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, 2006

 
 **[_]
**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 ExchangeAct:

Title of Classes

 
Name of Each Exchange on Which Registered

 
 
 
Common Stock, $.01 par value

 
N/A

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

 

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

Yes [X]

 
No [_]

Check if disclosure of delinquent filers in response to Item405 of Regulation S-B is not contained in this Form 10-KSB, and no disclosurewill be contained, to the best of Registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-KSBor any amendment to this Form 10-KSB. [_]

Issuer's revenues for its most recent fiscal year: $0

As of June 22, 2006, Registrant had 22,336,542 shares of CommonStock outstanding ($.01 par value). On that Date, the aggregate market value ofthe Common Stock held by persons other than those who may be deemed affiliatesof Registrant was $4,610,000 (based on the last sale price of $0.34 reported onover-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 conveniencebeginning on page 16.***ITEM 1 - DESCRIPTION OF BUSINESS

OVERVIEW**
We are a designer, software developer and manufacturer of arange of unique distributed digital-voice-switching and Internet Protocol (IP)infrastructure equipment such as Class 4/5 TDM switches, IP soft-switches,routers, gateways, firewalls, voice-over IP (VoIP) and virtual private network(VPN) systems for public-switched-telephone-network (PSTN) operators andInternet Service Providers (ISP) worldwide. With our latest generation ofsoftware based switching systems, we can offer affordable voice and broadbanddata local switching services to competitive service providers (CSPs) such ascompetitive local exchange carriers (CLECs), long distance carriers (LDCs) andInternet service providers (ISPs). Our mission is to become (i) a leadingalternative local switching service provider through acquisitions of competitiveservice providers in the United States, and (ii) a cost-effective supplier ofour digital voice switches and broadband data equipment to developing countriessuch as India, China, Brazil, Russia and Nigeria. We expect to generaterecurring revenues from the customer's of our acquired competitive serviceproviders. We believe that we are one of the first companies to offer suchservices in the U.S.

Unlike our competitor's systems, our systems are neither labornor capital intensive but are software intensive. This capability, in contrastto that of our competitor's, makes our systems more affordable for both voiceand Internet service providers worldwide. Our digital voice switching andInternet Protocol (IP) infrastructure systems are based on our proprietaryoperating system software, which provides high performance, reliability andfunctionality. We believe that we are one of a very few companies in the worldwith proprietary technology of distributed digital switching. We have expendedover $20 million dollars on the development of our rock solid proprietarystate-of-the-art technology, which is built on 23 years of experience. Oursystems are ideally suited for the U.S. pursuant to the recent FCCrulings.

Beginning March 2005, the U.S. Federal CommunicationsCommission (FCC) decided to phase out UNE-P rules that forced the Bells to leaselocal switching networks to its competitors (CSPs) at cut-rate prices. Thisruling favors us to evolve as an alternative local switching network provider,that is as an UNE-P migration service provider, to these CSPs for Mass MarketLocal Circuit Switching and High-Capacity Loops for broadband markets. FCCfurther rules that CSPs must move all customers to non-Bell networks by March2006. Today, CSPs lease 17 million lines for $4.5 billion per year from theBells, creating an immediate market opportunity for us to acquire certain CSPs.Morover, the Bells own 163 million lines creating a huge migration servicesopportunity for many years to come. We intend to be the first company to offersuch UNE-P migration services to acquired CSPs by deploying our vast array oflocal voice and broadband data switching infrastructure systems. In anticipationof this, we signed an agreement with Level 3 Communications who will provide forglobal voice and data termination services to all traffic generated on our localswitching systems. We will wholesale our UNE-P migration services to acquiredCSPs as well as to other CSPs at affordable rates on recurring basis for local,long distance and international calls as well as broadband Internet access, VoIPand virtual private network (VPN) services.

We were formed on April 4, 1983, in the state of New York. Ourexecutive offices are located at 400 Oser Avenue, Suite 1650, Hauppauge, NY11788 and our telephone number is (631)-231-1200. Our Website iswww.cyberdigitalinc.com.

 
**INDUSTRY BACKGROUND****International Target Market**
The tremendous growth of the Internet has revolutionized thecommunications industry. Today, the Internet connects millions of people aroundthe world who are able to share information instantly without geographicboundaries. The Internet is bound only by the voice-network upon which itresides; without this network in place users cannot take advantage of powerfulInternet applications. 

In developed countries, such as the United States, therequisite voice network is already in place, hence the number of Internet usersis growing at unprecedented rates. In developing countries such as China, India,Brazil and Nigeria, there is some or little basic voice network, leaving many ofthese nations struggling to take part in the Internet revolution.

The demand for Internet applications, such as distancelearning, municipal virtual private networks and medical/emergencycommunications systems have induced developing countries to aggressively investin communications infrastructure. These countries must first build a basic voicenetwork, the platform of the Internet, before they can become part of thisinformation revolution.

The following table shows projected four-year communicationinfrastructure spending for selected countries, according to Pyramid Research:

Projected Communication Infrastructure Investment by      2010

Country

Number of Fixed Lines (000s)

Cumulative Investment

(US $ Millions)

China

120,244 

162,539 

India

84,405 

134,223 

Brazil

33,263 

51,216 

Nigeria

5,000 

7,000 

Unlike technologically advanced countries, where the existingpublic voice telephone network consists of monolithic centralized digitalswitches, developing countries are seeking an alternative cost-effectiveapproach, such as our distributed digital wireless switching systems. We believethat the trend in the telecommunications industry towards distributed switchingfrom monolithic centralized switching is similar to the trend in the computerindustry towards distributed networking personal computers from monolithiccentralized mainframe computers. Similar to the computer industry where personalcomputing has been brought closer to the users, our distributed wirelessswitching systems are also being installed closer to groups of subscribers,thereby dramatically reducing the cost of cabling. We believe that with ourdistributed wireless switching system, the public telephone operating companiesin developing countries can rapidly provide telephone services to theircustomers. It is substantially easier to install small, distributed switchesthan large monolithic centralized switches with their corresponding long cablinginfrastructure. We believe that our digital wireless voice switches are wellsuited for developing countries.
**Domestic Market**
We believe that an emerging market opportunity has been createdin the United States due to the recent FCC policy as follows:
***Emerging Market Opportunity in the FCC Regulated Market*
On June 15, 2004, Supreme Court finally approved the FederalCommunications Commission's (FCC) new ruling on phone policy released on August21, 2003, requiring the Bells' competitors, such as competitive local exchangecarriers (CLECs) and long distance carriers (LDC), to use their own voice anddata switches for connecting calls instead of leasing the Bells' voice and dataswitches (hereinafter referred to as "UNE-P Phase Out Policy"). UNE-P is anacronym for Unbundled Network Element - Platform, where Platform means theBells' voice and data switches, the leasing of which is being phased out.Prior, to this UNE-P Phase Out Policy, there was no incentive for CLECs orLDCs to build their local voice and data switching networks in the U.S. OnOctober 12, 2004 the Supreme Court declined to hear an appeal by AT&T andMCI and other CLECs that had requested access to the Bells' voice and dataswitches. As a result of the court's and FCC's decisions, AT&T and MCI havepulled back in their marketing of residential and small business telephoneservices. On December 15, 2004, FCC issued the UNE-P Phase Out Policy andassociated tariffs with effectiveness beginning March 11, 2005. We believe thatthe UNE-P Phase Out Policy has created an emerging growth market opportunity,because CLECs and LDCs are forced to allocate capital towards building theirlocal switching infrastructure or obtain UNE-P migration services fromcompanies, like Cyber Digital, that are envisioning to enter this market. As ofnow, there are no UNE-P migration service providers in the U.S.

The UNE-P Phase Out Policy enforces the CLECs, LDCs, and ISPscollectively as CSPs to transition off to other local telephone and broadbandswitching infrastructure instead of using the Bells' local switching networks.This is expected to create a metamorphosis in local voice and data switchinginfrastructure expansion by Cyber Digital as a nascent UNE-P migration providerto CSPs. The economics of building local switching networks is vastly differentfrom that of long distance networks. The capital investment required to build alocal switching networks is five to six times higher than the capital costs oflong distance networks, because such networks must extend all the way into theoffices and homes of their customers. The UNE-L policy permits Cyber Digital tolease the copper wires to subscriber premises at cut-rate prices from the Bells.This would allow us to co-locate our switches in numerous central offices ownedby the Bells to offer UNE-P migration service to CSPs. Therefore, we believethat the FCC's UNE-P Phase Out Policy has created an enormous market opportunityin the UNE-P migration service provision area for us.

The following is the full News Release issued by FCC on December 15, 2004,which became effective as of March 11, 2005:

FOR IMMEDIATE RELEASE:

December 15, 2004
** 

FCC ADOPTS NEW RULES FOR NETWORK UNBUNDLING OBLIGATIONS OFINCUMBENT LOCAL PHONE CARRIERS
*New Network Unbundling Rules Preserve Access to Incumbents'Networks by Facilities-Based Competitors Seeking to Enter the LocalTelecommunications Market*
Washington, D.C. - The Federal Communications Commission today adopted rulesconcerning incumbent local exchange carriers' (incumbent LECs') obligations tomake elements of their network available to other carriers seeking to enter thelocal telecommunications market. The new framework builds on actions by theCommission to limit unbundling to provide incentives for both incumbent carriersand new entrants to invest in the telecommunications market in a way that bestallows for innovation and sustainable competition.

The rules directly respond to the March 2004 decision by the U.S. Court ofAppeals for the D.C. Circuit which overturned portions of the Commission'sUnbundled Network Element (UNE) rules in its Triennial Review Order. We providea brief summary of the key issues resolved in today's decision below.
**Unbundling Framework.
 We clarify the impairment standard adopted in    the 
Triennial Review Order
 in one respect and modify its application    in three respects. 
First
, we clarify that we evaluate impairment with    regard to the capabilities of a 
reasonably efficient 
competitor.    
Second
, we set aside the 
Triennial Review Order
's "qualifying    service" interpretation of section 251(d)(2), but prohibit the use of UNEs    for the provision of telecommunications services in the mobile wireless and    long-distance markets, which we previously have found to be competitive.    
Third
, in applying our impairment test, we draw reasonable inferences    regarding the prospects for competition in one geographic market based on    the state of competition in other, similar markets. 
Fourth
, we    consider the appropriate role of tariffed incumbent LEC services in our    unbundling framework, and determine that in the context of the local    exchange markets, a general rule prohibiting access to UNEs whenever a    requesting carrier is able to compete using an incumbent LEC's tariffed    offering would be inappropriate. 
Dedicated Interoffice Transport.
 Competing carriers are impaired    without access to DS1 transport except on routes connecting a pair of wire    centers, where both wire centers contain at least four fiber-based    collocators or at least 38,000 business access lines. Competing carriers are    impaired without access to DS3 or dark fiber transport except on routes    connecting a pair of wire centers, each of which contains at least three    fiber-based collocators or at least 24,000 business lines. Finally,    competing carriers are not impaired without access to entrance facilities    connecting an incumbent LEC's network with a competitive LEC's network in    any instance. We adopt a 12-month plan for competing carriers to transition    away from use of DS1- and DS3-capacity dedicated transport where they are    not impaired, and an 18-month plan to govern transitions away from dark    fiber transport. These transition plans apply only to the embedded customer    base, and do not permit competitive LECs to add new dedicated transport UNEs    in the absence of impairment. During the transition periods, competitive    carriers will retain access to unbundled dedicated transport at a rate equal    to the higher of (1) 115% of the rate the requesting carrier paid for the    transport element on June 15, 2004, or (2) 115% of the rate the state    commission has established or establishes, if any, between June 16, 2004 and    the effective date of this Order. 
High-Capacity Loops.
 Competitive LECs are impaired without access to    DS3-capacity loops except in any building within the service area of a wire    center containing 38,000 or more business lines and 4 or more fiber-based    collocators. Competitive LECs are impaired without access to DS1-capacity    loops except in any building within the service area of a wire center    containing 60,000 or more business lines and 4 or more fiber-based    collocators. Competitive LECs are not impaired without access to dark fiber    loops in any instance. We adopt a 12-month plan for competing carriers to    transition away from use of DS1- and DS3-capacity loops where they are not    impaired, and an 18-month plan to govern transitions away from dark fiber    loops. These transition plans apply only to the embedded customer base, and    do not permit competitive LECs to add new high-capacity loop UNEs in the    absence of impairment. During the transition periods, competitive carriers    will retain access to unbundled facilities at a rate equal to the higher of    (1) 115% of the rate the requesting carrier paid for the transport element    on June 15, 2004, or (2) 115% of the rate the state commission has    established or establishes, if any, between June 16, 2004 and the effective    date of this Order. 
Mass Market Local Circuit Switching.
 Incumbent LECs have no    obligation to provide competitive LECs with unbundled access to mass market    local circuit switching. We adopt a 12-month plan for competing carriers to    transition away from use of unbundled mass market local circuit switching.    This transition plan applies only to the embedded customer base, and does    not permit competitive LECs to add new switching UNEs. During the transition    period, competitive carriers will retain access to the UNE platform    (
i
.
e
., the combination of an unbundled loop, unbundled local    circuit switching, and shared transport) at a rate equal to the higher of    (1) the rate at which the requesting carrier leased that combination of    elements on June 15, 2004, plus one dollar, or (2) the rate the state public    utility commission establishes, if any, between June 16, 2004, and the    effective date of this Order, for this combination of elements, plus one    dollar. 

Action by the Commission, December 15, 2004 by Order on Remand(FCC 04-290). Chairman Powell, Commissioners Abernathy and Martin, withCommissioners Copps and Adelstein dissenting. Chairman Powell, CommissionersAbernathy, Copps and Adelstein issuing separate statements.

-FCC-

We believe that for the first time in our history, market opensfor our digital voice switches and broadband systems for the creation of localswitching network services, especially referring to **Mass Market Local CircuitSwitching and High-Capacity Loops**. We believe that metamorphosis in wirelinelocal voice and broadband switching infrastructure expansion will begin soon andwill support our growth for many years. We believe that a high growth marketopportunity has been created by the UNE-P Phase Out Policy, because CLECs andLDCs are forced to allocate capital towards building their local switchinginfrastructure or seek for such UNE-P migration services from other providers,such as Cyber Digital.

These competitors CLECs and LDCs have lost the battle with theBells. Beginning year 2005, the Bells will begin to virtually shut off access totheir local voice and data switches. The local voice switch access charges willbe rising from 40 percent to over 60 percent by 2006, making local voice switchownership by CLECs and LDCs an increasingly key factor for their future or seekUNE-P migration services from other providers. However, CLECs, LDCs and nascentUNE-P migration providers would be able to lease the copper wires to subscriberpremises at cut-rate prices from the Bells, under the UNE-L policy. UNE-L is anacronym for Unbundled Network Element - Line, where Line means the copper wiresto subscriber premises. This would permit CLECs, LDCs and nascent UNE-Pmigration providers (such as Cyber Digital) to co-locate their voice and dataswitches in the Bells' central offices. Hence, CLECs, LDCs and nascent UNE-Pmigration providers must rapidly build their own local switching facilities andnetworks. FCC further rules that CLECs and LDCs must also provide broadband dataservices along with voice services. So also FCC mandates that Internet serviceproviders (ISP) must also provide voice along with broadband data services.Hence, CLECs, LDCs and ISPs must build their own local voice and broadbandswitching facilities and networks to serve their business and residentialcustomers or obtain such services from nascent UNE-P migration providers. Thismeans huge demand for our digital voice switches and broadband systems bynascent UNE-P migration providers and competitive service providers (CSPs)(hereinafter includes CLECs, LDCs and ISPs). We believe that combined power ofour digital voice switches and broadband Internet systems offers nascent UNE-Pmigration providers and CSPs affordable one-stop solution for their localswitching needs.

We believe that we are at the threshold of the local telephoneswitching metamorphosis in the U.S. According to data released by FCC, to-dateless than 6 million local-loop switched lines were owned by the CSPs as comparedto 163 million such lines owned by the Bells. Hereafter, CSPs have tocontinuously invest, year after year, in bringing their local voice switchinginfrastructure at par with those of the Bells or obtain such services fromnascent UNE-P migration providers such as Cyber Digital. Beginning in 2005, weexpect nascent UNE-P migration providers and CSPs to increase their capitalexpenditures towards that end. We intend to serve this high growth market,expected to be rising from almost zero to $4.5 billion annually; according tothe Investor's Business Daily article dated February 28, 2005, "As UNE-P LawsFade Away".

We believe that the telecommunication service provisionbusiness will be rapidly consolidating in the next few years, especially inresponse to the UNE-P Phase Out Policy by FCC. The distinction between theservices offered by LDCs, CLECs and ISPs are being eroded, and moreover, agreater emphasis is being placed on the build out and ownership of localswitching network for both voice and broadband data. Since, the building oflocal switching networks is highly capital intensive, we project that we are atthe threshold of a local switching networks metamorphosis and that it isexpected to continue for many years. This marks the beginning of the NextRevolution in telecommunication (i.e. the deregulation of the local voice anddata services) as a successor to the First Revolution in January 1984 (i.e. thebreak-up of AT&T creating deregulation of long distance service). During thelast 20 years, LDCs such as Sprint, MCI, and others have competed fiercelyagainst AT&T by building their own long distance networks. This has resultedin long distance charges to be about 30% of a typical telephone bill. While, thelocal voice charges are about 70% today, largely controlled by the Bells. Wewant to be the premier provider of UNE-P migration services on wholesale basisto non-facilities based CSPs as well as supplier of local voice and broadbandswitches to those CSPs electing to build their own local networks. Movingforward, we see ourselves offering UNE-P migration services to these CSPs ataffordable rates instead of them obtaining from the Bells at uneconomicalrates.

CSPs must incorporate several fundamental changes into theircurrent business models to effectively compete with the Bells. In the aftermathof the telecom meltdown and due to the UNE-P Phase Out Policy, the newfacilities based CSPs will emerge along with nascent UNE-P migration providers,offering business and residential customers a broad range of voice and Internetscalable services and solutions. CSPs and UNE-P migration providers willsignificantly lower the cost of voice services, which are usage based, to theircustomers as the Bells currently control it. However, CSPs will not be able tolower the cost of Internet services using DSL, which are flat fee based, using"narrowband" Bells' copper wires. CSPs and nascent UNE-P migration providerswill have to offer other more reliable broadband services based on carrier gradeT1 (1.5 Mbps) to T3 (45 Mbps) rates using frame-relay (FR) and private line(PPP) packet switching protocols as well as Ethernet rates of 10/100 Mbps.According to FCC findings, the Bells have artificially maintained very hightariffs for T1 and T3 transport. Hence, FCC mandates the competition with theBells in this area. Such broadband competition is expected to enhanceproductivity for business-to-business e-commerce applications. Hence, CSPs andnascent UNE-P migration providers will effectively compete with the Bells byoffering business and residential customers superior network performance,reliability, security and applications.

Our CDCO, CTSX and CIAN systems are essential for CSPs andUNE-P migration providers to effectively compete against the Bells. Our uniquesystems are positioned to address the inherent problems facing the telecommarket today:
CSPs and nascent UNE-P migration providers must build 'critical' local  wireline voice and data switching networks and ensure cost efficient, high  quality service to their customers .  
- Businesses demand greater cost reduction in voice services than broadband  data.       Businesses demand scalable broadband connectivity solutions, not offered  by the Bells.  The limitations of Dial-up, ISDN and DSL.  
- The emergence of Managed IP Private Line, Frame Relay and Ethernet packet  switched "broadband" technology.   

Competitive service providers (CSPs) and nascent UNE-Pmigration providers must build 'critical' local wireline voice and dataswitching networks and ensure cost efficient, high quality service to theircustomers.

Currently, virtually all local wireline switching networks areowned by the Bells, which deliver 91.5% of the nations voice and data traffic.The Bells have complete control over the installation, service and maintenanceof this portion of the network. As a result, CSPs face lengthy installations,maintenance errors and frequent service interruptions. CSPs will not survive ifthey continue to rely on their competitor's network. Due to the UNE-P Phase OutPolicy, CSPs have no choice but to build wireline local switching networks forboth voice and data by co-locating their switching equipment in the Bells'central offices or seek for such UNE-P migration services from other providers.Our compact CDCO and CTSX digital voice switches, and CIAN routers enable us (asUNE-P migration provider) and CSPs to efficiently build next generation wirelinelocal switching voice and data networks, thus bypassing the Bells' switchingnetwork. Under the UNE-L policy, by co-locating our CDCO, CTSX and CIAN gives usand CSPs complete control over their local switching network and end theirreliance on the Bells. In the aftermath of the telecom meltdown, CSPs recognizethe need to control the local switching in order to maintain quality of servicefor their customers. FCC's UNE-P Phase Out Policy further enforces CSPs to buildtheir own local switching networks for their customers instead of leasing suchfacilities from the Bells or seek for UNE-P migration services from otherproviders.

Businesses demand greater cost reduction in voice services thanbroadband data.

Since the divestiture of AT&T in 1984, businesses have seendramatic cost reduction in long distance voice services due to aggressivecompetition by LDCs such as MCI and Sprint, who built their long distancenetworks. The Telecom Act of 1996 favored broadband competition by allowing suchcarriers and ISPs to add-on abundant IP enabled backbone networks that led tovery low, flat fee broadband rates. Currently, businesses find their local voiceservices costs to be unjustifiably many folds higher than their long distanceand broadband costs. FCC's UNE-P Phase Out Policy is expected to encouragecompetition in this area through greater investment in building local voicenetworks. To-date the Bells have the monopoly of the local voice networks andthere are no alternatives available to businesses.

Businesses demand scalable broadband connectivity solutions,not offered by the Bells.

Currently, the Bells utilize older technology that prohibitsnetwork access scalability between T1 (1.5 Mbps) and T3 (45 Mbps). This rigidnetwork structure is cost prohibitive for many businesses that require broadbandaccess between this range. Our innovative CIAN router enables CSPs to offerbusinesses complete scalability in this range for their broadband access needs.CSPs are able to capture this market by utilizing our proprietary softwaretechnology embedded in our CIAN router. In addition, CSPs benefit from ourCIAN's ability to offer control of local data switching within an area as wellas cost savings derived from local aggregation of services by co-locating ourCIANs in the Bells' central offices.

Limitations of Dial-up, ISDN and DSL

The vast majority of Internet users access data networksthrough slow dial-up modems, an integrated services digital network (ISDN) lineor a digital subscriber line (DSL) line offering typically 56 Kbps, 128 Kbps and640 Kbps respectively. DSL technology is very sensitive to the quality of theexisting analog voice grade lines. Therefore, DSL service is severely limited bythe length of wire from the Bells' central office to a subscriber location. Thisis generally less than 18,000 feet, which represents less than 45% of the totalmarket. This shortcoming is created by the Bells' existing analog voice gradelines and is incurable. However, under the UNE-L policy, CSPs and UNE-Pmigration providers will be able to lease from the Bells at cut-rate prices T1and T3 digital carrier grade lines to their business customers. Our co-locatedCIAN distribution router provides 1.5 Mbps (T1) to 45 Mbps (T3) or 10/100 MbpsEthernet broadband service without any distance limitations or degradation ofbandwidth.

Emergence of Managed IP Private Line, Frame Relay and EthernetPacket Switched "broadband" Technology

Managed Internet Protocol (IP) enabled private-line (PPP),frame relay (FR) and Ethernet (PPPoE) are packet-switching based "broadband"technologies that dramatically increases the reliability of packet datatransmission over standard T1 or T3 digital carrier grade copper lines. It alsodramatically increases the reliability of packet data transmission because ofend-to-end integrity. We believe IP enabled PPP, FR or PPPoE packet-basednetworks are significantly more efficient than traditional point-to-pointnetworks, and allow end users to connect to any location that can be assigned anIP address. Traditional point-to-point networks, including the traditionaltelephone network and private data networks, are less efficient because theyrequire a dedicated connection between two locations. Our CIAN router's IPenabled private-line or frame-relay or Ethernet packet-based networks allowmultiple users to share broadband access to Internet or frame relay network.

OUR BUSINESS STRATEGY

Our strategy is to be a leading niche provider of UNE-Pservices to CSPs by deploying our distributed digital voice and broadband dataswitching systems in the United States. We intend to implement the followingstrategies to achieve our goal:

Growth Through Acquisitions

Our industry is consolidating, creating merger and acquisitionsopportunities for us. Those entities that do not want to build their localswitching networks have no choice but to merge with those that have it or mergewith those that have the technology, such as Cyber Digital. Our strategy is toacquire those CSPs who do not want to build their own local voice and broadbanddata switching facilities despite the FCC's recent local switching phase-outruling. While these CSPs are, generally, excellent marketing companies and havealready established a customer base, they lack the technical and networkengineering aspects of building and maintaining local voice and data switchingfacilities, which are among our core competences. These companies totally relyon the Bells for their local switching needs and currently, face erosion oftheir customer base due to FCC's recent rulings. We intend to acquire rapidly asmany small to medium sized CSPs that are privately owned. Our objective is toroll-out our local switching services nationally, which will take many yearseven through acquisitions.

Exploit Early Market Entrance

We intend to exploit our early market entrance by offering ourUNE-P migration services to numerous non-facilities based resellers (NFRs) andCSPs by using our innovative local voice and broadband data switching systems.We expect NFRs and CSPs will demand our services and technology for their UNE-Pto UNE-L migration. We believe that we are perhaps one of the first companies toimplement and offer a total solution that includes voice Time Division Multiplex(TDM), broadband IP Frame Relay (FR), IP Private Line (PPP) and IP Ethernet(PPPoE) technologies in one integrated cabinet using our CDCO, CTSX and CIANsystems. With our systems, we can offer full range of voice and broadband dataservices to business and residential customers of NFRs and CSPs without usingthe Bells' local voice and data switching facilities. We believe that our UNE-Pmigration services derived from our proprietary technology offers NFRs and CSPsthe unique opportunity to immediately reduce their network costs and increasequality of service to their business and residential customers. In addition, wehave the advantage that we have already developed and tested our systems,increasing the speed-to-market our UNE-P migration services.

Establish Market in High Density Areas

Pursuant to the UNE-P Phase Out Policy, we believe thatrevenues of CSPs from business and residential customers will erode as the Bellscut into their markets while also denying access to them. We intend to leveragethe existing customer relationships established by these NFRs and CSPs,especially in high-density areas such as industrial parks, campuses, officecomplexes, residential urban and inter-urban areas. We believe that we canprovide on a full service basis UNE-P migration services to NFRs and CSPs ataffordable rates for local voice and broadband network services with noinvestment on their part. Hence, NFRs and CSPs would benefit from re-capturing,maintaining or gaining customers without owning their local network. Asvalue-added services, we would help NFRs and CSPs, generate greater revenues byoffering e-commerce solutions, virtual private network services, secure emailservices, secure VPNs, video conferencing and multimedia services. We believethat the entire telecommunications service provision business will continue toconsolidate from several hundred to less than a hundred of NFRs and CSPscompeting with the Bells. We also believe that only those NFRs and CSPs willexist that either owns their local switching networks or seek UNE-P migrationservices from companies such as Cyber Digital. We believe that we could offersavings of 30% to NFRs and CSPs, on wholesale basis, from rates they arecurrently accustomed to paying to the Bells. The NFRs and CSPs would simplytransfer all their current customer accounts onto our UNE-P migration network.Our UNE-P migration network would be neutral to and shared by any NFR and CSP,thereby eliminating stranded capital. This would help us gain market share inthis niche market quite rapidly, without resorting to direct marketing to eachcustomer or consumer, which could be prohibitive in early stages of thisemerging market.

Provide Superior Customer Service

As part of our strategy to serve and retain NFRs and CSPs, weintend to provide superior maintenance and service of our switching systems atno cost to them. Besides delivering high-quality systems that providecarrier-grade voice and broadband services, we will provide remote maintenanceon our installed systems, 24 hours a day, seven days a week. Our objective inproviding outstanding service to our NFRs and CSPs is to provide a high level ofcustomer satisfaction, achieve customer loyalty and accelerate the adoption rateof our UNE-P migration services for both voice and broadband data.

OUR RANGE OF DIGITAL VOICE SWITCHES

We offer a full array of distributed digital switching systemsfor modern digital telecommunications applications and networks. These systemsare Cyber Distributed Central Office (CDCO) and Cyber Tandem Exchange (CTSX),primarily for use by UNE-P migration providers and CSPs, who are forced tobypass the Bells' local switching networks pursuant to the UNE-P Phase OutPolicy. Our commitment to research and development has enabled us to create newsystems, employing SS7 or C7 signaling. Most importantly, we have developedspecialized Advanced Intelligent Network (AIN) software for modern wireline,wireless and fiber optic networks. We intend to constantly develop additionalnew technologies and software for our systems.
*Cyber Distributed Central Office*
Our Cyber Distributed Central Office (CDCO) is designed toprovide digital voice communications to subscribers in densely populated urbanareas. Intended for Class 5 local central office exchange applications, CDCOfeatures a modular distributed architecture with condensed hardware elements, asit is primarily driven by software. Our CDCO switching systems serve as the coreof Integrated Services Digital Networks (ISDN), wired and wireless services,microcellular services, and personal communication services (PCS). The CDCOprovides flexible digital interfaces for microwave systems, copper wire metallicsystems, radio relay systems, wireless systems, fiber optic systems andsatellite systems. Our CDCO system consists of nodes connected by standarddigital links, which permit optimization of the network with respect to specificsize, required traffic capacity and desired applications. The modular nature ofthe nodal structure of our CDCO provides an economical digital switchingexchange from as little as a few hundred lines to as many as several millionsubscriber lines of capacity. 

The control functions of our CDCO system are totallydistributed in autonomous processing sub-systems or nodes. Node processors areloosely coupled and exchange information through standardized inter-nodalcommunication digital links. The distributed approach permits switching systemsto be co-located at the Bells' central offices as it is extremely compact andsmall. Moreover, a failure in one node does not affect other nodes. In addition,the distributed approach eliminates bottlenecks, as the system offers multipleroutes for call completion.
***Cyber Tandem Exchange*
Our Cyber Tandem Exchange (CTSX) serves as an inter-cityexchange for long distance voice and data trunk services as well as a regionaltrunk exchange connecting to various local CDCO exchanges by fiber optic ordigital wireline or wireless transmission. Intended for Class 4 tandem exchangeapplications, CTSX has only digital interfaces, which offer capacities rangingfrom 20 T1s to 20,000 T1s digital trunks. CTSXs are compact and can beco-located at the Bells' central offices. Our proprietary Cybermesh softwarepermits seamless operation with synchronous optical networks (SONET) orpoint-to-multi-point digital wireless networks. Our proprietary Cybermeshsoftware allows all CTSXs connected in a mesh to provide virtually non-blockingservice with excellent traffic handling capacity (not possible with centralizedmonolithic switches). We also offer a version of CTSX strictly for internationalgateway functions for Class 3 applications, which utilizes our specializedproprietary software.
***Cyber Rural Exchange*
Our Cyber Rural Exchange (CRX) is a small distributed Class 5central office exchange, primarily intended for rural, remote or communitytelephone applications. Our CRX is used by local telephone operating companiesto provide switched connections for local subscriber-to-subscribercommunications and subscriber to the long distance networks. Our CRX is costeffective for applications requiring from a few hundred subscribers up to a fewthousand subscribers.
***Cyber Switch Exchange*
Our Cyber Switch Exchange (CSX) is a digital switching systemdesigned for use as a private branch exchange (PBX) for offices, universities,hospitals and other large organizations. 
**OUR RANGE OF BROADBAND INTERNET PROTOCOL SYSTEMS**
We have developed our Internet infrastructure systems such asCyber Business Internet Gateway (CBIG), Cyber Internet Access Network (CIAN)distribution router, Cyber Firewall (CFW) IPSec based firewall appliance andCyber Web Server (CWEB). We intend to enhance our systems by new technologiesand software when the market requires.
***Cyber Business Internet Gateway*
Our Cyber Business Internet Gateway (CBIG) a powerful InternetProtocol (IP) Frame Relay and Private Line based gateway that replaces manysingle 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 CBIGgateway is unique in the industry as it combines all the functions and featuresrequired by a customer-end network in one box, about the size of a referencehandbook. Our CBIG dramatically increases the reliability of the customer-endnetwork by eliminating many such devices while also lowering the overall cost ofnetwork acquisition by 40% to 50%.

Our CBIG offers built-in standard security features, making itwhat we believe to be an ideal enterprise-wide virtual private network (VPN).The firewalls are provided by IP filtering, IP masquerading and IP tunneling.Our CBIG is based on PC architecture using Intel Pentium processors and LinuxOperating Software.
***Cyber Internet Access Network*
Our Cyber Internet Access Network (CIAN) is a high-enddistribution router/soft-switch, which permits numerous business users tosimultaneously access the Internet at a fixed committed bandwidth rate (CBR) on"always on" basis. Our CIAN creates a 'Mini-POP' (Points of Presence) atco-location site of the Bells' central offices and brings the Internet closer tousers thus eliminating bottlenecks, reducing network delays and increasingreliability. We offer two models of CIANs. Our CIAN1 distribution router has thecapacity of 0.5 Gbps and is suitable for T1 (1.5 Mbps) to T3 (45 Mbps) carriergrade applications (for T-POPs). Our CIAN2 distribution router has the capacityof 1.0 Gbps and is suitable for Ethernet from 10 Mbps to 100 Mbps IP overEthernet grade applications (for E-POPs). Our CIAN distribution routers arespecifically designed to allow UNE-P migration providers and CSPs to build theirlocal broadband networks by using the UNE-L from the Bells. Our CIAN is based onPC architecture using Intel Pentium processors and Linux Operating Software.
***Cyber Firewall*
Our proprietary standalone Cyber Firewall (CFW) series IPSecfirewall appliance offers simple-do-it-yourself installation software forbusiness-to-business e-commerce secure access and virtual private networkapplications. IPSec is an industry-wide standard for assuring the privacy,integrity and authenticity of information crossing public IP networks. Adheringto IPSec standards makes Internet "wiretapping" impractical. Based on ourproprietary software technology, our CFW IPSec firewall provides acost-effective way of creating an enterprise-wide virtual private network (VPN)by enabling secure use of the Internet. Our CFW series firewall appliance isstandalone device totally independent of customer's computing operating systemplatform. Our CFW is based on PC architecture using Intel Pentium processors andLinux Operating Software.
***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 believethat our servers are robust and proven-in for high performance webapplications.
**CUSTOMER, SALES AND MARKETING****Internet Systems**
Under the AT&T Alliance program, we provided Internetservices to many medium and small businesses in Boston area for a period ofone-year ending February 2001, when we terminated our agreement with AT&Tdue to telecommunications meltdown. During this period we successfully testedall our Internet systems, including CBIG, CIAN, CFW and CWEB, for bothlocal-loop digital broadband and VPN applications. Our Internet systems providednetwork availability in excess of 99.999% when we provided Internet services inalliance with AT&T. We believe that our systems are ideally suited for thenext-generation of local-loop digital broadband networks requiring increasedreliability, performance, scalability, interoperability and flexibility. Ourstrategy is to provide UNE-P migration services using our Internet systems toInternet service providers who are, generally, non-facilities reseller and lackthe technical ability or willingness to build the next-generation local-loopdigital broadband networks in the aftermath of the telecommunications meltdownin the U.S.
**Digital Voice Switches**
To date, we have sold approximately 76 previous generation ofour digital voice switches to the defense agencies of the U.S. federalgovernment and to China serving over 60,000 lines.

We were selected, over established companies such as Alcateland Siemens, to provide Nigeria with a 10,000-line telephone network. Since weoffer an affordable telecommunications as well as Internet capability, theNigerian authorities have selected us as one of the suppliers of telephone andInternet systems.

Due to March 2005 FCC UNE-P phase out policy, our strategy isto provide UNE-P migration services with our latest generation of digital voiceswitches to CSPs, who are, generally, non-facilities reseller and lack thetechnical ability or willingness to build the next-generation local-loop digitalvoice networks in the U.S.
**COMPETITION*****Digital Voice Switches for UNE-P Migration Services*
Currently, there is virtually no direct competition inproviding UNE-P migration services or supplying digital voice switches for theUNE-P migration services due to the newness of this market. However, there isindirect competition by DSL equipment suppliers that co-locate equipment incentral offices for broadband services. Since, DSL cannot provide the full arrayof voice and special access services as required by businesses and residentialsubscribers, minimal competition from DSL equipment suppliers is expected. Inaddition, DSL equipment is not only expensive but also larger in size; making itunsuitable for providing voice services on a co-located basis in the Bells'central offices. Since, our competitor's digital voice switches are both bulkyand heavy and cannot be co-located in the Bells' central offices, we findourselves with little or no competition in this upcoming high growth market. Webelieve that we are uniquely poised to be the leader in this market, since ourCDCO, CTSX and CIAN systems have been developed over many years in anticipationof this market. The telecommunications and related networking industries arecharacterized by intense competition. We compete with numerous well-establishedforeign and domestic companies, many of which possess substantially greaterfinancial, marketing, personnel and other resources than us. These companieshave established reputations for success in the development, sale and service ofdigital switching and networking and related products.

Systems that perform many of the functions similar to our CDCOand CTSX digital voice switches are readily available from a limited number ofcompetitors, namely Lucent Technologies, Nortel Networks, Alcatel and Siemens.However, our competitors systems are based on previous generationsingle-function monolithic centralized switching technology offering poorreliability, low performance, no scalability, no flexibility and are unsuitablefor the UNE-P migration services that requires co-location at the Bells' centraloffices. Furthermore, these systems are large in physical size with fixedcapacity, suffer from stranded capital, consume more power, and are cumbersometo use with modern wireless and optical technologies. We have developed oursystems on a next generation multi-function distributed switching technologyoffering superior reliability, performance, scalability and flexibility. Oursystems offer modular growth in increments of 1,000 to unlimited number ofsubscribers and typically occupy 1/100th the space that of ourcompetitor's offerings; making our systems ideally suited for co-location in theBells' central offices for UNE-P migration services. Most importantly, we havedeveloped specialized software for modern wireless and optical technologies,such as our CyberMesh software. We can easily and rapidly implement futureadvancements in our systems through software. On the other hand, our competitorsalso have the research and development capabilities, and financial and technicalresources necessary to enable them to respond to technical advances as well asevolving industry requirements and standards.

Unlike the existing Bells' public voice telephone network thatconsists of monolithic centralized digital switches, the CSPs will be seekingfor an alternative cost-effective approach, such as our CDCO and CTSXdistributed digital switching systems, especially after the October 2004 SupremeCourt and March 2005 FCC rulings. We believe that the upcoming trend in thetelecommunications industry towards distributed switching for local switchingnetworks from monolithic centralized switching will follow a similar trend inthe computer industry towards distributed networking personal computers frommonolithic centralized mainframe computers, which began the PC revolution in1980s. We believe that with our distributed switching systems, the CSPs ornascent UNE-P migration service provider can rapidly provide telephone servicesto their customers by migrating from UNE-P to UNE-L. It is substantially easierto install small, distributed switches than large monolithic centralizedswitches with their corresponding long cabling infrastructure. We believe thatour digital voice switches are well suited for the local switching needs of CSPsor nascent UNE-P migration service providers.

We believe that our systems have the following threestrengths:

(1) the installed cost of our digital voice switches (wirelessor wireline) for local switching applications is less than those of thecompetition;

    (2) our switches can be co-located at the Bells' central offices and put    into service rapidly, and        (3) distributed architecture of our switches eliminates stranding capacity    and capital.    ***Broadband Systems For UNE-P Migration Services*
The Internet related networking products business ischaracterized by intense competition, except for certain products for nichemarkets such as the market for our CIAN distribution softswitch/routers, whenapplied for the new market of UNE-P broadband data migration services. Wecompete with numerous well-established foreign and domestic companies, many ofwhich possess substantially greater financial, marketing, personnel and otherresources than we do. These companies have established reputations for successin the development, sale and service of Internet products, however, thesecompanies are not yet organized to provide UNE-P migration services.

Currently, there is limited competition in the UNE-P broadbanddata migration services market due to the newness of this market. Cisco Systemsand others are focusing on increasing the bandwidth capacity of their existingcentralized IP backbone core routers i.e. increasing the bandwidth of the POPs.Our focus is to introduce an intermediate stage distribution router or Mini-POPon co-location basis at the Bells' central offices. This provides nascent UNE-Pmigration providers and CSPs with an alternate to the Bells' local broadbandswitching network, which is being phased out pursuant to the UNE-P Phase OutPolicy. Our solution will alleviate congestion of IP data and TDMoIP/MPLS/Etraffic between customer-end point and POP. In addition, CSPs will be able offerFR or PPP with scalable bandwidth from T1 to T3 as well as Ethernet speeds up to100 Mbps. Our CIANs are ideally suited for co-location at the Bells' centraloffices because of small size when compared to separate centralized routers andsoftswitches. Our CIAN is an integrated distribution softswitch plus router thatby software handles various IP broadband technologies and protocols includingbut not limited to Frame Relay, Private Line, PPP, PPPoE, TDMoIP, MPLS, etc.
**PROPRIETARY TECHNOLOGY**
We do not hold any patents or copyrights and have no patent orcopyright applications pending. We regard our software technology and certaincomponents of our system hardware as proprietary and rely for protection uponcopyright and trade secret laws and confidentiality agreements with ouremployees. In addition, we require our customers to enter into a license andconfidentiality agreement permitting the customer the exclusive use of thesystem operating software, which is furnished to the customer in object orbinary form only.

We believe that these protections are sufficient to protect ourrights to our systems and software. Despite these protections, however, it ispossible that competitors, employees, licensees or others may copy one or moreof our systems or our technology or obtain information that we regard asproprietary. In addition, there can be no assurance that others will notindependently develop systems or technologies similar to those of ours, thatconfidentiality agreements will not be breached or that we will have adequateresources to protect our proprietary technology. We believe that because of therapid pace of technological change in the digital switching and networkingindustries, protection for our systems is less significant than the knowledge,ability and experience of our employees, the frequency of product enhancementsand the level of service and support provided to customers by us.
**GOVERNMENT REGULATIONS AND INDUSTRY STANDARDS**
The telecommunications and related networking industries inwhich we compete are highly regulated in both the United States andinternationally. Imposition of public carrier tariffs and taxation oftelecommunications services could materially adversely affect demand for oursystems. Furthermore, regulation or deregulation of public carrier services bythe United States and other governments, including permitting local carriers tomanufacture switching equipment, may determine the extent to which we will beable to penetrate markets in the United States and internationally and mayresult in significantly increased competition, which would significantly impactour future operating results. In addition, our systems must comply withequipment, interface and installation standards promulgated by communicationsregulatory authorities, including the Federal Communications Commission.

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

Industry standards organizations, such as InternationalTelephone Union ("ITU"), Telcordia (Bellcore) in the U.S., and InternetEngineering Task Force ("IETF") have created committees to address the matter ofstandards within the telecommunications and Internet industries. The purpose ofsuch standards is to facilitate the inter-operability of products from variousvendors and, through standardization, create a competitive environment, which isanticipated to result in lower product costs. During the past few years, manynew standards have been adopted and more are pending. The InternationalStandards Organization (ISO), one of the primary standard setting bodies in thecommunications industry, has developed a framework for network standards calledthe Open System Interconnection Reference Model (the "OSI Model"). The OSI Modelrepresents a standard approach by which information can be communicatedthroughout a network, so that a variety of independently developed computer andcommunications devices can inter-operate. The design of our systems incorporatesthe OSI Model and accommodates most existing and pending ISDN, AIN, SS7, C7,X.25, Frame Relay, Private Line, and IPSec standards, including applicable ITU,Telcordia (Bellcore) and IETF specifications. In most foreign countries,government departments or ministries set industry standards. 

Changes in government policies, regulations and interface andinstallation standards or industry standards imposed by domestic and foreigncarriers in the future could require our company to alter methods of operation,resulting in additional costs, which could have a material adverse effect on ourcompany.
**PRODUCTION AND SUPPLY**
We are engaged in manufacturing, software programming,assembly, system testing and quality assurance at our facility in Hauppauge, NewYork. Our operations involve the creation of the required system software, theinspection of system components manufactured by third parties, programming ofmicrochips and microprocessors, assembly of the components of the systemhardware and quality control and testing to certify final performancespecification. We believe that we have sufficient excess production capacity tosatisfy any increased demand for our systems in the foreseeable future.

We are dependent on third-party manufacturers for theproduction of all of the component parts incorporated into our systems. Wepurchase our component parts from numerous third-party manufacturers and believethat numerous alternative sources of supply for most component parts are readilyavailable, except for a few semiconductor components purchased from singlesource vendors. These are embedded processors and Pentium processors from IntelCorp., programmable gate array chips from Altera Corp., and certain telecomchips from Motorola, Inc., Rockwell Semiconductors Systems and PMC-Sierra Corp.If these are discontinued by their respective manufacturers, we would berequired to redesign some of our systems by using other vendors components,which could cause delays in delivery of systems. We believe that alternativesources of supply for such components are available. We are substantiallydependent on the ability of our suppliers, among other things, to satisfyperformance and quality specifications and dedicate sufficient productioncapacity for parts within scheduled delivery times. We do not maintain contractswith any of our suppliers. We purchase components pursuant to purchase ordersplaced from time to time in the ordinary course of business. Our ability todeliver systems on timely and competitive basis could be adversely affected dueto failure or delay in delivery of parts caused by our suppliers.

We offer a one-year warranty for sales covering operatingdefects, during which period we will replace parts and make repairs to thesystem components at our expense. 
**RESEARCH AND DEVELOPMENT**
Since the inception we have devoted substantial resources tothe design and development of our systems. For the fiscal years ended March 31,2006 and 2005, we expended approximately $18,269 and $25,000, respectively, onresearch and development. For the past few years, we substantially reduced ourresearch and development expenditures due to lack of capital. Although oursystems are fully developed such as our CDCO, CTSX, CRX, CSX, CBIG, CIAN, CFWand CWEB, we are continually seeking to refine and enhance our systems,including enhancements to comply with emerging regulatory or industry standardsor the requirements of a particular customer or country. We believe that withour latest generation of CDCO, CTSX and CIAN systems we can provide UNE-Pmigration services for both voice and broadband data. However, we expect thatthese systems may require some software tweaking and adjustments as we roll outour network.

The markets for our systems are characterized by rapidlychanging technology and evolving industry standards, often resulting in rapidsystems obsolescence. Accordingly, our ability to compete depends on timelyintroduction of our systems to the marketplace, continual enhancements to oursystems, and adapting to technological changes and advances in thecommunications industry, including assuring continuing compatibility withevolving industry standards. There can be no assurance that we will be able tocompete successfully, that competitors will not develop technologies or productsthat render our systems obsolete or less marketable, or that we will be able tokeep pace with the technological demands of the marketplace or successfullyenhance and adapt our systems to satisfy industry standards.
**SERVICE SUPPORT**
We believe that service, support and training are importantfactors in promoting sales and customer satisfaction. Services we provide ourCSP and nascent UNE-P migration service customers include feasibility studies,site surveys, engineering planning, project estimating, network planning,network design, system planning, site preparation, system installation, customertraining and maintenance. However, we believe that CSPs and nascent UNE-Pmigration service providers are not yet ready to build their local-loop voiceand broadband networks, due to their lack of technical ability and capital. Weexpect them to rely on our ability to provide UNE-P migration services tothem.

Since, our system hardware consists of a cabinet with shelveshaving printed circuit boards inserted into physical slots, a substantial partof repair and maintenance can be accomplished by simply substituting thecomponent in need of repair. In addition, our systems are designed to beaccessible by computer from our headquarters, allowing our service personnel toremotely call up, diagnose and otherwise support systems, thereby reducingresponse time and cost.
**EMPLOYEES**
As of the date hereof, we have five employees, of which twowere engaged in marketing and sales activities, one was engaged in research anddevelopment, and two were in administration. None of our employees isrepresented by a labor union. We consider our employee relationssatisfactory.

 
**GLOSSARY OF TERMS

Analog

Analog transmission employs continuously variable  signal.

 
 
Backbone

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

 
 
Bandwidth

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

 
 
Broadband

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

 
 
Central Office

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

 
 
Collocation

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

 
 
Competitive Local Exchange Carrier (CLEC)

Category of telephone service provider that offers local exchange      services in competition with those of the incumbent  carrier.

 
 
Copper Line or Loop

A pair of traditional copper telephone lines using electric current to      carry signals.

 
 
Digital

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

 
 
DSL

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

 
 
E-Commerce

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

 
 
Firewall

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

 
 
Frame Relay

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

 
 
Incumbent Local Exchange Carrier (ILEC)

A company providing local exchange services, such as the      Bells..

 
 
Internet

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

 
 
Internet Protocol

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

 
 
ISDN

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

 
 
Internet Service Provider

A company that provides direct access to the internet.

 
 
Kbps.

Kilobits per second. 1,000 bits per second.

 
 
Mbps

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

 
 
Modem

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

 
 
Packets

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

 
 
Private Line

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

 
 
Router

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

 
 
T-1

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

 
**ITEM 2 - Description of Property**
Our executive offices and assembly operations are located inapproximately 8,200 square feet of leased space in Hauppauge, New York. Thelease provides for annual base rent of $58,220 and expires on May 31, 2009. Webelieve that our facility is adequate for our current needs. We believe thatadditional physical capacity at our current facility will accommodate expansion,if required.
**ITEM 3 - Legal Proceedings**
None.
**ITEM 4 - Submission of Matters to a Vote of SecurityHolders**
None.
**PART II****ITEM 5 - Market for Common Equity and Related StockholderMatters**
Our common stock is quoted on the Over-the-Counter BulletinBoard under the symbol "CYBD." The following table shows the quarterly high andlow trade prices on the Over-the-Counter Bulletin Board. The prices reflectinter-dealer prices, without retail mark-up, mark-down, or commission and maynot represent actual transactions.

 
Price Per Share .

 
High

Low

Fiscal Year Ended March 31, 2006

 
 
 
First Quarter

$0.40

$0.13

 
Second Quarter

0.21

0.13

 
Third Quarter

0.17

0.06

 
Fourth Quarter

0.54

0.13

 
 
 
 
Fiscal Year Ended March 31, 2005

 
 
 
First Quarter

$0.35

$0.08

 
Second Quarter

0.11

0.06

 
Third Quarter

0.35

0.06

 
Fourth Quarter

0.51

0.17

On March 31, 2006, the closing trade price of our common stockas reported on the Bulletin Board was $0.38 per share. On that date, there wereapproximately 507 stockholders of record of our common stock. We believe that onMarch 31, 2006, there were more than 2,400 beneficial holders of our commonstock.

On June 6, 2006, we declared a 3-for-2 stock split to be paidin the form of a 50% stock dividend to the stockholders of record as of June 26,2006.

 
**ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS****Forward Looking Statements**
When used in this report, press releases and elsewhere by themanagement of our company from time to time, the words "believes","anticipates", and "expects" and similar expressions are intended to identifyforward-looking statements that involve risks and uncertainties. Additionally,certain statements contained in this discussion may be deemed forward-lookingstatements that involve a number of risks and uncertainties. Among the factorsthat could cause actual results to differ materially or adversely are thefollowing: the ability of our company to meet its working capital and liquidityneeds, the status of relations between our company, its primary customers anddistributors, the availability of long-term credit, unanticipated changes in theU.S. and international economies, business conditions and growth in theinternational and the U.S. telecommunications industry, level of growth in bothvoice and internet systems sales generally, the timely development andacceptance of new products, the impact of competitive products and pricing,changes in the cost of component materials, changes in product mix, the outcomeof litigation in which our company is involved, along with product delays andother risks detailed from time to time in our company's SEC reports, includingbut not limited to this Annual Report on Form 10-KSB for the year ended March31, 2006. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof. Our companyundertakes no obligation to publicly release the results of any events orcircumstances after the date hereof or to reflect the occurrence ofunanticipated events.
**Overview**
We are a designer, software developer and manufacturer of arange of unique distributed digital-voice-switching and Internet Protocol (IP)infrastructure equipment such as Class 4/5 TDM switches, IP soft-switches,routers, gateways, firewalls, voice-over IP (VoIP) and virtual private network(VPN) systems for public-switched-telephone-network (PSTN) operators andInternet Service Providers (ISP) worldwide. With our latest generation ofsoftware based switching systems, we can offer affordable voice and broadbanddata local switching services to competitive service providers (CSPs) such ascompetitive local exchange carriers (CLECs), long distance carriers (LDCs) andInternet service providers (ISPs). Our mission is to become (i) a leadingalternative local switching service provider through acquisitions of competitiveservice providers in the United States, and (ii) a cost-effective supplier ofour digital voice switches and broadband data equipment to developing countriessuch as India, China, Brazil, Russia and Nigeria. We expect to generaterecurring revenues from the customer's of our acquired competitive serviceproviders. We believe that we are one of the first companies to offer suchservices in the U.S.

Unlike our competitor's systems, our systems are neither labornor capital intensive but are software intensive. This capability, in contrastto that of our competitor's, makes our systems more affordable for both voiceand Internet service providers worldwide. Our digital voice switching andInternet Protocol (IP) infrastructure systems are based on our proprietaryoperating system software, which provides high performance, reliability andfunctionality. We believe that we are one of a very few companies in the worldwith proprietary technology of distributed digital switching. We have expendedover $20 million dollars on the development of our rock solid proprietarystate-of-the-art technology, which is built on 23 years of experience. Oursystems are ideally suited for the U.S. pursuant to the recent FCCrulings.

Beginning March 2005, the U.S. Federal CommunicationsCommission (FCC) decided to phase out UNE-P rules that forced the Bells to leaselocal switching networks to its competitors (CSPs) at cut-rate prices. Thisruling favors us to evolve as an alternative local switching network provider,that is as an UNE-P migration service provider, to these CSPs for Mass MarketLocal Circuit Switching and High-Capacity Loops for broadband markets. FCCfurther rules that CSPs must move all customers to non-Bell networks by March2006. Today, CSPs lease 17 million lines for $4.5 billion per year from theBells, creating an immediate market opportunity for us to acquire certain CSPs.Morover, the Bells own 163 million lines creating a huge migration servicesopportunity for many years to come. We intend to be the first company to offersuch UNE-P migration services to acquired CSPs by deploying our vast array oflocal voice and broadband data switching infrastructure systems. In anticipationof this, we signed an agreement with Level 3 Communications who will provide forglobal voice and data termination services to all traffic generated on our localswitching systems. We will wholesale our UNE-P migration services to acquiredCSPs as well as to other CSPs at affordable rates on recurring basis for local,long distance and international calls as well as broadband Internet access, VoIPand virtual private network (VPN) services.
***Emerging Market Opportunity in the FCC Regulated Market*
On June 15, 2004, Supreme Court finally approved the FederalCommunications Commission's (FCC) new ruling on phone policy released on August21, 2003, requiring the Bells' competitors, such as competitive local exchangecarriers (CLECs) and long distance carriers (LDC), to use their own voice anddata switches for connecting calls instead of leasing the Bells' voice and dataswitches (hereinafter referred to as "UNE-P Phase Out Policy"). UNE-P is anacronym for Unbundled Network Element - Platform, where Platform means theBells' voice and data switches, the leasing of which is being phased out.Prior, to this UNE-P Phase Out Policy, there was no incentive for CLECs orLDCs to build their local voice and data switching networks in the U.S. OnOctober 12, 2004 the Supreme Court declined to hear an appeal by AT&T andMCI and other CLECs that had requested access to the Bells' voice and dataswitches. As a result of the court's and FCC's decisions, AT&T and MCI havepulled back in their marketing of residential and small business telephoneservices. On December 15, 2004, FCC issued the UNE-P Phase Out Policy andassociated tariffs with effectiveness beginning March 11, 2005. We believe thatthe UNE-P Phase Out Policy has created an emerging growth market opportunity,because CLECs and LDCs are forced to allocate capital towards building theirlocal switching infrastructure or obtain UNE-P migration services fromcompanies, like Cyber Digital, that are envisioning to enter this market. As ofnow, there are no UNE-P migration service providers in the U.S.

The UNE-P Phase Out Policy enforces the CLECs, LDCs, and ISPscollectively as CSPs to transition off to other local telephone and broadbandswitching infrastructure instead of using the Bells' local switching networks.This is expected to create a metamorphosis in local voice and data switchinginfrastructure expansion by Cyber Digital as a nascent UNE-P migration providerto CSPs. The economics of building local switching networks is vastly differentfrom that of long distance networks. The capital investment required to build alocal switching networks is five to six times higher than the capital costs oflong distance networks, because such networks must extend all the way into theoffices and homes of their customers. The UNE-L policy permits Cyber Digital tolease the copper wires to subscriber premises at cut-rate prices from the Bells.This would allow us to co-locate our switches in numerous central offices ownedby the Bells to offer UNE-P migration service to CSPs. Therefore, we believethat the FCC's UNE-P Phase Out Policy has created an enormous market opportunityin the UNE-P migration service provision area for us.

We believe that for the first time in our history, market opensfor our digital voice switches and broadband systems for the creation of localswitching network services, especially referring to **Mass Market Local CircuitSwitching and High-Capacity Loops**. We believe that metamorphosis in wirelinelocal voice and broadband switching infrastructure expansion will begin soon andwill support our growth for many years. We believe that a high growth marketopportunity has been created by the UNE-P Phase Out Policy, because CLECs andLDCs are forced to allocate capital towards building their local switchinginfrastructure or seek for such UNE-P migration services from other providers,such as Cyber Digital.

These competitors CLECs and LDCs have lost the battle with theBells. Beginning year 2005, the Bells will begin to virtually shut off access totheir local voice and data switches. The local voice switch access charges willbe rising from 40 percent to over 60 percent by 2006, making local voice switchownership by CLECs and LDCs an increasingly key factor for their future or seekUNE-P migration services from other providers. However, CLECs, LDCs and nascentUNE-P migration providers would be able to lease the copper wires to subscriberpremises at cut-rate prices from the Bells, under the UNE-L policy. UNE-L is anacronym for Unbundled Network Element - Line, where Line means the copper wiresto subscriber premises. This would permit CLECs, LDCs and nascent UNE-Pmigration providers (such as Cyber Digital) to co-locate their voice and dataswitches in the Bells' central offices. Hence, CLECs, LDCs and nascent UNE-Pmigration providers must rapidly build their own local switching facilities andnetworks. FCC further rules that CLECs and LDCs must also provide broadband dataservices along with voice services. So also FCC mandates that Internet serviceproviders (ISP) must also provide voice along with broadband data services.Hence, CLECs, LDCs and ISPs must build their own local voice and broadbandswitching facilities and networks to serve their business and residentialcustomers or obtain such services from nascent UNE-P migration providers. Thismeans huge demand for our digital voice switches and broadband systems bynascent UNE-P migration providers and competitive service providers (CSPs)(hereinafter includes CLECs, LDCs and ISPs). We believe that combined power ofour digital voice switches and broadband Internet systems offers nascent UNE-Pmigration providers and CSPs affordable one-stop solution for their localswitching needs.

We believe that we are at the threshold of the local telephoneswitching metamorphosis in the U.S. According to data released by FCC, to-dateless than 6 million local-loop switched lines were owned by the CSPs as comparedto 163 million such lines owned by the Bells. Hereafter, CSPs have tocontinuously invest, year after year, in bringing their local voice switchinginfrastructure at par with those of the Bells or obtain such services fromnascent UNE-P migration providers such as Cyber Digital. Beginning in 2005, weexpect nascent UNE-P migration providers and CSPs to increase their capitalexpenditures towards that end. We intend to serve this high growth market,expected to be rising from almost zero to $4.5 billion annually; according tothe Investor's Business Daily article dated February 28, 2005, "As UNE-P LawsFade Away".

We believe that the telecommunication service provisionbusiness will be rapidly consolidating in the next few years, especially inresponse to the UNE-P Phase Out Policy by FCC. The distinction between theservices offered by LDCs, CLECs and ISPs are being eroded, and moreover, agreater emphasis is being placed on the build out and ownership of localswitching network for both voice and broadband data. Since, the building oflocal switching networks is highly capital intensive, we project that we are atthe threshold of a local switching networks metamorphosis and that it isexpected to continue for many years. This marks the beginning of the NextRevolution in telecommunication (i.e. the deregulation of the local voice anddata services) as a successor to the First Revolution in January 1984 (i.e. thebreak-up of AT&T creating deregulation of long distance service). During thelast 20 years, LDCs such as Sprint, MCI, and others have competed fiercelyagainst AT&T by building their own long distance networks. This has resultedin long distance charges to be about 30% of a typical telephone bill. While, thelocal voice charges are about 70% today, largely controlled by the Bells. Wewant to be the premier provider of UNE-P migration services on wholesale basisto non-facilities based CSPs as well as supplier of local voice and broadbandswitches to those CSPs electing to build their own local networks. Movingforward, we see ourselves offering UNE-P migration services to these CSPs ataffordable rates instead of them obtaining from the Bells at uneconomicalrates.

We intend to provide UNE-P migration services to CSPs with ourproven, intelligent, distributed voice switches and broadband systems that canbe co-located in central offices as follows:

Cyber Distributed Central Office (CDCO) CLASS 5 TDM switches provide    numerous voice subscriber lines such as POTS, ISDN, analog trunk lines for    PABXs, etc.    
- Cyber Tandem Exchange (CTSX) CLASS 4 TDM switches provide numerous T1    carrier grade voice and data trunks.           Cyber Internet Access Network (CIAN), a high performance IP (Internet    Protocol) distribution softswitch/router, provides numerous business    customers simultaneous broadband access at multiple T1 speeds up to T3 and    Ethernet 10/100 Mbps.        We believe that our CDCO, CTSX and CIAN systems are ideallysuited for building local digital voice switching and broadband data networksthat requires increased reliability, performance, scalability, interoperability,and flexibility. Due to the UNE-P Phase Out Policy, we believe that we arepoised to be a premier UNE-P migration service provider to CSPs because of ourhighly compact digital voice switches and broadband systems, however, there canbe no assurance that we will be successful in this market. *Market Opportunity in Developing Countries*
We were selected, over established companies such as Alcateland Siemens, to provide Nigeria with a 10,000-line digital voice switch, IPnetwork switches and optical network for $26 million for their Public SwitchedTelephone Network (PSTN). Since we offer affordable systems, the Nigerianauthorities have selected us as one of the suppliers of digital voice switchesand Internet systems. However, there can be no assurance that we will besuccessful in supplying any of our digital voice switches or Internet systems tothe Nigerian telecommunications market.
**Results of Operations***Year Ended March 31, 2006, Compared to Year Ended March 31,2005*
Net sales

Net sales for the year ended March 31, 2006 (referred to as"fiscal year 2006"), were $0 from $0 for the year ended March 31, 2005 (referredto as "fiscal year 2005"). We are in early stages of developing the UNE-Pmigration services market in the U.S. due to newness of the market. We werewaiting for the FCC's deregulation policies on local voice and data switching inorder to enter this lucrative market with our systems.

Cost of Sales

We include in our cost of sales the materials and labor used,subcontractor costs and overhead incurred in the manufacture of our systems aswell as any change in the valuation of our inventory, which was $137,616 and$56,000 for fiscal years 2006 and 2005, respectively. During fiscal year 2006and 2005, the valuation of our inventory reduced by $137,616 and $56,000,respectively.

Selling, general and administrative

Selling, general and administrative expenses increased from$245,741 in fiscal year 2005 to $266,489 in fiscal year 2006, representing anincrease of $20,748 or approximately 8%, principally due to minimal increase inmarketing efforts in U.S. and greatly limited by capital constraints to enterthe U.S. market.

Research and development

Research and development expenses decreased from $25,000 infiscal year 2005 to $18,269 in fiscal year 2006, representing a decrease of6,731 or approximately 26%, principally due to capital constraints. Alldevelopment costs are expensed in the period incurred.

Income (loss) from operations 

Loss from operations in fiscal year 2006 was $(562,820) or$(.025) per share as compared with a loss of $(417,360) or $(.02) per share infiscal year 2005.

Net income (loss) available to Common Stockholders

Preferred stock dividend was $12,526 and $7,292 in fiscal year2006 and 2005, respectively. As a result of the foregoing, the net lossavailable to common stockholders in fiscal year 2006 was $(575,346) or $(.025)per share as compared to a net loss of $(424,652) or $(.02) per share in fiscalyear 2005.
**Liquidity and Capital Resources**
Our ability to generate cash adequate to meet our needs resultsprimarily from sale of preferred and common stock, cash flow from operations andcash advances in the form of loan from our Chief Executive Officer and ashareholder. Total working capital decreased by $605,547 to $(1,336,532) atMarch 31, 2006 from $(730,985) at March 31, 2005. The current ratio of currentassets to current liabilities decreased to 0.2 to 1 as at March 31, 2006 from0.4 to 1 as at March 31, 2005. Current levels of inventory are adequate to meetsales for a few months. We believe that our current sources of liquidity areinsufficient to meet our needs. We need to obtain funds to pursue the domesticmarket. We have no off-balance sheet arrangements.

Net cash used in operating activities was $278,716 and $272,908for fiscal year 2006 and fiscal year 2005, respectively.

We used $37,814 and $0 during fiscal year 2006 and fiscal year2005, respectively, for investing activities. The cash used for investingactivities relates primarily to purchases of equipment in fiscal year 2006 andfiscal year 2005.

Net cash provided by financing activities was $305,999 and$259,000 for fiscal year 2006 and fiscal year 2005, respectively. 

On July 12, 1999, we concluded a private placement of 310shares of its Series C preferred stock, par value $.05 per share, andaccompanying warrants to accredited investors and received net proceeds ofapproximately $310,000. In connection with this placement, we issued warrants toaccredited investors to purchase an aggregate of 12,710 shares of our commonstock, par value $.01 per share, at an exercise price of $6.00 per share. TheSeries C preferred stock was issued without registration in reliance on Section4(2) of the Securities Act of 1933, as amended. As of July 11, 2002, all 12,710warrants expired at an exercise price of $6.00 per share.

On July 2, 2001, we concluded a firm commitment of $6 millionprivate equity line from an accredited institutional investor. We are able todraw 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 areallowed to make a maximum of 24 draw downs over this period, including a cushionperiod of 7 days during which no draw down can be made. If we do not draw downin a specific month, our available equity line reduces by $250,000. During theyears ended March 31, 2004 and 2003, we drew down $86,000 and $413,000 againstthe equity line and issued 348,255 and 842,934 shares of common stock,respectively. As of March 31, 2004, the equity line has expired. Inconsideration for the accredited institutional investor's commitment to purchaseshares of our common stock under our equity-line agreement with them, we haveissued to the institutional investor a warrant to purchase 250,000 of our sharesof our common stock at $4.10 per share and a warrant to purchase 125,000 of ourshares of our common stock at $5.15 per share. We have also issued to LadenburgThalmann & Co. Inc., in consideration for their having introduced us to theinstitutional investor, a warrant to purchase 250,000 of our shares of ourcommon stock at $4.10 per share and a warrant to purchase 125,000 of our sharesof our common stock at $5.15 per share. All four warrants expired onJuly 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-yearmaturity date and applicable interest rate of ten percent per annum. Thepromissory note and all amounts due thereunder are secured by all assets of ourcompany. 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 theaggregate amount of $516,658, the Board of Directors approved the issuance of516,658 incentive stock options to all employees for their dedication and inrecognition 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 marketvalue on the date of the grant.

In December 2002, we concluded a private placement of 500,000restricted 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 theaggregate 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 securitieswere issued without registration in reliance on Section 4(2) of the SecuritiesAct of 1933, as amended. These securities were issued pursuant to Rule 144promulgated under the Act that require, among other conditions, a one yearholding period prior to the resale (in limited amounts) of securities acquiredby these accredited investors in a non-public offering without having to satisfythe registration requirements under the Act.

In March 2004, we borrowed 177,000 under a promissory note witha shareholder. The note has a one-year maturity date and a ten percent interestrate per annum.

In August 2004, our company issued 50 shares of its Series Epreferred stock, par value $.05 per share, to an accredited investor at a priceof $1,000 per share, under a private placement, and received net proceeds of$50,000. In connection with this placement, we issued warrants to the accreditedinvestor to purchase an aggregate of 50,000 shares of our common stock, parvalue $.01 per share, at an exercise price of $0.25 per share. The Series Epreferred stock was issued without registration in reliance on Section 4(2) ofthe Securities Act of 1933, as amended.

On September 30, 2005, we entered into a promissory noteagreement with J.C. Chatpar, our CEO, in the amount of $516,300, representingadavances to the company. The note has one-year maturity date and a ten percentinterest rate per annum.

During the fiscal years ended March 31, 2006 and 2005, theCompany received cash advances of $277,000 and $209,000, respectively, from ourChief Executive Officer. As of the fiscal year ended March 31, 2006, our companyhas received cash advances of $981,300 and $177,000 from our Chief ExecutiveOfficer and a shareholder, respectively.

On September 2, 2005, we entered into definitive agreements with DutchessPrivate Equities Fund, L.P., a Delaware limited partnership. The agreementsinclude an Investment Agreement and a Registration Rights Agreement that wereamended on November 3, 2005. Under the Investment Agreement, Dutchess can investup to $10,000,000 to purchase common stock at a 5% discount to market pricepursuant to put notices by our company. This agreement effectively provides anequity line of credit to be drawn upon at our discretion. Under the RegistrationRights Agreement, we agreed to use commercially reasonable efforts to registerall the shares that could be issued pursuant to the Investment Agreement withinninety (90) days of the execution of the agreements. As of December 9, 2005, weare able to access the funds under the equity line of credit since theregistration statement was declared effective pursuant to section 8(a) of theSecurities Act of 1933, as amended. We hope to use these funds to support bothour long term and short term capital needs as well as to finance possibleacquisitions of competitive service providers (CSPs).
**Impact of Inflation**
Inflation has historically not had a material effect on ouroperations.

 
**Risk Factors**
The risks and uncertainties described below are, however, notthe only ones facing us. Additional risks and uncertainties not currently knownto us or that we currently consider immaterial may also impair ouroperations.
**We have a history of operating losses and we anticipate futurelosses.

Since inception, we have generated limited revenues from thesale of our products. We incurred losses of $562,820 and $417,360, respectively,for the fiscal years ending March 31, 2006 and 2005, and we anticipate thatlosses will continue until such time, if ever, as revenue from operations issufficient to offset our operating costs.
**We will need significant additional funds, which we may not beable to obtain.

We have historically satisfied our working capital requirementsthrough the public and private issuances of equity securities and borrowingsfrom government agencies as well as from our chief executive officer and ashareholder. We will continue to seek additional funds through such channels andfrom collaborative and other arrangements with corporate partners. However, wemay not be able to obtain, from these or other sources, adequate funds whenneeded or funding that is on terms acceptable to us. If we fail to obtainsufficient funds, we may need to delay, scale back or terminate some or all ofour research-and- development programs and our anticipated expansion orotherwise curtail our operations.
**We expect to have foreign sales, so our business is subject tothe additional risks associated with doing businessoverseas.

We expect that a portion of our revenues may be derived fromsales of our products in foreign markets. Accordingly, we will be subject to allof 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 ourforeign operations will require us to devote significant resources to systeminstallation, training and service, areas in which we have limitedexperience.
**We may be unable to adapt to the rapid technological changethat characterizes our industry.

The technology related to digital voice switching andnetworking systems, including Internet Protocol (IP) packet-based high-speedbroadband systems, is evolving at a rapid pace. To ensure that our currentsystems do not become obsolete, we will need to invest significant time andresources in research and development and testing.
**We cannot guarantee that there will be a market for our systemsand services.

The market for UNE-P migration services for both local-loopdigital voice and IP packet-based broadband data is in the early stages ofdevelopment. Consequently, we cannot accurately predict whether the market forour systems or services will fail to develop, grow more slowly than anticipated,or become saturated with competitors. It is expected that nascent UNE-Pmigration service providers will emerge and perhaps, some have already enteredthis emerging market ahead of us without our knowledge. Although we haveresolved certain critical issues facing commercial use of local-loop digitalvoice and broadband data 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 systems and hence, the underlyingservices.
**Our limited marketing activity may materially adversely affectour business.

If our systems or services are to be accepted by the market, wewill need to create an awareness of, and demand for, our systems and services.We have not yet engaged in such marketing activities to any degree, as we lackthe resources to do so. Furthermore, any such marketing activities that weengage in may prove unsuccessful.
**The market in which we operate is intensely competitive, and wemay not be able to compete effectively, especially against established industrycompetitors.

We operate in an intensely competitive business. Among ourprincipal competitors are well-established foreign and domestic companies,including Lucent Technologies, Nortel Networks, Siemens Corp., L.M. EricssonCorp., Alcatel Telecom, and others that have developed systems that perform manyof the same functions as our systems. In addition, computer networking companiesengaged in empowering the Internet include companies such as Cisco Systems Inc.,Juniper Networks, Check Point Software Technologies, Novell Inc., 3Com, and IBMCorp. which dominate the industry. All of these companies have substantiallygreater financing, marketing personnel and other resources than we do. Inaddition, they have established reputations for success in developing, selling,and servicing digital switching and networking and related systems and haveestablished significant market penetration for their systems. These competitorsalso have the research-and-development capabilities and financial and technicalresources necessary to enable them to respond to technological advances as wellas evolving industry standards.
**Our operating results may fluctuate.

Our operating results could vary from period to period as aresult of the time it takes to complete a sale. Our sales cycle for foreigncontracts generally starts when a prospective customer issues a request for aproposal and ends when we sign a sales contract with that customer, andtypically lasts from 6 to 36 months. The period from signing of the salescontract until delivery, installation, and acceptance of a system (which is whenwe recognize revenues) typically ranges from 3 to 9 months. The principalfactors affecting delivery and installation time are the configuration andcomplexity of the system and the availability of third-party hardwarecomponents. Other factors contributing to fluctuation of our operating resultsinclude the timing of introduction of new systems by us and by our competitorsand fluctuation in expenses, whether related to sales and marketing, productdevelopment, or administration.
**We have obtained and expect to continue to secure a portion ofour foreign contracts through competitive bidding. 

Competitive bidding is typically a lengthy process that oftenresults in resources being expended on bids that are not accepted. Additionally,inherent in the competitive bidding process is the risk that actual costs mayexceed projected costs used in calculating the bid price. Moreover, we may berequired to post bid or performance bonds in connection with contracts withforeign agencies. To date, our limited capital resources have restricted ourability to obtain bonds and to bid on larger contracts, and we may findourselves similarly restricted in the future. 
**We depend on third parties to market and sell of our systemsand services.

We rely significantly on indirect sales channels to market andsell our systems and services. Our current agreements with indirect saleschannels are non-exclusive, and we anticipate that any such agreements we enterinto in the future will also be non-exclusive. Non-exclusivity allows thesesales channels to resell systems or services offered by our competitors.Furthermore, our agreements are generally short-term, and can be cancelled bythese sales channels without significant financial consequence. We cannotcontrol how these sales channels perform and cannot be certain that either ourcustomers or we will be satisfied by their performance. Also, many of thesecompanies compete with us. 
**Our ability to compete will suffer ifwe are unable to protect our patent rights and trade secrets or if we infringethe proprietary rights of thirdparties.

We rely solely on trade secret, copyright, and trademark lawsto protect our proprietary software and hardware technology. We do not hold anypatents and we have not filed any patent applications that relate to any of ourtechnology. Our competitors may learn our trade secrets or develop themindependently. In addition, we seek to protect our trade secrets and otherproprietary information in part by means of confidentiality agreements with ourcollaborators, employees, and consultants. If any of these agreements isbreached, we may be without adequate remedies. Costs related to settling anydisputes that may arise from our need to protect our proprietary rights may besignificant. Although we do not believe that we are infringing on any patent orother proprietary rights, others may claim that we are doing so. Any such claimwould likely be time-consuming and expensive to defend, particularly if we areunsuccessful, and could prevent us from selling our products or services. Inaddition, we may also be forced to enter into costly and burdensome royalty andlicensing agreements.
**The loss of J.C. Chatpar would likely have an adverse effect onour business.

Our future success will depend largely on our ability to retainthe services of J.C. Chatpar, our founder, President and Chief ExecutiveOfficer. Mr. Chatpar is primarily responsible for developing our proprietarytechnology and managing our company, including its business development andmarketing functions. We currently have a three-year employment contract with Mr.Chatpar that prevents him from competing with us during his employment. We donot 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 amaterial adverse effect on our business.
**Our success depends on our ability to hire and retainmanagement personnel.

Our success also depends on our ability to hire and retainskilled operating, marketing, technical, financial and management personnel. Inthe telecommunications and network systems business sectors, competition inconnection with hiring and retaining skilled and dependable personnel isintense. We may not offer salaries or benefits that are competitive with thoseoffered by our competitors or by universities, research entities and otherorganizations, which may have significantly more resources than we have. We maynot succeed in hiring and retaining such personnel. 
**We depend on third-party suppliers.

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

We depend on a single supplier for certain semiconductor chips,such as embedded processors and Pentium processors from Intel Corporation,telecom chips from Motorola, Texas Instruments and National Semiconductor, PLDsand FPGAs from Altera, and T1/T3 chips from Rockwell Semiconductors andPMC-Sierra Corp. If any of these semiconductor chips are discontinued, we wouldhave to redesign some of our systems by using other vendors' components. Thiswould likely result in delays.
**We have suffered cutbacks of digital voice switches sales andbroadband services to our customers.

We have in the past sold our previous generation of digitalvoice switches to defense agencies of the United States and provided broadbandservices using our systems in alliance with AT&T to businesses. Due tocutbacks and the recent telecom meltdown, we may not be able to replace thesecustomers.
**We are subject to various governmentalregulations.

The telecommunications and related networking industries inwhich we compete are highly regulated in both the United States andinternationally. Imposition of public carrier tariffs and taxation oftelecommunications services could significantly reduce demand for our systems.Furthermore, regulation or deregulation of public carrier services in the UnitedStates or elsewhere, may determine the extent to which we will be able to enterand penetrate markets in the United States and internationally and may result insignificantly increased competition. Furthermore, our systems must comply withequipment, interface, and installation standards promulgated by communicationsregulatory authorities and industry standards imposed by domestic and foreigncarriers. Changes in these standards could result in our incurring additionalexpenses.
**Trading in our common stock may be limited.

Our common stock is quoted on the Over-the-Counter BulletinBoard. The Over-the-Counter Bulletin Board is not, however, an exchange, andtrading in securities on the Over-the-Counter Bulletin Board is often moresporadic than trading in securities listed on an exchange or NASDAQ.Consequently, our shareholders may have difficulty reselling any shares of ourcommon stock.
**Because "penny stock" rules apply to trading in our commonstock, our shareholders may find it difficult to sell theshares.

Our common stock is a "penny stock," as it is not listed on anexchange and trades at less than $5.00 a share. Broker-dealers who sell pennystocks must provide purchasers of these stocks with a standardizedrisk-disclosure document prepared by the SEC. This document provides informationabout penny stocks and the nature and level of risks involved in investing inthe penny-stock market. A broker must also give a purchaser, orally or inwriting, bid and offer quotations and information regarding broker andsalesperson compensation, make a written determination that the penny stock is asuitable investment for the purchaser, and obtain the purchaser's writtenagreement to the purchase. Consequently, the penny stock rules may make itdifficult for our shareholders to sell their shares of our common stock.
**Issuance of our shares of common stock to fund our UNE-Pmigration services business may significantly dilute the equity interest ofexisting stockholders. 

We will need significant additional funds to enter UNE-Pmigration services business, which will require us to issue more shares of ourcommon stock. Accordingly, this causes a greater risk of dilution. The perceivedrisk of dilution may cause some of our stockholders to sell their shares, whichcould have a depressive effect on the price of our commonstock.
**We expect that our stock price will bevolatile.

Like the stock of many small-capitalization companies, themarket price for our common stock has been volatile for reasons not necessarilyrelated to our performance or asset value, and we expect that it will continueto be so for the foreseeable future. In the past, securities class actionlitigation has often been brought against companies following periods ofvolatility in the market price of their securities. If securities class actionlitigation is brought against us, such litigation could result in substantialcosts and would divert management's attention and resources.
**Our President and Chief Executive Officer controls asignificant percentage of our common stock. 

As of June 22, 2006, J.C. Chatpar, our President and ChiefExecutive Officer, owned beneficially approximately 46%of our outstanding commonstock. Mr. Chatpar is able to influence all matters requiring stockholderapproval, including election of directors and approval of significant corporatetransactions. This concentration of ownership, which is not subject to anyvoting restrictions, could limit the price that investors might be willing topay for our common stock. In addition, Mr. Chatpar is in a position to impedetransactions that may be desirable for other stockholders. He could, forexample, make it more difficult for anyone to take control of us.
**ITEM 7 - Financial Statements**
The Financial Statements of the Company are filed as part ofthis Form 10-KSB.
**ITEM 8 - Changes In and Disagreements With Accountants onAccounting and Financial Disclosure.**
None.
**ITEM 8A. Controls and Procedures.**
Our management, with the participation of our principalexecutive officer and principal financial officer, has evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the periodcovered by this Annual Report. Based on such evaluation, our principal executiveofficer and principal financial officer have concluded that, as of the end ofsuch period, our disclosure controls and procedures were designed to ensure thatinformation required to be disclosed by us in reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in applicable SEC rules and forms. In addition, basedon this evaluation, our principal executive officer and our principal financialofficer concluded that our disclosure controls and procedures were effective asof the end of the period covered by this Annual Report on Form 10-KSB.

 
**PART III****ITEM 9 - Directors, Executive Officers, Promoters and ControlPersons; Compliance With Section 16(a) of the Exchange Act.**
The directors, executive officers and key employees of ourcompany are:
**Name
**Age
**Office

 
 
 
Jawahar C. Chatpar

58

Chairman of the Board, President, and Chief Executive      Officer

 
 
 
Jack P. Dorfman

68

Director

 
 
 
Terry L. Jones

58

Director

 
 
 
Jawahar C. Chatpar is the founder of our company and has servedas Chairman of the Board, Chief Executive Officer and President since March1991, as Chairman of the Board, Chief Executive Officer and Secretary fromNovember 1986 until March 1991, and as President and Chief Executive Officersince inception until November 1986. Mr. Chatpar has also served as a directorsince inception. Mr. Chatpar founded our company in 1983 as a successor to aCanadian corporation of the same name, which he founded in 1982. Mr. Chatpar isprimarily responsible for developing our proprietary technology and managing ourcompany, including its business development and marketing functions. From 1980to 1982, Mr. Chatpar was employed by Bayly Engineering Limited, a manufacturerof digital telecommunication systems and a member of A.E.G. Telefunken Group, asa General Manager of Digital Transmission and Fiber Optics Engineering (researchand development). From 1974 to 1980, Mr. Chatpar served in various engineering,general management and marketing positions with Northern Telecom (NortelNetworks). He holds an B.Tech (honors) degree in Electrical Engineering from theIndian Institute of Technology, Bombay, India and an M.S. degree in ElectricalEngineering from the University of Waterloo, Canada.

Jack P. Dorfman joined our company as a Director in November1993, 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. From1990 to 1992, he served as a management consultant for Clark Container, adivision of Mark IV Industries, a conglomerate. From 1988 to 1990, he served asVice President and Treasurer of US Distribution, a transportation company. Priorto 1988, he owned, managed and operated an independent community pharmacy forover fifteen years.

Terry L. Jones has served as a Director of our company sinceNovember 1997. He has been the President of Syndicated Communications, Inc.("Syncom"), a communications venture capital investment company, since 1990. Hejoined Syncom in 1978 as a Vice President. Mr. Jones serves in variouscapacities, including director, president, general partner and vice presidentfor various other entities affiliated with Syncom. He also serves on the Boardof Directors of Radio One, Inc. Mr. Jones earned his B.S. degree from TrinityCollege, his M.S. from George Washington University and his M.B.A. from HarvardBusiness School.

We have no family relationship among our directors andofficers. All our executive officers are appointed annually by and serve at thediscretion of the board of directors. All our executive officers and keyemployees are at-will employees.

Section 16(a) of the Securities Exchange Act of 1934, asamended (the "1934 Act"), requires our company's directors and executiveofficers, and persons who own more than ten (10%) percent of a registered classof our company's equity securities, to file with the Securities and ExchangeCommission (the "Commission") initial reports of ownership and reports ofchanges in ownership of Common Stock and other equity securities of our company.Reporting persons are required by Commission regulations to furnish our companywith copies of all Section 16(a) forms they file.

To our company's knowledge, based solely on review of thecopies of such reports furnished to our company, all such persons, on a timelybasis, filed the reports required by Section 16(a) of the 1934 Act.

 
**Summary Compensation Table**
The following table sets forth information concerning thecompensation for services in all capacities for the fiscal years ended March 31,2006, 2005 and 2004 of those persons who were, at March 31, 2006 the chiefexecutive officer (the "named officer"). During such periods, no executiveofficer of our company received compensation in excess of $100,000.

 
Annual Compensation

Long Term Compensation

All Other

Compensation

 
 
 
 
 
Awards

Payouts

Name and Principal

Position

Year

Salary

($)

Bonus

($)

Other

Annual

Compens-

Ation

($)(1) 

Restricted

Stock

Awards ($)

Securities Underlying

Options/

SARs(#)

LTIP

Payouts ($)

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

2006

2005

2004

$92,500

$92,500

$92,500

None

None

None

None

None

None

None

None

None

1,000,000(4)

1,000,000(3) 1,000,000(2)

None

None

None

None

None

None

____________

(1) We have concluded that the aggregate amount of perquisitesand other personal benefits paid to each of the named officers named in thetable did not exceed the lesser of 10% of such officer's total annual salary andbonus for the 2006, 2005 and 2004 fiscal years or $50,000, thus, such amountsare not included in the table.

(2) In fiscal year 2004, Mr. Chatpar was granted options topurchase 1,000,000 shares of our common stock at an exercise price of $0.17 pershare.

(3) In fiscal year 2005, Mr. Chatpar was granted options topurchase 1,000,000 shares of our common stock at an exercise price of $0.10 pershare.

(4) In fiscal year 2006, Mr. Chatpar was granted options topurchase 1,000,000 shares of our common stock at an exercise price of $0.15 pershare.
**Option Grants In Last Fiscal Year**
The following table sets forth information concerning stockoption grants made during fiscal year 2006 to the named officers. We have notgranted any stock appreciation rights.
**Individual Grants

 
 
Number of Securities

 
% of Total Options Granted

 
Exercise

 
Expiration

 
 
Underlying Options

 
To Employees in 

 
Price

 
Date

 
 
Granted

 
Fiscal Year End

 
($/Share)

 
 
Name

 
(#)

 
(1)

 
(2)

 
(3)

 
 
 
 
 
 
 
 
 
J.C. Chatpar

 
1,000,000

 
96%

 
$0.15

 
06/19/15

_________________

(1) During fiscal year 2006, options to purchase an aggregateof 1,000,000 shares of our common stock were granted to Mr. Chatpar and optionsto purchase an aggregate of 40,000 shares of our common stock were granted tofour other directors.

(2) The exercise price of the options granted was equal to thefair market value of the underlying stock on the date of grant.
Options are immediately exercisable.  
**Aggregated Fiscal Year End Option Values**
The following table sets forth information concerning thenumber of unexercised options and the Fiscal 2006 year-end value of unexercisedoptions on an aggregated basis held by the named officers. We have not grantedany stock appreciation rights in Fiscal 2006.

 
 
Number of Securities

Underlying Unexercised

Options at Fiscal Year-End (#)

 
Value of

Unexercised In-The-Money

Options at Fiscal Year-End ($)

Name

 
Exercisable

 
Unexercisable

 
Exercisable

 
Unexercisable

 
 
 
 
 
 
 
 
 
J.C. Chatpar

 
6,600,366

 
3,000,000

 
$214,738

 
0

____________

(1) Options are "in-the-money" if, on March 31, 2006, themarket price of the Common Stock ($0.38) exceeded the exercise price of suchoptions. The value of such options is calculated by determining the differencebetween the aggregate market price of our common stock underlying the options onMarch 31, 2006 and the aggregate exercise price of such options.
**Compensation of Directors**
We pay our directors $250 per board meeting. During Fiscal2006, the board of directors met three times and each director attended at least75% of the meetings of the board of directors. In addition, we currentlyreimburse each director for expenses incurred in connection with his attendanceat each meeting of the board of directors.
**Committees of the Board of Directors**
We have a standing compensation committee composed of allmembers of the board of directors. The compensation committee reviews and actson matters relating to compensation levels and benefit plans for our executiveofficers and key employees, including salary and stock options. The compensationcommittee is also responsible for granting stock awards, stock options and stockappreciation rights and other awards to be made under our existing incentivecompensation plans. We also have a standing audit committee composed of allmembers of the board of directors. The audit committee assists in selecting ourindependent auditors and in designating services to be performed by, andmaintaining effective communication with, those auditors.
**Employment Agreements and Insurance**
We have entered into an amended and restated employmentagreement with Mr. J.C. Chatpar dated as of August 4, 1997 (the "EmploymentAgreement") for a three year term. Such three-year term shall be automaticallyextended for successive three-year terms unless either party gives the otherparty 120 days prior written notice of termination before the end of any suchthree-year period. Our board, however, has the authority to terminate suchextension upon cause. "Cause" is defined as conviction of a felony or willfulmisconduct. 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 andtechnical leadership which Mr. Chatpar brings to our company, we have alsoagreed that our board of directors may raise his salary during the term of hisemployment as soon as our financial resources and other business conditionspermit. In such event, Mr. Chatpar's salary shall be at a level comparable tothat of chief executive officers of other comparable technology-driven publiclyheld companies. 

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

In the event of a termination of Mr. Chatpar's employment dueto disability, he shall receive royalty payments of 5% of the gross revenuesearned by our company ("Royalties") for a period of 15 years followingtermination. In the event of Mr. Chatpar's death, his wife, if any, or hisestate, shall receive a payment equal to six months of his base salary andRoyalties for 15 years. In the event of a termination of Mr. Chatpar'semployment 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) ofour company which results in an actual or constructive termination of employment(as defined therein), he shall receive a payment equal to three years of hisbase salary plus three times his prior year's bonus, Royalties for 15 years, andall of his outstanding options will be deemed immediately vested and exercisablefor a period of one year from the effective termination date.

We do not have employment contracts with any other officer ordirector.
**Employee Benefit Plan**
We offer basic health, major medical and life insurance to ouremployees. We have not adopted any retirement, pension or similar programs.
**ITEM 11 - Security Ownership of Certain Beneficial Owners andManagement**
The following table sets forth certain information regardingbeneficial ownership of our company's common stock as of March 31, 2006, for (i)each person or group that is known to us to be a beneficial owner of more than5% of the outstanding shares of our common stock, (ii) each of the namedofficers and directors, and (iii) all directors and executive officers of ourcompany as a group. Except as otherwise indicated, we believe that suchbeneficial owners, based on information furnished by such owners, have soleinvestment and voting power with respect to such shares, subject to communityproperty laws, where applicable.

Names and Address of Beneficial Owners
Number of Shares

Percentage Owned (1)(2)

J.C. Chatpar(3)

c/o Cyber Digital, Inc.

400 Oser Avenue

Hauppauge, NY 11788

16,656,978

45.7%

Jack P. Dorfman(4)

220,000

0.6%

Terry L. Jones (5)

981,230

2.7%

Prem Chatpar (6)

4,235,574

11.6%

All directors and executive officers as a group: (3)    persons

17,858,208

49.0%

*less than 1%

(1) For purposes of computing the percentage of outstandingshares of Common Stock held by each person or group of persons named above, anysecurity which such person or persons have or have the right to acquire within60 days is deemed to be outstanding, but is not deemed to be outstanding for thepurpose of computing the percentage of ownership of any other person. 

(2) Assumes the exercise of all of the outstanding options andwarrants to purchase in the aggregate 7,646,568 and 6,484,400, respectively,shares of our common stock.

(3) Includes 6,600,366 shares as to which Mr. J.C. Chatparholds non-qualified stock options, which are exercisable at any time. Includeswarrants to purchase 5,018,400 shares. Excludes 3,000,000 shares, as to whichMr. J.C. Chatpar holds non-qualified stock options, which are not exercisable,until certain conditions are attained. Does not include 476,000 shares owned byhis wife, Sylvie Chatpar, to which shares Mr. J.C. Chatpar disclaims beneficialownership.

(4) Includes 160,000 shares as to which Mr. Dorfman holds anon-qualified stock option, which are exercisable at any time. Does not include360,000 shares owned by his wife, Sandra Dorfman, to which shares Mr. Dorfmandisclaims beneficial ownership.

(5) Mr. Terry Jones is a general partner of a limitedpartnership that is the general partner of Syndicated Communications VenturePartners III, L.P. ("Syncom III"), a fund which on April 14, 1998, Syncom IIIconverted all of its outstanding Series B-1 preferred stock into 861,230 sharesof our common stock at a conversion price of $2.89 per share. Includes 120,000shares as to which Mr. Jones holds non-qualified stock options which areexercisable at any time.

(6) Includes warrants to purchase 1,416,000 shares. Mr. PremChatpar is an individual stockholder and is the brother of Mr. J.C. Chatpar.
**ITEM 12 - Certain Relationships and RelatedTransactions**
On December 30, 1996, we consummated a private placement of itsSeries 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 outstandingSeries B-1 preferred stock into 861,230 shares of common stock at a conversionprice of $2.89 per share.

Mr. Terry Jones, a director, is the general partner of WJMPartners III, L.P. ("WJM"), the general partner of Syncom III. Pursuant to theterms of the stock purchase agreement so long as Syncom III holds our commonstock, our company's board of directors shall consist of not less than fivemembers and that we shall use our best efforts to cause Terry Jones (or anotherpartner of WJM) to be elected as a director.
**ITEM 13 - Exhibits and Reports on Form 8-K**
Exhibits.  

Exhibit No.

Description of Document

3.1(a)

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

3.1(b)

Certificate of Amendment of the Certificate of Incorporation of Cyber        Digital, Inc. (including Certificate of Amendment for Series        E)(incorporated herein by reference to Exhibit 3.1(b) to the Company's        Registration Statement on Form SB-2 on November 7,    2005).

3.1(c)

Certificate of Amendment of the Certificate of Incorporation of Cyber        Digital, Inc. dated January 11, 2002 (incorporated by reference to        Appendix 1 in the Company's Definitive Schedule 14A on March 6,        2000)

3.2

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

4.1

Instruments Defining Rights of Security Holders (incorporated by        reference from the provisions of Exhibits 3.1(a)-(c) and Exhibit        3.2).

10.1

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

10.2

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

10.3

Manufacturing License Contract between the Company and National        Telecommunications Co., dated as of December 4, 1995 (incorporated        herein by reference to Exhibit 10(c) to the Company's 1996 Form        10-KSB/A).

10.4

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

10.5

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

10.6

Investment Agreement with Dutchess Private Equities Fund, LP        (incorporated herein by reference to Exhibit 10.6 to the Company's        Registration Statement on Form SB-2 on November 7,    2005).

10.7

Registration Rights Agreement with Dutchess Private Equities Fund. LP        (incorporated herein by reference to Exhibit 10.7 to the Company's        Registration Statement on Form SB-2 on November 7,    2005).

10.8

Placement Agent Agreement with US EURO Securities (incorporated        herein by reference to Exhibit 10.8 to the Company's Registration        Statement on Form SB-2 on November 7, 2005).

10.9

Stock Option Agreement with April E. Frisby of Weed & Co. LLP        (incorporated herein by reference to Exhibit 10.9 to the Company's        Registration Statement on Form SB-2 on November 7,    2005).

10.10

Promissory Note with J.C. Chatpar dated March 12, 2002 (incorporated        herein by reference to Exhibit 10.10 to the Company's Registration        Statement on Form SB-2 on November 7, 2005).

10.11

Promissory Note with Prem Chatpar dated March 31, 2004 (incorporated        herein by reference to Exhibit 10.11 to the Company's Registration        Statement on Form SB-2 on November 7, 2005).

10.12

Promissory Note with J. C. Chatpar dated September 30, 2005        (incorporated herein by reference to Exhibit 10.12 to the Company's        Registration Statement on Form SB-2 on November 7,    2005).

31.1

Certification of Chief Executive Officer and Chief Financial Officer        pursuant to Section 302 of the Sarbanes-Oxley Act of    2002

32.1

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.
Reports of Form 8-K.
 No reports on Form 8-K were filed.  

 
**ITEM 14 - Principal Accountant Fees and Services**
The Company paid or accrued the following fees in each of theprior two fiscal years to it's principal accountant, Blanchfield, Kober &Company, P.C.

 
 
Year ended

March 31, 2006

Year ended

March 31, 2005

 
 
 
 
(1)

Audit fees

$18,000

$18,000

(2)

Audit-related fees

0

0

(3)

Tax fees

1,000

1,000

(4)

All other fees

0

0

 
Totals

$19,000

$19,000

The Company has no formal audit committee. However, as definedin Sarbanes-Oxley Act of 2002, the entire Board of Directors is the Company'sdefacto audit committee.

In discharging its oversight responsibility as to the auditprocess, the Board obtained from the independent auditors a formal writtenstatement describing all relationships between the auditors and the Company thatmight bear on the auditor's independence as required by Independence StandardsBoard Standard No. 1, "Independence Discussions with Audit Committees". TheBoard discussed with the auditors any relationship that may impact theirobjectivity and independence, including fees for non-audit services, andsatisfied itself as to the auditors' independence. The Board also discussed withmanagement and the independent auditors the quality and adequacy of theCompany's internal controls. The Board reviewed with the independent auditorstheir management letter on internal controls, if one was issued by the Company'sauditors.

The Board discussed and reviewed with the independent auditorsall matters required to be discussed by auditing standards generally accepted inthe United States of America, including those described in Statement of AuditingStandards No. 61, as amended, "Communication with Audit Committees".

The Board reviewed the audited financial statements of theCompany as of and for the year ended March 31, 2006 and 2005 with management andindependent auditors. Management has the sole ultimate responsibility for thepreparation of the Company's financial statements and the independent auditorshave the responsibility for their examination of those statements.

Based on the above-mentioned review and discussions with theindependent auditors and management, the Board of Directors approved theCompany's audited financial statements and recommended that they be included inits Annual Report on Form 10-KSB for the year ended March 31, 2006, for filingwith the Securities and Exchange Commission.

 

 
**SIGNATURES**
In accordance with Section 13 or 15(d) of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

Dated: June 27, 2006

 
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 thefollowing person on behalf of the registrant and in the capacities and on thedates 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 27, 2006

 
 
 
/s/ Jack P. Dorfman

Jack P. Dorfman

Director

June 27, 2006

 
 
 
/s/ Terry Jones

Terry Jones

Director

June 27, 2005

 
 
 

 
**Index to Exhibits**
Exhibit No.

Description of Document

3.1(a)

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

3.1(b)

Certificate of Amendment of the Certificate of Incorporation of Cyber      Digital, Inc. (including Certificate of Amendment for Series      E)(incorporated herein by reference to Exhibit 3.1(b) to the Company's      Registration Statement on Form SB-2 on November 7, 2005).

3.1(c)

Certificate of Amendment of the Certificate of Incorporation of Cyber      Digital, Inc. dated January 11, 2002 (incorporated by reference to      Appendix 1 in the Company's Definitive Schedule 14A on March 6,      2000)

3.2

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

4.1

Instruments Defining Rights of Security Holders (incorporated by      reference from the provisions of Exhibits 3.1(a)-(c) and Exhibit      3.2).

10.1

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

10.2

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

10.3

Manufacturing License Contract between the Company and National      Telecommunications Co., dated as of December 4, 1995 (incorporated herein      by reference to Exhibit 10(c) to the Company's 1996 Form      10-KSB/A).

10.4

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

10.5

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

10.6

Investment Agreement with Dutchess Private Equities Fund, LP      (incorporated herein by reference to Exhibit 10.6 to the Company's      Registration Statement on Form SB-2 on November 7, 2005).

10.7

Registration Rights Agreement with Dutchess Private Equities Fund. LP      (incorporated herein by reference to Exhibit 10.7 to the Company's      Registration Statement on Form SB-2 on November 7, 2005).

10.8

Placement Agent Agreement with US EURO Securities (incorporated herein      by reference to Exhibit 10.8 to the Company's Registration Statement on      Form SB-2 on November 7, 2005).

10.9

Stock Option Agreement with April E. Frisby of Weed & Co. LLP      (incorporated herein by reference to Exhibit 10.9 to the Company's      Registration Statement on Form SB-2 on November 7, 2005).

10.10

Promissory Note with J.C. Chatpar dated March 12, 2002 (incorporated      herein by reference to Exhibit 10.10 to the Company's Registration      Statement on Form SB-2 on November 7, 2005).

10.11

Promissory Note with Prem Chatpar dated March 31, 2004 (incorporated      herein by reference to Exhibit 10.11 to the Company's Registration      Statement on Form SB-2 on November 7, 2005).

10.12

Promissory Note with J. C. Chatpar dated September 30, 2005      (incorporated herein by reference to Exhibit 10.12 to the Company's      Registration Statement on Form SB-2 on November 7, 2005).

31.1

Certification of Chief Executive Officer and Chief Financial Officer      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

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

 
1

 
 
 
Financial Statements

 
 
 
 
 
 
 
Balance Sheets

 
2

 
 
 
 
 
Statements of Operations

 
3

 
Statements of Changes in Shareholders' Equity (Deficit)

 
4

 
 
 
 
 
Statements of Cash Flows

 
5

 
 
 
 
 
Notes to Financial Statements

 
6 -16

 
 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
**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, SUITE350, HAUPPAUGE, NEW YORK 11788. (631) 234-4200  FAX234-4272

 

 

 
**Report of Independent Registered Public AccountingFirm**

 

To the Board of Directors and Shareholders

Cyber Digital, Inc.

Hauppauge, New York

 

We have audited the accompanying balance sheets of CyberDigital, Inc. as of March 31, 2006 and 2005 and the related statements ofoperations, shareholders' equity, and cash flows for each of the two years inthe period ended March 31, 2006. These financial statements are theresponsibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amount anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to abovepresent fairly, in all material respects, the financial position of the Companyas of March 31, 2006 and 2005, and the results of its operations and its cashflows for each of the two years in the period ended March 31, 2006 in conformitywith U.S. generally accepted accounting principles.

The accompanying financial statements have been preparedassuming that the Company will continue as a going concern. As discussed in Note14 to the financial statements, the Company has not developed a revenue base forits digital switching, Internet and networking systems. Accordingly, the Companyhas not generated sufficient cash flow to support its operations. The Companyhas been principally dependent on the issuance of debt and equity securities.These circumstances create substantial doubt about the Company's ability tocontinue as a going concern. The financial statements do not contain anyadjustments that may result from the outcome of these uncertainties.

 

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

Hauppauge, New York

June 27, 2006 

 
** 

 **CYBER DIGITAL, INC.

 
 **BALANCE SHEETS

 
 **March 31, 2006 and 2005

 
 
 
 
 
 
 
 **2006 

 **2005 
**ASSETS

 
 
 
 
 
 
 
 
 **Current Assets

 
 
 
 
 
Cash and cash equivalents

$

5,551 

$

16,082 

 
Inventories

 
388,996 

 
526,575 

 
Prepaid and other current assets

 
9,205 

 
35,175 

 
 
 
 
 
 
 **Total Current Assets

 
403,752 

 
577,832 

 
 
 
 
 **Property and Equipment, net

 
36,069 

 
6,311 

 
 
 
 
 
 **Other Assets

 
52,041 

 
26,374 

 
 
 
 
 
 **TOTAL ASSETS

$

491,862 

$

610,517 

 
 
 
 
 
 **LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

 
 
 
 
 
 
 
 
 
 **Current Liabilities

 
 
 ********************************************************************************************************************************************