS, etc., hence need
to be integrated into customer's environment by specialists, often a costly
proposition. Standalone firewalls are totally independent of customer's
computing operating system platforms and are easily implemented by in-house
staff of users. Software firewalls prices vary from $3,000 to $40,000 for basic
firewall to fully IPSec compliant firewall, respectively from over a hundred
software suppliers. Comparatively, the number of standalone firewall suppliers
are few, namely Cisco Systems, Galea Network Security, Radguard, and Secant
Network technologies with their prices ranging from $4,500 to $52,000 for
similar offerings.

      Our CFW series firewall products are standalone and totally independent of
customer's computing operating system platform. Our CFW firewalls are
competitively priced ranging from $2,000 to $18,000 for basic firewall to fully
IPSec compliant firewall, respectively. In addition, our CFW series firewalls
are fully interoperable with Cisco Systems, Check Point Software and Nortel
Networks firewalls. Furthermore, our CFW IPSec offering provides cost savings of
50% over Cisco Systems offerings.

Servers

      Our CWEB servers are based on Linux Operating System and Intel Pentium
Processors. They are competitively priced to Cobalt Networks (now Sun
Microsystems) servers by about 15% to 20%. Our CWEB servers are robust and
proven-in for high performance web applications.

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.

      Systems that perform many of the functions similar to our digital voice
switches are readily available from several competitors, including Lucent
Technologies, Nortel Networks, Ericsson, Alcatel and Siemens. However, our
competitors systems are based on previous generation single-function centralized
switching technology offering poor reliability, low performance, no scalability
and no flexibility. Furthermore, these systems are large in physical size with
fixed capacity, consume more power, and are cumbersome to use with modern
wireless and optical technologies. We have developed our systems on a next
generation multi-function distributed switching technology offering superior
reliability, performance, scalability and flexibility. Our systems offer modular
growth in increments of 1,000 to unlimited number of subscribers and typically
occupy 1/20th the space that of our competitors



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offerings. Most importantly, we have developed specialized software for modern
wireless and optical technologies. We can easily and rapidly implement future
advancements in our systems through software. On the other hand, our 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 systems have the following three strengths:

            (a)   the installed cost of our digital voice switches (wireless or
                  landline) is less than those of the competition;

            (b)   our switches can be engineered, installed and put into service
                  much more quickly; and

            (c)   distributed architecture of our switches eliminates stranding
                  capacity and capital.

Proprietary Technology

      We do not hold any patents or copyrights and have no patent or copyright
applications pending. We regard our software technology and certain components
of our system hardware as proprietary and rely for protection upon copyright and
trade secret laws and confidentiality agreements with our employees. In
addition, we require our 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 only.

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

Government Regulation and Industry Standards

      The telecommunications and related networking industries in which we
compete 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 our systems. Furthermore,
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 we will be able to penetrate
markets in the United States and internationally and may result in significantly
increased competition, which would significantly impact our future operating
results. In addition, our systems must comply with equipment, interface and
installation standards promulgated by communications regulatory authorities,
including the Federal Communications Commission.

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

      Industry standards organizations, such as International Telephone Union
("ITU"), Bellcore in the U.S., and Internet Engineering Task Force ("IETF") have
created committees to address the matter of standards within the
telecommunications and Internet industries. 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 our systems incorporates the OSI Model and
accommodates most existing and pending ISDN, AIN, SS7, C7, X.25, Frame Relay,
Private Line, and IPSec standards, including applicable ITU, Bellcore and IETF
specifications. In most foreign countries, government departments or ministries
set industry



                                       11
<PAGE>

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 our company to alter methods of operation, resulting in
additional costs, which could have a material adverse effect on our company.

Production and Supply

      We are engaged in manufacturing, software programming, assembly, system
testing and quality assurance operations at our facility in Hauppauge, New York.
Our 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. We believe that we have sufficient excess production capacity to
satisfy any increased demand for our systems in the foreseeable future.

      We are dependent on third-party manufacturers for the production of all of
the component parts incorporated into our systems. We purchase our component
parts from numerous third-party manufacturers and believe that numerous
alternative sources of supply for most component parts are readily available,
except for a few semiconductor components purchased from single source vendors.
These are Pentium processors from Intel Corp., programmable gate array chips
from Altera Corp., and certain telecom chips from Motorola, Inc., Rockwell
Semiconductors Systems and PMC-Sierra Corp. If these are discontinued by their
respective manufacturers, we would be required to redesign some of our systems
by using other vendors components, which could cause delays in delivery of
systems. We believe that alternative sources of supply for such components are
available. We are substantially dependent on the ability of our suppliers, among
other things, to satisfy performance and quality specifications and dedicate
sufficient production capacity for parts within scheduled delivery times. We do
not maintain contracts with any of our suppliers. We purchase components
pursuant to purchase orders placed from time to time in the ordinary course of
business. Our ability to deliver systems on timely and competitive basis could
be adversely affected due to failure or delay in delivery of parts caused by our
suppliers.

      We offer a one-year warranty for sales covering operating defects, during
which period we will replace parts and make repairs to the system components at
our expense.

Research and Development

      Since the inception we have devoted substantial resources to the design
and development of our systems. For the fiscal years ended March 31, 2001 and
2000, we expended approximately $316,117 and $633,358, respectively, on research
and development. During the year ended March 31, 2001, most research and
development expenditures were attributable to the creation of Cyber Firewall
(CFW) series of firewalls with Internet Protocol (IP) encryption security
(IPSec) and certain software enhancements to our CBIG and CIAN systems. Although
our systems are fully developed such as our CBIG, CIAN, CFW, CDCO, CTSX, CRX and
CSX, we are continually seeking to refine and enhance our systems, including
enhancements to comply with emerging regulatory or industry standards or the
requirements of a particular customer or country.

      The markets for our systems are characterized by rapidly changing
technology and evolving industry standards, often resulting in rapid systems
obsolescence. Accordingly, our ability to compete depends on timely introduction
of our systems to the marketplace, continual enhancements to our systems, and
adapting to technological changes and advances in the communications industry,
including assuring continuing compatibility with evolving industry standards.
There can be no assurance that we will be able to compete successfully, that
competitors will not develop technologies or products that render our systems
obsolete or less marketable, or that we will be able to keep pace with the
technological demands of the marketplace or successfully enhance and adapt our
systems to satisfy industry standards.

Service and Support

      We believe that service, support and training are important factors in
promoting sales and customer



                                       12
<PAGE>

satisfaction. Service and support include system planning, site preparation,
installation, customer training and maintenance.

      Since, our 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, our systems are designed to be accessible by
computer from our headquarters, allowing our service personnel to remotely call
up, diagnose and otherwise support systems, thereby reducing response time and
cost. In addition, we intend 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, we have eight full time employees, of which two
were engaged in marketing and sales activities, two were engaged in research and
development, two were engaged in production testing and operations and two were
in administration. None of our employees is represented by a labor union. We
consider our employee relations satisfactory.




                              GLOSSARY OF TERMS

Analog                        Analog transmission employs continuously variable
                              signal.

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 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.

                                       13
<PAGE>

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.

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.

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.

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.

Private                       Line A form of packet switching with fixed length
                              bytes that may be used with a variety of
                              communication protocols.

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.


                                       14
<PAGE>

ITEM 2 - Description of Property

      Our 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. We believe that our
facility is adequate for our current needs. We believe that additional physical
capacity at our current facility will accommodate expansion, if required.

      Our 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.

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

      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.

      On or about February 20, 2001, Spring, O'Brien & Co., Inc. ("SOB")
commenced an action, in the Supreme Court of the State of New York, County of
New York, against the Company for alleged breach of a certain public relations
services agreement. SOB is seeking payment of $33,500 for supposedly services
rendered. The Company believes that SOB's claims are without merit and intends
to vigorously defend its position as well as seek return of $26,000 already paid
to SOB in anticipation of services to be rendered.

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

      None.



                                       15
<PAGE>

                                   PART II

ITEM 5 - Market for Common Equity and Related Stockholder Matters

      Cyber Digital'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.

                                                      Price Per Share
                                                      ---------------
                                                      High          Low
Fiscal Year Ended March 31, 2001
      First Quarter                                   $2.53        $0.75
      Second Quarter                                   2.25         1.03
      Third Quarter                                    1.43         0.59
      Fourth Quarter                                   1.15         0.47

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

      On March 31, 2001, the closing trade price of the Common Stock as reported
on the Bulletin Board was $0.50 per share. As of such date, there were
approximately 500 stockholders of record of the Common Stock.

      To date, we have not paid any dividends on our Common Stock and we do not
expect to declare or pay any dividends in the foreseeable future. We intend to
retain all earnings for use in our business operations.

                                       16
<PAGE>

ITEM 6 -  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND
RESULTS OF OPERATIONS

Forward Looking Statements

      When used in this report, press releases and elsewhere by the management
of our 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 our company to meet its working capital and liquidity needs, the
status of relations between our 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 our
company is involved, along with product delays and other risks detailed from
time to time in our company's SEC reports, including but not limited to this
Annual Report on Form 10-KSB for the year ended March 31, 2001. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. Our 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

      We are a manufacturer, software developer and provider of a vast array of
high performance Internet infrastructure systems such as routers, gateways,
firewalls and servers for the creation of next-generation digital broadband and
virtual private network (VPN) services by Internet service providers. We are
also a manufacturer and software developer of a range of advanced software
driven digital voice switching infrastructure equipment for private and public
switched voice network operators worldwide, especially for developing countries.
Our mission is to become the leading provider of (i) digital broadband systems
in the U.S., and (ii) digital voice switches to developing countries. We believe
that service providers can offer affordable yet modern voice and broadband
Internet services by exclusively using our vast array of voice and Internet
systems without buying any equipment from our competitors.

      Under the AT&T Alliance program, we provided Internet services to many
medium and small businesses in Boston area for a period of one-year, until
termination of our agreement with AT&T in February 2001. During this period we
had successfully proven all our Frame Relay and Private Line broadband Internet
systems including:

                  (a)   Cyber Business Internet Gateway (CBIG), a unique gateway
                        in the industry that combines all the functions and
                        features required by the customer in one box,

                  (b)   Cyber Internet Access Network (CIAN), a high performance
                        distribution router, providing multiple business
                        customers simultaneous access, and

                  (c)   Cyber Firewall (CFW) IPSec based, the most advanced
                        firewall standard in the industry.

      Our Internet systems were implemented for the creation of both local-loop
digital broadband and virtual private network (VPN) applications. Our Internet
systems provided network availability in excess of 99.999% when we provided
Internet services in alliance with AT&T. We believe that our systems are
specifically designed for the next-generation of local-loop digital broadband
networks requiring increased reliability, performance, scalability,
interoperability and flexibility. Our strategy is to market our Internet systems
to Internet service providers, utility companies and telecommunication service
providers who are willing to build the next-generation local-loop digital
broadband networks in the aftermath of the telecommunications meltdown in the
U.S. We expect to establish sales relationship with a few Internet service
providers and utility companies who are currently contemplating of entering this
new emerging market within the next quarter. We believe that our early mover
advantage in this early adopter market will have significant sales impact in the
future.

      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 in 2003. To-date most of the



                                       17
<PAGE>

investment has been in the implementation of fiber optic Internet Protocol (IP)
backbone network connecting major cities, leading to excess IP backbone
capacity. The next growth in investment is expected towards the implementation
of local-loop digital broadband to connect corporate local area networks (LANs)
and PCs to IP backbone. We believe that we are poised to be the leading supplier
of local-loop digital broadband systems in the U.S.

      In January 2001, we introduced simple-do-it-yourself installation software
on our proprietary standalone Cyber Firewall (CFW) series IPSec firewall
appliance for B2B e-commerce secure access and virtual private network
applications. IPSec is an industry-wide standard for assuring the privacy,
integrity and authenticity of information crossing public IP networks. Adhering
to IPSec standards makes Internet "wiretapping" entirely impractical. Based on
our proprietary software technology, our CFW IPSec firewall provides a
cost-effective way of creating an enterprise-wide virtual private network (VPN)
by enabling secure use of the Internet. Our CFW series firewall appliance is
totally independent of customer's computing operating system platform. Our CFW
firewall is fully interoperable with Cisco Systems, Check Point Software
Technologies, and Nortel Networks firewalls. According to International Data
Corporation (IDC), the worldwide Internet firewall market will grow from $5
billion in 2000 to $11 billion in 2004. We expect to market our CFW series IPSec
firewall appliance through major strategic partners, resellers and distributors
on a worldwide basis.

      In April 2001, we developed a strong foothold in the Nigerian
telecommunication market by having our digital wireless telephone network
solution accepted by five states. In addition, we won a bid to provide 10,000
lines telephone network against major giants such as Alcatel and Siemens in
Nigeria. Since we offer an affordable telecommunications as well as Internet
capability, the Nigerian leaders have selected us as the ideal supplier of
telephone and Internet systems. We envisage supplying $35 million of our
wireless systems to five states and $26 million of our fiber optic landline
systems to the government of Nigeria. Payment terms for these sales are 50%
cash-in-advance and the remaining balance paid through an irrevocable confirmed
letter of credit.

Results of Operations

Year Ended March 31, 2001, Compared to Year Ended March 31, 2000

Net sales

      Net sales for the year ended March 31, 2001 ("Fiscal 2001"), were $37,539
representing an increase of $31,042 or approximately 477% from $6,497 for the
year ended March 31, 2000 ("Fiscal 2000"). Increases in sales were due to our
strategic shift to enter digital broadband business.

Gross margin

      We include in our cost of goods sold the materials and labor used,
subcontractor costs and overhead incurred in the manufacture of our systems.
Gross margins decreased from approximately 44% to approximately 22% of net sales
from Fiscal 2000 to Fiscal 2001. Decrease in gross margins was primarily
attributable to increase in initial service costs for digital broadband services
rendered to customers.

Selling, general and administrative

      Selling, general and administrative expenses decreased from $1,379,924 in
Fiscal 2000 to $1,265,844 in Fiscal 2001, representing a decrease of $114,080.
The absolute dollar selling, general and administrative expenses in Fiscal 2000
and Fiscal 2001 were principally the result of selling expenses incurred with
respect to introductory and exploratory marketing efforts in the U.S and
Nigeria.

Research and development

      Research and development expenses decreased from $633,358 in Fiscal 2000
to $316,117 in Fiscal 2001, representing a decrease of $317,241 or approximately
50%. The decrease in research and development expenses was primarily due to the
completion of development of Internet systems. All development costs are
expensed in the period incurred.



                                       18
<PAGE>

Income (loss) from operations

      Loss from operations in Fiscal 2001 was $(1,573,548) or $(.08) per share
as compared with $(2,010,457) or $(.11) per share in Fiscal 2000. The decrease
in loss from operations was primarily due to overall decrease in operating
expenses.

Net income (loss) available to Common Stockholders

      As a result of the foregoing, the net loss in Fiscal 2001 was $(1,563,233)
or $(.08) per share as compared to a net loss of $(2,089,756) or $(.11) per
share in Fiscal 2000.

Liquidity and Capital Resources

      Our ability to generate cash adequate to meet our needs results primarily
from sale of preferred and common stock and cash flow from operations. Total
working capital decreased by $1,701,010 to $316,752 at March 31, 2001 from
$2,017,762 at March 31, 2000. The current ratio of current assets to current
liabilities decreased to 1.7 to 1 as at March 31, 2001 from 8.1 to 1 as at March
31, 2000. Current levels of inventory are adequate to meet sales for the next
six months. We believe that our current sources of liquidity will be sufficient
to meet our needs for the next thirty months, pursuant to a firm commitment of
$6 million private equity line from an accredited institutional investor. We
believe that we will be able to obtain additional funds beyond the $6 million
equity line, if required for future needs.

      We used $16,042 and $29,305 during Fiscal 2001 and Fiscal 2000
respectively, for investing activities. The cash used for investing activities
relates primarily to purchases of equipment in Fiscal 2001 and Fiscal 2000.
During Fiscal 2001 and Fiscal 2000 production equipment capacity was expanded to
include testing of Internet systems.

      Net cash provided (used) in financing activities was $(243,419) and
$3,302,160 for Fiscal 2001 and Fiscal 2000, respectively.

      On July 11, 1996, we 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. As of July 10, 2001, 824,013 warrants expired in connection with
the offering of Series A preferred stock at an exercise price of $6.35 per
share.

      On December 30, 1996, we 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 outstanding
Series B-1 Preferred Stock was converted into 861,230 shares of Common Stock at
a conversion price of $2.89 per share.

      On July 12, 1999, we 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, we issued warrants to accredited investors to
purchase an aggregate of 12,710 shares of 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.



                                       19
<PAGE>

      On October 5, 1999, we 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, we issued
warrants to the accredited institutional investor to purchase an aggregate of
190,678 shares of 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 our
company, has been issued a warrant to purchase 45,000 shares of the 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.

      In March 2001, we concluded a private placement of 645,253 restricted
shares of Common Stock, par value $.01 per share, to certain accredited
investors and received net proceeds of $300,000. These securities were issued
without registration in reliance on Section 4(2) of the Securities Act of 1933,
as amended.

      On July 2, 2001, we concluded a firm commitment of $6 million private
equity line from an accredited institutional investor. We are able to draw down,
at our discretion, up to a maximum of $250,000 and a minimum of $100,000 per
month, during a term of thirty months from July 2, 2001.

      Due to the completion of the Series A, Series B, Series C, Series D1
Preferred Stock and $6 million firm commitment private equity line transactions,
expected exercise of options and warrants and together with expected cash flow
from operations, we believe that our sources of capital will be adequate to
satisfy anticipated capital needs for the next 30 months.

Impact of Inflation

      Inflation has historically not had a material effect on our operations.

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.



                                       20
<PAGE>


                                   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 our company are:

Name                                Age             Office

Jawahar C. Chatpar                  53    Chairman  of the  Board,  President,
and


Chief Executive Officer

Jack P. Dorfman                     63    Director

Jatinder V. Wadhwa                  66    Director

Terry L. Jones                      53    Director

Andrew Van Etten                    39    Director

Larry S. Shluger                    62    Vice  President  of  Operations  and
Secretary

Dale A. Johnson                     37    Controller and Treasurer

Sandeep Belani                      23    Assistant Vice President of Finance

      Jawahar C. Chatpar is a founder of our 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 our 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 our 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 our company since 1986 and as
Treasurer from August 1997 until March 2000. He had been the Secretary of our
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 our company  since  November
1997.  He  has  been  the  President



                                       21
<PAGE>

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 our 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 our 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
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 our company from March 1998, and
Treasurer since March 2000. She joined our 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.

      Sandeep Belani joined our company in July 2000 as Assistant Vice President
of Finance. He had previously worked at our company during the summer of 1999.
He holds a B.S. degree in Finance and Entrepreneurship in Emerging Enterprises
from Syracuse University.

      We have no family relationship among our Directors and Officers. 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 our company's directors and executive officers, and
persons who own more than ten (10%) percent of a registered class of our
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 our company. Reporting
persons are required by Commission regulations to furnish our company with
copies of all Section 16(a) forms they file.

      To our company's knowledge, based solely on review of the copies of such
reports furnished to our company, the following persons failed to file, on a
timely basis, the following reports required by Section 16(a) of the 1934 Act:
J.C. Chatpar failed to timely file two Forms 4, in connection with the receipt
of certain stock options, during the fiscal year ended March 31, 2001 and the
date hereof. Jatinder Wadhwa failed to timely file two Forms 4, in connection
with the receipt of certain stock options, during the fiscal year ended March
31, 2001 and the date hereof. Jack Dorfman failed to timely file two Forms 4, in
connection with the receipt of certain stock options, during the fiscal years
ended March 31, 2001 and the date hereof. Terry Jones failed to timely file two
Form 4, in connection with the receipt of certain stock options, during the
fiscal year ended March 31, 2001 and the date hereof. Andrew Van Etten failed to
timely file a Form 3, and in connection with the receipt of certain stock
options, two Forms 4 during the fiscal year ended March 31, 2001 and the date
hereof. Dale Johnson failed to timely file a Form 3, and in connection with the
receipt of certain stock options, a Form 4, during the fiscal year ended March
31, 2001. Larry Shluger failed to timely file a Form 4, in connection with the
receipt of certain stock options, during the fiscal year ended March 31, 2001.
These forms are currently being prepared for filing.



                                       22
<PAGE>

Summary Compensation Table

      The following table sets forth information concerning the compensation for
services in all capacities for the fiscal years ended March 31, 2001, 2000 and
1999 of those persons who were, at March 31, 2001 the chief executive officer
(the "Named Officer"). During such periods, no executive officer of our company
received compensation in excess of $100,000 other than J.C. Chatpar.
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------    All
                  Annual Compensation        Long Term Compensation                Other
                  -------------------        -----------------------------------Compensation
<S>          <C>    <C>    <C>       <C>      <C>         <C>       <C>          <C>



                                               Awards                Payouts
            -------------------------------  ----------------------  ----------

Name and    Year  Salary    Bonus    Other    Restricted Securities  LTIP
Principal         ($)       ($)      Annual   Stock      Underlying  Payouts
Position                             Compens- Awards     Options/    ($)
                                     Ation    ($)        SARs(#)
                                     ($)(1)
------------------------------------------------------------------------------------------
J.C.        2001  $123,900  None     None     None      110,000(4)     None        None
Chatpar,    2000  $181,500  None     None     None    1,000,000(3)     None        None
Chairman    1999  $165,000  None     None     None      120,000(2)     None        None
of the
Board,
President
and Chief
Executive
Officer
-----------------------------------------------------------------------------------------
</TABLE>

(1) We have 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
2001, 2000 and 1999 fiscal years or $50,000, thus, such amounts are not included
in the table.

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

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

(4) Mr. Chatpar was granted 110,000 options each to purchase one share of Common
Stock exercisable at $1.50 in Fiscal 2001.

Option Grants In Last Fiscal Year

      The following table sets forth information concerning stock option grants
made during Fiscal 2001 to the Named Officers. We have not granted any stock
appreciation rights.

                               Individual Grants
                               -----------------

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

J.C. Chatpar     110,000             85%                  $1.50       4/27/2010

-----------------
(1) During Fiscal 2001, options to purchase an aggregate of 110,000 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.

                                       23
<PAGE>

Aggregated Fiscal Year End Option Values

      The following table sets forth information concerning the number of
unexercised options and the Fiscal 2001 year end value of unexercised options on
an aggregated basis held by the Named Officers. We have not granted any stock
appreciation rights in Fiscal 2001.

                 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

J.C. Chatpar     1,655,000     0               0                0

(1) Options are "in-the-money" if, on March 31, 2001, the market price of the
Common Stock ($0.50) 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, 2001 and
the aggregate exercise price of such options.

Compensation of Directors

      We pay our directors $250 per Board meeting. During Fiscal 2001, the Board
of Directors met two times and each director attended at least 75% of the
meetings of the Board of Directors. In addition, we currently reimburse 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

      We have 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 our company, we have also agreed that our Board of
Directors may raise his salary during the term of his employment as soon as our
financial resources 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 our 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



                                       24
<PAGE>

payments of 5% of the gross revenues earned by our 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 our 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.

      We do not have employment contracts with any other officer or director. We
offer basic health, major medical and life insurance to our employees. We have
not adopted any retirement, pension or similar program.

ITEM 11 - Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information regarding beneficial
ownership of our company's Common Stock as of March 31, 2001, for (i) each
person or group that is known to us 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 our company as a
group. Except as otherwise indicated, we believe 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)               6,575,712            31.9%
c/o Cyber Digital, Inc.
400 Oser Avenue
Hauppauge, NY 11788

Jack P. Dorfman(4)             230,000              1.1%

Jatinder V. Wadhwa(5)          227,812              1.1%

Terry L. Jones (6)              30,000              *

Andrew Van Etten                10,000              *

All directors and
executive officers as a
group:  (5) persons          7,073,524               34.3%
*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 our 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 our 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 1,655,000 shares as to which Mr.
Chatpar holds non-qualified stock options, which are exercisable at any time.

                                       25
<PAGE>

(4) Includes 110,000 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 70,000 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 30,000 shares as to which Mr.
Jones holds non-qualified stock options which are exercisable at any time.


ITEM 12 - Certain Relationships and Related Transactions

      On December 30, 1996, we consummated a private placement of its Series B-1
Convertible Preferred Stock, par value $.05 per share, to Syncom III. We 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, our company's Board
of Directors shall consist of not less than five members and that we shall use
our best efforts to cause Terry Jones (or another partner of WJM) to be elected
as a director.





                                       26
<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, 2001.



                                       27

<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>


AL 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, 2001 and 2000 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, 2001 and 2000 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 & Co., P.C.


Hauppauge, New York
June 21, 2001, except for Note 12,
which is dated July 2, 2001


                                       F-1


<PAGE>



                               CYBER DIGITAL, INC.
                                 BALANCE SHEETS
                                    March 31,
<TABLE>
<CAPTION>

                                                                  2001           2000
                                                             ------------    ------------
<S>                                                          <C>             <C>
ASSETS

Current Assets
  Cash and cash equivalents                                  $     80,611    $  1,650,801
  Accounts receivable                                                 390           5,078
  Inventories                                                     663,607         592,125
  Prepaid and other current assets                                 33,084          52,990
                                                             ------------    ------------
                                     Total Current Assets         777,692       2,300,994

Property and Equipment, net                                       126,934         201,781

Other Assets                                                       26,374          21,750
                                                             ------------    ------------
                                                             $    931,000    $  2,524,525
                                                             ============    ============

LIABILITIES AND SHAREHOLDERS'  EQUITY

Current Liabilities
  Accounts payable, accrued expenses, and taxes              $    460,940    $    283,232
                                                             ------------    ------------
                                Total Current Liabilities         460,940         283,232
                                                             ------------    ------------

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, 2001
        and 2000                                                      -0-           -0-
      Series B-1; issued and outstanding - none at March 31, 2001
       and 2000, respectively                                         -0-           -0-
      Series B-2; issued and outstanding - none at March 31, 2001
        and 2000                                                      -0-           -0-
      Series C; issued and outstanding - 310 shares at
        March 31, 2001 and 2000                                        16            16
      Series D-1; issued and outstanding - -0- and 851 shares at
        March 31, 2001 and 2000                                       -0-            43
  Common stock - $.01 par value; authorized 60,000,000 shares;
    issued and outstanding 20,197,348 and 19,199,807
      shares at March 31, 2001 and 2000, respectively             201,974       191,998
  Additional paid-in capital                                   17,528,572    17,574,905
  Accumulated deficit                                        (17,260,502)   (15,525,669)
                                                             -----------   ------------

                                                                  470,060     2,241,293
                                                             -----------   ------------
                                                             $    931,000  $  2,524,525
                                                             ============  ============
</TABLE>


               See accompanying notes to financial statements.

                                       F-2

<PAGE>

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

<TABLE>
<CAPTION>

                                                                       2001                  2000
                                                                 ------------            ------------
<S>                                                              <C>                     <C>
Net Sales                                                        $     37,539            $      6,497

Cost of Sales                                                          29,126                   3,672
                                                                 ------------            ------------

                                             Gross Profit               8,413                   2,825
                                                                 ------------            ------------

Operating Expenses
  Selling, general and administrative expenses                      1,265,844               1,379,924
  Research and development                                            316,117                 633,358
                                                                 ------------            ------------

                                   Total Operating Expenses         1,581,961               2,013,282
                                                                 ------------            ------------


                                     Loss from Operations          (1,573,548)             (2,010,457)
                                                                 ------------            ------------

Other Income (Expense)
  Interest income                                                      12,612                  56,126
  Loss on disposal of fixed assets                                     (1,053)                 (6,670)
  Other income                                                         36,830                     -0-
                                                                 ------------            ------------

                                       Total Other Income              48,389                  49,456

                                 Loss before Income Taxes          (1,525,159)             (1,961,001)

Provision (Benefit) for Income Taxes                                    2,655                    (301)
                                                                 ------------            ------------

                                                 Net Loss          (1,527,814)             (1,960,700)

                                 Preferred Stock Dividend             (35,419)               (129,056)
                                                                 ------------            ------------

                  Income Available to Common Shareholders        $ (1,563,233)           $ (2,089,756)
                                                                 ============            ============

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

                               Loss from Operations - Basic      $       (.08)           $       (.11)
                                                                 ============            ============
                                                    Diluted      $       (.08)           $       (.11)
                                                                 ============            ============

                                           Net Loss - Basic      $       (.08)           $       (.11)
                                                                 ============            ============
                                                    Diluted      $       (.08)           $       (.11)
                                                                 ============            ============

Weighted average number of common shares outstanding               19,517,679              18,517,456
                                                                 ============            ============
</TABLE>




               See accompanying notes to financial statements.

                                       F-3


<PAGE>



                             CYBER DIGITAL, INC.
                STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                       Years ended March 31, 2001 and 2000



<TABLE>
<CAPTION>

                                                                       Series A                           Series B-1
                                                               Shares            Amount            Shares            Amount
                                                               =======           =======          ======            =======
<S>                                                            <C>              <C>               <C>              <C>
Balance at March 31, 1999                                          -0-           $   -0-           2,420            $   121

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

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-

Preferred stock Series D-1 stock dividend

Conversion of Series D-1 Preferred Stock

Preferred stock Series D-1 cash dividend

Redemption of Series D-1 Preferred Stock

Exercise of stock options

Issuance of Common Stock

Net Loss

Balance at March 31, 2001                                          -0-           $   -0-             -0-            $   -0-
                                                               =======           =======          ======            =======
</TABLE>



<TABLE>
<CAPTION>
                                                                     Preferred Stock
                                                                       Series B-2                           Series C
                                                                Shares            Amount            Shares            Amount
                                                                ======            ========        ========            ======
<S>                                                             <C>                    <C>           <C>   <C>             <C>
Balance at March 31, 1999                                          -0-            $    -0-             -0-            $  -0-

Exercise of stock options

Preferred stock dividend - Series B-1

Conversion of Series B-1 Preferred Stock

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-             310            $   16

Preferred stock Series D-1 stock dividend

Conversion of Series D-1 Preferred Stock

Preferred stock Series D-1 cash dividend

Redemption of Series D-1 Preferred Stock

Exercise of stock options

Issuance of Common Stock

Net Loss

Balance at March 31, 2001                                          -0-            $    -0-             310            $   16
                                                                ======            ========        ========            ======
</TABLE>


<TABLE>
<CAPTION>

                                                                          Series D-1                         Common Stock
                                                                   Shares            Amount          Shares              Amount
                                                                ========             =======       ==========           =========
<S>                                                                 <C> <C>              <C>        <C>  <C>          <C>
Balance at March 31, 1999                                            -0-             $   -0-       17,386,053           $ 173,861

Exercise of stock options                                                                             242,000               2,420

Preferred stock dividend - Series B-1                                                                  23,860                 238

Conversion of Series B-1 Preferred Stock                                                              837,370               8,374

Issuance of 6% Series C Preferred Stock

Issuance of 8% Series D-1 Preferred Stock                          3,000                 150

Preferred stock dividend - Series D-1                                                                  19,395                 194

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

Net Loss

Balance at March 31, 2000                                            851             $    43       19,199,807           $ 191,998

Preferred stock Series D-1 stock dividend                                                               7,477                  75

Conversion of Series D-1 Preferred Stock                            (279)                (14)         179,811               1,798

Preferred stock Series D-1 cash dividend

Redemption of Series D-1 Preferred Stock                            (572)                (29)

Exercise of stock options                                                                              75,000                 750

Issuance of Common Stock                                                                              735,253               7,353

Net Loss

Balance at March 31, 2001                                            -0-             $   -0-       20,197,348           $ 201,974
                                                                ========             =======       ==========           =========
</TABLE>




<TABLE>
<CAPTION>
                                                                  Additional                                      Total
                                                                    Paid-in              Accumulated          Shareholders'
                                                                    Capital                Deficit              Equity
                                                                  ===========            ============         ===========
<S>                                                               <C>                <C>                   <C>
Balance at March 31, 1999                                         $14,161,764           $(13,435,913)         $   899,833

Exercise of stock options                                             289,740                                     292,160

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

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

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

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

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

Conversion of Series D-1 Preferred Stock                               (6,804)                    -0-                 -0-

Net Loss                                                                                   (1,960,700)         (1,960,700)

Balance at March 31, 2000                                         $17,574,905            $(15,525,669)        $ 2,241,293

Preferred stock Series D-1 stock dividend                              11,525                 (11,600)                -0-

Conversion of Series D-1 Preferred Stock                               (1,784)                    -0-                 -0-

Preferred stock Series D-1 cash dividend                                                      (23,819)            (23,819)

Redemption of Series D-1 Preferred Stock                             (514,771)               (171,600)           (686,400)

Exercise of stock options                                              74,250                                      75,000

Issuance of Common Stock                                              384,447                                     391,800

Net Loss                                                                                   (1,527,814)         (1,527,814)

Balance at March 31, 2001                                         $17,528,572            $(17,260,502)        $   470,060
                                                                  ===========            ============         ===========
</TABLE>



               See accompanying notes to financial statements.

                                       F-4

<PAGE>



                               CYBER DIGITAL, INC.
                            STATEMENTS OF CASH FLOWS
                              Years ended March 31,
<TABLE>
<CAPTION>

                                                                                          2001                2000
                                                                                      -----------         -----------
<S>                                                                                   <C>                 <C>
Cash Flows from Operating Activities
  Net loss                                                                            $(1,527,814)        $(1,960,700)
  Adjustments to reconcile net loss to
     net cash used in operating activities:
    Depreciation                                                                           74,007              71,663
    Loss on disposal of property and equipment                                              1,053               6,670
    (Increase) decrease in operating assets:
     Accounts receivable                                                                    4,688              (5,078)
     Inventories                                                                          (55,653)           (109,492)
     Prepaid and other current assets                                                      19,906             (23,800)
     Other assets                                                                          (4,624)             (7,400)
    Increase in operating liabilities:
     Accounts payable, accrued expenses and taxes                                         177,708             159,251
                                                                                      -----------         -----------

                    Net Cash Used in Operating Activities                              (1,310,729)         (1,868,886)
                                                                                      -----------         -----------

Cash Flows from Investing Activities
  Purchase of equipment                                                                   (18,042)            (29,305)
  Proceeds from sale of equipment                                                           2,000                 -0-
                                                                                      -----------         -----------

                    Net Cash Used in Investing Activities                                 (16,042)            (29,305)
                                                                                      -----------         -----------

Cash Flows from Financing Activities
  Issuance of common stock                                                                391,800                 -0-
  Exercise of common stock options                                                         75,000             292,160
  Issuance of preferred stock                                                                 -0-           3,010,000
  Redemption of preferred stock                                                          (686,400)                -0-
  Preferred stock dividend                                                                (23,819)                -0-
                                                                                      -----------         -----------

         Net Cash (Used) Provided by Financing Activities                                (243,419)          3,302,160
                                                                                      -----------         -----------

       Net (Decrease) Increase in Cash and Cash Equivalents                            (1,570,190)          1,403,969

Cash and Cash Equivalents at Beginning of Period                                        1,650,801             246,832
                                                                                      -----------         -----------

               Cash and Cash Equivalents at End of Period                             $    80,611         $ 1,650,801
                                                                                      ===========         ===========

Supplemental Disclosures of Cash Flow Information Cash paid during the period
  for:
    Income taxes                                                                      $       742         $     4,424
</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,
2001, the Company had an accumulated deficit of $(17,260,502) and a
shareholders' equity of $470,060. The decrease in equity from March 31, 2000 to
March 31, 2001 is due mainly to a net operating loss during the year ended March
31, 2001. 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.
Subsequent to year-end, the Company received a firm commitment for additional
financing as further discussed in Note 12.

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, 2001 and 2000. 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 has not been 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:
                                                      2001           2000
                                                  ------------   ------------

               Raw materials                      $    605,527   $    528,221
               Finished goods                           58,080         63,904
                                                  ------------   ------------

                                                  $    663,607   $    592,125
                                                  ============   ============

Note 3 - Property and Equipment

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

                                        2001          2000       Useful Lives
                                    -----------   ------------   -------------

       Machinery and equipment      $   339,115   $    385,743        5 years
       Furniture and fixtures            66,682         66,262        7 years
       Leasehold improvements             4,786          4,786     lease term
                                    -----------   ------------

                                        410,583        456,791
       Less:  Accumulated depreciation  283,649        255,010
                                    -----------   ------------

                                    $   126,934   $    201,781
                                    ===========   ============



                                       F-8
<PAGE>



                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

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.

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

Net Loss                                          $ (1,527,814)  $ (1,960,700)
Dividends paid on Preferred Stock                      (35,419)      (129,056)
                                                  ------------   ------------

Income Available to Common Shareholders           $ (1,563,233)  $ (2,089,756)
                                                  ------------   ------------
Weighted Average Common Shares Outstanding          19,517,679     18,517,456
                                                  ------------   ------------

Basic EPS                                         $       (.08)  $       (.11)
Diluted EPS                                       $       (.08)  $       (.11)

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.

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.



                                       F-9
<PAGE>



                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 6 - Stock Option Plans (continued)

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.

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, 2000             $.75 to $10.00        3,820,901
      Granted                               $.68 to $1.50           207,971
      Canceled                              $1.00 to $3.31         (120,000)
      Exercised                             $1.00 to $1.00          (75,000)

     Outstanding March 31, 2001                                   3,833,872
                                                                 ==========



                                      F-10

<PAGE>



                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 6 - Stock Option Plans (continued)

A summary of options and warrants as of March 31, 2001 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 3/31/01               Life              Price          3/31/01            Price
---------------          --------------------  ------------------  -------------     ------------      --------------

<S>                     <C>                    <C>                 <C>             <C>                 <C>
 $.68 to $1.50           $      1,037,971              5.33         $   1.04        $     804,290              .99
$2.43 to $2.72                  1,275,000              7.56             2.68              739,896             2.67
$4.00 to $4.25                     20,000              3.29             4.25               19,375             4.26
$5.70 to $6.00                    651,888              2.45             5.89              329,103             5.92
$6.35 to $10.00                   849,013               .28             6.46              849,013      $      6.46
                         --------------------  ------------------  -------------     ------------      --------------
                         $      3,833,872              4.45         $   3.63           $2,741,677      $      3.75
                         ====================  ==================  =============    =============      ==============
</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:
                                             Years Ended March 31,
                                          --------------------------
                                              2001          2000
                                          ------------  ------------
      Expected dividend yield                    0.00%         0.00%
      Expected price volatilities               91.00%        95.50%
      Risk-free interest rate                    4.40%         6.30%
      Expected life (years)                      9.10         9.00

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:

                                              2001          2000
                                          ------------  ------------
      Weighted average fair value of
        Options granted                   $        0.10  $       0.46

      Net Loss
       As reported                        $  (1,527,814) $ (1,960,700)
       Pro Forma                             (1,679,765)   (1,995,271)

      Net Loss Per Share
       As reported
         Basic                            $        (.08) $       (.11)
         Diluted                          $        (.08) $       (.11)
       Pro Forma
         Basic                            $        (.09) $       (.11)
         Diluted                          $        (.09) $       (.11)


                                      F-11
<PAGE>



                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 7 - Convertible, Cumulative and Participating Preferred Stock

During the 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,
2001, 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, 2001, there are undeclared dividends of $42,602 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.

       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.



                                      F-12

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

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

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.

During the fiscal years ended March 31, 2001 and 2000, pursuant to an optional
conversion of Series D-1 preferred stock, 279 shares and 2,149 shares,
respectively, were converted into 179,811 and 691,129 shares, respectively, of
common.

During the fiscal years ended March 31, 2001 and 2000, the Company paid stock
dividends in the amount of $11,600 and $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 7,477 and 19,395, respectively, shares of the
Company's common stock.

During the fiscal year ended March 31, 2001, pursuant to an optional redemption
feature of Series D-1 preferred stock, the Company redeemed 572 shares of its
Series D-1 preferred stock. The Company paid a cash dividend of $23,819 on these
572 shares.

Note 8 - Common Stock

During the year ended March 31, 2001, the Company received $300,000 under a
stock subscription agreement. The common stock is deemed to be issued and
outstanding as of March 31, 2001. The stock certificates were issued to the
investors in June 2001.



                                      F-13


<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS

Note 9 - Income Taxes

The Company has net operating loss carryforwards for tax purposes amounting to
approximately $12 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
$611,000 for the fiscal year ended March 31, 2001.

The Company was subject to capital based taxes for New York State for the years
ended March 31, 2001 and 2000.

Note 10 - 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. On August 3, 2000, this employment contact was
renewed for a three-year period.

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 10 - 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
$59,125 and $55,638 for the years ended March 31, 2001 and 2000, respectively.

In January 1998, the Company commenced a noncancelable operating lease that
expired 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 $-0- and $14,850 for the year ended March 31, 2001 and 2000,
respectively. The expense for 2000 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 is $1,404. The amount charged to expense was $9,912 and
$14,217 for the years ended March 31, 2001 and 2000, 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 $11,648 and $7,951 for the years ended
March 31, 2001 and 2000, respectively.

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 $31,227 and $4,750 for the years ended
March 31, 2001 and 2000, respectively.

Future minimum rentals are as follows:

            For years ending March 31, 2002        $  109,712
                                       2003           110,028
                                       2004           109,637
                                       2005            29,923
                                                   ----------

                                                   $  359,300
                                                   ==========

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 10 - 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 11 - Foreign Operations

During the 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, 2001 and 2000.

During the year ended March 31, 2001, the Company financed a wholly owned
subsidiary, Cyber Digital (Nigeria) Ltd. under the rules and regulations of the
Government of Nigeria. The subsidiary has not begun operating and has no assets
as of March 31, 2001.

Note 12 - Subsequent Event

Equity Line of Credit

During July 2001, the Company received a firm commitment for an equity line of
credit for $6,000,000. The commitment allows for the Company to make twenty-four
draws at a maximum of $250,000 per draw over a thirty-month period.



                                      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:  July 9, 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  July 9, 2001
------------------             and Chief Executive Officer
    J.C. Chatpar               (Principal Executive and
                               Financial Officer)


/s/ Dale A. Johnson            Controller and Treasurer
-------------------
    Dale A. Johnson            (Principal Accounting Officer)

/s/ Jack P. Dorfman            Director                          July 9, 2001
--------------------
    Jack P. Dorfman

/s/ Jatinder Wadhwa            Director                          July 9, 2001
-------------------
    Jatinder Wadhwa

/s/ Terry Jones                Director                          July 9, 2001
------------------
    Terry Jones

/s/  Andrew Van Etten          Director                          July 9, 2001
---------------------
     Andrew Van Etten



                                       28
<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).