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, 2002
                                --------------

____  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:  $0

      As of June 28, 2002, Registrant had 21,171,794 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 $10,241,250 (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 14.

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. During fiscal year 2002, we developed a strong
foothold in the Nigerian telecommunication market by having our digital wireless
telephone network solution accepted by five states. Since we offer an affordable
telecommunications as well as Internet capability, the Nigerian authorities have
selected us as the ideal supplier of telephone and Internet systems.

      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 networks in place, we believe that
we are poised to be the leading supplier of local-loop digital broadband
systems. There is abundant capacity of optically enabled IP backbone networks
between all major cities in the U.S., but as yet businesses or consumers do not
have adequate access to that capacity. Our high-performance distribution routers
are specifically designed to allow Internet service providers to meet the
requirements of local-loop digital broadband networks. We believe that we will
establish a strong market position with early adopters of this technology and
will build on this position as the market reestablishes itself.

      We have recently targeted the burgeoning Homeland Security market with our
digital broadband systems. Our VPN solution creates secure high-speed data
networks between remote locations to facilitate information sharing between
government departments. We plan to market our secure VPN solution to U.S.
Federal government agencies as an aid in the war against terrorism.

      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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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 in the United
States as a result of the convergence of seven factors:

o    the growing demand for high-speed access to the Internet and virtual
     private networks (VPNs);

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 the central office of an Incumbent Local Exchange Carrier (ILEC) to a
subscriber location. This is generally less than 12,000 feet, which represents
less than 10% of the total market. This shortcoming is created by the Incumbent
Local Exchange Carrier's (ILEC) existing voice grade lines and is 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.

Large Businesses Need to Create Enterprise-wide Networks 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.

Small and Medium Businesses Need 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 our 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

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dramatically increases the reliability of packet data transmission because of
end-to-end integrity and connectivity. We believe 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 data networks, are less
efficient because they require a dedicated connection between two locations. Our
CBIG gateway IP frame-relay or private-line packet-based networks allow multiple
users to share connections between locations.

Businesses Need "Firewall" or Data Security

      Security of data transmission over the 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. Our CFW and CBIG provides the "Ultimate
Firewall" by IP packet filtering, IP masquerading, IP tunneling and IP
encryption security (IPSec). This firewall capability makes an enterprise-wide
VPN a reality. International Data Corporation (IDC) estimates that the worldwide
sales of hardware-based VPN and firewall equipment, such as our CFW and CVPN,
will grow from $0.9 billion in 2000 to $4 billion in 2005.

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. The result is the telecommunications meltdown in the U.S.,
when most DSL service providers filed bankruptcy due to poor grade of service
from ILECs and the "narrowband" nature of the network. While the companies that
supplied equipment to them - including Cisco Systems, Nortel Networks, and
Lucent Technologies - have suffered a significant drop in their business. In
addition, business and residential users of the Internet now only have very
expensive alternative to narrowband access. 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 they
must build their own local-loop digital broadband networks to reach out
businesses and consumers. We believe our CIAN distribution routers are
specifically designed to allow Internet service providers to build local-loop
digital broadband networks including in multiple tenant unit buildings.
According to a report by Cahners In-Stat Group, the sales of broadband equipment
and services, such as our CIAN, tailored to the multiple tenant unit buildings
alone will reach $4.8 billion by 2004, up from $0.37 billion in 2000 in the
United States.

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 firewall appliance 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. Our 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,
IP frame-relay and private-line equipment, CSU/DSU, firewall equipment, e-mail
server and web server. We believe that 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 that is
the industry's fastest router for customer-end applications. Our CBIG
dramatically

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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 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 firewalls are provided by IP filtering, IP
masquerading and IP tunneling. We believe that our VPN offering is the most
advanced in the industry.

Cyber Internet Access Network

      We have developed and marketed our 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. Our CIAN creates a 'Mini-POP' (Points of Presence) and
brings the Internet closer to users thus eliminating bottlenecks, reducing
network delays and increasing reliability. Our CIAN distribution router has the
capacity of 0.1Gbps and is suitable for T1 to T3 carrier grade applications. .
Our CIAN distribution routers are specifically designed to allow Internet
service providers to build local-loop digital broadband networks.

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 business -to-business 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. Our
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 our Cyber Web Server (CWEB) that is based
on Linux Operating System and Intel Pentium Processors. We believe that our 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 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 (CLECs)
attempting to bypass Incumbent Local Exchange Carriers (ILECs). 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 our Cyber Distributed Central Office (CDCO)
which is designed to provide digital voice communications to subscribers in
densely populated urban areas. Our CDCO system is a digital switch with trunk
and tandem exchange capabilities enabling it to connect subscribers served by
other exchanges. Our CDCO system is designed to interface with both modern
digital telecommunications networks and older analog telephone networks. Our
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 our 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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      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 our CDCO system 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 our CDCO system are totally distributed in
autonomous processing sub-systems or 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 our Cyber Rural Exchange (CRX), which is a
specialized version of Cyber Distributed Central Office (CDCO). Our 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 our 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 ending
February 2001, when our agreement with AT&T terminated. During this period we
successfully tested 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. (See "Business - Industry Background - Failure of the 1996
Telecommunications Act.")

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      We expect to market our CFW series IPSec firewall appliance through major
strategic partners, resellers and distributors on a worldwide basis. We have
also targeted the burgeoning Homeland Security market with our secure broadband
data systems such as CIAN, CFW and CVPN. Our CVPN creates secure high-speed data
networks between remote locations to facilitate information sharing between
government departments. We plan to market CVPN to U.S. Federal government
agencies such as the Homeland Security, Department of Defense, Immigration and
Naturalization, U.S. Navy, Defense Communications Agency, National Guard, U.S.
Air Force and the U.S. Coast Guard as an aid in the war against terrorism. We
have had a history of relationships in working with U.S. Federal government
agencies.


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.

      During the fiscal year 2002, 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 were recently
selected, over established companies such as Alcatel and Siemens, to provide
Nigeria with a 10,000-line telephone network. Since we offer an affordable
telecommunications as well as Internet capability, the Nigerian authorities have
selected us as the ideal supplier of telephone and Internet systems. We envisage
supplying $42 million of our wireless systems to three states, $26 million of
our fiber optic landline systems to the government of Nigeria, and $11.6 million
of our wireless systems to 2 Systems Technologies, Ltd., a private telephone
operator.

      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 our 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
we do. These companies have established reputations for success in the
development, sale and service of Internet products.

IP Backbone Routers

      Up to a few years ago, Cisco Systems used to command the entire market for
IP backbone routers. Today, it maintains its monopoly by holding approximately
90% of this market. It has lost about 10% 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

      Currently, there is virtually no competition in the local-loop digital
broadband market due to the novelty of this 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

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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.

Customer Premise Products

      With respect to the market for customer premise end router and other
networking products, 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 product costs 50% less than
comparable Cisco Systems products.

Servers

      Our CWEB servers are based on Linux Operating System and Intel Pentium
Processors. They cost 15% to 20% less than servers produced by Cobalt Networks
(now Sun Microsystems). 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

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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 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

                                       11
<PAGE>

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 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 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, 2002 and
2001, we expended approximately $108,432 and $316,117, respectively, on research
and development. During the year ended March 31, 2002, most research and
development expenditures were attributable to enhancements to our CDCO and CTSX
for the Nigerian market, and to the creation of secure VPN for homeland security
market. 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


                                       12
<PAGE>

systems to satisfy industry standards.

Service and Support

      We believe that service, support and training are important factors in
promoting sales and customer satisfaction. Services we provide our customers
include feasibility studies, site surveys, engineering planning, project
estimating, network planning, network design, system planning, site preparation,
system 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.



                                       13
<PAGE>

                              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.

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.

                                       14
<PAGE>

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.


                                       15
<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 office, which is currently not in use, is 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 our 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 our
company's common stock upon which Brockington alleges it had a purchase option,
and (ii) $1 million for the alleged wrongful termination. We have asserted
counterclaims based upon Brockington's wrongful conduct and are 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. We
believe that Brockington's claims are without merit and intend to vigorously
defend our position.

      Although, as of the date hereof, no legal action has commenced against our
company by our former legal 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 our company for a possible litigation
arising due to the contention that our company refused to remove restrictive
legend on 500,000 shares of our common stock held by UCC. Our 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 our company officially, for the first time, that he or UCC did not
intend to deliver "Cyber India Project". Mr. Pillai was also our company's
Managing Director (Asia) from June 1997 until his resignation on March 9, 2000.
Our company believes that Mr. Pillai's or UCC's threatened claims, if any, are
without merit and our 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 our company for alleged breach of a certain public relations
services agreement. SOB is seeking payment of $33,500 for services allegedly
rendered. Our 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.

      On or about September 13, 2001, Cummings Properties, LLC ("CPL") commenced
an action, in the Superior Court of the Commonwealth of Massachusetts, against
our company for alleged improper termination of a certain license agreement
after approximately one year. CPL is seeking payment of $128,900 on alleged
remaining term of approximately four years. Our company believes that CPL's
claims are without merit as our company had properly terminated the license
agreement as of February 14, 2001under the terms of the license agreement and
had over paid on the license fee. In addition, our company has a counter claim
of approximately $170,000 against CPL who has unlawfully acquired our company's
equipment for personal use. Our company intends to vigorously defend its
position as well as seek return of its equipment or payment for it of $170,000.


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

      None.


                                       16
<PAGE>

                                     PART II

ITEM 5 - Market for Common Equity and Related Stockholder Matters

      Our common stock is quoted on the Over-the-Counter Bulletin Board under
the symbol "CYBD." The following table shows the quarterly high and low trade
prices on the Over-the-Counter Bulletin Board. The prices reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and may not represent
actual transactions.

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

Fiscal Year Ended March 31, 2002
      First Quarter                               $ 2.00      $ 0.35
      Second Quarter                                1.01        0.46
      Third Quarter                                 0.90        0.36
      Fourth Quarter                                1.15        0.41

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

      On March 31, 2002, the closing trade price of our common stock as reported
on the Bulletin Board was $1.05 per share. On that date, there were
approximately 500 stockholders of record of our common stock. We believe that on
March 31, 2002, there were more than 2,400 beneficial holders of our 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.




                                       17

<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 international and
the U.S. telecommunications industry, level of growth in both voice and internet
systems 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, 2002. 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 the Boston area for a period of one-year ending
February 2001, when our agreement with AT&T terminated. During this period we
successfully tested 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 recent telecommunications meltdown in
the U.S. (See "Business--Industry Background--Failure of 1996 Telecommunications
Act.")

      In the aftermath of that telecommunications meltdown, we believe that we
are poised to be the leading supplier of local-loop digital broadband systems.
There is abundant capacity of optically-enabled IP backbone network between all
major cities in the United States, but as yet businesses or consumers do not
have adequate access to that capacity. Our CIAN high-performance distribution
routers are specifically designed to allow Internet service providers to meet
the requirements of local-loop digital broadband networks including in multiple
tenant unit buildings. According to a report by Cahners In-Stat Group, the sales
of broadband equipment and services, such as our CIAN, tailored to the multiple
tenant unit buildings alone will reach $4.8 billion by 2004, up from $0.37
billion in 2000 in the United States. We believe that we will establish a strong
market position with early adopters of this technology and will build on this
position as the market reestablishes itself.

      International Data Corporation (IDC) estimates that the worldwide sales of
hardware-based VPN and firewall equipment, such as our CFW and CVPN, will grow
from $0.9 billion in 2000 to $4 billion in 2005. We

                                       18
<PAGE>

expect to market our CFW series IPSec firewall appliance through major strategic
partners, resellers and distributors on a worldwide basis. We have also targeted
the burgeoning Homeland Security market with our secure broadband data systems
such as CIAN, CFW and CVPN. Our CVPN creates secure high-speed data networks
between remote locations to facilitate information sharing between government
departments. We plan to market CVPN to U.S. Federal government agencies such as
the Homeland Security, Department of Defense, Immigration and Naturalization,
U.S. Navy, Defense Communications Agency, National Guard, U.S. Air Force and the
U.S. Coast Guard as an aid in the war against terrorism. We have had a history
of relationships in working with U.S. Federal government agencies.

      During fiscal year 2002, we developed a strong foothold in the Nigerian
telecommunications market by having our digital wireless telephone network
solution accepted by five states. In addition, we were recently selected, over
established companies such as Alcatel and Siemens, to provide Nigeria with a
10,000-line telephone network. Since we offer an affordable telecommunications
as well as Internet capability, the Nigerian authorities have selected us as the
ideal supplier of telephone and Internet systems. We envisage supplying $42
million of our wireless systems to three states, $26 million of our fiber optic
landline systems to the government of Nigeria, and $11.6 million of our wireless
systems to 2 Systems Technologies, Ltd., a private telephone operator. Payment
terms for these sales are 50% cash-in-advance and the remaining balance paid
through an irrevocable confirmed letters of credit.

Results of Operations

Year Ended March 31, 2002, Compared to Year Ended March 31, 2001

Net sales

      Net sales for the year ended March 31, 2002 (referred to as "fiscal year
2002"), were $0 from $37,539 for the year ended March 31, 2001 (referred to as
"fiscal year 2001"). Zero sales were due to our strategic shift to enter the
Nigerian telecommunications market. Since no payments have been made against the
initial engineering services rendered no sales have been recorded.

Gross margin

      We include in our cost of goods and services sold the materials and labor
used, subcontractor costs and overhead incurred in the manufacture of our
systems. Gross margins decreased from approximately 22% to 0% of net sales from
fiscal year 2001 to fiscal year 2002. Decrease in gross margins was primarily
attributable to no sales recorded from the Nigerian market.

Selling, general and administrative

      Selling, general and administrative expenses decreased from $1,265,844 in
fiscal year 2001 to $865,410 in fiscal year 2002, representing a decrease of
$400,434. The absolute dollar selling, general and administrative expenses in
fiscal year 2001 and fiscal year 2002 were principally due to exploratory
marketing efforts and the result of initial engineering and selling expenses
incurred in Nigeria, respectively.

Research and development

      Research and development expenses decreased from $316,117 in fiscal year
2001 to $108,432 in fiscal year 2002, representing a decrease of $207,685 or
approximately 65%. The decrease in research and development expenses was
primarily due to the shift in increased initial engineering expenses. All
development costs are expensed in the period incurred.

Income (loss) from operations

      Loss from operations in fiscal year 2002 was $(973,842) or $(.05) per
share as compared with a loss of $(1,573,548) or $(.08) per share in fiscal year
2001.

                                       19
<PAGE>

Net income (loss) available to Common Stockholders

      As a result of the foregoing, the net loss in fiscal year 2002 was
$(972,315) or $(.05) per share as compared to a net loss of $(1,563,233) or
$(.08) per share in fiscal year 2001.

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 $467,268 to $(150,516) at March 31, 2002 from
$316,752 at March 31, 2001. The current ratio of current assets to current
liabilities decreased to 0.8 to 1 as at March 31, 2002 from 1.7 to 1 as at March
31, 2001. 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 many years because of our entry into the Nigerian
telecommunications market. In addition, as of March 31, 2002, there remains a
maximum available balance of $4.25 million under our private equity line
agreement with an accredited institutional investor. We believe that we will be
able to obtain additional funds beyond those available under the equity line
agreement, if required for future needs. We have no off-balance sheet
arrangements.

      We used $0 and $16,042 during fiscal year 2002 and fiscal year 2001,
respectively, for investing activities. The cash used for investing activities
relates primarily to purchases of equipment in fiscal year 2002 and fiscal year
2001.

      Net cash provided (used) in financing activities was $564,091 and
$(243,419) for fiscal year 2002 and fiscal year 2001, 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. On 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 our 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 our common stock, par value $.01 per
share, at an exercise price of $6.00 per share. The Series C preferred stock was
issued without registration in reliance on Section 4(2) of the Securities Act of
1933, as amended.

      On October 5, 1999, we concluded a private placement of 3,000 shares of
our 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 our 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 our 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. All of the Series D1 preferred

                                       20
<PAGE>

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 our 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. We are allowed to make
a maximum of 24 draw downs over this period, including a cushion period of 7
days during which no draw down can be made. If we do not draw down in a specific
month, our available equity line reduces by $250,000. As of March 31, 2002, we
drew down $209,090 against the equity line and issued 453,004 shares of common
stock. As of March 31, 2002, there remains a maximum available balance of $4.25
million under this private equity line. In consideration for the accredited
institutional investor's commitment to purchase shares of our common stock under
our equity-line agreement with them, we have issued to the institutional
investor a warrant to purchase 250,000 of our shares of our common stock at
$4.10 per share and a warrant to purchase 125,000 of our shares of our common
stock at $5.15 per share. We have also issued to Ladenburg Thalmann & Co. Inc.,
in consideration for their having introduced us to the institutional investor, a
warrant to purchase 250,000 of our shares of our common stock at $4.10 per share
and a warrant to purchase 125,000 of our shares of our common stock at $5.15 per
share. All four warrants expire on July 1, 2005.

      On March 12, 2002, we borrowed $325,000 from J.C. Chatpar, president of
our company, under a promissory note with one-year maturity date and applicable
interest rate of ten percent per annum. The promissory note and all amounts due
thereunder are secured by all assets of our company. We may prepay the principal
amount, in whole or in part, at any time, without premium or penalty.

      Based on amounts received in the Series A, Series B, Series C, Series D1
preferred stock and private equity line financings, together with the expected
exercise of options and warrants and expected cash flow from operations, we
believe that our sources of capital will be adequate to satisfy anticipated
capital needs until December 2003.

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.




                                       21

<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        54        Chairman of the Board, President, and Chief
                                    Executive Officer

Jack P. Dorfman           64        Director

Jatinder V. Wadhwa        67        Director

Terry L. Jones            54        Director

Andrew Van Etten          40        Director

Larry S. Shluger          63        Vice President of Operations and Secretary

Dale A. Johnson           38        Controller and Treasurer

Sandeep Belani            24        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

                                       22
<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, all such persons, on a timely basis, filed the
reports required by Section 16(a) of the 1934 Act.



                                       23
<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, 2002, 2001 and
2000 of those persons who were, at March 31, 2002 the chief executive officer
(the "named officer"). During such periods, no executive officer of our company
received compensation in excess of $100,000.

<TABLE>
<CAPTION>

                             Annual Compensation                  Long Term Compensation                  All
                             -------------------                  --------------------------------------  Other
                                                                                                          Compensation
                                                                                               Payouts
                                                                          Awards
                  --------------------------------------------------------------------------------------
Name and          Year     Salary        Bonus         Other      Restricted    Securities     LTIP
Principal                  ($)           ($)           Annual     Stock         Underlying     Payouts
Position                                               Compens-   Awards  ($)   Options/       ($)
                                                       Ation                    SARs(#)
                                                       ($)(1)
----------------------------------------------------------------------------------------------------------------------
<S>               <C>      <C>          <C>            <C>       <C>           <C>             <C>         <C>
J.C. Chatpar,     2002     $92,500       None          None       None          5,000,000(4)    None        None
Chairman of the   2001     $123,900      None          None       None          110,000(3)      None        None
Board,            2000     $181,500      None          None       None          1,000,000(2)    None        None
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
2002, 2001 and 2000 fiscal years or $50,000, thus, such amounts are not included
in the table.

(2) In fiscal year 2000, Mr. Chatpar was granted options to purchase 1,000,000
shares of our common stock at an exercise price of $2.72 per share.

(3) In fiscal year 2001, Mr. Chatpar was granted options to purchase 110,000
shares of our common stock at an exercise price of $1.50 per share.

(4) In fiscal year 2002, Mr. Chatpar was granted options to purchase 1,000,000
shares of our common stock at an exercise price of $0.40. Mr. Chatpar was also
granted options to purchase 1,000,000 shares of our common stock at an exercise
price of $0.50. In addition, Mr. Chatpar was granted conditional performance
based options with a three-year exercise term as follows: (a) stock options to
purchase 1,000,000 shares of our common stock at an exercise price of $0.50 per
share, provided the 10 day moving average stock price is above $5.00, (b)
additional stock options to purchase 1,000,000 shares of our common stock at an
exercise price of $0.50 per share, provided the 10 day moving average stock
price is above $10.00, and (c) additional stock options to purchase 1,000,000
shares of our common stock at an exercise price of $0.50 per share, provided the
10 day moving average stock price is above $15.00.

Option Grants In Last Fiscal Year

      The following table sets forth information concerning stock option grants
made during fiscal year 2002 to the named officers. We have not granted any
stock appreciation rights.

<TABLE>
<CAPTION>

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

<S>                   <C>                       <C>                            <C>            <C>
J.C. Chatpar          1,000,000                 19.4%                          $0.40          4/18/11(3)
J.C. Chatpar          1,000,000                 19.4%                          $0.50          2/14/12(3)
J.C. Chatpar          3,000,000                 58.19%                         $0.50          2/14/05(4)
</TABLE>


                                       24

<PAGE>

-----------------

(1)  During fiscal year 2002, options to purchase an aggregate of 5,000,000
     shares of our common stock were granted to Mr. Chatpar and options to
     purchase an aggregate of 160,000 shares of our common stock were granted to
     three 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.

(4)  Options are not exercisable until certain conditions are attained. (See
     Summary Compensation Table Note 4).

Aggregated Fiscal Year End Option Values

      The following table sets forth information concerning the number of
unexercised options and the Fiscal 2002 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 2002.

                 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     3,655,000     3,000,0000        $700,250         0

(1)  Options are "in-the-money" if, on March 31, 2002, the market price of the
     Common Stock ($1.05) exceeded the exercise price of such options. The value
     of such options is calculated by determining the difference between the
     aggregate market price of our common stock underlying the options on March
     31, 2002 and the aggregate exercise price of such options.

Compensation of Directors

      We pay our directors $250 per board meeting. During Fiscal 2002, the board
of directors met three 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

      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. Our
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

                                       25
<PAGE>

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 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.

Employee Benefit Plan

      We offer basic health, major medical and life insurance to our employees.
We have not adopted any retirement, pension or similar programs.

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, 2002, 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 our 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)                8,693,212             33.0%
c/o Cyber Digital, Inc.
400 Oser Avenue
Hauppauge, NY 11788

Jack P. Dorfman(4)               260,000              1.1%

Jatinder V. Wadhwa(5)            257,812              1.1%

Terry L. Jones (6)                60,000               *

Andrew Van Etten(7)               40,000               *

All directors and
executive officers as a
group:  (5) persons            9,311,024             35.2%

*less than 1%

                                       26
<PAGE>

(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 235,678 shares of our
common stock issued in connection with the offering of our company's Series D1
Preferred stock. Assumes the exercise of the warrants to purchase in the
aggregate 750,000 shares of our common stock issued in connection with the
private equity line agreement. Assumes the exercise of all other outstanding
warrants to purchase in the aggregate 500,681 shares of our common stock.

(3) Includes 3,655,000 shares as to which Mr. Chatpar holds non-qualified stock
options, which are exercisable at any time. Excludes 3,000,000 shares as to
which Mr. Chatpar holds non-qualified stock options, which are not exercisable
until certain conditions are attained. Does not include 476,000 shares owned by
his wife, Sylvie Chatpar, to which shares Mr. Chatpar disclaims beneficial
ownership.

(4) Includes 140,000 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 100,000 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 our common stock
at a conversion price of $2.89 per share. Includes 60,000 shares as to which Mr.
Jones holds non-qualified stock options which are exercisable at any time.

(7) Includes 40,000 shares as to which Mr. Van Etten holds non-qualified stock
options that 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 our 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.



                                       27

<PAGE>

ITEM 13 - Exhibits and Reports on Form 8-K

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

      3.1         Composite Amended and Restated Certificate of Incorporation of
                  the Company (including the Certificate of Amendment for the
                  Series D1 Preferred Stock) (incorporated herein by reference
                  to Exhibit 3.1 to the Company's Report on Form 8-K filed on
                  October 8, 1999 (the "8-K").

      3.2         Composite Amended and Restated Bylaws of the Company
                  (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")).

      4.1         Form of Warrant Certificate (incorporated herein by reference
                  to Exhibit 4.1 to the 8-K).

      4.2         Form of Registration Rights Agreement, dated as of September
                  30, 1999, relating to the Series D1 Preferred Stock
                  (incorporated herein by reference to Exhibit 4.2 to the 8-K).

      10.1        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 (the "1994 Form 10-K").

      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 1996 Form 10-KSB/A).

      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        Securities Purchase Agreement, dated as of September 30, 1999,
                  by and among the Company and the Purchaser named therein,
                  relating to the Series D1 Preferred Stock (incorporated herein
                  by reference to Exhibit 10.1 to the 8-K).

      10.6        1997 Stock Incentive Plan (incorporated herein by reference to
                  Exhibit 10.5 to the Company's 1999 Form 10-KSB/A).

      10.7        Private equity line of credit agreement dated as of July 2,
                  2001, between Cyber Digital and Grenville Finance Ltd.
                  (incorporated herein by reference to Exhibit 10.7 to the
                  Company's Registration Statement on Form SB2 dated August 2,
                  2001).

      10.8        Registration rights agreement between Cyber Digital and
                  Grenville Finance Ltd. (incorporated herein by reference to
                  Exhibit 10.8 to the Company's Registration Statement on Form
                  SB2 dated August 2, 2001).

      10.9        Form of warrant dated July 2, 2001, issued by Cyber Digital to
                  Grenville Finance Ltd. (incorporated herein by reference to
                  Exhibit 10.9 to the Company's Registration Statement on Form
                  SB2 dated August 2, 2001).

      10.10       Form of warrant dated July 2,2001, issued by Cyber Digital to
                  Ladenburg Thalmann & Co. Inc. (incorporated herein by
                  reference to Exhibit 10.10 to the Company's Registration
                  Statement on Form SB2 dated August 2, 2001).


(b) Reports of Form 8-K. No reports on Form 8-K were filed for the three months
ended March 31, 2002.


                                       28

<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 15, 2002

                                          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 15, 2002
-------------------            and Chief Executive Officer
 J.C. Chatpar                  (Principal Executive and
                               Financial Officer)

/s/ Dale A. Johnson            Controller and Treasurer            July 15, 2002
-------------------            (Principal Accounting Officer)
 Dale A. Johnson

/s/ Jack P. Dorfman            Director                            July 15, 2002
-------------------
 Jack P. Dorfman

/s/ Jatinder Wadhwa            Director                            July 15, 2002
-------------------
 Jatinder Wadhwa

/s/ Terry Jones                Director                            July 15, 2002
-------------------
 Terry Jones

/s/ Andrew Van Etten           Director                            July 15, 2002
-------------------
 Andrew Van Etten


                                       29

<PAGE>

Index to Exhibits

Exhibit No.       Description of Document
-----------       -----------------------

      3.1         Composite Amended and Restated Certificate of Incorporation of
                  the Company (including the Certificate of Amendment for the
                  Series D1 Preferred Stock) (incorporated herein by reference
                  to Exhibit 3.1 to the Company's Report on Form 8-K filed on
                  October 8, 1999 (the "8-K").

      3.2         Composite Amended and Restated Bylaws of the Company
                  (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")).

      4.1         Form of Warrant Certificate (incorporated herein by reference
                  to Exhibit 4.1 to the 8-K).

      4.2         Form of Registration Rights Agreement, dated as of September
                  30, 1999, relating to the Series D1 Preferred Stock
                  (incorporated herein by reference to Exhibit 4.2 to the 8-K).

      10.1        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 (the "1994 Form 10-K").

      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 1996 Form 10-KSB/A).

      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        Securities Purchase Agreement, dated as of September 30, 1999,
                  by and among the Company and the Purchaser named therein,
                  relating to the Series D1 Preferred Stock (incorporated herein
                  by reference to Exhibit 10.1 to the 8-K).

      10.6        1997 Stock Incentive Plan (incorporated herein by reference to
                  Exhibit 10.5 to the Company's 1999 Form 10-KSB/A).

      10.7        Private equity line of credit agreement dated as of July 2,
                  2001, between Cyber Digital and Grenville Finance Ltd.
                  (incorporated herein by reference to Exhibit 10.7 to the
                  Company's Registration Statement on Form SB2 dated August 2,
                  2001).

      10.8        Registration rights agreement between Cyber Digital and
                  Grenville Finance Ltd. (incorporated herein by reference to
                  Exhibit 10.8 to the Company's Registration Statement on Form
                  SB2 dated August 2, 2001).

      10.9        Form of warrant dated July 2, 2001, issued by Cyber Digital to
                  Grenville Finance Ltd. (incorporated herein by reference to
                  Exhibit 10.9 to the Company's Registration Statement on Form
                  SB2 dated August 2, 2001).

      10.10       Form of warrant dated July 2,2001, issued by Cyber Digital to
                  Ladenburg Thalmann & Co. Inc. (incorporated herein by
                  reference to Exhibit 10.10 to the Company's Registration
                  Statement on Form SB2 dated August 2, 2001).



                                       30

<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 (Deficit).............................................       F-4

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

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



<PAGE>

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


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



                          INDEPENDENT AUDITORS' REPORT





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


We have audited the accompanying balance sheets of Cyber Digital, Inc. (a New
York Corporation) as of March 31, 2002 and 2001 and the related statements of
operations, shareholders' equity (deficit), 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.

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

The Company's inventory is currently stated at cost. We were unable to determine
the fair market value of the inventory at March 31, 2002.

In our opinion, except for the effects of such adjustments, if any, might have
determined to be necessary if information had been available to us to satisfy
ourselves about the inventory recorded in the financial statements, the
financial statements referred in the first paragraph present fairly, in all
material respects, the financial position of Cyber Digital, Inc. as of March 31,
2002 and 2001 and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.

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

Hauppauge, New York
June 21, 2002


                                       F-1

<PAGE>

<TABLE>
<CAPTION>

                               CYBER DIGITAL, INC.
                                 BALANCE SHEETS
                             March 31, 2002 and 2001

                                                                                     2002               2001
                                                                                 ------------       ------------
ASSETS

Current Assets
<S>                                                                              <C>                <C>
   Cash and cash equivalents                                                     $     13,330       $     80,611
   Accounts receivable, net                                                               -0-                390
   Inventories                                                                        622,117            663,607
   Prepaid and other current assets                                                    35,339             33,084
                                                                                 ------------       ------------

                   Total Current Assets                                               670,786            777,692

Property and Equipment, net                                                            56,887            126,934

Other Assets                                                                           26,374             26,374
                                                                                 ------------       ------------

                    Total Assets                                                 $    754,047       $    931,000
                                                                                 ============       ============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current Liabilities
   Accounts payable, accrued expenses, and taxes                                 $    496,302       $    460,940
   Officer note payable                                                               325,000                -0-
                                                                                 ------------       ------------

                   Total Current Liabilities                                          821,302            460,940
                                                                                 ------------       ------------

Commitments and Contingencies

Shareholders' Equity (Deficit)
   Preferred stock - $.05 par value; cumulative, convertible and
     participating; authorized 10,000,000 shares
          Series C; issued and outstanding - 310 shares at
          March 31, 2002 and 2001                                                        16                   16

     Common stock - $.01 par value; authorized 60,000,000 shares; issued and
       outstanding 20,876,261 and 20,197,348
       shares at March 31, 2002 and 2001, respectively                                208,763            201,974
   Additional paid-in capital                                                      17,956,783         17,528,572
   Accumulated deficit                                                            (18,232,817)       (17,260,502)
                                                                                 ------------       ------------

                   Total Shareholders' Equity (Deficit)                               (67,255)           470,060
                                                                                 ------------       ------------

                   Total Liabilities and Stockholders' Equity (Deficit)          $    754,047       $    931,000
                                                                                 ============       ============
</TABLE>


                 See accompanying notes to financial statements.


                                       F-2

<PAGE>

<TABLE>
<CAPTION>

                               CYBER DIGITAL, INC.
                            STATEMENTS OF OPERATIONS
                       Years ended March 31, 2002 and 2001

                                                                           2002                 2001
                                                                     ---------------       -------------

<S>             <C>                                                 <C>                    <C>
Net Sales                                                            $         -0-          $     37,539

Cost of Sales                                                                  -0-                29,126
                                                                        ------------         ------------

                 Gross Profit                                                  -0-                  8,413
                                                                        ------------         ------------

Operating Expenses
   Selling, general and administrative expenses                              865,410            1,265,844
   Research and development                                                  108,432              316,117
                                                                        ------------         ------------

                 Total Operating Expenses                                    973,842            1,581,961
                                                                        ------------         ------------

                 Loss from Operations                                       (973,842)          (1,573,548)
                                                                        ------------         ------------

Other Income (Expense)
   Interest income                                                                93               12,612
   Loss on disposal of fixed assets                                           (2,335)              (1,053)
   Other income                                                                4,149               36,830
                                                                        ------------         ------------

                 Total Other Income                                            1,907               48,389
                                                                        ------------         ------------

                 Loss before Income Taxes                                   (971,935)          (1,525,159)

Provision for Income Taxes                                                       380                2,655
                                                                        ------------         ------------

                 Net Loss                                                   (972,315)          (1,527,814)

                 Preferred Stock Dividend                                      -0-                (35,419)
                                                                        ------------         ------------

                 Income Available to Common Shareholders                $   (972,315)        $ (1,563,233)
                                                                        ============         ============

Net Loss Per Share of Common Stock (See Note 7)

                 Loss from Operations - Basic                           $       (.05)        $       (.08)
                                                                        ============         ============
                 Diluted                                                $       (.05)        $       (.08)
                                                                        ============         ============

                 Net Loss - Basic                                       $       (.05)        $       (.08)
                                                                        ============         ============
                 Diluted                                                $       (.05)        $       (.08)
                                                                        ============         ============

Weighted average number of common shares outstanding                      20,421,093           19,517,679
                                                                        ============         ============
</TABLE>


                 See accompanying notes to financial statements.


                                       F-3

<PAGE>

<TABLE>
<CAPTION>

                               CYBER DIGITAL, INC.
             STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                       Years ended March 31, 2002 and 2001

                                                                 Preferred Stock
                                                 -------------------------------------------
                                                       Series C             Series D-1                Common Stock
                                                 --------------------     -------------------   -----------------------------
                                                  Shares     Amount       Shares     Amount       Shares            Amount
                                                 ---------  --------    ---------   ---------   -----------       -----------

<S>                                           <C>           <C>          <C>      <C>           <C>              <C>
Balance at March 31, 2000                            310    $     16         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                            310    $     16         -0-    $    -0-      20,197,348      $  201,974

Issuance of Common Stock                                                                            678,913            6,789

Net Loss
                                                            --------    --------    --------    -----------       ----------

Balance at March 31, 2002                            310    $     16         -0-    $    -0-      20,876,261      $  208,763
                                                            ========    ========    ========    ===========       ==========

<CAPTION>

                                               Paid in       Accumulated     Shareholder's
                                               Capital         Deficit       Equity (Deficit)
                                            -------------   -------------   ------------------

<S>                                        <C>              <C>             <C>
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

Issuance of Common Stock                         428,211                         435,000

Net Loss                                                        (972,315)       (972,315)
                                            ------------    ------------    ------------

Balance at March 31, 2002                   $ 17,956,783    $(18,232,817)   $    (67,255)
                                            ============    ============    ============
</TABLE>


                 See accompanying notes to financial statements.


                                       F-4

<PAGE>

<TABLE>
<CAPTION>

                               CYBER DIGITAL, INC.
                            STATEMENTS OF CASH FLOWS
                       Years ended March 31, 2002 and 2001

                                                                                     2002           2001
                                                                                 ------------   ------------

Cash Flows from Operating Activities
<S>                                                                              <C>            <C>
   Net loss                                                                      $  (972,315)   $(1,527,814)
   Adjustments to reconcile net loss to
       net cash used in operating activities:
     Depreciation                                                                     67,713         74,007
     Loss on disposal of property and equipment                                        2,335          1,053
     (Increase) decrease in operating assets:
       Accounts receivable                                                               390          4,688
       Inventories                                                                    41,490        (55,653)
       Prepaid and other current assets                                               (2,256)        19,906
       Other assets                                                                      -0-         (4,624)
     Increase (decrease) in operating liabilities:
       Accounts payable, accrued expenses and taxes                                  231,271        177,708
                                                                                 -----------    -----------

                      Net Cash Used in Operating Activities                         (631,372)    (1,310,729)
                                                                                 -----------    -----------

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

                      Net Cash Used in Investing Activities                              -0-        (16,042)
                                                                                 -----------    -----------

Cash Flows from Financing Activities
   Issuance of common stock                                                          239,091        391,800
   Exercise of common stock options                                                      -0-         75,000
   Redemption of preferred stock                                                         -0-       (686,400)
   Preferred stock dividend                                                              -0-        (23,819)
   Proceeds from officer loan                                                        325,000            -0-
                                                                                 -----------    -----------

                      Net Cash Provided (Used) by Financing Activities               564,091       (243,419)
                                                                                 -----------    -----------

                      Net Decrease in Cash and Cash Equivalents                      (67,281)    (1,570,190)

Cash and Cash Equivalents at Beginning of Period                                      80,611      1,650,801
                                                                                 -----------    -----------

                      Cash and Cash Equivalents at End of Period                 $    13,330    $    80,611
                                                                                 ===========    ===========

Supplemental Disclosures of Cash Flow Information Cash paid during the period
  for:
     Income taxes                                                                $       -0-    $       742

Noncash Operating and Financing Activities
   Stock issued for services                                                     $   225,909    $       -0-
</TABLE>


                 See accompanying notes to financial statements.


                                       F-5

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

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,
2002, the Company had an accumulated deficit of $(18,232,817) and a
shareholders' deficit of $(67,255). The decrease in equity from March 31, 2001
to March 31, 2002 is due mainly to a net operating loss during the fiscal year
ended March 31, 2002. The Company received advances of $325,000 from its Chief
Operating Officer and issued common stock of approximately $210,000 from an
equity line of credit (Note 6). The Company historically has generated
sufficient cash flow to support its operations mainly from issuances of debt and
equity securities. The Company anticipates additional issuances of debt and/or
equity. The viability of the Company is dependant upon future revenues and
additional issuances of equity.

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
                             March 31, 2002 and 2001

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, 2002 and 2001. 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.

Advertising

The Company follows the policy of charging the costs of advertising to expense
as incurred.

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
                             March 31, 2002 and 2001

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.

Stock-Based Compensation

The Company accounts for stock options as prescribed by Accounting Principles
Board ("APB") Opinion No. 25 and includes pro forma information in the
stock-based compensation footnote, as permitted by Financial Accounting
Standards Board ("FASB") Statement No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). Accordingly, no compensation cost is recognized for
stock options granted in 2002and 2001 since the option exercise price is not
less than the market price of the underlying stock on the date of grant. In
March 2000, the FASB issued FASB Interpretation No. 44, "Accounting For Certain
Transactions Involving Stock-an interpretation of APB Opinion No. 25" ("FIN
44"). FIN 44 clarifies the application of APB No. 25 and among other issues
clarifies the definition of an employee for purposes of applying APB Opinion No.
25. The Company adopted FIN 44 in the first quarter of 2001 with no material
effect on the Company's financial position, results of operations or cash flows.

Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142 "Goodwill and Other Intangible Assets". SFAS No. 141 provides new guidance
on the accounting for a business combination at the date a business combination
is completed. Specifically, it requires use of the purchase method of accounting
for all business combinations initiated after June 30, 2001, thereby eliminating
use of the pooling-of-interest method. SFAS No. 142 establishes new guidance on
how to account for goodwill and intangible assets after a business combination
is completed. Among other things, it requires that goodwill and certain other
intangible assets will no longer be amortized and will be tested for impairment
at least annually and written down only when impaired. This statement will apply
to existing goodwill and intangible assets, beginning with fiscal years starting
after December 15, 2001. Early adoption of the statement will be permitted for
companies with a fiscal year beginning after March 15, 2001, for which the first
quarter financial statements have not been issued.

In June 2001, the FASB issued SFAS no. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 provides new guidance on the accounting for legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and the normal operation of a
long-lived asset. This statement will apply to all financial statements issued
for fiscal years beginning after June 15, 2002.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 provides new guidance on the
accounting for the disposal of long-lived assets. The statement states that a
long-lived asset to be abandoned, exchanged for a similar productive asset,
distributed to owners in a spinoff to be held and used until its disposal. This
statement will apply to all financial statements issued for fiscal years
beginning after December 15, 2001.

The Company is currently evaluating these statements but does not expect that
they will have a material impact on the Company's financial position, results of
operations, or cash flows.


                                       F-8

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

Note 1 - Summary of Significant Accounting Policies (continued)

Concentration of Credit Risk

The Company places most of temporary cash investments with financial
institutions and normally exceeds the FDIC limit. The Company has not
experienced any losses to date resulting from this policy.

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

Inventories consist of the following at March 31:
                                                       2002          2001
                                                    ----------   -----------

                      Raw materials                 $  554,915   $   605,527
                      Finished goods                    67,202        58,080
                                                    ----------   -----------

                                                    $  622,117   $   663,607
                                                    ==========   ===========

Note 3 - Property and Equipment

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

<TABLE>
<CAPTION>

                                                        2002            2001          Useful Lives
                                                     -----------    ------------     --------------

<S>                                                  <C>           <C>                <C>
          Machinery and equipment                    $   337,973    $    339,115          5 years
          Furniture and fixtures                          64,355          66,682          7 years
          Leasehold improvements                           4,786           4,786       lease term
                                                     -----------    ------------

                                                         407,114         410,583
          Less:  Accumulated depreciation                350,227         283,649
                                                     -----------    ------------

                                                     $    56,887    $    126,934
                                                     ===========    ============
</TABLE>


Note 4 - Other Assets

Other assets consist of various security deposits.

                                       F-9

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

Note 5 - Officer Loan Payable

During the 2002 fiscal year the Company issued a promissory note to its Chief
Executive Officer, J.C Chatpar, in the amount of $325,000. The note is secured
by all assets of the Company. The note is due on March 11, 2003 with interest
accrued at 10%. Overdue principal and, to the extent permitted by applicable
law, overdue interest shall bear interest at the applicable rate plus 2% per
annum and shall be payable upon demand.

Note 6- Line of Credit

During July 2001, the Company secured a $6,000,000 equity line of credit. The
line allows for the Company to take advances a maximum of twenty-four times
during the thirty month term of the agreement. The line expires in December
2003. The maximum amount of each draw down is $250,000. The available credit
decreases by $250,000 after each draw down period, which is approximately every
six weeks. For the year ended March 31, 2002, the Company utilized approximately
$209,000 of this equity line. As of March 31, 2002, $1,500,000 has expired on
the line.

Note 7 - 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.

<TABLE>
<CAPTION>

                                                              2002               2001
                                                         --------------     --------------

<S>                                                      <C>                <C>
Net Loss                                                 $     (972,315)    $   (1,527,814)
Dividends paid on Preferred Stock                                    -0-           (35,419)
                                                         ---------------    --------------

Income Available to Common Shareholders                  $     (972,315)    $   (1,563,233)
                                                         ---------------    --------------
Weighted Average Common Shares Outstanding                   20,421,093         19,517,679
                                                         --------------     --------------

Basic EPS                                                $         (.05)    $        (.08)
Diluted EPS                                              $         (.05)    $        (.08)
</TABLE>

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 8 - 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 2001, 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.

                                      F-10

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

Note 8 - Stock Option Plans (continued)

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

Stock appreciation rights ("SARS") may be granted independently or in connection
with all or any part of any option granted under the 1997 Plan, either at the
time of grant of the option or at any time thereafter. The holder of an SAR has
the right to receive from the Company, in cash or in shares as the Committee
shall determine, an amount equal to the excess of the fair market value of the
shares covered by the SAR at the date of exercise over the exercise price set at
the date of grant of the SAR. At the request of the holder of an option, the
committee may at its discretion substitute for the exercise of the option,
compensation (in cash or in shares) in an amount equal to or less than the
excess of the fair market value of the shares covered by the option at the
request date over the exercise price set at the grant of the option. A
restricted stock award, entitling the recipient to acquire shares of common
stock for a purchase price at least equal to par value may be granted to such
persons and in such amounts and subject to such terms and conditions as the
Committee may determine. Shares of restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as specified
in the 1997 Plan or the written agreement governing the grant. The Committee, at
the time of grant, will specify the date or dates on which the
nontransferability of the restricted stock shall lapse. During the 90 days
following the termination of the grantee's employment for any reason, the
Company has the right to require the return of any shares to which restrictions
on transferability apply, in exchange for which the Company shall repay to the
grantee any amount paid by the grantee for such shares.

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, 2001           $.75 to $10.00           3,833,872
          Granted                             $.40 to $.50            6,020,000
          Canceled                           $2.50 to $6.35      (      894,013)
                                                                 --------------

        Outstanding March 31, 2002                                    8,959,859
                                                                 ==============


                                      F-11

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

Note 8 - Stock Option Plans (continued)

A summary of options and warrants as of March 31, 2002 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 3/31/02            Life                Price             3/31/02            Price
    ---------------      --------------    ----------------    ----------------   ----------------   ----------------

<S>      <C>                <C>                  <C>            <C>                 <C>                <C>
 $.40 to $1.50              $6,307,971           5.53           $     .57           $1,257,651         $     .84
$2.43 to $3.00               1,255,000           6.58                2.69            1,005,000              2.68
$4.00 to $5.15                 770,000           3.39                4.44              129,375              4.42
$5.70 to $6.00                 601,888           1.63                5.88              404,575              5.89
$6.35 to $10.00                 25,000            .17               10.00               25,000             10.00
                            ----------          -----           ---------           ----------         ---------

                            $8,959,859           5.23           $    1.58           $2,861,601         $    2.47
                            ==========          =====           =========           ==========         =========
</TABLE>

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

The following assumptions were employed to estimate the fair value of stock
options granted:
                                                    Fiscal Years Ended March 31,
                                                --------------------------------
                                                     2002             2001
                                                -------------    ---------------
        Expected dividend yield                      0.00%           0.00%
        Expected price volatilities                 23.00%          91.00%
        Risk-free interest rate                      5.41%           4.40%
        Expected life (years)                        9.50            9.10

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:

                                                     2002             2001
                                                 -------------    --------------
        Weighted average fair value of
          Options granted                        $       0.10     $        0.10

        Net Loss
          As reported                            $   (972,315)    $  (1,527,814)
          Pro Forma                                (1,111,560)       (1,679,765)

        Net Loss Per Share
          As reported
              Basic                              $       (.05)    $       (.08)
              Diluted                            $       (.05)    $       (.08)
          Pro Forma
              Basic                              $       (.05)    $       (.09)
              Diluted                            $       (.05)    $       (.09)


                                      F-12

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

Note 9 - Convertible, Cumulative and Participating Preferred Stock

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, 2002, there are undeclared dividends of $67,402 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.

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 common 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.

                                      F-13

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

Note 9 - Convertible, Cumulative and Participating Preferred Stock (continued)

During the fiscal years ended March 31, 2002 and 2001, pursuant to an optional
conversion of Series D-1 preferred stock, zero shares and 279 shares,
respectively, were converted into zero and 179,811 shares, respectively, of
common stock.

During the fiscal years ended March 31, 2002 and 2001, the Company paid stock
dividends in the amount of $0 and $11,600 to the Series D-1 preferred
stockholders who converted their Series D-1 preferred stock. This dividend was
paid through the issuance of zero and 7,477, 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 10 - Income Taxes

The Company has net operating loss carryforwards for tax purposes amounting to
approximately $10 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
$376,000 for the fiscal year ended March 31, 2002.

The Company was subject to capital based taxes for New York State for the years
ended March 31, 2002 and 2001.

Note 11 - Commitments and Contingencies

Employment Contract

On August 3, 2001, the Company renewed the employment agreement with the
Chairman. The agreement is for a three year period covering August 4, 2001
through August 3, 2004. This agreement is renewable for successive three-year
periods.

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

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

The following payout terms apply if this agreement is terminated:

                                      F-14

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

Note 11 - Commitments and Contingencies (continued)

     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.

     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

The Company leases space under a noncancelable operating lease in Hauppague, New
York. This lease is for a five year period and expires on March 31, 2004. This
location is the Company's executive offices and operations. Rent expense was
$69,600 and 59,125 for the years ended March 31, 2002 and 2001, 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 $14,304 and $11,648 for the years ended
March 31, 2002 and 2001, 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 zero and $31,227 for the years ended
March 31, 2001 and 2000, respectively.

The Company also has noncancelable operating leases for vehicles. The monthly
rental on the vehicles is $803. The amount charged to expense was $9,672 and
$9,912 for the years ended March 31, 2002 and 2001, respectively.

Future minimum rentals are as follows:

         For years ending March 31, 2003           $  85,046
                                    2004              85,703
                                    2005              12,151
                                                   ---------

                                                   $ 182,900
                                                   =========

                                      F-15

<PAGE>

                               CYBER DIGITAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 2002 and 2001

Note 11 - Commitments and Contingencies (continued)

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.

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.

The Company is a defendant in an action arising from an alleged improper
termination of a licensing agreement with Cummings Properties, LLC. 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.

Note 12 - Foreign Operations

During the fiscal year ended March 31, 1998, the Company formed a wholly owned
subsidiary, Cyber Digital (India) Private Limited, under the rules and
regulations of the Government of India. The subsidiary has not begun operations
and has no assets as of March 31, 2002 and 2001.

During the fiscal 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 operations has no assets as
of March 31, 2002 and 2001.



                                      F-16