3:

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, 2004                                                
|    |                                                                                         
|[_] | 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, Hauppauge, 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:
|--------------------------------------------------------------
|Title of Classes                                              
|                                                              
|Common Stock, $.01 par value                                  

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











|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 22, 2004, Registrant had 22,326,542 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 $1,384,000 (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]
|------- |  | ------





PART 1



We have provided a glossary of terms for your convenience
beginning on page 15.



ITEM 1 - DESCRIPTION OF BUSINESS



OVERVIEW



We design, develop, manufacture and market a range of unique
distributed digital voice switching infrastructure equipment for public switched
voice network operators worldwide. We also design, develop, manufacture and
market a vast array of high performance Internet infrastructure systems such as
soft-switches, routers, gateways, firewalls and servers used by Internet service
providers to create next-generation digital broadband services, Voice-over
Internet Protocol (VoIP) services, and virtual private networks (VPN) services.
Our mission is to become a cost effective supplier of (i) digital voice switches
and broadband systems in the U.S., and (ii) digital voice switches to developing
countries such as China, India and Brazil. We believe that service providers can
offer affordable yet modern voice and broadband Internet services by using our
vast array of voice and Internet systems.



Unlike our competitors 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 service providers 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 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.



In January 2004, Federal Communications Commission (FCC)
created the next revolution in voice communications by not intending to regulate
Voice-Over-Internet Protocol (VoIP) services. In direct response to this FCC's
decision, we have made a strategic decision to enter this multi-billion dollar
voice services market by using our recently created VoIP systems. In
anticipation of this next revolution in communication, we have created our own
VoIP technology whereby it converts traditional voice into packet switched data
for low cost transmission using Internet Protocol (IP). Our unique VoIP system
allows the existing public switched telephone network (PSTN), such as the Bells
network, to co-exist and inter-operate with the emerging VoIP network. We
believe that we are one of a very few telecom companies with this technology
that allows us to build this emerging VoIP network while bridging to the
traditional PSTN (Bells network). Our objective is to provide very low cost
domestic long distance service to consumers by carrying the traffic over the
Internet. We believe that we could gain a reasonable market share in this
emerging unregulated market.



On June 15, 2004, Supreme Court finally approved the Federal
Communications Commission's (FCC) new ruling on the regulated phone policy
released on August 21, 2003, requiring Bell's competitors such as long distance
carriers (LDCs) to use their own digital voice switches for connecting calls
instead of leasing Bell switches. This ruling forces the Bell's competitors to
build their own local switching facilities, presumably using our affordable
digital voice switches and broadband systems which are ideal for building
critical 'last mile' local-loop networks. 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
vast array of digital voice switches and high-performance distribution routers
are specifically designed to allow Bell's competitors to meet the requirements
of local-loop voice and digital broadband networks. We believe that we could
establish an acceptable market position with early adopters of our technology in
this emerging regulated market.



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.







INDUSTRY BACKGROUND



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 China, India,
Brazil and Nigeria, 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 seven-year communication
infrastructure spending for selected countries, according to Pyramid Research:





|Projected Communication Infrastructure Investment by
      2010
|---------------------------------------------------------------
|Country                                                        
|                                                               
|China                                                          
|India                                                          
|Brazil                                                         
|Nigeria                                                        



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.



Domestic Market



We believe that emerging market opportunities exist in the
United States due to two recent FCC policies as follows:



Emerging Market Opportunity in the FCC Unregulated
Market

In January 2004, Federal Communications Commission (FCC)
created the next revolution in voice communications by not intending to regulate
Voice-Over-Internet Protocol (VoIP) services. Prior to this FCC's decision,
it would have been illegal for us to enter this emerging market. In direct
response to this FCC's decision, we have made a strategic decision to enter this
multi-billion dollar voice services market by using our recently created VoIP
systems. In anticipation of this next revolution in communication, we have
created our own VoIP technology whereby it converts traditional voice into
packet switched data for low cost transmission using Internet Protocol (IP). Our
unique VoIP system allows the existing public switched telephone network (PSTN),
such as the Bells network, to co-exist and inter-operate with the emerging VoIP
network. We believe that we are one of a very few telecom companies with this
technology that allows us to build this emerging VoIP network while bridging to
the traditional PSTN (Bells network).

Our objective is to provide very low cost domestic long
distance voice service to consumers by carrying the traffic over the Internet.
Unlike traffic on the Internet faces no boundaries, our domestic PSTN is
strictly defined by boundaries identified by specific area codes according to
our North American Numbering Plan (NANP) system. Telephone calls between area
codes are, generally, termed as long distance calls. Calls within an area code
are termed as a local call. Currently, the existing PSTN uses numerous Time
Division Multiplex (TDM) switches between area codes to carry long distance
calls on a circuit switched basis. This approach is expensive as a dedicated
circuit is established for the duration of each long distance call. However,
this circuit switched network has the advantage of secure and clear voice
communication and is deployed globally with penetration of almost 100%. With the
advent of Internet Protocol and the ability to carry voice over packet switched
network, and the ubiquity of Internet, long distance calls can be transported
between area codes very inexpensively. However, the security and quality of
voice over Internet is inferior to that of circuit switched networks. We believe
that despite these negatives of VoIP technology, an emerging market opportunity
exists because of those consumers who are willing to tolerate poor quality and
low security for greater savings in making long distance calls.

According to information released by FCC on December 22, 2003,
there were a total of 182.8 million end-user circuit switched local access
lines. Based on our NANP system, these circuit switched access lines are spread
over 300 area codes. Hence, in order for us to carry long distance voice traffic
nationwide over the Internet, we would need to build over 300 of our unique VoIP
based facilities; creating over 300 VoIP POPs (Point-of-Presence). Each VoIP POP
translates voice traffic from circuit switched access lines to packet switched
VoIP data to be carried over the Internet. Since, the 182.8 million consumers or
end-users generally, pay fixed local charges for unlimited local calling to the
four Baby Bells, our strategy is to offer a local access number within their
area code to make long distance calls over the Internet. Upon dialing a local
access number, these consumers will receive an Internet Dial-tone from our local
VoIP POP, which will direct the call to our destination VoIP POP for call
termination.

Hence, we expect to build VoIP based facilities nationwide by
deploying over 300 of our VoIP POP systems. The coverage provided by our VoIP
POPs will permit every consumer, whether residential or business, to access our
VoIP network for long distance calls within U.S. We expect to significantly
lower the cost of providing long distance telephone services by virtue of using
the Internet instead of the traditional costly long distance network. Yet,
providing the requisite quality and reliability due to the inherent software
aspects of our VoIP POP systems.

Our VoIP system is derived from the amalgamation of our Cyber
Internet Access Network (CIAN) packet switch and Class 4 Cyber Tandem Exchange
(CTSX) technologies. CIAN switch can inter-operate with PPP, Frame Relay or
Private Line IP based packet switched technologies and carry "Anything-Over-IP",
including Voice-Over-IP, Video-Over-IP and Multimedia-Over-IP. CTSX can
inter-operate with wireline traditional circuit-switched voice Public Switched
Telephone Network (PSTN), such as Bells network. The combined technologies
provide a unique VoIP softswitch platform that allows the existing PSTN to
co-exist and inter-operate with the emerging VoIP network.

Emerging Market Opportunity in the FCC Regulated Market



On June 15, 2004, Supreme Court finally approved the Federal
Communications Commission's (FCC) new ruling on the regulated phone policy
released on August 21, 2003, requiring Bell's competitors such as long distance
carriers (LDCs) to use their own digital voice switches for connecting calls
instead of leasing Bell switches (hereinafter referred to as "2003 FCC's New
Phone Policy"). Prior, to this 2003 FCC's New Phone Policy, there was no
market for our digital voice switches in the U.S. Even today, under the current
FCC regulations we cannot legally provide traditional voice services in the U.S.
using our digital voice switches , unless we are licensed as a CLEC or LDC, as
FCC regulates this market. The cost of obtaining such license is formidable,
as a minimum a few hundred million dollars, which is out of our reach. Because
of certain policy changes for this regulated market, we believe that an emerging
market opportunity has been created by 2003 FCC's New Phone Policy, provided
however, CLECs and LDCs allocate capital towards building their local-loop
infrastructure.



Telecom competitors, such as CLECs and LDCs, have lost the
battle with the Bells, who will virtually shut off local access to them pursuant
to 2003 FCC's New Phone Policy. Currently, these competitors pay about 70% of
their total billings as local access charges to Bells, impairing their economic
viability. Furthermore, the local access or the critical 'last mile' charges
will be rising from 40 percent to over 60 percent by 2005, making local network
ownership by competitors an increasingly key factor for the future. FCC
necessitates CLECs and LDCs to build their own critical 'last mile' local-loop
network consisting of local switching facilities, loops and transport. FCC
further rules that CLECs and LDCs must also provide broadband data services
along with voice services. So also FCC mandates that Internet service providers
(ISP) must also provide voice along with broadband data services. Hence, CLECs,
LDCs and ISPs must build their own local voice and broadband switching
facilities and networks to serve their customers. This means there should be
demand for our digital voice switches and broadband systems by competitive
service providers (CSPs) that include CLECs, LDCs and ISPs. We believe that
combined power of our digital voice switches and broadband Internet systems
offers CSPs affordable one-stop solution.



We believe that we are at the threshold of the local-loop
telephone switching metamorphosis in the U.S. According to data released by FCC,
to-date less than 6 million local-loop switched lines were owned by the
competitors as compared to 163 million such lines owned by Bells. Hereafter,
CSPs have to continuously invest, year after year, in bringing their local-loop
switching infrastructure at par with the Bells. Beginning in 2004, we expect
CSPs to increase their capital expenditures towards that end. We intend to serve
this emerging market expected to be in tens of billions of dollars over the next
ten years. Looking ahead, we see ourselves helping these CSPs succeed in owning
their critical 'last mile' local-loop networks to their customers instead of
leasing Bell facilities at uneconomical rates. We believe that those CSPs who do
not elect to invest capital in owning their critical 'last mile' local-loop
infrastructure will either declare bankruptcy or consolidate with other
companies, perhaps, therefore delaying growth in this emerging regulated
market.



We intend to supply our modern distributed voice switching and
broadband systems for critical 'last mile' applications to CSPs, especially for
multiple tenant buildings applications, using the following of our proven
systems:



1. Cyber Distributed Central Office (CDCO) CLASS 5 exchange provides voice
    subscriber lines such as POTS, ISDN, analog trunk lines for PABXs, etc.
2. Cyber Tandem Exchange (CTSX) CLASS 4 provides T1 carrier grade voice and
    data trunks.
3. Cyber Internet Access Network (CIAN), a high performance IP (Internet
    Protocol) distribution softswitch/router, provides multiple business
    customers simultaneous broadband access at T1 or multiple T1 speeds up to
    T3.



We believe that our CDCO, CTSX and CIAN systems are ideally
suited for building local-loop digital voice switched and broadband networks
requiring increased reliability, performance, scalability, interoperability, and
flexibility. Our strategy is to market our combined digital voice switched and
broadband network solution to CSPs, including utilities and landlords opting to
be CSPs, for the creation of high performance local-loop digital voice switched
and broadband networks. The control of local-loop networks is essential to
effectively service customers as indicated, a few years ago, from the collapse
of numerous CLECs, LDCs, ISPs and DSL providers. Due to the 2003 FCC's New Phone
Policy, we believe that we are poised to be a successful supplier of digital
voice switches and broadband systems for the creation of critical 'last mile'
local-loop networks in the United States, especially for the niche market of
multiple tenant building applications.

There is abundant capacity of optically-enabled TDM (voice) and
IP (broadband) backbone network between all major cities in the United States,
but as yet businesses or consumers do not have any access to that capacity for
both voice and broadband without using Bell switches. Industry experts estimate
that only between 2.6% to 5% of this capacity is currently being utilized. Our
high-performance CDCO and CTSX distributed TDM switches, and CIAN IP
distribution softswitch/routers are specifically designed to allow competitive
service providers (CSPs) to efficiently deploy local-loop digital TDM (voice)
and IP (broadband) networks including TDMoIP (TDM voice over IP), connecting
customers to the respective TDM and IP backbone network. In this highly
regulated market, we believe that we could gradually establish a market position
with early adopters of our technology as this competitive service provision
market establishes itself.



OUR RANGE OF INTERNET SYSTEMS



We have developed our 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



Our Cyber Business Internet Gateway (CBIG) 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. Our CBIG dramatically increases the reliability of the customer-end
network by eliminating many such devices while also lowering the overall cost of
network acquisition by 40% to 50%.



Our CBIG offers built-in standard security features, 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.



Cyber Internet Access Network



Our Cyber Internet Access Network (CIAN) is a high-end
distribution router/soft-switch, which permits multiple business users to
simultaneously access the Internet at a fixed committed bandwidth rate (CBR) on
"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 0.5Gbps 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



Our proprietary standalone Cyber Firewall (CFW) series IPSec
firewall appliance offers simple-do-it-yourself installation software 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.



Cyber Web Server



Our Cyber Web Server (CWEB) and Cyber Domain Name Server (CDNS)
are based on Linux Operating System and Intel Pentium Processors. We believe
that our servers are robust and proven-in for high performance web
applications.



OUR RANGE OF DIGITAL VOICE SWITCHES



We offer a full array of distributed digital switching systems
for modern digital telecommunications applications and networks. 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) and Long Distance Carriers (LDCs) intending to bypass the Bell's
local-loop networks. Our commitment to research and development has enabled us
to create new systems, employing SS7 or C7 signaling. Most importantly, we have
developed specialized software for modern wireless and fiber optic networks. We
intend to constantly develop additional new technologies and software for our
systems.



Cyber Distributed Central Office



Our Cyber Distributed Central Office (CDCO) is designed to
provide digital voice communications to subscribers in densely populated urban
areas. Intended for Class 5 local central office exchange applications, CDCO
features a modular distributed architecture with condensed hardware elements, as
it is primarily driven by software. Our CDCO switching systems serve as the core
of Integrated Services Digital Networks (ISDN), wired and wireless services,
microcellular services, and personal communication services (PCS). The CDCO
provides flexible digital interfaces for microwave systems, copper wire metallic
systems, radio relay systems, wireless systems, fiber optic systems and
satellite systems. 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. The modular nature of
the nodal structure of our CDCO provides an economical digital switching
exchange from as little as a few hundred lines to as many as several million
subscriber lines of capacity.



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. The distributed approach permits 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 does not affect other
nodes. In addition, the distributed approach eliminates bottlenecks, as the
system offers multiple routes for call completion.



Cyber Tandem Exchange



Our Cyber Tandem Exchange (CTSX) serves as an inter-city
exchange for long distance trunk services as well as a regional trunk exchange
connecting to various local CDCO exchanges by fiber optic or digital wireless
transmission. Intended for Class 4 tandem exchange applications, CTSX has only
digital interfaces, which offer capacities ranging from 500 to 500,000 digital
trunks. Our proprietary Cybermesh software permits seamless operation with
synchronous optical networks (SONET) or point-to-multi-point digital wireless
networks. Our proprietary Cybermesh software allows all CTSXs connected in a
mesh to provide virtually non-blocking service with excellent traffic handling
capacity (not possible with monolithic switches). We also offer a version of
CTSX strictly for international gateway functions for Class 3 applications,
which utilizes our specialized proprietary software.



Cyber Rural Exchange



Our Cyber Rural Exchange (CRX) is a small distributed Class 5
central office exchange, primarily intended for rural, remote or community
telephone applications. Our CRX is used by local telephone operating companies
to provide switched connections for local subscriber-to-subscriber
communications and subscriber to the long distance networks. Our CRX is cost
effective for applications requiring from a few hundred subscribers up to a few
thousand subscribers.



Cyber Switch Exchange



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



OUR BUSINESS STRATEGY FOR FCC UNREGULATED MARKET



Our goal is to become a player in the niche market of providing
low cost long distance services by using our VoIP POP systems in the United
States. We intend to implement the following strategies to achieve our
goal:

Exploit Early Market Entrance

Our strategy is to build this network nationwide as rapidly as
we can and offer low cost long distance voice services to numerous
non-facilities based resellers (NFR), who were victims of the recent past
telecom meltdown. Non-facilities based resellers, pursuant to the Telecom Act of
1996, simply bought wholesale minutes of voice service from the Bells and resold
to their subscribers, albeit at a significant loss. In fact, this was one of the
reasons that created the telecom meltdown as Bells profited at the expense of
these resellers, who were in the majority.

Focus on Building Local VoIP POPs for Non-facilities Based
Resellers

We believe that most non-facilities based resellers (NFR) do
not want to build any voice network on their own. They want to out source it.
Traditionally, they have relied on the Bells for their network needs including
on-going installation, maintenance and service. NFRs have predominantly focused
on gaining end customers and market share by reselling Bells services. The 2003
FCC's new phone policy discourages NFRs to sell such services to their business
customers without their own local network facilities. However, in January 2004,
FCC created the next revolution in voice communications by not intending to
regulate Voice-Over-Internet Protocol (VoIP) services encouraging NFRs to serve
this market segment. We believe that NFRs have the expertise to capture
significant share of this market, provided however, we build, maintain and
service our VoIP POPs nationwide. Currently, under intense competition and
extremely low margins most NFRs are not profitable. We believe that we could
offer savings of 30% to NFRs on wholesale basis, by using our low cost long
distance services. This would help us gain market share in this niche market
quite rapidly, without resorting to direct marketing to each consumer, which
could be prohibitive in early stages of this emerging market.

Create Pre-paid Card Brand for Non-facilities Based
Resellers

We expect to sell our long distance services by pre-paid cards
as well, under the brand names of many prominent retail chain stores such as
Wal-Mart, Target, Circuit City, etc. We hope that once our nationwide VoIP POP
network is in place, we could increase our market share through bulk sales of
our pre-paid cards to such brand name oriented NFRs.

Focus on Building Relationships with Affinity
Groups

We expect to build direct marketing relationships with affinity
groups such as associations of numerous vertical industries, industrial park
associations, college and university campuses, etc. We believe that this limited
and highly focused direct marketing to such groups could provide us with a fair
market share with reasonable profits.

Roll out in 300 NANP Area Codes

Our objective is to build, own and operate (BOO) our VoIP POPs
in 300 NANP area codes, as rapidly as we can to serve the needs of NFRs. There
is abundant capacity of optically-enabled IP backbone network between all 300
area codes in the United States. Industry experts estimate that only between
2.6% to 5% of this capacity is currently being utilized. Hence, the cost of
broadband access to the Internet is very low, permitting us to transmit long
distance traffic at very low cost. Our VoIP POP systems are specifically
designed to be scalable. It can serve 3,840 subscribers, as a minimum, in a
given area code. This scalable feature will allow us to efficiently deploy our
VoIP POP systems without bearing excessive stranded capital during initial
startup stage. We believe that we could establish a reasonable market position
once we have built our VoIP POPs in all of the 300 area codes.

Provide Superior Customer Service

As part of our strategy to serve and retain NFRs, we intend to
provide superior maintenance and service of our network. We intend to offer
on-line web based purchase of wholesale long distance minutes by NFRs. In fact
all services rendered by us will be on pre-paid or as rendered basis. Besides
building and delivering a high-quality VoIP POP network that provide "almost
carrier-grade voice" over the Internet, we will provide end-to-end proactive
network monitoring and management through our software; and monitor and repair
our network, 24 hours a day, seven days a week. Our objective in providing
outstanding service to our NFRs and affinity group subscribers is to provide a
high level of customer satisfaction, achieve customer loyalty and accelerate the
adoption rate of our service. This would be achieved by the availability of our
highly trained customer service representatives (CSR), located in the U.S., on a
24 hours a day, seven days a week. While our NFRs, in their own intensely
competitive market, sell and bill directly to their business and residential
customers, we are, in fact, their out-sourced VoIP facilities provider. We
believe that our superior customer service to NFRs and affinity groups should
allow us to maintain our customer loyalty for many years.



Our Network Architecture for Building VoIP POPs
Nationwide



Network Technology

The key design features allowing us to build an "almost
carrier-class voice network" over the Internet are:

Carrier-Class Network Management. Our network
is designed to be carrier-class throughout. For example, it has been designed
with redundant network electronics and transmission paths. We have the ability
to electronically view our entire network of VoIP POPs from our Network
Operations Center in Hauppauge, NY. We provide our NFRs and affinity groups with
service level agreements that guarantee specific levels of network
performance.

Local VoIP POP. Our local VoIP POP consists of
our VoIP POP system that transits or translates voice traffic from a PSTN to IP
enabled packet based for transmission over the Internet.

Fiber Backbone. Our VoIP POP systems connect to
fiber backbone at DS3 rate (45 Mbps) or Ethernet (100 Mbps). In area codes where
DS3 or Ethernet capacity is unavailable, our scaled down version of VoIP POP can
accept a minimum of 10 T1s (10x1.5 Mbps) for connectivity to the Internet. In
some cases our scaled down version of 10 Mbps Ethernet based VoIP POP could be
deployed using cable MSO service for Internet connectivity. However, MSO
services are extremely unreliable and throughput is generally between 0.5 to 1
Mbps.

Network Operations Center. Our entire network
is managed from the Network Operations Center located in Hauppauge, NY. From
this center, we provide end-to-end network monitoring and management using
advanced network management tools 24 hours a day, seven days a week. This
enhances our ability to address performance or connection issues before they
affect our NFR's end user. From the Network Operations Center, we monitor all
local VoIP POP systems as well as connectivity to the fiber backbone.

Our VoIP POP Systems

Our VoIP system is derived from the amalgamation of our Cyber
Internet Access Network (CIAN) softswitch/router and Class 4 Cyber Tandem
Exchange (CTSX) technologies. Our CIAN switch can inter-operate with PPP, Frame
Relay or Private Line IP based packet switched technologies and carry
"Anything-Over-IP", including Voice-Over-IP, Video-Over-IP and
Multimedia-Over-IP. Our CTSX can inter-operate with wireline traditional
circuit-switched voice Public Switched Telephone Network (PSTN), such as Bells
network. The combined technologies provide a unique VoIP POP platform that
allows the existing PSTN to co-exist and inter-operate with the emerging VoIP
network. We have also integrated a Cyber Virtual Number Server (CVNS) based on
our Cyber Domain Name Server (CDNS) in our VoIP POP system. Our CVNS assigns an
individual virtual number to an IP addressed device such as a notebook PC. This
allows a PC subscriber to make calls to a telephone from its PC from anywhere in
the world using the Internet. So also these calls allow any telephone subscriber
to make calls to any PC subscriber. Hence, we allow our subscribers to make
calls from telephone-to-telephone, from telephone-to-PC, from PC-to-telephone
and from PC-to-PC. Our VoIP POP systems extend the same capabilities to
cellphone, Wi-Fi, and mobile users.

We believe that our VoIP POP system is capable of providing the
functions as required for our VoIP services. However, we expect that our systems
will perhaps require some software tweaking and adjustments as we roll out our
network.



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.



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.



We continue to develop a stronger foothold in the Nigerian
telecommunication market by having our digital wireless telephone exchanges
accepted by a number of states and private telephone operators. In addition, we
were 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 one of the suppliers of telephone and Internet
systems.



Due to 2003 FCC's new phone policy, which became effective on
June 15, 2004, our strategy is to market our digital voice switches to
telecommunications service providers in the U.S. who are intending to build
their critical 'last mile' local-loop networks.



COMPETITION



FCC Unregulated Market



Currently, there is virtually no competition in the building of
VoIP based networks due to the novelty of this market. This market is in
embryonic stages and the overall current market is virtually zero. We believe
that we are uniquely poised to carve out a portion of the existing long distance
voice services market by building a nationwide VoIP network. We believe that we
can be successful in this niche market by serving the NFRs and affinity groups.
We expect to create this market for ourselves by making NFRs profitable in their
intensely competitive business of selling long distance services. Currently, the
U.S. long distance market is in tens of billions of dollars. If we capture any
insignificant portion of this market within the next few years, while
maintaining reasonable net income, it would be quite a significant achievement
for us. Moreover, we believe that once we have established in this market, we
could then demonstrate high growth prospects in our net income.



We believe that VoIP long distance service is going to be a
lucrative market. There are already a few companies engaging in this service by
piggy-backing on existing networks as follows:



- Cable TV Networks. Vonage is a company that provides low cost long
  distance service by using cable TV networks. Vonage requires consumers to
  subscribe for broadband Internet access service from their cable operators,
  generally at an additional monthly cost of about $80 to $110 above the
  standard cable TV monthly subscription fee. Once the subscriber has a
  broadband Internet access from its cable operator, then only can Vonage
  provide its VoIP services at an additional monthly cost of $40 for unlimited
  long distance service. However, Vonage's service is largely between
  subscribers on cable TV networks. Vonage launched its service, just recently,
  with an initial capital funding of about $70 million and has already captured
  over 100,000 subscribers. Vonage advertises itself as The Broadband Phone
  Company.



- Wi-Fi Hot Spots. These are broadband wireless networks in places
  such as Starbucks Coffee and airports allowing users with mobile notebooks to
  access Internet within a very tiny spot covering a range of 150 feet. Skype is
  a company that provides a VoIP service using these Wi-Fi Hot Spots. However,
  it can allow its users to talk to only PC users who are using Skype software.
  Hence, Skype's VoIP service is greatly limited because of peer-to-peer (P2P)
  in a PC-to-PC environment. Nevertheless, it is making inroad into this VoIP
  niche market.



- Peer-to-Peer. Pulver.com is a company that offers VoIP service
  using P2P in a PC-to-PC environment for those users who have a broadband
  Internet connection such as DSL or cable modem service. Generally, Pulver.com
  is creating greater awareness of VoIP service as an up and coming technology.



Since the VoIP service industry is in infancy stage, these
above mentioned companies, although very well funded, are exemplary leaders in
their own niches. Our approach is radically different in the sense that we are
building a nationwide VoIP POP network that will allow our subscribers to make
calls from telephone-to-telephone, from telephone-to-PC, from PC-to-telephone
and from PC-to-PC. Our VoIP POP systems extend the same capabilities to
cellphone, Wi-Fi, and mobile users. The uniqueness of our VoIP technology is its
ability to bridge calls between PSTN and Internet. We believe that the
versatility of our VoIP POP systems should allow us to capture a reasonable
share of this market.



We expect all types of users to find our pricing structure to
be reasonable and affordable. The following outlines our pricing structure:



- Residential Unlimited long distance service for $25 per month.
  This service will be offered to all residential or individual users making
  calls from telephone-to-telephone, telephone-to-cellphone,
  cellphone-to-telephone, cellphone-to-cellphone, telephone-to-PC worldwide, and
  cellphone-to-PC worldwide.



- Business Unlimited long distance service for $40 per month. This
  service will be offered to all business users making calls from
  telephone-to-telephone, telephone-to-cellphone, cellphone-to-telephone,
  cellphone-to-cellphone. telephone-to-PC worldwide, and cellphone-to-PC
  worldwide. The monthly fee is based on one user at a time. For example, if a
  business subscribes for five simultaneous users the monthly fee would be $40x5
  = $200.



- Unlimited Peer-to-Peer Worldwide for $25 per year. This service
  will be offered to all PC users, including mobile, to talk to other PC users
  in our network for an annual $25 registration fee to obtain a Cyber Virtual
  Number usable worldwide on the Internet. For example, this will allow a user
  in London with a PC hooked to the Internet to call a user with a PC in New
  York. Both users would have to be registered on our network.



- Business Secured Unlimited Peer-to-Peer Worldwide for $100 per month per
  registered user. This service will be offered to all PC users,
  including mobile, to talk to other PC users in our secured voice virtual
  private network using Internet Protocol encryption security (IPSec). Every
  registered user receives our VPN IPSec software that must be installed on
  their PCs.



We believe that our offerings should be attractive to all types
of users. Time is of the essence as we expect the level of competition to
intensify in the future.



Internet Systems



The Internet related networking products business is
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 we do. These companies
have established reputations for success in the development, sale and service of
Internet products.

Local-Loop Digital Broadband Systems: Currently, almost
all of the local-loop digital broadband market is controlled and owned by the
Bells, who purchase their systems from major vendors such as Nortel Networks,
Lucent Technologies and Cisco Systems. When and if the Internet service
providers begin to build their own local-loop digital broadband networks, we
believe that we could serve this niche market. Our focus is to introduce an
intermediate stage distribution router or Mini-POP to alleviate congestion of IP
data traffic between customer-end point and POP. Our CIAN distribution routers
have a capacity of 0.5 gigabits per second, which is more than sufficient for
this application.

Customer Premise Products: With respect to the market
for customer premise end router such as our CBIG, the competition is intense,
with numerous players ranging from small manufacturers to giants like Cisco
Systems and Nortel Networks. 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 and is priced
competitively.

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.
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. Our CFW series firewall products are standalone and
totally independent of customer's computing operating system platform. Our CFW
firewalls are competitively priced in range of a few thousand dollars for fully
IPSec compliant firewall. In addition, our CFW series firewalls are
interoperable with Cisco Systems, Check Point Software and Nortel Networks
firewalls.

Digital Voice Switches



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



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

1. the installed cost of our digital voice switches (wireless or landline)
    is less than those of the competition;
2. our switches can be engineered, installed and put into service much more
    quickly; and
3. 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 REGULATIONS AND INDUSTRY STANDARDS



The telecommunications and related networking industries in
which we compete are highly regulated in both the United States and
internationally. Imposition of public carrier tariffs and taxation of
telecommunications services could materially adversely affect demand for our
systems. Furthermore, regulation or deregulation of public carrier services by
the United States and other governments, including permitting local carriers to
manufacture switching equipment, may determine the extent to which we will be
able to penetrate markets in the United States and internationally and may
result in significantly increased competition, which would significantly impact
our future operating results. In addition, our systems must comply with
equipment, interface and installation standards promulgated by communications
regulatory authorities, including the Federal Communications Commission.



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



Industry standards organizations, such as International
Telephone Union ("ITU"), Bellcore in the U.S., and Internet Engineering Task
Force ("IETF") have created committees to address the matter of standards within
the telecommunications and Internet industries. The purpose of such standards is
to facilitate the inter-operability of products from various vendors and,
through standardization, create a competitive environment, which is anticipated
to result in lower product costs. During the past few years, many new standards
have been adopted and more are pending. The International Standards Organization
(ISO), one of the primary standard setting bodies in the communications
industry, has developed a framework for network standards called the Open System
Interconnection Reference Model (the "OSI Model"). The OSI Model represents a
standard approach by which information can be communicated throughout a network,
so that a variety of independently developed computer and communications devices
can inter-operate. The design of our systems incorporates the OSI Model and
accommodates most existing and pending ISDN, AIN, SS7, C7, X.25, Frame Relay,
Private Line, and IPSec standards, including applicable ITU, Bellcore and IETF
specifications. In most foreign countries, government departments or ministries
set industry 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 embedded processors and 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,
2004 and 2003, we expended approximately $22,921 and $132,778, respectively, on
research and development. During the year ended March 31, 2004, we substantially
reduced our research and development expenditures due to lack of capital.
Although our systems are fully developed such as our CDCO, CTSX, CRX, CSX, CBIG,
CIAN, CFW and CWEB, 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. We believe
that our VoIP POP system is capable of providing the functions as required for
our VoIP services. However, we expect that our VoIP POP systems will perhaps
require some software tweaking and adjustments as we roll out our network.



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



SERVICE 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 two full and three part time
employees, of which two were engaged in marketing and sales activities, one was
engaged in research and development, and two were in administration. None of our
employees is represented by a labor union. We consider our employee relations
satisfactory.





|GLOSSARY OF TERMS                        
|-----------------------------------------
|Analog                                   
|                                         
|Backbone                                 
|                                         
|Bandwidth                                
|                                         
|Broadband                                
|                                         
|Central Office                           
|                                         
|Collocation                              
|                                         
|Competitive Local Exchange Carrier (CLEC)
|                                         
|Copper Line or Loop                      
|                                         
|Digital                                  
|                                         
|DSL                                      
|                                         
|E-Commerce                               
|                                         
|Firewall                                 
|                                         
|Frame Relay                              
|                                         
|Incumbent Local Exchange Carrier (ILEC)  
|                                         
|Internet                                 
|                                         
|Internet Protocol                        
|                                         
|ISDN                                     
|                                         
|Internet Service Provider                
|                                         
|Kbps.                                    
|                                         
|Mbps                                     
|                                         
|Modem                                    
|                                         
|Packets                                  
|                                         
|Private Line                             
|                                         
|Router                                   
|                                         
|T-1                                      







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 $58,220 and expires on May 31, 2009. 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.



ITEM 3 - Legal Proceedings



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 companys
Managing Director (Asia) from June 1997 until his resignation on March 9, 2000.
Our company believes that Mr. Pillais or UCCs threatened claims, if any, are
without merit and our company will vigorously defend its position, if and when
required.



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



None.



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             
|Fiscal Year Ended March 31, 2004 |                  
|                                 | First Quarter    
|                                 | Second Quarter   
|                                 | Third Quarter    
|                                 | Fourth Quarter   
|                                 |                  
|Fiscal Year Ended March 31, 2003 |                  
|                                 | First Quarter    
|                                 | Second Quarter   
|                                 | Third Quarter    
|                                 | Fourth Quarter   



On March 31, 2004, the closing trade price of our common stock
as reported on the Bulletin Board was $0.20 per share. On that date, there were
approximately 500 stockholders of record of our common stock. We believe that on
March 31, 2004, 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.









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 companys SEC reports, including
but not limited to this Annual Report on Form 10-KSB for the year ended March
31, 2004. 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 design, develop, manufacture and market a range of unique
distributed digital voice switching infrastructure equipment for public switched
voice network operators worldwide. We also design, develop, manufacture and
market a vast array of high performance Internet infrastructure systems such as
soft-switches, routers, gateways, firewalls and servers used by Internet service
providers to create next-generation digital broadband services, Voice-over
Internet Protocol (VoIP) services, and virtual private networks (VPN) services.
Our mission is to become a cost effective supplier of (i) digital voice switches
and broadband systems in the U.S., and (ii) digital voice switches to developing
countries such as China, India and Brazil. We believe that service providers can
offer affordable yet modern voice and broadband Internet services by using our
vast array of voice and Internet systems.



Unlike our competitors 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 service providers 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. 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.



Emerging Market Opportunity in the FCC Unregulated
Market

In January 2004, Federal Communications Commission (FCC)
created the next revolution in voice communications by not intending to regulate
Voice-Over-Internet Protocol (VoIP) services. Prior to this FCC's decision,
it would have been illegal for us to enter this emerging market. In direct
response to this FCC's decision, we have made a strategic decision to enter this
multi-billion dollar voice services market by using our recently created VoIP
systems. In anticipation of this next revolution in communication, we have
created our own VoIP technology whereby it converts traditional voice into
packet switched data for low cost transmission using Internet Protocol (IP). Our
unique VoIP system allows the existing public switched telephone network (PSTN),
such as the Bells network, to co-exist and inter-operate with the emerging VoIP
network. We believe that we are one of a very few telecom companies with this
technology that allows us to build this emerging VoIP network while bridging to
the traditional PSTN (Bells network).

Our objective is to provide very low cost domestic long
distance voice service to consumers by carrying the traffic over the Internet.
Unlike traffic on the Internet faces no boundaries, our domestic PSTN is
strictly defined by boundaries identified by specific area codes according to
our North American Numbering Plan (NANP) system. Telephone calls between area
codes are, generally, termed as long distance calls. Calls within an area code
are termed as a local call. Currently, the existing PSTN uses numerous Time
Division Multiplex (TDM) switches between area codes to carry long distance
calls on a circuit switched basis. This approach is expensive as a dedicated
circuit is established for the duration of each long distance call. However,
this circuit switched network has the advantage of secure and clear voice
communication and is deployed globally with penetration of almost 100%. With the
advent of Internet Protocol and the ability to carry voice over packet switched
network, and the ubiquity of Internet, long distance calls can be transported
between area codes very inexpensively. However, the security and quality of
voice over Internet is inferior to that of circuit switched networks. We believe
that despite these negatives of VoIP technology, an emerging market opportunity
exists because of those consumers who are willing to tolerate poor quality and
low security for greater savings in making long distance calls.

According to information released by FCC on December 22, 2003,
there were a total of 182.8 million end-user circuit switched local access
lines. Based on our NANP system, these circuit switched access lines are spread
over 300 area codes. Hence, in order for us to carry long distance voice traffic
nationwide over the Internet, we would need to build over 300 of our unique VoIP
based facilities; creating over 300 VoIP POPs (Point-of-Presence). Each VoIP POP
translates voice traffic from circuit switched access lines to packet switched
VoIP data to be carried over the Internet. Since, the 182.8 million consumers or
end-users generally, pay fixed local charges for unlimited local calling to the
four Baby Bells, our strategy is to offer a local access number within their
area code to make long distance calls over the Internet. Upon dialing a local
access number, these consumers will receive an Internet dial tone from our local
VoIP POP, which will direct the call to our destination VoIP POP for call
termination.

Hence, we expect to build VoIP based facilities nationwide by
deploying over 300 of our VoIP POP systems. The coverage provided by our VoIP
POPs will permit every consumer, whether residential or business, to access our
VoIP network for long distance calls within U.S. We expect to significantly
lower the cost of providing long distance telephone services by virtue of using
the Internet instead of the traditional costly long distance network. Yet,
providing the requisite quality and reliability due to the inherent software
aspects of our VoIP POP systems.

Our VoIP system is derived from the amalgamation of our Cyber
Internet Access Network (CIAN) packet switch and Class 4 Cyber Tandem Exchange
(CTSX) technologies. CIAN switch can inter-operate with PPP, Frame Relay or
Private Line IP based packet switched technologies and carry "Anything-Over-IP",
including Voice-Over-IP, Video-Over-IP and Multimedia-Over-IP. CTSX can
inter-operate with wireline traditional circuit-switched voice Public Switched
Telephone Network (PSTN), such as Bells network. The combined technologies
provide a unique VoIP softswitch platform that allows the existing PSTN to
co-exist and inter-operate with the emerging VoIP network. However, there can be
no assurance that we will be successful in this market.

Emerging Market Opportunity in the FCC Regulated Market



On June 15, 2004, Supreme Court finally approved the Federal
Communications Commission's (FCC) new ruling on the regulated phone policy
released on August 21, 2003, requiring Bell's competitors such as long distance
carriers (LDCs) to use their own digital voice switches for connecting calls
instead of leasing Bell switches (hereinafter referred to as "2003 FCC's New
Phone Policy"). Prior, to this 2003 FCC's New Phone Policy, there was no
market for our digital voice switches in the U.S. Even today, under the current
FCC regulations we cannot legally provide traditional voice services in the U.S.
using our digital voice switches , unless we are licensed as a CLEC or LDC, as
FCC regulates this market. The cost of obtaining such license is formidable,
as a minimum a few hundred million dollars, which is out of our reach. Because
of certain policy changes for this regulated market, we believe that an emerging
market opportunity has been created by 2003 FCC's New Phone Policy, provided
however, CLECs and LDCs allocate capital towards building their local-loop
infrastructure.



Telecom competitors, such as CLECs and LDCs, have lost the
battle with the Bells, who will virtually shut off local access to them pursuant
to 2003 FCC's New Phone Policy. Currently, these competitors pay about 70% of
their total billings as local access charges to Bells, impairing their economic
viability. Furthermore, the local access or the critical 'last mile' charges
will be rising from 40 percent to over 60 percent by 2005, making local network
ownership by competitors an increasingly key factor for the future. FCC
necessitates CLECs and LDCs to build their own critical 'last mile' local-loop
network consisting of local switching facilities, loops and transport. FCC
further rules that CLECs and LDCs must also provide broadband data services
along with voice services. So also FCC mandates that Internet service providers
(ISP) must also provide voice along with broadband data services. Hence, CLECs,
LDCs and ISPs must build their own local voice and broadband switching
facilities and networks to serve their customers. This means there should be
demand for our digital voice switches and broadband systems by competitive
service providers (CSPs) that include CLECs, LDCs and ISPs. We believe that
combined power of our digital voice switches and broadband Internet systems
offers CSPs affordable one-stop solution.



We believe that we are at the threshold of the local-loop
telephone switching metamorphosis in the U.S. According to data released by FCC,
to-date less than 6 million local-loop switched lines were owned by the
competitors as compared to 163 million such lines owned by Bells. Hereafter,
CSPs have to continuously invest, year after year, in bringing their local-loop
switching infrastructure at par with the Bells. Beginning in 2004, we expect
CSPs to increase their capital expenditures towards that end. We intend to serve
this emerging market expected to be in tens of billions of dollars over the next
ten years. Looking ahead, we see ourselves helping these CSPs succeed in owning
their critical 'last mile' local-loop networks to their customers instead of
leasing Bell facilities at uneconomical rates. We believe that those CSPs who do
not elect to invest capital in owning their critical 'last mile' local-loop
infrastructure will either declare bankruptcy or consolidate with other
companies, perhaps, therefore delaying growth in this emerging regulated
market.



We intend to supply our modern distributed voice switching and
broadband systems for critical 'last mile' applications to CSPs, especially for
multiple tenant building applications, using the following of our proven
systems:



1. Cyber Distributed Central Office (CDCO) CLASS 5 exchange provides voice
    subscriber lines such as POTS, ISDN, analog trunk lines for PABXs, etc.
2. Cyber Tandem Exchange (CTSX) CLASS 4 provides T1 carrier grade voice and
    data trunks.
3. Cyber Internet Access Network (CIAN), a high performance IP (Internet
    Protocol) distribution softswitch/router, provides multiple business
    customers simultaneous broadband access at T1 or multiple T1 speeds up to
    T3.



We believe that our CDCO, CTSX and CIAN systems are ideally
suited for building local-loop digital voice switched and broadband networks
requiring increased reliability, performance, scalability, interoperability, and
flexibility. Our strategy is to market our combined digital voice switched and
broadband network solution to CSPs, including utilities and landlords opting to
be CSPs, for the creation of high performance local-loop digital voice switched
and broadband networks. The control of local-loop networks is essential to
effectively service customers as indicated, a few years ago, from the collapse
of numerous CLECs, LDCs, ISPs and DSL providers. Due to the 2003 FCC's New Phone
Policy, we believe that we are poised to be a successful supplier of digital
voice switches and broadband systems for the creation of critical 'last mile'
local-loop networks in the United States, especially for the niche market of
multiple tenant building applications.

There is abundant capacity of optically-enabled TDM (voice) and
IP (broadband) backbone network between all major cities in the United States,
but as yet businesses or consumers do not have any access to that capacity for
both voice and broadband without using Bell switches. Industry experts estimate
that only between 2.6% to 5% of this capacity is currently being utilized. Our
high-performance CDCO and CTSX distributed TDM switches, and CIAN IP
distribution softswitch/routers are specifically designed to allow competitive
service providers (CSPs) to efficiently deploy local-loop digital TDM (voice)
and IP (broadband) networks including TDMoIP (TDM voice over IP), connecting
customers to the respective TDM and IP backbone network. In this highly
regulated market, we believe that we could gradually establish a market position
with early adopters of our technology as this competitive service provision
market establishes itself, however, there can be no assurance that we will be
successful in this market.

Market Opportunity in Developing Countries



We continue to develop a stronger foothold in the
Nigerian telecommunication market by having our digital wireless telephone
exchanges accepted by a number of states and private telephone operators. In
addition, we were 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 one of the suppliers of telephone and Internet
systems. However, there can be no assurance that we will be successful in
supplying any of our digital telephone exchanges to the Nigerian
telecommunications market.

Results of Operations



Year Ended March 31, 2004, Compared to Year Ended March 31,
2003



Net sales



Net sales for the year ended March 31, 2004 (referred to as
"fiscal year 2004"), were $0 from $0 for the year ended March 31, 2003 (referred
to as "fiscal year 2003"). We are in early stages of developing the domestic
market in the Unregulated Market of VoIP Services pursuant to the January 2004
decision of FCC.



Gross profit



We include in our cost of sales the materials and labor used,
subcontractor costs and overhead incurred in the manufacture of our systems,
which was zero for both fiscal years 2004 and 2003 because of zero sales.



Selling, general and administrative



Selling, general and administrative expenses decreased from
$561,590 in fiscal year 2003 to $321,202 in fiscal year 2004, representing a
decrease of $240,388 principally due to cutback in marketing efforts in
Nigeria.



Research and development



Research and development expenses decreased from $132,778 in
fiscal year 2003 to $22,921 in fiscal year 2004, representing a decrease of
$109,857 or approximately 82%, principally due to capital constraints. All
development costs are expensed in the period incurred.



Income (loss) from operations



Loss from operations in fiscal year 2004 was $(404,588) or
$(.02) per share as compared with a loss of $(758,848) or $(.04) per share in
fiscal year 2003.



Net income (loss) available to Common Stockholders



As a result of the foregoing, the net loss in fiscal year 2004
was $(404,588) or $(.02) per share as compared to a net loss of $(758,848) or
$(.04) per share in fiscal year 2003.



Liquidity and Capital Resources



Our ability to generate cash adequate to meet our needs results
primarily from sale of preferred and common stock, cash flow from operations and
cash advances in the form of loan from our Chief Executive Officer and a
shareholder. Total working capital decreased by $318,861 to $(342,475) at March
31, 2004 from $(23,614) at March 31, 2003. The current ratio of current assets
to current liabilities decreased to 0.7 to 1 as at March 31, 2004 from 1.0 to 1
as at March 31, 2003. 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 until we are able to obtain additional funds to
pursue the emerging unregulated VoIP domestic market. We cannot enter the VoIP
domestic market without adequate funding. We have no off-balance sheet
arrangements.



We used $1,421 and $0 during fiscal year 2004 and fiscal year
2003, respectively, for investing activities. The cash used for investing
activities relates primarily to purchases of equipment in fiscal year 2004 and
fiscal year 2003.



Net cash provided (used) in financing activities was $392,062
and $539,039 for fiscal year 2004 and fiscal year 2003, 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. As of July 11, 2002, all 12,710
warrants expired at an exercise price of $6.00 per share.



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 stock has been converted or redeemed and there are no such shares
outstanding. On October 4, 2002, all accompanying warrants in the aggregate
amount of 235,678 expired in connection with the offering of Series D1 preferred
stock at an exercise price of $5.70 per share.



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. During the
years ended March 31, 2004 and 2003, we drew down $86,000 and $413,000 against
the equity line and issued 348,255 and 842,934 shares of common stock,
respectively. As of March 31, 2004, the equity line has expired. In
consideration for the accredited institutional investors 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,
Chief Executive Officer 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.



On December 10, 2002, in lieu of foregone salaries by all employees in the
aggregate amount of $516,658, the Board of Directors approved the issuance of
516,658 incentive stock options to all employees for their dedication and in
recognition of them forego one-half of their salary since October 17, 2000.
These options were granted at $.15 per share which was above 100% of fair market
value on the date of the grant.



In December 2002, we concluded a private placement of 500,000
restricted shares at a price of $0.20 per share of our common stock, par value
$.01 per share, to certain accredited investors and received net proceeds of
$100,000. The accredited investors also received accompanying warrants in the
aggregate to purchase 100,000 shares of our common stock at an exercise price of
$0.40 per share. These warrants expire on December 20, 2004. These securities
were issued without registration in reliance on Section 4(2) of the Securities
Act of 1933, as amended. These securities were issued pursuant to Rule 144
promulgated under the Act that require, among other conditions, a one year
holding period prior to the resale (in limited amounts) of securities acquired
by these accredited investors in a non-public offering without having to satisfy
the registration requirements under the Act.



During the fiscal years ended March 31, 2004 and 2003, the
Company received cash advances of $305,700 and $41,600, respectively, from our
Chief Executive Officer and a shareholder.



Based on amounts received in the Series A, Series B, Series C,
Series D1 preferred stock and private equity line financing, together with the
expected exercise of options and warrants and expected cash flow from
operations, we believe that our current sources of liquidity will be sufficient
to meet our needs until we are able to obtain additional funds to pursue the
emerging unregulated VoIP domestic market.



Additional financing will be needed to support the future
growth plans of our company, as defined below for each of the three market
segments:



Unregulated Emerging VoIP Service Market Segment: In order
to build POPs, using our VoIP systems, in several major metropolitan areas
significant capital will be required. We are looking for such capital from
various state government financial assistance programs such as Industrial
Development Agency (IDA) bonds for manufacturing and building of POPs, working
capital loans, manufacturing assistance loans, revolving loans, telecom fund
loans, wage tax credits for new hires, investment tax credits, etc. Under
consideration are $10 million IDA bond at 1.2% interest rate and 15 year term;
and various loans aggregating $3 million at interest rates ranging from 1% to 3%
with terms varying from 1-1/2 years to 7 years. We believe that such funding is
possible because in January 2004, FCC created the next revolution in voice
communications by not intending to regulate Voice-Over-Internet Protocol (VoIP)
services.



Regulated Emerging Market Segment: We are currently not
looking for capital for this market, unless we see that CLECs and LDCs plan to
build their own critical 'last mile' local-loop network consisting of local
digital voice switches and broadband systems, loops and transport. We believe
that this market will emerge, especially after the Supreme Court ruling of June
15, 2004.



Developing Countries Market Segment: We need capital to
enter developing countries such as China, India and Brazil. However, for the
Nigerian market we do not need capital. Our equipment sale agreements require
buyer's to make payments through cash-in-advance and the remaining balance paid
through an irrevocable confirmed letters of credit. For some transactions,
Export-Import (Ex-Im) Bank of the United States has agreed to provide 5 year
financing to certain Nigerian buyer's for the purchase of our digital telephone
exchanges, in which case we receive payments upon shipment from an U.S. Bank
designated by Ex-Im Bank. In addition, should we require capital for these
transactions, Ex-Im Bank has given us guarantee to fulfill all our working
capital requirements.



The search for financing continues. However, economic factors
have greatly decreased the availability and increased the cost of financing for
our industry and hampered our progress in this area. In addition, our common
stock trades sporadically on the Over-the-Counter Bulletin Board as a "penny
stock", mitigating our ability to obtain equity capital at reasonable terms.
Therefore, there is no assurance that there will be future financing available
at terms that are acceptable to us. If we fail to obtain sufficient funds, we
may need to delay, scale back or terminate some or all of our research and
development programs and our anticipated expansion or otherwise curtail our
operations.



Risk Factors



The risks and uncertainties described below are, however, not
the only ones facing us. Additional risks and uncertainties not currently known
to us or that we currently consider immaterial may also impair our
operations.

We have a history of operating losses and we anticipate future
losses.

Since inception, we have generated limited revenues from the
sale of our products. We incurred losses of $404,588 and $758,848, respectively,
for the fiscal years ending March 31, 2004 and 2003, and we anticipate that
losses will continue until such time, if ever, as revenue from operations is
sufficient to offset our operating costs.

We will need significant additional funds, which we may not be
able to obtain.

We have historically satisfied our working capital requirements
through the public and private issuances of equity securities and borrowings
from government agencies as well as from our chief executive officer and a
shareholder. We will continue to seek additional funds through such channels and
from collaborative and other arrangements with corporate partners. However, we
may not be able to obtain, from these or other sources, adequate funds when
needed or funding that is on terms acceptable to us. If we fail to obtain
sufficient funds, we may need to delay, scale back or terminate some or all of
our research-and- development programs and our anticipated expansion or
otherwise curtail our operations.

We expect to have foreign sales, so our business is subject to
the additional risks associated with doing business
overseas.

We expect that a portion of our revenues may be derived from
sales of our products in foreign markets. Accordingly, we will be subject to all
of the risks associated with foreign trade. These risks include shipping delays,
increased credit risks, trade restrictions, export duties and tariffs,
fluctuations in foreign currency, and uncertainties in international, political,
regulatory and economic developments. In addition, we anticipate that our
foreign operations will require us to devote significant resources to system
installation, training and service, areas in which we have limited
experience.

We may be unable to adapt to the rapid technological change
that characterizes our industry.

The technology related to digital voice switching and
networking systems, including Internet Protocol (IP) packet-based high-speed
broadband systems, is evolving at a rapid pace. To ensure that our current
systems do not become obsolete, we will need to invest significant time and
resources in research and development and testing.

We cannot guarantee that there will be a market for our systems
and services.

The market for VoIP services and IP packet-based local-loop
digital broadband systems is in the early stages of development. Consequently,
we cannot accurately predict whether the market for our systems or services will
fail to develop, grow more slowly than anticipated, or become saturated with
competitors. Various VoIP based service providers have already entered this
emerging market ahead of us. Although we have resolved certain critical issues
facing commercial use of local-loop digital broadband systems for Internet and
local area network access, including security, reliability, ease and cost of
access and quality of service, we cannot guarantee market acceptance of our
Internet systems.

Our limited marketing activity may materially adversely affect
our business.

If our systems or services are to be accepted by the market, we
will need to create an awareness of, and demand for, our systems. We have not
yet engaged in such marketing activities to any degree, as we lack the resources
to do so. Furthermore, any such marketing activities that we engage in may prove
unsuccessful.

The market in which we operate is intensely competitive, and we
may not be able to compete effectively, especially against established industry
competitors.

We operate in an intensely competitive business. Among our
principal competitors are well-established foreign and domestic companies,
including Lucent Technologies, Nortel Networks, Siemens Corp., L.M. Ericsson
Corp., Alcatel Telecom, and others that have developed systems that perform many
of the same functions as our systems. In addition, computer networking companies
engaged in empowering the Internet include companies such as Cisco Systems Inc.,
Juniper Networks, Check Point Software Technologies, Novell Inc., 3Com, and IBM
Corp. which dominate the industry. All of these companies have substantially
greater financing, marketing personnel and other resources than we do. In
addition, they have established reputations for success in developing, selling,
and servicing digital switching and networking and related systems and have
established significant market penetration for their systems. These competitors
also have the research-and-development capabilities and financial and technical
resources necessary to enable them to respond to technological advances as well
as evolving industry standards.

Our operating results may fluctuate.

Our operating results could vary from period to period as a
result of the time it takes to complete a sale. Our sales cycle for foreign
contracts generally starts when a prospective customer issues a request for a
proposal and ends when we sign a sales contract with that customer, and
typically lasts from 6 to 36 months. The period from signing of the sales
contract until delivery, installation, and acceptance of a system (which is when
we recognize revenues) typically ranges from 3 to 9 months. The principal
factors affecting delivery and installation time are the configuration and
complexity of the system and the availability of third-party hardware
components. Other factors contributing to fluctuation of our operating results
include the timing of introduction of new systems by us and by our competitors
and fluctuation in expenses, whether related to sales and marketing, product
development, or administration.

We have obtained and expect to continue to secure a portion of
our foreign contracts through competitive bidding.

Competitive bidding is typically a lengthy process that often
results in resources being expended on bids that are not accepted. Additionally,
inherent in the competitive bidding process is the risk that actual costs may
exceed projected costs used in calculating the bid price. Moreover, we may be
required to post bid or performance bonds in connection with contracts with
foreign agencies. To date, our limited capital resources have restricted our
ability to obtain bonds and to bid on larger contracts, and we may find
ourselves similarly restricted in the future.

We depend on third parties to market and sell of our systems
and services.

We rely significantly on indirect sales channels to market and
sell our systems and services. Our current agreements with indirect sales
channels are non-exclusive, and we anticipate that any such agreements we enter
into in the future will also be non-exclusive. Non-exclusivity allows these
sales channels to resell systems or services offered by our competitors.
Furthermore, our agreements are generally short-term, and can be cancelled by
these sales channels without significant financial consequence. We cannot
control how these sales channels perform and cannot be certain that either our
customers or we will be satisfied by their performance. Also, many of these
companies compete with us.

Our ability to compete will suffer if
we are unable to protect our patent rights and trade secrets or if we infringe
the proprietary rights of third
parties.

We rely solely on trade secret, copyright, and trademark laws
to protect our proprietary software and hardware technology. We do not hold any
patents and we have not filed any patent applications that relate to any of our
technology. Our competitors may learn our trade secrets or develop them
independently. In addition, we seek to protect our trade secrets and other
proprietary information in part by means of confidentiality agreements with our
collaborators, employees, and consultants. If any of these agreements is
breached, we may be without adequate remedies. Costs related to settling any
disputes that may arise from our need to protect our proprietary rights may be
significant. Although we do not believe that we are infringing on any patent or
other proprietary rights, others may claim that we are doing so. Any such claim
would likely be time-consuming and expensive to defend, particularly if we are
unsuccessful, and could prevent us from selling our products or services. In
addition, we may also be forced to enter into costly and burdensome royalty and
licensing agreements.

The loss of J.C. Chatpar would likely have an adverse effect on
our business.

Our future success will depend largely on our ability to retain
the services of J.C. Chatpar, our founder, President and Chief Executive
Officer. Mr. Chatpar is primarily responsible for developing our proprietary
technology and managing our company, including its business development and
marketing functions. We currently have a three-year employment contract with Mr.
Chatpar that prevents him from competing with us during his employment. We do
not have a "key person" life insurance policy for any of our personnel,
including Mr. Chatpar. If we lose Mr. Chatpar's services, it would have a
material adverse effect on our business.

Our success depends on our ability to hire and retain
management personnel.

Our success also depends on our ability to hire and retain
skilled operating, marketing, technical, financial and management personnel. In
the telecommunications and network systems business sectors, competition in
connection with hiring and retaining skilled and dependable personnel is
intense. We may not offer salaries or benefits that are competitive with those
offered by our competitors or by universities, research entities and other
organizations, which may have significantly more resources than we have. We may
not succeed in hiring and retaining such personnel.

We depend on third-party suppliers.

We depend on others to manufacture all of the component parts
we incorporate into our systems. We purchase our component parts from numerous
third-party manufacturers and believe that numerous alternative sources of
supply are readily available for most component parts. We depend on our
suppliers to satisfy performance and quality specifications and to dedicate
sufficient production capacity for components within scheduled delivery times.
We do not maintain contracts with any of our suppliers; instead, we purchase our
system components pursuant to purchase orders placed from time to time in the
ordinary course of business. This means we are vulnerable to unanticipated price
increases.

We depend on a single supplier for certain semiconductor chips,
such as embedded processors and Pentium processors from Intel Corporation, ISDN
chips from Motorola, PLDs and FPGAs from Altera, and T1/T3 chips from Rockwell
Semiconductors and PMC-Sierra Corp.. If any of these semiconductor chips are
discontinued, we would have to redesign some of our systems by using other
vendors components. This would likely result in delays.

We have suffered cutbacks of digital voice switches sales and
broadband services to our customers.

We have in the past sold our digital voice switches to defense
agencies of the United States and provided broadband services using our systems
in alliance with AT&T to businesses. Due to cutbacks and the recent telecom
meltdown, we may not be able to replace these customers.

We are subject to various governmental
regulations.

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 significantly reduce demand for our systems.
Furthermore, regulation or deregulation of public carrier services in the United
States or elsewhere, may determine the extent to which we will be able to enter
and penetrate markets in the United States and internationally and may result in
significantly increased competition. Furthermore, our systems must comply with
equipment, interface, and installation standards promulgated by communications
regulatory authorities and industry standards imposed by domestic and foreign
carriers. Changes in these standards could result in our incurring additional
expenses.

Trading in our common stock may be limited.

Our common stock is quoted on the Over-the-Counter Bulletin
Board. The Over-the-Counter Bulletin Board is not, however, an exchange, and
trading in securities on the Over-the-Counter Bulletin Board is often more
sporadic than trading in securities listed on an exchange or NASDAQ.
Consequently, our shareholders may have difficulty reselling any shares of our
common stock.

Because "penny stock" rules apply to trading in our common
stock, our shareholders may find it difficult to sell the
shares.

Our common stock is a "penny stock," as it is not listed on an
exchange and trades at less than $5.00 a share. Broker-dealers who sell penny
stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny-stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser, and obtain the purchasers written
agreement to the purchase. Consequently, the penny stock rules may make it
difficult for our shareholders to sell their shares of our common stock.

Issuance of our shares of common stock to fund our VoIP
services business may significantly dilute the equity interest of existing
stockholders.

We will need significant additional funds to enter VoIP
services business, which will require us to issue more shares of our common
stock. Accordingly, this causes a greater risk of dilution. The perceived risk
of dilution may cause some of our stockholders to sell their shares, which could
have a depressive effect on the price of our common stock.

We expect that our stock price will be
volatile.

Like the stock of many small-capitalization companies, the
market price for our common stock has been volatile for reasons not necessarily
related to our performance or asset value, and we expect that it will continue
to be so for the foreseeable future. In the past, securities class action
litigation has often been brought against companies following periods of
volatility in the market price of their securities. If securities class action
litigation is brought against us, such litigation could result in substantial
costs and would divert managements attention and resources.

Our President and Chief Executive Officer controls a
significant percentage of our common stock.

As of June 14, 2004, J.C. Chatpar, our President and Chief
Executive Officer, owned beneficially approximately 46%of our outstanding common
stock. Mr. Chatpar is able to influence all matters requiring stockholder
approval, including election of directors and approval of significant corporate
transactions. This concentration of ownership, which is not subject to any
voting restrictions, could limit the price that investors might be willing to
pay for our common stock. In addition, Mr. Chatpar is in a position to
impede transactions that may be desirable for other stockholders. He could, for
example, make it more difficult for anyone to take control of us.

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.





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 | 56  | Chairman of the Board, President, and Chief Executive
      Officer
|                   |     |                                                                    
|Jack P. Dorfman    | 66  | Director                                                           
|                   |     |                                                                    
|Jatinder V. Wadhwa | 69  | Director                                                           
|                   |     |                                                                    
|Terry L. Jones     | 56  | Director                                                           
|                   |     |                                                                    
|Andrew Van Etten   | 42  | Director                                                           
|                   |     |                                                                    
|Larry S. Shluger   | 65  | Vice President of Operations and
  Secretary                       



Jawahar C. Chatpar is the 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. Mr. Chatpar is
primarily responsible for developing our proprietary technology and managing our
company, including its business development and marketing functions. 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 (Nortel
Networks). 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 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 Mitsuis 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.



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.













Summary Compensation Table



The following table sets forth information concerning the
compensation for services in all capacities for the fiscal years ended March 31,
2004, 2003 and 2002 of those persons who were, at March 31, 2004 the chief
executive officer (the "named officer"). During such periods, no executive
officer of our company received compensation in excess of $100,000.



|                                                                                 | Annual Compensation        | Long Term Compensation              | All Other
      Compensation
|-------------------------------------------------------------------------------- | -------------------------- | ----------------------------------- | ----------------------------
|                                                                                 |                            |                                     |                             
|Name and Principal
      Position                                                | Year                       | Salary
      ($)                    | Bonus
      ($)             
|J.C. Chatpar, Chairman of the Board, President and Chief Executive
      Officer | 2004
      2003
      2002 | $92,500
      $92,500
      $92,500 | None
      None
      None  

____________

(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 2004, 2003 and 2002 fiscal years or $50,000, thus, such amounts
are not included in the table.



(2) 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 six-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 $2.00, (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 $3.00, 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 $4.00.



(3) In fiscal year 2003, Mr. Chatpar was granted options to
purchase 230,366 shares of our common stock at an exercise price of $0.15 per
share.



(4) In fiscal year 2004, Mr. Chatpar was granted options to
purchase 1,000,000 shares of our common stock at an exercise price of $0.17 per
share.



Option Grants In Last Fiscal Year



The following table sets forth information concerning stock
option grants made during fiscal year 2004 to the named officers. We have not
granted any stock appreciation rights.



|Individual Grants
|-----------------
|                 
|                 
|                 
|Name             
|                 
|J.C. Chatpar     

_________________

(1) During fiscal year 2004, options to purchase an aggregate
of 1,000,000 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
four other directors.



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



1. Options are immediately exercisable.



Aggregated Fiscal Year End Option Values



The following table sets forth information concerning the
number of unexercised options and the Fiscal 2004 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 2004.





|             |  | Number of Securities
      Underlying UnexercisedOptions at Fiscal Year-End (#) |  | Value of
      Unexercised In-The-MoneyOptions at Fiscal Year-End ($)
|------------ |  | ------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------
|Name         |  | Exercisable                                                                     |  | Unexercisable                                                        
|             |  |                                                                                 |  |                                                                      
|J.C. Chatpar |  | 4,885,366                                                                       |  | 3,000,000                                                            



____________

(1) Options are "in-the-money" if, on March 31, 2004, the
market price of the Common Stock ($0.20) 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, 2004 and the aggregate exercise price of such options.



Compensation of Directors



We pay our directors $250 per board meeting. During Fiscal
2004, 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 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, 2004, 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 AddressOf Beneficial Owners                                                         | Number of Shares | Percentage Owned (1)(2)
|--------------------------------------------------------------------------------------------- | ---------------- | -----------------------
|J.C. Chatpar(3)
      c/o Cyber Digital, Inc.
      400 Oser Avenue
      Hauppauge, NY 11788 | 11,904,778       | 45.7%                  
|Jack P. Dorfman(4)                                                                            | 230,000          | 0.9%                   
|Jatinder V. Wadhwa(5)                                                                         | 297,812          | 1.1%                   
|Terry L. Jones (6)                                                                            | 961,230          | 3.7%                   
|Andrew Van Etten(7)                                                                           | 80,000           | *                      
|Prem Chatpar (8)                                                                              | 2,612,074        | 10.0%                  
|All directors and executive officers as a group: (5)
    persons                              | 13,473,820       | 51.7%                  

*less than 1%



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



(2) Assumes the exercise of the warrants to purchase 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 2,989,200 shares of our common stock.



(3) Includes 4,885,366 shares as to which Mr. J.C. Chatpar
holds non-qualified stock options, which are exercisable at any time. Includes
warrants to purchase 1,981,200 shares. Excludes 3,000,000 shares, as to which
Mr. J.C. 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. J.C. Chatpar disclaims beneficial
ownership.



(4) Includes 170,000 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 140,000 shares as to which Mr. Wadhwa holds
non-qualified stock options which are exercisable at any time.



(6) Mr. 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 100,000
shares as to which Mr. Jones holds non-qualified stock options which are
exercisable at any time.



(7) Includes 80,000 shares as to which Mr. Van Etten holds
non-qualified stock options that are exercisable at any time.



(8) Includes warrants to purchase 768,000 shares. Mr. Prem
Chatpar is an individual stockholder and is the brother of Mr. J.C. Chatpar.





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.



Mr. 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.















ITEM 13 - Exhibits and Reports on Form 8-K



1. 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
      Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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).                                                            
|99.1  | Certification of Chief Executive Officer and Chief Financial Officer
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.                                                                                                             







(b) Reports of Form 8-K. Current Report on Form 8-K,
Item 4 - Changes in Registrant's Certifying Accountant, filed on May 28,
2003.









SIGNATURES

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

Dated: June 25, 2004

| | 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
      J.C. Chatpar         | Chairman of the Board, President and
      Chief Executive Officer (Principal
      Executive and Financial Officer) | June 25, 2004
|                                            |                                                                                                                      |              
|/s/ Jack P. Dorfman
      Jack P. Dorfman   | Director                                                                                                             | June 25, 2004
|                                            |                                                                                                                      |              
|/s/ Jatinder Wadhwa
      Jatinder Wadhwa   | Director                                                                                                             | June 25, 2004
|                                            |                                                                                                                      |              
|/s/ Terry Jones
      Terry Jones           | Director                                                                                                             | June 25, 2004
|                                            |                                                                                                                      |              
|/s/ Andrew Van Etten
      Andrew Van Etten | Director                                                                                                             | June 25, 2004





CERTIFICATIONS OF

CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002



I, J.C. Chatpar, certify that:

1. I have reviewed this annual report on Form 10-KSB of Cyber Digital, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
  statement of a material fact or omit to state a material fact necessary to
  make the statements made, in light of the circumstances under which such
  statements were made, not misleading with respect to the fiscal year covered
  by this annual report;
3. Based on my knowledge, the financial statements, and other financial
  information included in this annual report, fairly present in all material
  respects the financial condition, results of operations and cash flows of the
  registrant as of, and for, the fiscal years presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
  establishing and maintaining disclosure controls and procedures (as defined in
  Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
  a) Designed such disclosure controls and procedures to ensure that material
  information relating to the registrant, including its consolidated
  subsidiaries, is made known to us by others within those entities,
  particularly during the period in which this annual report is being
  prepared;
  b) Evaluated the effectiveness of the registrant's disclosure controls and
  procedures as of a date within 90 days prior to the filing date of this annual
  report (the "Evaluation Date"); and
  c) Presented in this annual report our conclusions about the effectiveness
  of the disclosure controls and procedures based on our evaluation as of the
  Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
  our most recent evaluation, to the registrant's auditors and the audit
  committee of registrant's board of directors (or persons performing the
  equivalent function):
  a) All significant deficiencies in the design or operation of internal
  controls which could adversely affect the registrant's ability to record,
  process, summarize and report financial data and have identified for the
  registrant's auditors any material weakness in internal controls; and
  b) Any fraud, whether or not material, that involves management or other
  employees who have a significant role in the registrant's internal controls;
  and
6. The registrant's other certifying officers and I have indicated in this
  annual report whether or not there were significant changes in internal
  controls or in other factors that could significantly affect internal controls
  subsequent to the date of our most recent evaluation, including any corrective
  actions with regard to significant deficiencies and material
weaknesses.



June 25, 2004

/s/ J.C. Chatpar

J.C. Chatpar

Chief Executive Officer and

Chief Financial Officer





Exhibit 99.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Cyber Digital, Inc. (the "Company")
on Form 10-KSB for the fiscal year ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, J.C.
Chatpar, Chief Executive Officer and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to ' 906 of the Sarbanes-Oxley Act of 2002,
that:

1. The Report fully complies with the requirements of section 13(a) or 15(d)
  of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
  respects, the financial condition and results of operations of the
  Company.



/s/ J.C. Chatpar

J.C. Chatpar

Chief Executive Officer and

Chief Financial Officer

June 25, 2004











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
      Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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).                                                            
|99.1        | Certification of Chief Executive Officer and Chief Financial Officer
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.                                                                                                             































CYBER DIGITAL, INC.

FINANCIAL STATEMENTS



AND



AUDITORS REPORT













































|                            | TABLE OF CONTENTS                                       |     
|--------------------------- | ------------------------------------------------------- | ----
|                            |                                                         | Page
|                            |                                                         |     
|Independent Auditors Report |                                                         |     
|                            |                                                         |     
|Financial Statements        |                                                         |     
|                            |                                                         |     
|                            | Balance Sheets                                          |     
|                            |                                                         |     
|                            | Statements of Operations                                |     
|                            |                                                         |     
|                            | Statements of Changes in Shareholders' Equity (Deficit) |     
|                            |                                                         |     
|                            | Statements of Cash Flows                                |     
|                            |                                                         |     
|                            | Notes to Financial Statements                           |     
|                            |                                                         |     





































B L A N C H F I E L D, K O B E R & C O M P A N Y, P.C.

CERTIFIED PUBLIC ACCOUNTANTS



1200 VETERANS MEMORIAL HIGHWAY  SUITE
350  HAUPPAUGE, NEW YORK 11788
 (631) 234-4200  FAX
234-4272









Report of Independent Registered Public Accounting
Firm





To the Board of Directors and Shareholders

Cyber Digital, Inc.

Hauppauge, New York





We have audited the accompanying balance sheets of Cyber
Digital, Inc. as of March 31, 2004 and 2003, and the related statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended March 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 amount and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of March 31, 2004 and 2003, and the results of its operations and its cash
flows for each of the two years in the period ended march 31, 2004 in conformity
with U.S. generally accepted accounting principles.



The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
14 to the financial statements, the Company has not developed a revenue base for
its digital switching, Internet and networking systems. Accordingly, the Company
has not generated sufficient cash flow to support its operations. The Company
has been principally dependent on the issuance of debt and equity securities.
These circumstances create substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not contain any
adjustments that may result from the outcome of these uncertainties.





/s/ Blanchfield, Kober & Company, P.C.



Hauppauge, New York

June 25, 2004









|                                                                             | CYBER DIGITAL, INC.                                               |                                                 
|---------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------------
|                                                                             | BALANCE SHEETS                                                    |                                                 
|                                                                             | March 31, 2004 and 2003                                           |                                                 
|                                                                             |                                                                   |                                                 
|                                                                             |                                                                   | 2004                                            
|ASSETS                                                                       |                                                                   |                                                 
|                                                                             |                                                                   |                                                 
|Current Assets                                                               |                                                                   |                                                 
|                                                                             | Cash and cash equivalents                                         | $                                               
|                                                                             | Inventories                                                       |                                                 
|                                                                             | Prepaid and other current assets                                  |                                                 
|                                                                             |                                                                   |                                                 
|                                                                             | Total Current Assets                                              |                                                 
|                                                                             |                                                                   |                                                 
|Property and Equipment, net                                                  |                                                                   | 6,751                                           
|                                                                             |                                                                   |                                                 
|Other Assets                                                                 |                                                                   | 26,374                                          
|                                                                             |                                                                   |                                                 
|TOTAL ASSETS                                                                 | $                                                                 | 680,865                                         
|                                                                             |                                                                   |                                                 
|LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                               |                                                                   |                                                 
|                                                                             |                                                                   |                                                 
|Current Liabilities                                                          |                                                                   |                                                 
|                                                                             | Accounts payable, accrued expenses, and taxes                     | $                                               
|                                                                             | Accrued interest                                                  |                                                 
|                                                                             | Officer/ shareholder notes payable                                |                                                 
|                                                                             | Settlement payable-current portion                                |                                                 
|                                                                             |                                                                   |                                                 
|                                                                             | Total Current Liabilities                                         |                                                 
|                                                                             |                                                                   |                                                 
|Long Term Debt                                                               |                                                                   |                                                 
|                                                                             | Settlement payable                                                |                                                 
|                                                                             |                                                                   |                                                 
|Total Liabilities                                                            |                                                                   | 1,007,096                                       
|                                                                             |                                                                   |                                                 
|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, 2004 and 2003                         
|                                                                             | Common stock - $.01 par value; authorized 60,000,000
    shares;  |                                                 
|                                                                             |                                                                   | issued and outstanding 22,326,542 and 21,978,287
|                                                                             |                                                                   | shares at March 31, 2004 and 2003, respectively 
|                                                                             | Additional paid-in-capital                                        |                                                 
|                                                                             | Accumulated deficit                                               |                                                 
|                                                                             |                                                                   |                                                 
|                                                                             | Total Shareholders' Equity (Deficit)                              |                                                 
|                                                                             |                                                                   |                                                 
|TOTAL LIABILITIES AND SHAREHOLDERS'
    EQUITY                               | $                                                                 | 680,865                                         
|                                                                             |                                                                   |                                                 
|                                                                             |                                                                   |                                                 
|                                                                             |                                                                   |                                                 
|                                                                             |                                                                   |                                                 
|See independent accountant's report and notes to financial
      statements.
|                                                                             |                                                                   |                                                 
|Page 2                                                                      







|                                                                             | CYBER DIGITAL, INC.                          |                             
|---------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------
|                                                                             | STATEMENTS OF OPERATIONS                     |                             
|                                                                             | March 31, 2004 and 2003                      |                             
|                                                                             |                                              |                             
|                                                                             |                                              | 2004                        
|                                                                             |                                              |                             
|Net Sales                                                                    | $                                            | 0                           
|                                                                             |                                              |                             
|Cost of Sales                                                                |                                              | 0                           
|                                                                             |                                              |                             
|                                                                             | Gross Profit                                 |                             
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|Operating Expenses                                                           |                                              |                             
|                                                                             | Selling, general and administrative expenses | $                           
|                                                                             | Research and development                     |                             
|                                                                             |                                              |                             
|                                                                             | Total Operating Expenses                     |                             
|                                                                             |                                              |                             
|                                                                             | Loss from Operations                         |                             
|                                                                             |                                              |                             
|Other Income (Expense)                                                       |                                              |                             
|                                                                             | Interest income                              |                             
|                                                                             | Interest expense                             |                             
|                                                                             | Other income                                 |                             
|                                                                             | Other expense                                |                             
|                                                                             |                                              |                             
|                                                                             |                                              | Total Other Income (Expense)
|                                                                             |                                              |                             
|                                                                             |                                              | Loss before Income Taxes    
|                                                                             |                                              |                             
|Provision for Income Taxes                                                   |                                              | 869                         
|                                                                             |                                              |                             
|Net Loss                                                                     |                                              | (405,588)                   
|                                                                             |                                              |                             
|Preferred Stock Dividend                                                     |                                              | 0                           
|                                                                             |                                              |                             
|Income Available to Common Shareholders                                      | $                                            | (405,588)                   
|                                                                             |                                              |                             
|Net Loss Per Share of Common Stock (See Note 7)                              |                                              |                             
|                                                                             |                                              |                             
|                                                                             |                                              | Loss from Operations - Basic
|                                                                             |                                              | Diluted                     
|                                                                             |                                              |                             
|                                                                             |                                              | Net Loss - Basic            
|                                                                             |                                              | Diluted                     
|                                                                             |                                              |                             
|Weighted average number of common shares outstanding                         |                                              | 22,182,551                  
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|See independent accountant's report and notes to financial
      statements.
|                                                                            
|Page 3                                                                      











|                                                                             |                                                               | CYBER DIGITAL, INC. |              |        
|---------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------- | ------------ | -------
|                                                                             | STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
      (DEFICIT) |                    
|                                                                             | Years ended March 31, 2004 and 2003                           |                    
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             | Preferred Stock                                               |                     |              |        
|                                                                             | Series C                                                      | Series D-1          | Common Stock | Paid in
|                                                                             | Shares Amount                                                 | Shares Amount       | Shares       | Amount 
|                                                                             |                                                               |                     |              |        
|Balance at March 31, 2002                                                    | 310                                                           | $ 16                | -0-          | $ -0-  
|                                                                             |                                                               |                     |              |        
|Issuance of Common Stock                                                     |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|Retirement of Common Stock                                                   |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|Issuance of Stock Options                                                    |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|Net Loss                                                                     |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|Balance at March 31, 2003                                                    | 310                                                           | $ 16                | -0-          | $ -0-  
|                                                                             |                                                               |                     |              |        
|Issuance of Common Stock                                                     |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|Net Loss                                                                     |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|Balance at March 31, 2004                                                    | 310                                                           | $ 16                | -0-          | $ -0-  
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|                                                                             |                                                               |                     |              |        
|See independent accountant's report and notes to financial
      statements.
|                                                                            
|Page 4                                                                      







|                                                                             | CYBER DIGITAL, INC.                                                               |                                              
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------
|                                                                             | STATEMENTS OF CASH FLOWS                                                          |                                              
|                                                                             | Years ended March 31, 2004 and 2003                                               |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   | 2004                                         
|                                                                             |                                                                                   |                                              
|Cash Flows from Operating Activities                                         |                                                                                   |                                              
|                                                                             | Net loss                                                                          | $                                            
|                                                                             | Adjustments to reconcile net loss to net cash used in operating
      activities: |                                              
|                                                                             |                                                                                   | Depreciation                                 
|                                                                             |                                                                                   | Inventory valuation allowance                
|                                                                             |                                                                                   | (Increase) decrease in operating assets:     
|                                                                             |                                                                                   | Prepaid and other current assets             
|                                                                             |                                                                                   | Other assets                                 
|                                                                             |                                                                                   | Increase (decrease) in operating liabilities:
|                                                                             |                                                                                   | Accounts payable, accrued expenses and taxes 
|                                                                             |                                                                                   | Settlement payable                           
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   | Net Cash Used in Operating Activities        
|                                                                             |                                                                                   |                                              
|Cash Flows from Investing Activities                                         |                                                                                   |                                              
|                                                                             | Purchase of equipment                                                             |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   | Net Cash Used in Investing Activities        
|                                                                             |                                                                                   |                                              
|Cash Flows from Financing Activities                                         |                                                                                   |                                              
|                                                                             | Issuance of common stock                                                          |                                              
|                                                                             | Proceeds from officer/shareholder loan                                            |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   | Net Cash Provided by Financing Activities    
|                                                                             |                                                                                   |                                              
|Net Increase (Decrease) in Cash and Cash Equivalents                         |                                                                                   | 22,545                                       
|                                                                             |                                                                                   |                                              
|Cash and Cash Equivalents at Beginning of Period                             |                                                                                   | 7,445                                        
|                                                                             |                                                                                   |                                              
|Cash and Cash Equivalents at End of Period                                   | $                                                                                 | 29,990                                       
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|Supplemental Disclosures of Cash Flow Information                            |                                                                                   |                                              
|                                                                             | Cash paid during the period for:                                                  |                                              
|                                                                             |                                                                                   | Income taxes                                 
|                                                                             |                                                                                   |                                              
|Noncash Operating and Financing Activities                                   |                                                                                   |                                              
|                                                                             | Stock issued for services                                                         | $                                            
|                                                                             | Stock options issued to satisfy liabilities                                       | $                                            
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|See independent accountant's report and notes to financial
      statements.
|                                                                            
|Page 5                                                                      



CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



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.



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, 2004, the Company had an accumulated deficit of $19,366,253 and a
shareholders' deficit of $326,231. The decrease in equity from March 31, 2003 to
March 31, 2004 is due mainly to a net operating loss during the fiscal year
ended March 31, 2004. During the fiscal years ended March 31, 2004, 2003 and
2002, the Company received cash advances of $305,700, $41,600 and $325,000
respectively, from the Chief Executive Officer and a shareholder. In addition,
the Company issued common stock under an equity line of credit of $86,362 and
$416,366 for the years ended March 31, 2004 and 2003 respectively. An additional
$100,000 was raised in December 2002 from a private placement of unregistered
restricted common stock. 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 dependent 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.







Page 6

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



Note 1 - Summary of Significant Accounting Policies
(continued)



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.



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.











Page 7

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



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 2004 and 2003 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 Companys financial position, results of operations or
cash flows.



Recent Accounting Pronouncements



In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation- Transition and Disclosure-". SFAS No. 148 is an
amendment to SFAS No. 123, it provides for alternative method of transition for
a voluntary change to the fair value based method of accounting for stock based
employee compensation.



The Company is currently evaluating this statement but does not
expect that it will have a material impact on the Companys financial position,
results of operations, or cash flows.



Concentration of Credit Risk



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













Page 8

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



Note 1 - Summary of Significant Accounting Policies
(continued)





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:





|               |   | 2004    |   | 2003   
|-------------- | - | ------- | - | -------
|Raw materials  | $ | 515,918 | $ | 515,918
|Finished goods |   | 66,657  |   | 66,657 
|               | $ | 582,575 | $ | 582,575





Note 3 - Property and Equipment



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



|                               |   | 2004    |   | 2003    | Useful Lives
|------------------------------ | - | ------- | - | ------- | ------------
|Machinery and equipment        | $ | 339,394 | $ | 337,973 | 5 years     
|Furniture and fixtures         |   | 64,355  |   | 64,355  | 7 years     
|Leasehold improvements         |   | 4,786   |   | 4,786   | Lease term  
|                               |   | 408,535 |   | 407,114 |             
|Less: Accumulated depreciation |   | 401,784 |   | 393,656 |             
|                               | $ | 6,751   | $ | 13,458  |             



Note 4 - Other Assets



Other assets consist of various security deposits.











Page 9

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003





Note 5  Officer/ Shareholder Loans 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 was 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.



During the 2003 fiscal year the Company received additional
advances from J.C. Chatpar in the amount of $41,600. During the 2004 fiscal year
the Company received additional advances from J.C. Chatpar and a shareholder in
the total amount of $305,700. These additional advances bear the same interest
rate as the promissory note, are unsecured and are due on demand. Interest
expense for the years ended March 31, 2004, 2003 and 2002 was $59,072, $34,992
and $1,729 respectively.





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 maximum
amount of each draw down is $250,000. For the years ended March 31, 2004 and
2003, the Company utilized approximately $86,000 and $413,000, respectively, of
this equity line. As of March 31, 2004, the entire equity line has expired.





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.



|                                           |   | 2004       |   | 2003      
|------------------------------------------ | - | ---------- | - | ----------
|Net Loss                                   | $ | (404,588)  | $ | (758,848) 
|Dividends paid on Preferred Stock          |   | 0          |   | 0         
|Income Available to Common Shareholders    | $ | (404,588)  | $ | (758,848) 
|Weighted Average Common Shares Outstanding |   | 22,182,551 |   | 21,278,473
|Basic EPS                                  | $ | (.02)      | $ | (.04)     
|Diluted EPS                                | $ | (.02)      | $ | (.04)     



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 Common Stock Transactions



During the years ended March 31, 2004 and 2003 the Company issued 348,255 and
842,934 shares of common stock under the equity line of credit.





Page 10

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003





Note 8  Common Stock Transactions (continued)



In December 2002, the Company issued 500,000 shares and 100,000
warrants to purchase shares of restricted unregistered common stock in a private
placement for gross proceeds of $100,000.



During the year ended March 31, 2003 the Company issued 5,001
shares of restricted unregistered common stock to various vendors for providing
services.



In April 2002 the Company retired 20,000 shares of common stock
that were issued for services that were not performed.



Note 9 - Stock Option Plans



The Companys 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.

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 a 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





Page 11

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



Note 9 - Stock Option Plans (continued)



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 is summarized as follows:





|                            | Price          | Shares        
|--------------------------- | -------------- | --------------
|Outstanding, April 1, 2003  | $0.15 to $6.00 | 9,230,068     
|                            | Canceled       | $0.40 to $6.00
|                            | Granted        | $0.17 to $0.20
|Outstanding, March 31, 2004 |                | 12,599,268    





A summary of options and warrants as of March 31, 2004 follows:



|                         | Options Outstanding    |                                             | Options Exercisable             |                          
|------------------------ | ---------------------- | ------------------------------------------- | ------------------------------- | -------------------------
|Range of Exercise Prices | Outstanding at 3/31/04 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Exercisable as of 3/31/04
|$ .15 to $1.50           | $ 4,365,768            | 7.23                                        | $ 0.19                          | $ 4,365,768              
|$ .40 to $1.50           | 6,140,000              | 3.50                                        | 0.56                            | 3,697,500                
|$2.43 to $3.00           | 1,230,000              | 4.72                                        | 2.68                            | 1,230,000                
|$4.00 to $5.15           | 760,000                | 1.27                                        | 4.45                            | 760,000                  
|$5.70 to $6.00           | 103,500                | 2.10                                        | 6.00                            | 103,500                  
|                         | $ 12,599,268           | 4.77                                        | $ 0.92                          | $ 10,156,768             



In October 1995, the Financial Accounting Standards Board
issued Statement No. 123 "Accounting for Stock-Based Compensation" ("FASB 123"),
which is effective for the Companys 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





Page 12

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2003 AND 2002





Note 9 - Stock Option Plans (continued)



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,
|--------------------------- | ----------------------------
|                            | 2004                        
|Expected dividend yield     | 0.00%                       
|Expected price volatilities | 23.00%                      
|Risk-free interest rate     | 1.20%                       
|Expected life (years)       | 5                           





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



|                               |             | 2004 |           | 2003
|------------------------------ | ----------- | ---- | --------- | ----
|Weighted average fair value of |             |      |           |     
|Options granted                | $           | 0.01 | $         | 0.01
|Net Loss                       |             |      |           |     
|                               | As reported | $    | (404,588) | $   
|                               | Pro Forma   |      | (443,080) |     
|Net Loss Per Share             |             |      |           |     
|                               | As reported |      |           |     
|                               | Basic       | $    | (.02)     | $   
|                               | Diluted     | $    | (.02)     | $   
|                               | Pro Forma   |      |           |     
|                               | Basic       | $    | (.02)     | $   
|                               | Diluted     | $    | (.02)     | $   



Note 10  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 $86,002 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:

















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.

Page 13

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003





Note 10  Convertible, Cumulative and Participating Preferred
Stock (continued)



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 stockholders 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:















































After October 4, 2000, the preferred stock cannot be redeemed
by the Company.



During the fiscal years ended March 31, 2003 and 2002, the
Company did not pay dividends to the Series D-1 preferred stockholders who
converted their Series D-1 preferred stock.



Note 11 - Income Taxes



The Company has net operating loss carryforwards for tax
purposes amounting to approximately $11.4 million that may be offset against
future taxable income which expire through 2023.



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.









Page 14

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 and 2003



Note 11 - Income Taxes (continued)



The change in the deferred tax asset (as well as the valuation
account) was approximately $132,000 for the

fiscal year ended March 31, 2004.



Note 12 - 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 Chairmans salary
as soon as the financial resources of the Company and other business conditions
permit. In such event, the Chairmans 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:











2. If the agreement terminates due to the death of the
Chairman, the agreement shall terminate immediately, except that the Chairmans
wife, if any, or otherwise his estate, shall receive the Chairmans salary until
the termination date, payments in the amount of the Chairmans 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, the Chairman shall
receive his regular salary until the end of the month in which such termination
occurs. Cause is defined as willful misconduct by the executive or the
conviction of a felony. 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 in an amount equal to three years base salary plus
three times the prior year bonus, the aforementioned royalties and all of the
Chairmans 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 Hauppauge, New York. This lease is for a five-year period and expires on May
31, 2009. This location is the Companys executive offices and operations. Rent
expense was $71,516 and $65,800 for the years ended March 31, 2004 and 2003,
respectively.

Page 15

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003



Note 12 - Commitments and Contingencies (continued)

Operating Leases (continued)



The Company also has noncancelable operating leases for
vehicles and equipment. The monthly rental is $835. The amount charged to
expense was $12,775 and $12,956 for the years ended March 31, 2004 and 2003,
respectively.



Future minimum rentals are as follows:





|For years ending March 31, 2005 | $ 9,566
|------------------------------- | -------





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



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 UCCs 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 and lease agreement with Cummings
Properties, LLC. In June 2003, this action was settled. The settlement requires
the Company to pay $28,223 over 36 months. The settlement bears interest at 15%.
The Company has charged the cost of the settlement to other expense for the year
ended March 31, 2003.



Note 13 - 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, 2004 and 2003.



During the fiscal year ended March 31, 2002, 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, 2004 and 2003.



Note 14 - Going Concern Uncertainty



The Company is focused on the development and maintenance of
its proprietary operating system software and the pursuit of various revenue
sources. The Company continues to be dependent on short-term loans from
stockholders and officers, and private placement of equity securities to provide
sufficient working capital to continue its operations. While the Company is
currently negotiating to obtain new funding and is encouraged by recent
legislative changes, there is no assurance that the Company will be able to
obtain the necessary funding to continue as a going concern.



Page 16