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, 2007                                                
|    |                                                                                         
|[_] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
|    |                                                                                         
|    | For the transition period from _____ to _____.                                          



Commission File No.: 0-13992

CYBER DIGITAL, INC.

(Name of small business issuer in its charter)



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



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

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



|Securities registered under Section 12(b) of the Exchange
      Act:
|--------------------------------------------------------------------
|                                                                    





|Securities registered under Section 12(g) of the Exchange
      Act:
|--------------------------------------------------------------------
|                                                                    



________________________________________

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



|Yes [X] |  | No [_]
|------- |  | ------



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



Check whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.):



|Yes [_] |  | No [X]
|------- |  | ------





As of June 22, 2007, Registrant had 33,504,813 shares of Common
Stock outstanding ($.006666 par value). On that Date, the aggregate market value
of the Common Stock held by persons other than those who may be deemed
affiliates of Registrant was $10,600,000 (based on the last sale price of $0.49
reported on the National Association of Securities Dealers, Inc.
Over-The-Counter Bulletin Board on such date).



Transitional Small Business Disclosure Format (check one):



|Yes [_] |  | No [X]
|------- |  | ------





PART 1



We have provided a glossary of terms for your convenience
beginning on page 16.



ITEM 1 - DESCRIPTION OF BUSINESS



OVERVIEW



We are a designer, software developer and manufacturer of a
range of unique distributed digital-voice-switching and Internet Protocol (IP)
broadband infrastructure equipment such as Class 5 local digital central office
switches, Class 4 regional tandem digital central office switches, IP
soft-switches, routers, gateways, firewalls, voice-over IP (VoIP) and virtual
private network (VPN) systems for public-switched-telephone-network (PSTN)
operators and Internet Service Providers (ISP) worldwide.



With our latest generation of software based switching systems,
we can offer affordable voice and broadband data local switching services. Our
mission is to become (i) a leading alternative local switching service provider
offering aggregated VoIP and broadband services in the United States, and (ii) a
cost-effective supplier of our digital voice switches and broadband data
equipment to developing countries. In the U.S., we expect to generate recurring
revenues from selling aggregated VoIP and managed IP digital broadband services
to small businesses and residential customers. We believe that we are one of the
first companies to offer aggregated VoIP services on existing telephone lines
without requiring any additional customer premise equipment (CPE) or any changes
to current wiring or network connection.



Unlike our competitor's systems, our systems are neither labor
nor capital intensive but are software intensive. This capability, in contrast
to that of our competitor's, makes our systems more compact, less power
consuming and more affordable. Our digital voice switching and Internet Protocol
(IP) infrastructure systems are based on our proprietary operating system
software, which provides high performance, reliability and functionality. We own
the source code of our operating system. This allows us the flexibility to meet
market demands without depending on third party operating systems. We believe
that we are one of a very few companies in the world with proprietary hardware
and software technology of distributed digital switching. We have expended over
$20 million dollars on the development of our rock solid proprietary
state-of-the-art technologies, which is built on 24 years of experience. Our
systems are ideally suited for the U.S. pursuant to the recent Federal
Communications Commission (FCC) rulings.



Beginning March 2005, FCC decided to phase out UNE-P rules that
forced the Bells to lease its local switching networks to competitive local
exchange carriers (CLECs) at cut-rate prices. FCC further rules that CLECs must
migrate all customers to non-Bell networks by March 2006 or pay exorbitant rates
to the Bells for using their local switching facilities. Today, CLECs lease 17
million lines for $4.5 billion per year from the Bells, creating an immediate
market opportunity. Moreover, the Bells own 173 million lines creating a huge
migration services opportunity for many years to come. This ruling favors us to
evolve as an alternative local switching network provider, that is, as an UNE-P
migration service provider, to these CLECs as well as directly sell aggregated
VoIP and digital broadband services to small businesses and residential
customers.



We intend to be the leading company to offer local switching
(UNE-P) migration services to CLECs by deploying our vast array of local voice
and IP broadband data switching infrastructure systems by co-locating our
systems in various Bell central offices. In anticipation of this, we signed an
agreement with Level 3 Communications who will provide for global voice and data
termination services to all traffic originating on our local switching systems.
In the U.S., providers of local switching networks retain substantial portion of
the recurring revenues as call origination services, and payout insignificant
portion for call termination services. We will provide our local switching
(UNE-P) migration services to CLECs at affordable rates on recurring basis for
local, long distance and international calls as well as broadband Internet
access, aggregated VoIP and virtual private network (VPN) services.



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





INDUSTRY BACKGROUND



International Target Market



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



In developed countries, such as the United States, the
requisite voice network is already in place, hence the number of Internet users
is growing at unprecedented rates. In developing countries, there is some basic
voice network, leaving many of these nations struggling to take part in the
Internet revolution.



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



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



Domestic Market



We believe that an emerging market opportunity has been created
in 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 Federal
Communications Commission's (FCC) new ruling on phone policy released on August
21, 2003, requiring the Bells' competitors, such as competitive local exchange
carriers (CLECs) and long distance carriers (LDC), to use their own voice and
data switches for connecting calls instead of leasing the Bells' voice and data
switches (hereinafter referred to as "UNE-P Phase Out Policy"). UNE-P is an
acronym for Unbundled Network Element - Platform, where Platform means the
Bells' 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 or
LDCs to build their local voice and data switching networks in the U.S. On
October 12, 2004 the Supreme Court declined to hear an appeal by AT&T and
MCI and other CLECs that had requested access to the Bells' voice and data
switches. As a result of the court's and FCC's decisions, AT&T and MCI have
pulled back in their marketing of residential and small business telephone
services. On December 15, 2004, FCC issued the UNE-P Phase Out Policy and
associated tariffs with effectiveness beginning March 11, 2005. We believe that
the UNE-P Phase Out Policy has created an emerging growth market opportunity,
because CLECs and LDCs are forced to allocate capital towards building their
local switching infrastructure or obtain UNE-P migration services from
companies, like Cyber Digital, that are envisioning to enter this market. As of
now, there are no UNE-P migration service providers in the U.S.



The UNE-P Phase Out Policy enforces the CLECs, LDCs, and ISPs
collectively as CSPs to transition off to other local telephone and broadband
switching infrastructure instead of using the Bells' local switching networks.
This is expected to create a metamorphosis in local voice and data switching
infrastructure expansion by Cyber Digital as a nascent UNE-P migration provider
to CSPs. The economics of building local switching networks is vastly different
from that of long distance networks. The capital investment required to build a
local switching networks is five to six times higher than the capital costs of
long distance networks, because such networks must extend all the way into the
offices and homes of their customers. The UNE-L policy permits Cyber Digital to
lease 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 owned
by the Bells to offer UNE-P migration service to CSPs. Therefore, we believe
that the FCC's UNE-P Phase Out Policy has created an enormous market opportunity
in 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 OF
INCUMBENT LOCAL PHONE CARRIERS

New Network Unbundling Rules Preserve Access to Incumbents'
Networks by Facilities-Based Competitors Seeking to Enter the Local
Telecommunications Market

Washington, D.C. - The Federal Communications Commission today adopted rules
concerning incumbent local exchange carriers' (incumbent LECs') obligations to
make elements of their network available to other carriers seeking to enter the
local telecommunications market. The new framework builds on actions by the
Commission to limit unbundling to provide incentives for both incumbent carriers
and new entrants to invest in the telecommunications market in a way that best
allows for innovation and sustainable competition.

The rules directly respond to the March 2004 decision by the U.S. Court of
Appeals for the D.C. Circuit which overturned portions of the Commission's
Unbundled Network Element (UNE) rules in its Triennial Review Order. We provide
a brief summary of the key issues resolved in today's decision below.

- Unbundling Framework.
- Dedicated Interoffice Transport.
- High-Capacity Loops.
- Mass Market Local Circuit Switching.

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

-FCC-



We believe that for the first time in our history, market opens
for our digital voice switches and broadband systems for the creation of local
switching network services, especially referring to Mass Market Local Circuit
Switching and High-Capacity Loops. We believe that metamorphosis in wireline
local voice and broadband switching infrastructure expansion will begin soon and
will support our growth for many years. We believe that a high growth market
opportunity has been created by the UNE-P Phase Out Policy, because CLECs and
LDCs are forced to allocate capital towards building their local switching
infrastructure 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 the
Bells. Beginning year 2005, the Bells will begin to virtually shut off access to
their local voice and data switches or the CLECs must pay exorbitant rates to
the Bells for using their local switching facilities. The local voice switch
access charges will be rising dramatically, making local voice switch ownership
by CLECs and LDCs an increasingly key factor for their future or seek UNE-P
migration services from other providers. However, CLECs, LDCs and nascent UNE-P
migration providers would be able to lease the copper wires to subscriber
premises at cut-rate prices from the Bells, under the UNE-L policy. UNE-L is an
acronym for Unbundled Network Element - Line, where Line means the copper wires
to subscriber premises. This would permit CLECs, LDCs and nascent UNE-P
migration providers (such as Cyber Digital) to co-locate their voice and data
switches in the Bells' central offices. Hence, CLECs, LDCs and nascent UNE-P
migration providers must rapidly build their own local switching facilities and
networks. FCC further rules that CLECs and LDCs must also provide broadband data
services along with voice services. So also FCC mandates that Internet service
providers (ISP) must also provide voice along with broadband data services.
Hence, CLECs, LDCs and ISPs must build their own local voice and broadband
switching facilities and networks to serve their business and residential
customers or obtain such services from nascent UNE-P migration providers. This
means huge demand for our digital voice switches and broadband systems by
nascent UNE-P migration providers and competitive service providers (CSPs)
(hereinafter includes CLECs, LDCs and ISPs). We believe that combined power of
our digital voice switches and broadband Internet systems offers nascent UNE-P
migration providers and CSPs affordable one-stop solution for their local
switching needs.



We believe that we are at the threshold of the local telephone
switching metamorphosis in the U.S. According to data released by FCC, to-date
less than 6 million local-loop switched lines were owned by the CSPs as compared
to 163 million such lines owned by the Bells. Hereafter, CSPs have to
continuously invest, year after year, in bringing their local voice switching
infrastructure at par with those of the Bells or obtain such services from
nascent UNE-P migration providers such as Cyber Digital. We expect nascent UNE-P
migration providers and CSPs to increase their capital expenditures towards that
end. We intend to serve this high growth market, expected to be rising from
almost zero to $4.5 billion annually.



We believe that the telecommunication service provision
business will be rapidly consolidating in the next few years, especially in
response to the UNE-P Phase Out Policy by FCC. The distinction between the
services offered by LDCs, CLECs and ISPs are being eroded, and moreover, a
greater emphasis is being placed on the build out and ownership of local
switching network for both voice and broadband data. Since, the building of
local switching networks is highly capital intensive, we project that we are at
the threshold of a local switching networks metamorphosis and that it is
expected to continue for many years. This marks the beginning of the Next
Revolution in telecommunication (i.e. the deregulation of the local voice and
data services) as a successor to the First Revolution in January 1984 (i.e. the
break-up of AT&T creating deregulation of long distance service). During the
last 20 years, LDCs such as Sprint, MCI, and others have competed fiercely
against AT&T by building their own long distance networks. This has resulted
in long distance charges to be about 30% of a typical telephone bill. While, the
local voice charges are about 70% today, largely controlled by the Bells. We
want to be the premier provider of UNE-P migration services on wholesale basis
to non-facilities based CSPs as well as supplier of local voice and broadband
switches to those CSPs electing to build their own local networks. Moving
forward, we see ourselves offering UNE-P migration services to these CSPs at
affordable rates instead of them obtaining from the Bells at uneconomical
rates.



CSPs must incorporate several fundamental changes into their
current business models to effectively compete with the Bells. In the aftermath
of the telecom meltdown and due to the UNE-P Phase Out Policy, the new
facilities based CSPs will emerge along with nascent UNE-P migration providers,
offering business and residential customers a broad range of voice and Internet
scalable services and solutions. CSPs and UNE-P migration providers will
significantly lower the cost of voice services, which are usage based, to their
customers as the Bells currently control it. However, CSPs will not be able to
lower the cost of Internet services using DSL, which are flat fee based, using
"narrowband" Bells' copper wires. CSPs and nascent UNE-P migration providers
will have to offer other more reliable broadband services based on carrier grade
T1 (1.5 Mbps) to T3 (45 Mbps) rates using 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 high tariffs for T1 and T3
transport. Hence, FCC mandates the competition with the Bells in this area. Such
broadband competition is expected to enhance productivity for
business-to-business e-commerce applications. Hence, CSPs and nascent UNE-P
migration providers will effectively compete with the Bells by offering business
and residential customers superior network performance, reliability, security
and applications.



Our CDCO, CTSX and CIAN systems are essential for CSPs and
UNE-P migration providers to effectively compete against the Bells. Our unique
systems are positioned to address the inherent problems facing the telecom
market 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 and Ethernet packet switched
  "broadband" technology.

Competitive service providers (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.

Currently, virtually all local wireline switching networks are
owned by the Bells, which deliver 91.5% of the nations voice and data traffic.
The Bells have complete control over the installation, service and maintenance
of this portion of the network. As a result, CSPs face lengthy installations,
maintenance errors and frequent service interruptions. CSPs will not survive if
they continue to rely on their competitor's network. Due to the UNE-P Phase Out
Policy, CSPs have no choice but to build wireline local switching networks for
both 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 (as
UNE-P migration provider) and CSPs to efficiently build next generation wireline
local switching voice and data networks, thus bypassing the Bells' switching
network. Under the UNE-L policy, by co-locating our CDCO, CTSX and CIAN gives us
and CSPs complete control over their local switching network and end their
reliance on the Bells. In the aftermath of the telecom meltdown, CSPs recognize
the need to control the local switching in order to maintain quality of service
for their customers. FCC's UNE-P Phase Out Policy further enforces CSPs to build
their own local switching networks for their customers instead of leasing such
facilities from the Bells or seek for UNE-P migration services from other
providers.



Businesses demand greater cost reduction in voice services than
broadband data.

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

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

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

Limitations of Dial-up, ISDN and DSL

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



Emergence of Managed IP Private Line and Ethernet Packet
Switched "broadband" Technology

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





OUR BUSINESS STRATEGY



Our strategy is to be a leading niche provider of UNE-P
services to CSPs by deploying our distributed digital voice and broadband data
switching systems in the United States. We intend to implement the following
strategies to achieve our goal:



Growth Through Acquisitions



Our industry is consolidating, creating merger and acquisitions
opportunities for us. Those entities that do not want to build their local
switching networks have no choice but to merge with those that have it or merge
with those that have the technology, such as Cyber Digital. Our strategy is to
acquire those CSPs who do not want to build their own local voice and broadband
data switching facilities despite the FCC's recent local switching phase-out
ruling. While these CSPs are, generally, excellent marketing companies and have
already established a customer base, they lack the technical and network
engineering aspects of building and maintaining local voice and data switching
facilities, which are among our core competences. These companies totally rely
on the Bells for their local switching needs and currently, face erosion of
their customer base due to FCC's recent rulings. We intend to acquire as many
small to medium sized profitable CSPs. Our objective is to roll-out our local
switching services nationally, which will take many years even through
acquisitions.



Exploit Early Market Entrance



We intend to exploit our early market entrance by offering our
UNE-P migration services to numerous non-facilities based resellers (NFRs) and
CSPs 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-P
to UNE-L migration. We believe that we are perhaps one of the first companies to
implement 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 CIAN
systems. With our systems, we can offer full range of voice and broadband data
services to business and residential customers of NFRs and CSPs without using
the Bells' local voice and data switching facilities. We believe that our UNE-P
migration services derived from our proprietary technology offers NFRs and CSPs
the unique opportunity to immediately reduce their network costs and increase
quality of service to their business and residential customers. In addition, we
have 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 that
revenues of CSPs from business and residential customers will erode as the Bells
cut into their markets while also denying access to them. We intend to leverage
the existing customer relationships established by these NFRs and CSPs,
especially in high-density areas such as industrial parks, campuses, office
complexes, residential urban and inter-urban areas. We believe that we can
provide on a full service basis UNE-P migration services to NFRs and CSPs at
affordable rates for local voice and broadband network services with no
investment on their part. Hence, NFRs and CSPs would benefit from re-capturing,
maintaining or gaining customers without owning their local network. As
value-added services, we would help NFRs and CSPs, generate greater revenues by
offering e-commerce solutions, virtual private network services, secure email
services, secure VPNs, video conferencing and multimedia services. We believe
that the entire telecommunications service provision business will continue to
consolidate from several hundred to less than a hundred of NFRs and CSPs
competing with the Bells. We also believe that only those NFRs and CSPs will
exist that either owns their local switching networks or seek UNE-P migration
services from companies such as Cyber Digital. We believe that we could offer
savings of 30% to NFRs and CSPs, on wholesale basis, from rates they are
currently accustomed to paying to the Bells. The NFRs and CSPs would simply
transfer 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 in
this niche market quite rapidly, without resorting to direct marketing to each
customer or consumer, which could be prohibitive in early stages of this
emerging market.

Provide Superior Customer Service

As part of our strategy to serve and retain NFRs and CSPs, we
intend to provide superior maintenance and service of our switching systems at
no cost to them. Besides delivering high-quality systems that provide
carrier-grade voice and broadband services, we will provide remote maintenance
on our installed systems, 24 hours a day, seven days a week. Our objective in
providing outstanding service to our NFRs and CSPs is to provide a high level of
customer satisfaction, achieve customer loyalty and accelerate the adoption rate
of 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 systems
for modern digital telecommunications applications and networks. These systems
are Cyber Distributed Central Office (CDCO) and Cyber Tandem Exchange (CTSX),
primarily for use by UNE-P migration providers and CSPs, who are forced to
bypass the Bells' local switching networks pursuant to the UNE-P Phase Out
Policy. Our commitment to research and development has enabled us to create new
systems, employing SS7 or C7 signaling. Most importantly, we have developed
specialized Advanced Intelligent Network (AIN) software for modern wireline,
wireless and fiber optic networks. We intend to constantly develop additional
new technologies and software for our systems.



Cyber Distributed Central Office



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



The control functions of our CDCO system are totally
distributed in autonomous processing sub-systems or nodes. Node processors are
loosely coupled and exchange information through standardized inter-nodal
communication digital links. The distributed approach permits switching systems
to be co-located at the Bells' central offices as it is extremely compact and
small. Moreover, a failure in one node does not affect other nodes. In addition,
the distributed approach eliminates bottlenecks, as the system offers multiple
routes for call completion.



Cyber Tandem Exchange



Our Cyber Tandem Exchange (CTSX) serves as an inter-city
exchange for long distance voice and data trunk services as well as a regional
trunk exchange connecting to various local CDCO exchanges by fiber optic or
digital wireline or wireless transmission. Intended for Class 4 tandem exchange
applications, CTSX has only digital interfaces, which offer capacities ranging
from 20 T1s to 20,000 T1s digital trunks. CTSXs are compact and can be
co-located at the Bells' central offices. Our proprietary Cybermesh software
permits seamless operation with synchronous optical networks (SONET) or
point-to-multi-point digital wireless networks. Our proprietary Cybermesh
software allows all CTSXs connected in a mesh to provide virtually non-blocking
service with excellent traffic handling capacity (not possible with centralized
monolithic switches). We also offer a version of CTSX strictly for international
gateway functions for Class 3 applications, which utilizes our specialized
proprietary software.



Cyber Rural Exchange



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



Cyber Switch Exchange



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



OUR RANGE OF BROADBAND INTERNET PROTOCOL SYSTEMS



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



Cyber Business Internet Gateway



Our Cyber Business Internet Gateway (CBIG) a powerful Internet
Protocol (IP) Frame Relay and Private Line based gateway that replaces many
single function equipment such as router, network address translator,
Ethernet-to-T1 converter, IP frame-relay and private-line equipment, CSU/DSU,
firewall equipment, e-mail server and web server. We believe that our CBIG
gateway is unique in the industry as it combines all the functions and features
required by a customer-end network in one box, about the size of a reference
handbook. Our CBIG dramatically increases the reliability of the customer-end
network by eliminating many such devices while also lowering the overall cost of
network acquisition by 40% to 50%.



Our CBIG offers built-in standard security features, making it
what we believe to be an ideal enterprise-wide virtual private network (VPN).
The firewalls are provided by IP filtering, IP masquerading and IP tunneling.
Our CBIG is based on PC architecture using Intel Pentium processors and Linux
Operating Software.



Cyber Internet Access Network



Our Cyber Internet Access Network (CIAN) is a high-end
distribution router/soft-switch, which permits numerous business users to
simultaneously access the Internet at a fixed committed bandwidth rate (CBR) on
"always on" basis. Our CIAN creates a 'Mini-POP' (Points of Presence) at
co-location site of the Bells' central offices and brings the Internet closer to
users thus eliminating bottlenecks, reducing network delays and increasing
reliability. We offer two models of CIANs. Our CIAN1 distribution router has the
capacity of 0.5 Gbps and is suitable for T1 (1.5 Mbps) to T3 (45 Mbps) carrier
grade applications (for T-POPs). Our CIAN2 distribution router has the capacity
of 1.0 Gbps and is suitable for Ethernet from 10 Mbps to 100 Mbps IP over
Ethernet grade applications (for E-POPs). Our CIAN distribution routers are
specifically designed to allow UNE-P migration providers and CSPs to build their
local broadband networks by using the UNE-L from the Bells. Our CIAN is based on
PC architecture using Intel Pentium processors and Linux Operating Software.



Cyber Firewall



Our proprietary standalone Cyber Firewall (CFW) series IPSec
firewall appliance offers simple-do-it-yourself installation software for
business-to-business e-commerce secure access and virtual private network
applications. IPSec is an industry-wide standard for assuring the privacy,
integrity and authenticity of information crossing public IP networks. Adhering
to IPSec standards makes Internet "wiretapping" impractical. Based on our
proprietary software technology, our CFW IPSec firewall provides a
cost-effective way of creating an enterprise-wide virtual private network (VPN)
by enabling secure use of the Internet. Our CFW series firewall appliance is
standalone device totally independent of customer's computing operating system
platform. Our CFW is based on PC architecture using Intel Pentium processors and
Linux 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 believe
that our servers are robust and proven-in for high performance web
applications.





CUSTOMER, SALES AND MARKETING



Internet Systems



Under the AT&T Alliance program, we provided Internet
services to many medium and small businesses in Boston area for a period of
one-year ending February 2001, when we terminated our agreement with AT&T
due to telecommunications meltdown. During this period we successfully tested
all our Internet systems, including CBIG, CIAN, CFW and CWEB, for both
local-loop digital broadband and VPN applications. Our Internet systems provided
network availability in excess of 99.999% when we provided Internet services in
alliance with AT&T. We believe that our systems are ideally suited for the
next-generation of local-loop digital broadband networks requiring increased
reliability, performance, scalability, interoperability and flexibility. Our
strategy is to provide UNE-P migration services using our Internet systems to
Internet service providers who are, generally, non-facilities reseller and lack
the technical ability or willingness to build the next-generation local-loop
digital broadband networks in the aftermath of the telecommunications meltdown
in the U.S.



Digital Voice Switches



To date, we have sold approximately 76 previous generations of
our digital voice switches to the defense agencies of the U.S. federal
government and to China serving over 60,000 lines.



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



Due to March 2005 FCC UNE-P phase out policy, our strategy is
to provide UNE-P migration services with our latest generation of digital voice
switches to CSPs, who are, generally, non-facilities reseller and lack the
technical ability or willingness to build the next-generation local-loop digital
voice networks in the U.S.





COMPETITION



The competition in both VoIP and digital broadband services is
intense. Almost all VoIP service providers need a broadband connection through
which they provide VoIP service. They cannot provide VoIP services on existing
telephone lines unless converted to DSL, a costly network conversion process.
Moreover, current VoIP deployments can handle one or two telephone line service
and cannot serve small businesses with multi-line analog trunks. Our unique
technology allows us to serve small businesses by enabling their analog trunk
lines to be converted to an aggregated VoIP platform. Our aggregated VoIP
technology can also serve mass markets comprising of residential users without
requiring any changes to current wiring or network connection. Our aggregated
VoIP service is provided on our managed secure private IP network and does not
use the public Internet. We also intend to offer carrier grade managed IP
broadband service on T1 or multi-T1s to small businesses, similar to the
offerings of Cbeyond Communications, at lower prices than our competitors.



Digital Voice Switches for UNE-P Migration Services



Currently, there is no direct competition in providing UNE-P
migration services or supplying digital voice switches for the UNE-P migration
services due to the newness of this market. However, there is indirect
competition by DSL equipment suppliers that co-locate equipment in central
offices for broadband services. Since, DSL cannot provide the full array of
voice and special access services as required by businesses, minimal competition
from DSL equipment suppliers is expected. Since, our competitor's digital voice
switches are both bulky and heavy and cannot be co-located in the Bells' central
offices, we find ourselves with limited competition in this upcoming high growth
market. We believe that we are uniquely poised to take significant part of this
market. The telecommunications and related networking industries are
characterized by intense competition. We compete with numerous well-established
foreign and domestic companies, many of which possess substantially greater
financial, marketing, personnel and other resources than us. These companies
have established reputations for success in the development, sale and service of
digital switching and networking and related products.



Systems that perform many of the functions similar to our CDCO
and CTSX digital voice switches are readily available from a limited number of
competitors, namely Alcatel-Lucent Technologies, Nortel Networks, Alcatel and
Siemens. However, our competitors systems are based on previous generation
single-function monolithic centralized switching technology offering poor
reliability, low performance, no scalability, no flexibility and are unsuitable
for the UNE-P migration services that requires co-location at the Bells' central
offices. Furthermore, these systems are large in physical size with fixed
capacity, suffer from stranded capital, consume more power, and are cumbersome
to use with modern wireless and optical backhaul network technologies. We have
developed our systems on a next generation multi-function distributed switching
technology offering superior reliability, performance, scalability and
flexibility. Our systems offer modular growth in increments of 1,000 to
unlimited number of subscribers and typically occupy 1/100th the
space that of our competitor's offerings; making our systems ideally suited for
co-location in the Bells' central offices for UNE-P migration services. Most
importantly, we have developed specialized software for modern wireless and
optical backhaul network technologies, such as our CyberMesh software. We can
easily and rapidly implement future advancements in our systems through
software. On the other hand, our competitors also have the research and
development capabilities, and financial and technical resources necessary to
enable them to respond to technical advances as well as evolving industry
requirements and standards.



Unlike the existing Bells' public voice telephone network that
consists of monolithic centralized digital switches, the CSPs will be seeking
for an alternative cost-effective approach, such as our CDCO and CTSX
distributed digital switching systems. We believe that the upcoming trend in the
telecommunications industry towards distributed switching for local switching
networks from monolithic centralized switching will follow a similar trend in
the computer industry towards distributed networking personal computers from
monolithic centralized mainframe computers, which began the PC revolution in
1980s. We believe that with our distributed switching systems, the CSPs or
nascent UNE-P migration service provider can rapidly provide telephone services
to their customers by migrating from UNE-P to UNE-L. It is substantially easier
to install small, distributed switches than large monolithic centralized
switches with their corresponding long cabling infrastructure. We believe that
our digital voice switches are well suited for the local switching needs of CSPs
or nascent UNE-P migration service providers.



We believe that our systems have the following three
strengths:



(1) the installed cost of our digital voice switches (wireless
backhaul or wireline) for local switching applications is less than those of the
competition;







Broadband Systems For UNE-P Migration Services



The Internet related networking products business is
characterized by intense competition. We compete with numerous well-established
foreign and domestic companies, many of which possess substantially greater
financial, marketing, personnel and other resources than we do. These companies
have established reputations for success in the development, sale and service of
Internet products.

Currently, there is limited competition in the UNE-P broadband
data migration services market due to the newness of this market. Cisco Systems
and others are focusing on increasing the bandwidth capacity of their existing
centralized IP backbone core routers i.e. increasing the bandwidth of the POPs.
Our focus is to introduce an intermediate stage distribution router or Mini-POP
on co-location basis at the Bells' central offices. This provides nascent UNE-P
migration providers and CSPs with an alternate to the Bells' local broadband
switching network, which is being phased out pursuant to the UNE-P Phase Out
Policy. Our solution will alleviate congestion of IP data and TDMoIP/MPLS/E
traffic between customer-end point and POP. In addition, CSPs will be able offer
FR or PPP with scalable bandwidth from T1 to T3 as well as Ethernet speeds up to
100 Mbps. Our CIANs are ideally suited for co-location at the Bells' central
offices because of small size when compared to separate centralized routers and
softswitches. Our CIAN is an integrated distribution softswitch plus router that
by software handles various IP broadband technologies and protocols including
but 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 or
copyright applications pending. We regard our software technology and certain
components of our system hardware as proprietary and rely for protection upon
copyright and trade secret laws and confidentiality agreements with our
employees. In addition, we require our customers to enter into a license and
confidentiality agreement permitting the customer the exclusive use of the
system operating software, which is furnished to the customer in object or
binary form only.



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



GOVERNMENT REGULATIONS AND INDUSTRY STANDARDS



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



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



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



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



PRODUCTION AND SUPPLY



We are engaged in manufacturing, software programming,
assembly, system testing and quality assurance at our facility in Hauppauge, New
York. Our operations involve the creation of the required system software, the
inspection of system components manufactured by third parties, programming of
microchips and microprocessors, assembly of the components of the system
hardware and quality control and testing to certify final performance
specification. We believe that we have sufficient excess production capacity to
satisfy any increased demand for our systems in the foreseeable future.



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



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



RESEARCH AND DEVELOPMENT



Since the inception we have devoted substantial resources to
the design and development of our systems. For the fiscal years ended March 31,
2007 and 2006, we expended approximately $25,000 and $18,269, respectively, on
research and development. For the past few years, we substantially reduced our
research and development expenditures due to lack of capital. Although our
systems are fully developed such as our CDCO, CTSX, CRX, CSX, CBIG, CIAN, CFW
and CWEB, we are continually seeking to refine and enhance our systems,
including enhancements to comply with emerging regulatory or industry standards
or the requirements of a particular customer or country. We believe that with
our latest generation of CDCO, CTSX and CIAN systems we can provide UNE-P
migration services for both voice and broadband data.



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



SERVICE SUPPORT



We believe that service, support and training are important
factors in promoting sales and customer satisfaction. Services we provide our
CSP 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, customer
training and maintenance. However, we believe that CSPs and nascent UNE-P
migration service providers are not yet ready to build their local-loop voice
and broadband networks, due to their lack of technical ability and capital. We
expect them to rely on our ability to provide UNE-P migration services to
them.



Since, our system hardware consists of a cabinet with shelves
having printed circuit boards inserted into physical slots, a substantial part
of repair and maintenance can be accomplished by simply substituting the
component in need of repair. In addition, our systems are designed to be
accessible by computer from our headquarters, allowing our service personnel to
remotely call up, diagnose and otherwise support systems, thereby reducing
response time and cost.



EMPLOYEES



As of the date hereof, we have 30 employees. At our
headquarters, we have five employees engaged in general management, marketing,
research and development, and administration. At our recently acquired wholly
owned subsidiaries, New Rochelle Telephone Corp. and Telecarrier Services, Inc.,
we have 25 employees engaged in marketing, customer service, billing and
provisioning. None of our employees is represented by a labor union. We consider
our employee relations satisfactory.

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





Risk Factors



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

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

Since inception, we have generated limited revenues from the
sale of our products. We incurred losses of $932,643 and $562,346, respectively,
for the fiscal years ending March 31, 2007 and 2006, and we anticipate that
losses will continue until such time, if ever, as revenue from operations is
sufficient to offset our operating costs.

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

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

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

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

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

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

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

The market for UNE-P migration services for both local-loop
digital voice and IP packet-based broadband data is in the early stages of
development. Consequently, we cannot accurately predict whether the market for
our systems or services will fail to develop, grow more slowly than anticipated,
or become saturated with competitors. It is expected that nascent UNE-P
migration service providers will emerge and perhaps, some have already entered
this emerging market ahead of us without our knowledge. Although we have
resolved certain critical issues facing commercial use of local-loop digital
voice 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 underlying
services.

Our limited marketing activity may materially adversely affect
our business.

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

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

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

Our operating results may fluctuate.

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

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

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

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

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

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

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

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

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

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

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

We depend on third-party suppliers.

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

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

We are subject to various governmental
regulations.

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

Trading in our common stock may be limited.

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

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

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

Issuance of our shares of common stock to fund our UNE-P
migration services business may significantly dilute the equity interest of
existing stockholders.

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

We expect that our stock price will be
volatile.

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

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

As of June 22, 2007, J.C. Chatpar, our President and Chief
Executive Officer, owned beneficially approximately 46%of our outstanding common
stock. Mr. Chatpar is able to influence all matters requiring stockholder
approval, including election of directors and approval of significant corporate
transactions. This concentration of ownership, which is not subject to any
voting restrictions, could limit the price that investors might be willing to
pay for our common stock. In addition, Mr. Chatpar is in a position to impede
transactions that may be desirable for other stockholders. He could, for
example, make it more difficult for anyone to take control of us.





ITEM 2 - Description of Property



Our executive offices and assembly operations are located in
approximately 8,200 square feet of leased space in Hauppauge, New York. The
lease provides for annual base rent of $58,220 and expires on May 31, 2009. We
believe that our facility is adequate for our current needs. We believe that
additional physical capacity at our current facility will accommodate expansion,
if required.



Our recently acquired wholly owned subsidiaries, New Rochelle
Telephone Corp. and Telecarrier Services, Inc., are located in approximately
4,000 square feet of leased space in White Plains, New York. The lease provides
for annual base rent of $77,000 and expires November 30, 2008. This facility is
adequate for our current needs.



ITEM 3 - Legal Proceedings



None.



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



None.



PART II



ITEM 5 - Market for Common Equity and Related Stockholder
Matters



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



|                                 | Price Per Share .
|-------------------------------- | -----------------
|                                 | High             
|Fiscal Year Ended March 31, 2007 |                  
|                                 | First Quarter    
|                                 | Second Quarter   
|                                 | Third Quarter    
|                                 | Fourth Quarter   
|                                 |                  
|Fiscal Year Ended March 31, 2006 |                  
|                                 | First Quarter    
|                                 | Second Quarter   
|                                 | Third Quarter    
|                                 | Fourth Quarter   



On March 31, 2007, the closing trade price of our common stock
as reported on the Bulletin Board was $0.29 per share. On that date, there were
approximately 507 stockholders of record of our common stock. We believe that on
March 31, 2007, there were more than 2,400 beneficial holders of our common
stock.



On June 6, 2006, we declared a 3-for-2 stock split to be paid
in the form of a 50% stock dividend to the stockholders of record as of June 26,
2006. The prices have been adjusted to reflect the stock split, as
applicable.



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



Forward Looking Statements



When used in this report, press releases and elsewhere by the
management of our company from time to time, the words "believes",
"anticipates", and "expects" and similar expressions are intended to identify
forward-looking statements that involve risks and uncertainties. Additionally,
certain statements contained in this discussion may be deemed forward-looking
statements that involve a number of risks and uncertainties. Among the factors
that could cause actual results to differ materially or adversely are the
following: the ability of our company to meet its working capital and liquidity
needs, the status of relations between our company, its primary customers and
distributors, the availability of long-term credit, unanticipated changes in the
U.S. and international economies, business conditions and growth in the
international and the U.S. telecommunications industry, level of growth in both
voice and internet systems sales generally, the timely development and
acceptance of new products, the impact of competitive products and pricing,
changes in the cost of component materials, changes in product mix, the outcome
of litigation in which our company is involved, along with product delays and
other risks detailed from time to time in our company's SEC reports, including
but not limited to this Annual Report on Form 10-KSB for the year ended March
31, 2007. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Our company
undertakes no obligation to publicly release the results of any events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.



Overview



We (CYBD) are a designer, software developer and manufacturer
of a range of unique distributed digital-voice-switching and Internet Protocol
(IP) broadband infrastructure equipment such as Class 5 local digital central
office switches, Class 4 regional tandem digital central office switches, IP
soft-switches, routers, gateways, firewalls, voice-over IP (VoIP) and virtual
private network (VPN) systems for public-switched-telephone-network (PSTN)
operators and Internet Service Providers (ISP) worldwide.



With our latest generation of software based switching systems,
we can offer affordable voice and broadband data local switching services. Our
mission is to become a leading alternative local switching service provider
offering aggregated VoIP and digital broadband services in the United States. We
expect to generate recurring revenues from selling aggregated VoIP and managed
IP digital broadband services to small businesses and residential customers. We
believe that we are one of the first companies to offer aggregated VoIP services
on existing telephone lines without requiring any additional customer premise
equipment (CPE) or any changes to current wiring or network connection.

Unlike our competitor's systems, our systems are neither labor
nor capital intensive but are software intensive. This capability, in contrast
to that of our competitor's, makes our systems more compact, less power
consuming and more affordable. Our digital voice switching and Internet Protocol
(IP) infrastructure systems are based on our proprietary operating system
software, which provides high performance, reliability and functionality. We own
the source code of our operating system. This allows us the flexibility to meet
market demands without depending on third party operating systems. We believe
that we are one of a very few companies in the world with proprietary hardware
and software technology of distributed digital switching. We have expended over
$20 million dollars on the development of our rock solid proprietary
state-of-the-art technologies, which is built on 24 years of experience. Our
systems are ideally suited for the U.S. pursuant to the recent Federal
Communications Commission (FCC) rulings.



Market Opportunity



Beginning March 2005, FCC decided to phase out UNE-P rules that
forced the Bells to lease its local switching networks to competitive local
exchange carriers (CLECs) at cut-rate prices. FCC further rules that CLECs must
move all customers to non-Bell networks by March 2006 or pay exorbitant rates to
the Bells for using their local switching facilities. Today, CLECs lease 17
million lines for $4.5 billion per year from the Bells, creating an immediate
market opportunity. Moreover, the Bells own 173 million lines creating a huge
migration services opportunity for many years to come. This ruling favors us to
evolve as an alternative local switching network provider, that is, as an UNE-P
migration service provider, to these CLECs as well as directly sell aggregated
VoIP and digital broadband services to small businesses and residential
customers.



We intend to be the leading company to offer local switching
(UNE-P) migration services to CLECs by deploying our vast array of local voice
and IP broadband data switching infrastructure systems by co-locating our
systems in various Bell central offices. In anticipation of this, we signed an
agreement with Level 3 Communications who will provide for global voice and data
termination services to all traffic originating on our local switching systems.
In the U.S., providers of local switching networks retain substantial portion of
the recurring revenues as call origination services, and payout insignificant
portion for call termination services. We will provide our local switching
(UNE-P) migration services to CLECs at affordable rates on recurring basis for
local, long distance and international calls as well as broadband Internet
access, aggregated VoIP and virtual private network (VPN) services.



Our Range of Digital Voice Switches and Broadband Internet
Protocol Systems for 'Last Mile' Solutions and UNE-P Migration Services



Cyber Distributed Central Office (CDCO) is a Class 5 local
switch with packet and circuit switching technolgies providing aggregated VoIP
enabled POTS, ISDN, analog trunks for PBXs - FX, DID, EM, T1, WSPSN, SS7,
etc.



Cyber Tandem Exhange (CTSX) is a Class 4 switch with packet and
circuit switching technolgies providing numerous T1 carrier grade VoIP enabled
voice and IP enabled data trunks for business users.



Cyber Internet Access Network (CIAN) is a high performance IP
distribution softswitch/router providing numerous business customers
simultaneous broadband access at multiple T1 speeds up to DS3 and Ethernet
10/100 Mbps.



Cyber Business Internet Gateway (CBIG) is a customer-end,
enterprise-wide virtual private network (VPN). CBIG is an IP private line based
multi-function gateway, featuring a router, network address translator,
Ethernet-to-T1 converter, CSU/DSU, firewall equipment, e-mail server and web
server.



Competition



The competition in both VoIP and digital broadband services is
intense. Almost all VoIP service providers need a broadband connection through
which they provide VoIP service. They cannot provide VoIP services on existing
telephone lines unless converted to DSL, a costly network conversion process.
Moreover, current VoIP deployments can handle one telephone line service and
cannot serve small businesses with multi-line analog trunks. Our unique
technology allows us to serve small businesses by enabling their analog trunk
lines to be converted to an aggregated VoIP platform. Our aggregated VoIP
technology can also serve mass markets comprising of residential users without
requiring any changes to current wiring or network connection. Our aggregated
VoIP service is provided on our managed secure private IP network and does not
use the public Internet. We also intend to offer carrier grade managed IP
broadband service on T1 or multi-T1s to small businesses at much lower prices
than our competitors.



Key Advantages



- Exploit early entrance in metropolitan service areas, before
the Bells raise their charges second time or virtually shut off service to
non-facilities based CLECs in about 3 years.

- Ideally suited to establish market in high density areas
covering Mass Market Switching for both residential and small businesses,
including T1 carrier grade managed IP broadband services exclusively for
businesses.

- Our unique technological advantage is 'No Truck-rolls';
service offered on 'Hot-cut' basis requiring no additional customer premise
equipment (CPE). We require no service technician to be dispatched to customer
site nor any CPE installed by customer. Unlike other VoIP providers that require
an ATA adapter (CPE) to be installed by service technician or the customer. Such
ATA adapters fail to operate without local power and suffer from low
reliability.

- Minimal investment required by CYBD for marketing; customer
acquisition cost estimated at $45 per line.

- We have not included additional high margin revenues from
value added offerings in conjunction with our current product line such as
managed IP VPN, IP MPLS, etc.

- One stop solution for voice, data and video, high-speed
Internet access, broadband data for IP VPN, VoIP, etc.

- Typically, valuation of a non-facilities based CLEC is about
$300 per line, while that of a facilities based is $3,500 to $4,000 per line.
Hence, if we grow through acquisition of CLECs, we substantially increase
valuation in addition to increasing profit margins.



Business Development and Strategic Plan



CYBD has determined that it can grow rapidly through
acquisition of certain non-facilities based CLECs, who do not want to build
their own local voice and broadband data switching facilities, despite the FCC's
local switching (UNE-P) phase-out ruling. While these CLECs are, generally,
excellent marketing companies and have already established a customer base, they
lack the technical and network engineering aspects of owning and maintaining
local voice and data switching facilities, which are among CYBD's core
competences. Since, we are expecting to invest heavily in building the local
voice and data switching facilities, we expect to acquire only profitable
CLECs.



On December 14, 2006, we entered into definitive purchase
agreements to acquire two CLECs, namely New Rochelle Telephone Corp. (NRT) and
Telecarrier Services, Inc. (TSI), on a cashless basis through the issuance of
convertible secured debt. Effective June 1, 2007, we acquired NRT and TSI as an
acquisition subsidiary wholly owned by CYBD. These profitable companies were
acquired on a cashless basis through an assumption of approximately $1.3 million
in debt with an accredited institutional investor. In addition, CYBD also
received 808,000 restricted shares on common stock of eLEC Communications Corp,
the seller. NRT is licensed to provide services in the states of NY, NJ, PA, MA,
OH and FL. TSI is licensed to provide services in the states of NY, NJ, PA and
MA. Both NRT and TSI have certificate of authority under Section 214 of the
Communications Act of 1934, as amended, from FCC. As of June 1, 2007,
collectively, NRT and TSI have approximately 10,000 lines in service in NY, NJ
and PA. NRT has resale agreement with Verizon for local switching and Qwest for
long distance service. TSI provides services through NRT. Currently, NRT and TSI
have combined annual revenues of approximately $6 million with a net income of
approximately $0.7 million. Collectively, they are generating sufficient
positive cash flow to service their debt.



By acquiring NRT and TSI we have instant customer base of about
10,000 lines that we are able to migrate to our network. This allows us to
launch our network roll-out at a faster pace than that if we were to build the
customer base from zero. Currently, NRT and TSI have a gross profit margin of
37%, which reduces to 30% and 26% in the two following years, due to increases
in local switching charges by Verizon. Upon migration of the customer lines to
our network, the gross margins improve to 56%, resulting in net income
increasing over 250%. We intend to expand resale business of NRT and TSI while,
at the same time, migrating those customer lines that in the aggregate reach a
few hundred lines per co-location Bell central office. We will use NRT and TSI
proven management, marketing and sales team, customer services and provisioning
facilities as a platform to build our migration services business, while our
technology development and manufacturing division supplies the requisite network
equipment comprising of CDCO, CTSX, CIAN and CBIG.



Our overall strategy is to grow through acquisitions as it
provides for large-scale expansion and rapid deployment of our networks with
minimal cost of customer acquisition. We are in negotiations with a number of
other profitable non-facilities based CLECs for potential acquisitions.



Results of Operations



Year Ended March 31, 2007, Compared to Year Ended March 31,
2006



Net sales



Net sales for the year ended March 31, 2007 (referred to as
"fiscal year 2007"), were $0 from $0 for the year ended March 31, 2006 (referred
to as "fiscal year 2006"). We were waiting for the FCC's deregulation policies
on local voice and data switching in order to enter this lucrative market with
our systems. Our overall strategy is to grow through acquisitions in the post
FCC deregulation. Having acquired NRT and TSI as of June 1, 2007, moving forward
we will have growing recurring sales revenues.



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 as
well as any change in the valuation of our inventory, which was $140,000 and
$137,616 for fiscal years 2007 and 2006, respectively.

Selling, general and administrative



Selling, general and administrative expenses increased from
$266,489 in fiscal year 2006 to $588,062 in fiscal year 2007, representing an
increase of $321,573 or approximately 121%%, principally due to increase in
acquisition related expenses of $106,092 and compensation expense of $215,481.
The increase in compensation expense is result of adoption of Statement of
Financial Accounting Standards No. 123R that requires any stock based
compensation be recorded at fair value.



Research and development



Research and development expenses increased from $18,269 in
fiscal year 2006 to $25,000 in fiscal year 2007, representing an increase of
$6,731 or approximately 37%. All development costs are expensed in the period
incurred.



Income (loss) from operations



Loss from operations in fiscal year 2007 was $(932,643) or
$(.028) per share as compared with a loss of $(562,820) or $(.017) per share in
fiscal year 2006.



Net income (loss) available to Common Stockholders



Preferred stock dividend was $12,526 and $12,526 in fiscal year
2007 and 2006, respectively. As a result of the foregoing, the net loss
available to common stockholders in fiscal year 2007 was $(945,169) or $(.028)
per share as compared to a net loss of $(575,346) or $(.017) per share in fiscal
year 2006.



Liquidity and Capital Resources



Our ability to generate cash adequate to meet our needs results
primarily from sale of preferred and common stock, cash flow from operations and
cash advances in the form of loan from our Chief Executive Officer and a
shareholder. Total working capital decreased by $709,033 to $(2,045,565) at
March 31, 2007 from $(1,336,532) at March 31, 2006. The current ratio of current
assets to current liabilities decreased to 0.12 to 1 as at March 31, 2007 from
0.23 to 1 as at March 31, 2006. Current levels of inventory are adequate to meet
sales for a few months. We believe that our current sources of liquidity
pursuant to the acquisitions of New Rochelle Telephone Corp. and Telecarrier
Services, Inc., as of June 1, 2007, are sufficient to meet our near-term growth
needs. However, we need additional capital to pursue more acquisitions to
support our future growth needs. We have no off-balance sheet arrangements.



Net cash used in operating activities was $340,057 and $278,716
for fiscal year 2007 and fiscal year 2006, respectively.



We used $975 and $37,814 during fiscal year 2007 and fiscal
year 2006, respectively, for investing activities. The cash used for investing
activities relates primarily to purchases of equipment in fiscal year 2007 and
fiscal year 2006.



Net cash provided by financing activities was $368,987 and
$305,999 for fiscal year 2007 and fiscal year 2006, respectively.



On July 12, 1999, we concluded a private placement of 310
shares of its Series C preferred stock, par value $.05 per share, and
accompanying warrants to accredited investors and received net proceeds of
approximately $310,000. In connection with this placement, we issued warrants to
accredited investors to purchase an aggregate of 12,710 shares of our common
stock, par value $.01 per share, at an exercise price of $6.00 per share. The
Series C preferred stock was issued without registration in reliance on Section
4(2) of the Securities Act of 1933, as amended. As of July 11, 2002, all 12,710
warrants expired at an exercise price of $6.00 per share.



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



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



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



In March 2004, we borrowed 177,000 under a promissory note with
a shareholder. The note has a one-year maturity date and a ten percent interest
rate per annum. Thereafter, in March 2007, we received additional cash advances
from the same shareholder under a promissory note, with the same terms and
conditions, currently totaling $275,000.



In August 2004, our company issued 50 shares of its Series E
preferred stock, par value $.05 per share, to an accredited investor at a price
of $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 accredited
investor to purchase an aggregate of 50,000 shares of our common stock, par
value $.01 per share, at an exercise price of $0.25 per share. The Series E
preferred stock was issued without registration in reliance on Section 4(2) of
the Securities Act of 1933, as amended.



On September 30, 2005, we entered into a promissory note
agreement with J.C. Chatpar, our CEO, in the amount of $516,300, representing
cash advances to the company. The note has one-year maturity date and a ten
percent interest rate per annum. Thereafter, we received additional cash
advances from J.C. Chatpar under various promissory notes, with the same terms
and condition, in the amounts of $753,300; $778,300; $806,300; $817,300;
$832,300; and $931,300 outstanding as of June 30, 2006; July 31, 2006; August
31, 2006; September 30, 2006; October 31, 2006; and March 12, 2007,
respectively.



During the fiscal years ended March 31, 2007 and 2006, the
Company received cash advances of $275,000 and $277,000, respectively, from our
Chief Executive Officer. As of the fiscal year ended March 31, 2007, our company
has received cash advances of $1,256,300 and $275,000 from our Chief Executive
Officer and a shareholder, respectively.



On September 2, 2005, we entered into definitive agreements with Dutchess
Private Equities Fund, L.P., a Delaware limited partnership. The agreements
include an Investment Agreement and a Registration Rights Agreement that were
amended on November 3, 2005. Under the Investment Agreement, Dutchess can invest
up to $10,000,000 to purchase common stock at a 5% discount to market price
pursuant to put notices by our company. This agreement effectively provides an
equity line of credit to be drawn upon at our discretion. Under the Registration
Rights Agreement, we agreed to use commercially reasonable efforts to register
all the shares that could be issued pursuant to the Investment Agreement within
ninety (90) days of the execution of the agreements. As of December 9, 2005, we
are able to access the funds under the equity line of credit since the
registration statement was declared effective pursuant to section 8(a) of the
Securities Act of 1933, as amended. We hope to use these funds to support both
our long term and short term capital needs as well as to finance possible
acquisitions of competitive service providers (CSPs). At March 31, 2007, the
amount available under this equity line of credit is approximately $6
million.

Effective June 1, 2007, we acquired two telephone companies, New Rochelle
Telephone Corp. and Telecarrier Services, Inc., from eLEC Communications Corp.
These profitable companies were acquired on cashless basis through the issuance
of secured convertible debt of approximately $1.3 million in debt with an
accredited institutional investor. We also received 808,000 restricted shares of
common stock of eLEC Communications Corp.



Impact of Inflation



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





ITEM 7 - Financial Statements



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



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



None.



ITEM 8A. Controls and Procedures.

Our management, with the participation of our principal
executive officer and principal financial officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this Annual Report. Based on such evaluation, our principal executive
officer and principal financial officer have concluded that, as of the end of
such period, our disclosure controls and procedures were designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in applicable SEC rules and forms. In addition, based
on this evaluation, our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures were effective as
of the end of the period covered by this Annual Report on Form 10-KSB.



PART III



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



The directors, executive officers and key employees of our
company are:



|Name               | Age | Office                                                             
|------------------ | --- | -------------------------------------------------------------------
|                   |     |                                                                    
|Jawahar C. Chatpar | 59  | Chairman of the Board, President, and Chief Executive
      Officer
|                   |     |                                                                    
|Jack P. Dorfman    | 69  | Director                                                           
|                   |     |                                                                    
|Terry L. Jones     | 59  | Director                                                           
|                   |     |                                                                    

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



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



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



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



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



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

Summary Compensation Table



The following table sets forth information concerning the
compensation for services in all capacities for the fiscal years ended March 31,
2007, 2006 and 2005 of those persons who were, at March 31, 2007 the chief
executive officer (the "named officer"). During such periods, no executive
officer of our company received compensation in excess of $100,000.



|                                                                                 | Annual Compensation        | Long Term Compensation              | All Other
      Compensation
|-------------------------------------------------------------------------------- | -------------------------- | ----------------------------------- | ----------------------------
|                                                                                 |                            |                                     |                             
|Name and Principal
      Position                                                | Year                       | Salary
      ($)                    | Bonus
      ($)             
|J.C. Chatpar, Chairman of the Board, President and Chief Executive
      Officer | 2007
      2006
      2005 | $92,500
      $92,500
      $92,500 | None
      None
      None  

____________

(1) We have concluded that the aggregate amount of perquisites
and other personal benefits paid to each of the named officers named in the
table did not exceed the lesser of 10% of such officer's total annual salary and
bonus for the 2007, 2006 and 2005 fiscal years or $50,000, thus, such amounts
are not included in the table.

(2) In fiscal year 2005, Mr. Chatpar was granted options to
purchase 1,500,000 shares of our common stock at an exercise price of $0.07 per
share.

(3) In fiscal year 2006, Mr. Chatpar was granted options to
purchase 1,500,000 shares of our common stock at an exercise price of $0.10 per
share.

(4) In fiscal year 2007, Mr. Chatpar was granted options to
purchase 1,927,500 shares of our common stock at an exercise price of $0.20 per
share.



Option Grants In Last Fiscal Year



The following table sets forth information concerning stock
option grants made during fiscal year 2007 to the named officers. We have not
granted any stock appreciation rights.



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

_________________

(1) During fiscal year 2007, options to purchase an aggregate
of 1,927,500 shares of our common stock were granted to Mr. Chatpar and options
to purchase an aggregate of 90,000 shares of our common stock were granted to
two other directors.

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

1. Options are immediately exercisable.



Aggregated Fiscal Year End Option Values



The following table sets forth information concerning the
number of unexercised options and the Fiscal 2007 year-end value of unexercised
options on an aggregated basis held by the named officers. We have not granted
any stock appreciation rights in Fiscal 2007.





|             |  | Number of Securities
      Underlying UnexercisedOptions at Fiscal Year-End (#) |  | Value of
      Unexercised In-The-MoneyOptions at Fiscal Year-End ($)
|------------ |  | ------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------
|Name         |  | Exercisable                                                                     |  | Unexercisable                                                        
|             |  |                                                                                 |  |                                                                      
|J.C. Chatpar |  | 11,828,500                                                                      |  | 4,500,000                                                            



____________

(1) Options are "in-the-money" if, on March 31, 2007 the market
price of the Common Stock ($0.29) exceeded the exercise price of such options.
The value of such options is calculated by determining the difference between
the aggregate market price of our common stock underlying the options on March
31, 2007 and the aggregate exercise price of such options.



Compensation of Directors



We pay our directors $250 per board meeting. During Fiscal
2007, the board of directors met three times and each director attended at least
75% of the meetings of the board of directors. In addition, we currently
reimburse each director for expenses incurred in connection with his attendance
at each meeting of the board of directors.



Committees of the Board of Directors



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



Employment Agreements and Insurance



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



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



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



We do not have employment contracts with any other officer or
director.



Employee Benefit Plan



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



ITEM 11 - Security Ownership of Certain Beneficial Owners and
Management



The following table sets forth certain information regarding
beneficial ownership of our company's common stock as of March 31, 2007, for (i)
each person or group that is known to us to be a beneficial owner of more than
5% of the outstanding shares of our common stock, (ii) each of the named
officers and directors, and (iii) all directors and executive officers of our
company as a group. Except as otherwise indicated, we believe that such
beneficial owners, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws, where applicable.



|Names and AddressOf Beneficial Owners                                                         | Number of Shares | Percentage Owned (1)(2)
|--------------------------------------------------------------------------------------------- | ---------------- | -----------------------
|J.C. Chatpar(3)
      c/o Cyber Digital, Inc.
      400 Oser Avenue
      Hauppauge, NY 11788 | 30,058,318       | 46.4%                  
|Jack P. Dorfman(4)                                                                            | 405,000          | 0.6%                   
|Terry L. Jones (5)                                                                            | 1,486,845        | 2.3%                   
|Prem Chatpar (6)                                                                              | 7,186,886        | 11.1%                  
|All directors and executive officers as a group: (3)
    persons                              | 31,950,163       | 49.3%                  

*less than 1%

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

(2) Assumes the exercise of all of the outstanding options and
warrants to purchase in the aggregate 17,747,350 and 13,477,500, respectively,
shares of our common stock.

(3) Includes 11,828,500 shares as to which Mr. J.C. Chatpar
holds non-qualified stock options, which are exercisable at any time. Includes
warrants to purchase 10,672,500 shares. Excludes 4,500,000 shares, as to which
Mr. J.C. Chatpar holds non-qualified stock options, which are not exercisable,
until certain conditions are attained. Does not include 714,000 shares owned by
his wife, Sylvie Chatpar, to which shares Mr. J.C. Chatpar disclaims beneficial
ownership.

(4) Includes 315,000 shares as to which Mr. Dorfman holds a
non-qualified stock option, which are exercisable at any time. Does not include
540,000 shares owned by his wife, Sandra Dorfman, to which shares Mr. Dorfman
disclaims beneficial ownership.

(5) Mr. Terry Jones is a general partner of a limited
partnership that is the general partner of Syndicated Communications Venture
Partners III, L.P. ("Syncom III"), a fund which on April 14, 1998, Syncom III
converted all of its outstanding Series B-1 preferred stock into 1,291,845
shares of our common stock at a conversion price of $1.93 per share. Includes
195,000 shares as to which Mr. Jones holds non-qualified stock options which are
exercisable at any time.

(6) Includes warrants to purchase 2,745,000 shares. Mr. Prem
Chatpar is an individual stockholder and is the brother of Mr. J.C. Chatpar.



ITEM 12 - Certain Relationships and Related
Transactions



On December 30, 1996, we consummated a private placement of its
Series B-1 convertible preferred stock, par value $.05 per share, to Syncom III.
We issued 2,000 shares of its Series B-1 stock to Syncom III in return for
$2,000,000. On April 14, 1998, Syncom III converted all of its outstanding
Series B-1 preferred stock into 1,291,845 shares of common stock at a conversion
price of $1.93 per share.



Mr. Terry Jones, a director, is the general partner of WJM
Partners III, L.P. ("WJM"), the general partner of Syncom III. Pursuant to the
terms of the stock purchase agreement so long as Syncom III holds our common
stock, our company's board of directors shall consist of not less than five
members and that we shall use our best efforts to cause Terry Jones (or another
partner of WJM) to be elected as a director.



ITEM 13 - Exhibits and Reports on Form 8-K



1. Exhibits.

|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).                                                                                                                 
|10.13       | Declaration of a 3-for-2 stock split of the Company's common stock,
        $.01 par value, as of June 26, 2006 (incorporated herein by reference to
        Exhibit 99.1 to the Company's Current Report on Form 8-K dated June 12,
        2006                                                                             
|10.14       | Promissory Note with J. C. Chatpar dated June 30, 2006 (incorporated
        herein by reference to Exhibit 99.1 to the Company's Current Report on
        Form 8-K dated August 10, 2006).                                                                                                                                  
|10.15       | Promissory Note with J. C. Chatpar dated July 31, 2006 (incorporated
        herein by reference to Exhibit 99.1 to the Company's Current Report on
        Form 8-K dated September 5, 2006).                                                                                                                                
|10.16       | Promissory Note with J. C. Chatpar dated August 31, 2006
        (incorporated herein by reference to Exhibit 99.1 to the Company's
        Current Report on Form 8-K dated September 25, 2006).                                                                                                                             
|10.17       | Promissory Note with J. C. Chatpar dated September 30, 2006
        (incorporated herein by reference to Exhibit 99.1 to the Company's
        Current Report on Form 8-K dated October 26, 2006).                                                                                                                            
|10.18       | Promissory Note with J. C. Chatpar dated October 31, 2006
        (incorporated herein by reference to Exhibit 99.1 to the Company's
        Current Report on Form 8-K dated December 7, 2006).                                                                                                                              
|10.19       | Stock Purchase Agreement among the Company, eLEC Communications Corp.
        and CYBD Acquisition, Inc., a wholly owned subsidiary of the Company,
        dated December 14, 2006 (incorporated herein by reference to Exhibit
        10.1 to the Company's Current Report on Form 8-K dated December 14,
        2006).   
|10.20       | Stock Purchase Agreement among the Company, eLEC Communications Corp.
        and CYBD Acquisition II, Inc., a wholly owned subsidiary of the Company,
        dated December 14, 2006 (incorporated herein by reference to Exhibit
        10.2 to the Company's Current Report on Form 8-K dated December 14,
        2006).
|10.21       | Amendment No. 1, dated February 27, 2007, to Stock Purchase Agreement
        among the Company, eLEC Communications Corp. and CYBD Acquisition, Inc.
        (incorporated herein by reference to Exhibit 10.1 to the Company's
        Current Report on Form 8-K dated February 27, 2007).                                 
|10.22       | Amendment No. 1, dated February 27, 2007, to Stock Purchase Agreement
        among the Company, eLEC Communications Corp. and CYBD Acquisition II,
        Inc. (incorporated herein by reference to Exhibit 10.2 to the Company's
        Current Report on Form 8-K dated February 27, 2007).                              
|10.23       | Promissory Note with J. C. Chatpar dated March 12, 2007 (incorporated
        herein by reference to Exhibit 99.1 to the Company's Current Report on
        Form 8-K dated March 12, 2007).                                                                                                                                  
|10.24       | Promissory Note with Prem Chatpar dated March 12, 2007 (incorporated
        herein by reference to Exhibit 99.2 to the Company's Current Report on
        Form 8-K dated March 12, 2007).                                                                                                                                   
|10.25       | Amendment No. 2, dated April 13, 2007, to Stock Purchase Agreement
        among the Company, eLEC Communications Corp. and CYBD Acquisition, Inc.
        (incorporated herein by reference to Exhibit 10.1 to the Company's
        Current Report on Form 8-K dated April 13, 2007).                                       
|10.26       | Amendment No. 2, dated April 13, 2007, to Stock Purchase Agreement
        among the Company, eLEC Communications Corp. and CYBD Acquisition II,
        Inc. (incorporated herein by reference to Exhibit 10.2 to the Company's
        Current Report on Form 8-K dated April 13, 2007).                                    
|10.27       | Promissory Note with Prem Chatpar dated April 30, 2007 (incorporated
        herein by reference to Exhibit 99.1 to the Company's Current Report on
        Form 8-K dated April 30, 2007).                                                                                                                                   
|10.28       | Amendment No. 3, dated May 22, 2007, to Stock Purchase Agreement
        among the Company, eLEC Communications Corp. and CYBD Acquisition, Inc.
        (incorporated herein by reference to Exhibit 10.1 to the Company's
        Current Report on Form 8-K dated May 22, 2007).                                           
|10.29       | Amendment No. 3, dated May 22, 2007, to Stock Purchase Agreement
        among the Company, eLEC Communications Corp. and CYBD Acquisition II,
        Inc. (incorporated herein by reference to Exhibit 10.2 to the Company's
        Current Report on Form 8-K dated May 22, 2007).                                        
|10.30       | Amendment No. 4, dated June 8, 2007, to Stock Purchase Agreement
        among the Company, eLEC Communications Corp. and CYBD Acquisition, Inc.
        (incorporated herein by reference to Exhibit 10.1 to the Company's
        Current Report on Form 8-K dated June 8, 2007).                                           
|10.31       | Amendment No. 4, dated June 8, 2007, to Stock Purchase Agreement
        among the Company, eLEC Communications Corp. and CYBD Acquisition II,
        Inc. (incorporated herein by reference to Exhibit 10.2 to the Company's
        Current Report on Form 8-K dated June 8, 2007).                                        
|10.32       | Completion of Acquisitions of New Rochelle Telephone Corp., and
        Telecarrier Services, Inc. (incorporated herein by reference to Exhibits
        10.1 through 10.7 to the Company's Current Report of Form 8-K dated June
        22, 2007).                                                                          
|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.                                                                                                                                













ITEM 14 - Principal Accountant Fees and Services



The Company paid or accrued the following fees in each of the
prior two fiscal years to it's principal accountant, Blanchfield, Kober &
Company, P.C.





|    |                    | Year endedMarch 31, 2007 | Year endedMarch 31, 2006
|--- | ------------------ | ------------------------ | ------------------------
|    |                    |                          |                         
|(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 defined
in Sarbanes-Oxley Act of 2002, the entire Board of Directors is the Company's
defacto audit committee.



In discharging its oversight responsibility as to the audit
process, the Board obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditor's independence as required by Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees". The
Board discussed with the auditors any relationship that may impact their
objectivity and independence, including fees for non-audit services, and
satisfied itself as to the auditors' independence. The Board also discussed with
management and the independent auditors the quality and adequacy of the
Company's internal controls. The Board reviewed with the independent auditors
their management letter on internal controls, if one was issued by the Company's
auditors.



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



The Board reviewed the audited financial statements of the
Company as of and for the year ended March 31, 2007 and 2006 with management and
independent auditors. Management has the sole ultimate responsibility for the
preparation of the Company's financial statements and the independent auditors
have the responsibility for their examination of those statements.



Based on the above-mentioned review and discussions with the
independent auditors and management, the Board of Directors approved the
Company's audited financial statements and recommended that they be included in
its Annual Report on Form 10-KSB for the year ended March 31, 2007, for filing
with the Securities and Exchange Commission.





SIGNATURES

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

Dated: June 27, 2007

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



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



|Signature                                 | Title                                                                                                                | Date         
|----------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | -------------
|                                          |                                                                                                                      |              
|/s/ J.C. Chatpar
      J.C. Chatpar       | Chairman of the Board, President and
      Chief Executive Officer (Principal
      Executive and Financial Officer) | June 27, 2007
|                                          |                                                                                                                      |              
|/s/ Jack P. Dorfman
      Jack P. Dorfman | Director                                                                                                             | June 27, 2007
|                                          |                                                                                                                      |              
|/s/ Terry Jones
      Terry Jones         | Director                                                                                                             | June 27, 2007
|                                          |                                                                                                                      |              



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).                                                                                                                 
|10.13       | Declaration of a 3-for-2 stock split of the Company's common stock,
      $.01 par value, as of June 26, 2006 (incorporated herein by reference to
      Exhibit 99.1 to the Company's Current Report on Form 8-K dated June 12,
      2006                                                                           
|10.14       | Promissory Note with J. C. Chatpar dated June 30, 2006 (incorporated
      herein by reference to Exhibit 99.1 to the Company's Current Report on
      Form 8-K dated August 10, 2006).                                                                                                                              
|10.15       | Promissory Note with J. C. Chatpar dated July 31, 2006 (incorporated
      herein by reference to Exhibit 99.1 to the Company's Current Report on
      Form 8-K dated September 5, 2006).                                                                                                                            
|10.16       | Promissory Note with J. C. Chatpar dated August 31, 2006 (incorporated
      herein by reference to Exhibit 99.1 to the Company's Current Report on
      Form 8-K dated September 25, 2006).                                                                                                                         
|10.17       | Promissory Note with J. C. Chatpar dated September 30, 2006
      (incorporated herein by reference to Exhibit 99.1 to the Company's Current
      Report on Form 8-K dated October 26, 2006).                                                                                                                        
|10.18       | Promissory Note with J. C. Chatpar dated October 31, 2006 (incorporated
      herein by reference to Exhibit 99.1 to the Company's Current Report on
      Form 8-K dated December 7, 2006).                                                                                                                          
|10.19       | Stock Purchase Agreement among the Company, eLEC Communications Corp.
      and CYBD Acquisition, Inc., a wholly owned subsidiary of the Company,
      dated December 14, 2006 (incorporated herein by reference to Exhibit 10.1
      to the Company's Current Report on Form 8-K dated December 14,
      2006).   
|10.20       | Stock Purchase Agreement among the Company, eLEC Communications Corp.
      and CYBD Acquisition II, Inc., a wholly owned subsidiary of the Company,
      dated December 14, 2006 (incorporated herein by reference to Exhibit 10.2
      to the Company's Current Report on Form 8-K dated December 14,
      2006).
|10.21       | Amendment No. 1, dated February 27, 2007, to Stock Purchase Agreement
      among the Company, eLEC Communications Corp. and CYBD Acquisition, Inc.
      (incorporated herein by reference to Exhibit 10.1 to the Company's Current
      Report on Form 8-K dated February 27, 2007).                               
|10.22       | Amendment No. 1, dated February 27, 2007, to Stock Purchase Agreement
      among the Company, eLEC Communications Corp. and CYBD Acquisition II, Inc.
      (incorporated herein by reference to Exhibit 10.2 to the Company's Current
      Report on Form 8-K dated February 27, 2007).                            
|10.23       | Promissory Note with J. C. Chatpar dated March 12, 2007 (incorporated
      herein by reference to Exhibit 99.1 to the Company's Current Report on
      Form 8-K dated March 12, 2007).                                                                                                                              
|10.24       | Promissory Note with Prem Chatpar dated March 12, 2007 (incorporated
      herein by reference to Exhibit 99.2 to the Company's Current Report on
      Form 8-K dated March 12, 2007).                                                                                                                               
|10.25       | Amendment No. 2, dated April 13, 2007, to Stock Purchase Agreement
      among the Company, eLEC Communications Corp. and CYBD Acquisition, Inc.
      (incorporated herein by reference to Exhibit 10.1 to the Company's Current
      Report on Form 8-K dated April 13, 2007).                                     
|10.26       | Amendment No. 2, dated April 13, 2007, to Stock Purchase Agreement
      among the Company, eLEC Communications Corp. and CYBD Acquisition II, Inc.
      (incorporated herein by reference to Exhibit 10.2 to the Company's Current
      Report on Form 8-K dated April 13, 2007).                                  
|10.27       | Promissory Note with Prem Chatpar dated April 30, 2007 (incorporated
      herein by reference to Exhibit 99.1 to the Company's Current Report on
      Form 8-K dated April 30, 2007).                                                                                                                               
|10.28       | Amendment No. 3, dated May 22, 2007, to Stock Purchase Agreement among
      the Company, eLEC Communications Corp. and CYBD Acquisition, Inc.
      (incorporated herein by reference to Exhibit 10.1 to the Company's Current
      Report on Form 8-K dated May 22, 2007).                                         
|10.29       | Amendment No. 3, dated May 22, 2007, to Stock Purchase Agreement among
      the Company, eLEC Communications Corp. and CYBD Acquisition II, Inc.
      (incorporated herein by reference to Exhibit 10.2 to the Company's Current
      Report on Form 8-K dated May 22, 2007).                                      
|10.30       | Amendment No. 4, dated June 8, 2007, to Stock Purchase Agreement among
      the Company, eLEC Communications Corp. and CYBD Acquisition, Inc.
      (incorporated herein by reference to Exhibit 10.1 to the Company's Current
      Report on Form 8-K dated June 8, 2007).                                         
|10.31       | Amendment No. 4, dated June 8, 2007, to Stock Purchase Agreement among
      the Company, eLEC Communications Corp. and CYBD Acquisition II, Inc.
      (incorporated herein by reference to Exhibit 10.2 to the Company's Current
      Report on Form 8-K dated June 8, 2007).                                      
|10.32       | Completion of Acquisitions of New Rochelle Telephone Corp., and
      Telecarrier Services, Inc. (incorporated herein by reference to Exhibits
      10.1 through 10.7 to the Company's Current Report of Form 8-K dated June
      22, 2007).                                                                        
|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         |                                                                          |     
|                             |                                                                          |     
|                             | Consolidated Balance Sheets                                              |     
|                             |                                                                          |     
|                             | Consolidated Statements of Operations                                    |     
|                             |                                                                          |     
|                             | Consolidated Statements of Changes in Shareholders' Equity
    (Deficit) |     
|                             |                                                                          |     
|                             | Consolidated Statements of Cash Flows                                    |     
|                             |                                                                          |     
|                             | Notes to Consolidated Financial Statements                               |     
|                             |                                                                          |     

________________________



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

CERTIFIED PUBLIC ACCOUNTANTS







Report of Independent Registered Public Accounting
Firm



To the Board of Directors and Shareholders

Cyber Digital, Inc.

Hauppauge, New York



We have audited the accompanying consolidated balance sheets of
Cyber Digital, Inc. and Subsidiaries as of March 31, 2007 and 2006, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years in the period ended March 31, 2007. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.



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



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of the
Company as of March 31, 2007 and 2006, and the results of its operations and its
cash flows for each of the two years in the period ended March 31, 2007 in
conformity with U.S. generally accepted accounting principles.



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

Hauppauge, New York

June 27, 2007



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



__________________________



|                                                                             | CYBER DIGITAL, INC. and subsidiaries                                    |                                                       
|---------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------------------
|                                                                             | CONSOLIDATED BALANCE SHEETS                                             |                                                       
|                                                                             | March 31, 2007 and 2006                                                 |                                                       
|                                                                             |                                                                         |                                                       
|                                                                             |                                                                         | 2007                                                  
|ASSETS                                                                       |                                                                         |                                                       
|                                                                             |                                                                         |                                                       
|Current Assets                                                               |                                                                         |                                                       
|                                                                             | Cash and cash equivalents                                               | $                                                     
|                                                                             | Inventories                                                             |                                                       
|                                                                             | Prepaid and other current assets                                        |                                                       
|                                                                             |                                                                         |                                                       
|                                                                             | Total Current Assets                                                    |                                                       
|                                                                             |                                                                         |                                                       
|Property and Equipment, net                                                  |                                                                         | 28,760                                                
|                                                                             |                                                                         |                                                       
|Other Assets                                                                 |                                                                         | 34,267                                                
|                                                                             |                                                                         |                                                       
|TOTAL ASSETS                                                                 | $                                                                       | 354,734                                               
|                                                                             |                                                                         |                                                       
|LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                               |                                                                         |                                                       
|                                                                             |                                                                         |                                                       
|Current Liabilities                                                          |                                                                         |                                                       
|                                                                             | Accounts payable, accrued expenses, and taxes                           | $                                                     
|                                                                             | Accrued interest - shareholders                                         |                                                       
|                                                                             | Officer/ shareholder notes payable                                      |                                                       
|                                                                             | Accrued dividend payable                                                |                                                       
|                                                                             | Note payable - current portion                                          |                                                       
|                                                                             | Settlement payable-current portion                                      |                                                       
|                                                                             | Total Current Liabilities                                               |                                                       
|                                                                             |                                                                         |                                                       
|Long Term Debt                                                               |                                                                         |                                                       
|                                                                             | Note payable                                                            |                                                       
|                                                                             |                                                                         |                                                       
|Total Liabilities                                                            |                                                                         | 2,352,680                                             
|                                                                             |                                                                         |                                                       
|Commitments and Contingencies                                                |                                                                         |                                                       
|                                                                             |                                                                         |                                                       
|Shareholders' Equity (Deficit)                                               |                                                                         |                                                       
|                                                                             | Preferred stock - $.05 par value; cumulative, convertible
    and       |                                                       
|                                                                             |                                                                         | Participating; authorized 10,000,000 shares           
|                                                                             |                                                                         | Series C; issued and outstanding - 310 shares at      
|                                                                             |                                                                         | March 31, 2007 and 2006                               
|                                                                             |                                                                         | Series E; issued and outstanding - 50 and 50 shares at
|                                                                             |                                                                         | March 31, 2007 and 2006, respectively                 
|                                                                             | Common stock - $.0066667 par value; authorized 90,000,000
      shares; |                                                       
|                                                                             |                                                                         | Issued and outstanding 33,504,813 and 33,489,813      
|                                                                             |                                                                         | Shares at March 31, 2007 and 2006, respectively       
|                                                                             | Additional paid-in-capital                                              |                                                       
|                                                                             | Accumulated deficit                                                     |                                                       
|                                                                             |                                                                         |                                                       
|                                                                             | Total Shareholders' Equity (Deficit)                                    |                                                       
|                                                                             |                                                                         |                                                       
|TOTAL LIABILITIES AND SHAREHOLDERS'
    EQUITY                               | $                                                                       | 354,734                                               
|                                                                             |                                                                         |                                                       
|See independent accountant's report and notes to financial
      statements.
|Page 2                                                                      



|                                                                             | CYBER DIGITAL, INC. and subsidiaries         |                             
|---------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------
|                                                                             | CONSOLIDATED STATEMENTS OF OPERATIONS        |                             
|                                                                             | March 31, 2007 and 2006                      |                             
|                                                                             |                                              |                             
|                                                                             |                                              | 2007                        
|                                                                             |                                              |                             
|Net Sales                                                                    | $                                            | 0                           
|                                                                             |                                              |                             
|Cost of Sales                                                                |                                              | 140,000                     
|                                                                             |                                              |                             
|                                                                             | Gross Profit                                 |                             
|                                                                             |                                              |                             
|                                                                             |                                              |                             
|Operating Expenses                                                           |                                              |                             
|                                                                             | Selling, general and administrative expenses | $                           
|                                                                             | Research and development                     |                             
|                                                                             |                                              |                             
|                                                                             | Total Operating Expenses                     |                             
|                                                                             |                                              |                             
|                                                                             | Loss from Operations                         |                             
|                                                                             |                                              |                             
|Other Income (Expense)                                                       |                                              |                             
|                                                                             | Interest expense                             |                             
|                                                                             | Other expense                                |                             
|                                                                             |                                              |                             
|                                                                             |                                              | Total Other Income (Expense)
|                                                                             |                                              |                             
|                                                                             |                                              | Loss before Income Taxes    
|                                                                             |                                              |                             
|Provision for Income Taxes                                                   |                                              | 155                         
|                                                                             |                                              |                             
|Net Loss                                                                     |                                              | (932,643)                   
|                                                                             |                                              |                             
|Preferred Stock Dividend                                                     |                                              | 12,526                      
|                                                                             |                                              |                             
|Income Available to Common Shareholders                                      | $                                            | (945,169)                   
|                                                                             |                                              |                             
|Net Loss Per Share of Common Stock (See Note 8)                              |                                              |                             
|                                                                             |                                              |                             
|                                                                             |                                              | Loss from Operations - Basic
|                                                                             |                                              | Diluted                     
|                                                                             |                                              |                             
|                                                                             |                                              | Net Loss - Basic            
|                                                                             |                                              | Diluted                     
|                                                                             |                                              |                             
|Weighted average number of common shares outstanding                         |                                              | 33,502,101                  
|                                                                             |                                              |                             
|See independent accountant's report and notes to financial
      statements.
|                                                                            
|Page 3                                                                      



|                                                                             |                                                                            | CYBER DIGITAL, INC. and subsidiaries |              |        
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------ | ------------ | -------
|                                                                             | CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
      (DEFICIT) |                                     
|                                                                             | Years ended March 31, 2007 and 2006                                        |                                     
|                                                                             |                                                                            |                                      |              |        
|                                                                             |                                                                            |                                      |              |        
|                                                                             | Preferred Stock                                                            |                                      |              |        
|                                                                             | Series C                                                                   | Series E                             | Common Stock | Paid in
|                                                                             | Shares Amount                                                              | Shares Amount                        | Shares       | Amount 
|                                                                             |                                                                            |                                      |              |        
|Balance at March 31, 2005                                                    | 310                                                                        | $ 16                                 | 50           | $ 3    
|                                                                             |                                                                            |                                      |              |        
|Issuance of stock options                                                    |                                                                            |                                      |              |        
|                                                                             |                                                                            |                                      |              |        
|Net Loss                                                                     |                                                                            |                                      |              |        
|                                                                             |                                                                            |                                      |              |        
|Accrued Dividend on E Preferred                                              |                                                                            |                                      |              |        
|                                                                             |                                                                            |                                      |              |        
|Balance at March 31, 2006                                                    | 310                                                                        | $ 16                                 | 50           | $ 3    
|                                                                             |                                                                            |                                      |              |        
|Issuance of common stock                                                     |                                                                            |                                      |              |        
|                                                                             |                                                                            |                                      |              |        
|Issuance of stock options                                                    |                                                                            |                                      |              |        
|                                                                             |                                                                            |                                      |              |        
|Net Loss                                                                     |                                                                            |                                      |              |        
|                                                                             |                                                                            |                                      |              |        
|Accrued Dividend on E Preferred                                              |                                                                            |                                      |              |        
|                                                                             |                                                                            |                                      |              |        
|Balance at March 31, 2007                                                    | 310                                                                        | $ 16                                 | 50           | $ 3    
|                                                                             |                                                                            |                                      |              |        
|See independent accountant's report and notes to financial
      statements.
|                                                                            
|Page 4                                                                      



|                                                                             | CYBER DIGITAL, INC. and subsidiaries                                              |                                              
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------
|                                                                             | CONSOLIDATED STATEMENTS OF CASH FLOWS                                             |                                              
|                                                                             | Years ended March 31, 2007 and 2006                                               |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   | 2007                                         
|                                                                             |                                                                                   |                                              
|Cash Flows from Operating Activities                                         |                                                                                   |                                              
|                                                                             | Net loss                                                                          | $                                            
|                                                                             | Adjustments to reconcile net loss to net cash used in operating
      activities: |                                              
|                                                                             |                                                                                   | Depreciation                                 
|                                                                             |                                                                                   | Amortization                                 
|                                                                             |                                                                                   | Bad debt expense                             
|                                                                             |                                                                                   | Inventory valuation allowance                
|                                                                             |                                                                                   | Stock based compensation                     
|                                                                             |                                                                                   | Accrued shareholder interest                 
|                                                                             |                                                                                   | (Increase) decrease in operating assets:     
|                                                                             |                                                                                   | Prepaid and other current assets             
|                                                                             |                                                                                   | Other assets                                 
|                                                                             |                                                                                   | Increase (decrease) in operating liabilities:
|                                                                             |                                                                                   | Accounts payable, accrued expenses and taxes 
|                                                                             |                                                                                   | Settlement payable                           
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   | Net Cash Used in Operating Activities        
|                                                                             |                                                                                   |                                              
|Cash Flows from Investing Activities                                         |                                                                                   |                                              
|                                                                             | Purchase of equipment                                                             |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   | Net Cash Used in Investing Activities        
|                                                                             |                                                                                   |                                              
|Cash Flows from Financing Activities                                         |                                                                                   |                                              
|                                                                             | Issuance of common stock                                                          |                                              
|                                                                             | Note payable                                                                      |                                              
|                                                                             | Proceeds from officer/shareholder loan                                            |                                              
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   | Net Cash Provided by Financing Activities    
|                                                                             |                                                                                   |                                              
|Net Increase (Decrease) in Cash and Cash Equivalents                         |                                                                                   | 27,955                                       
|                                                                             |                                                                                   |                                              
|Cash and Cash Equivalents at Beginning of Period                             |                                                                                   | 5,551                                        
|                                                                             |                                                                                   |                                              
|Cash and Cash Equivalents at End of Period                                   | $                                                                                 | 33,506                                       
|                                                                             |                                                                                   |                                              
|                                                                             |                                                                                   |                                              
|Supplemental Disclosures of Cash Flow Information                            |                                                                                   |                                              
|                                                                             | Cash paid during the period for:                                                  |                                              
|                                                                             |                                                                                   | Income taxes                                 
|                                                                             |                                                                                   | Interest                                     
|                                                                             |                                                                                   |                                              
|Noncash Operating and Financing Activities                                   |                                                                                   |                                              
|                                                                             | Accrued preferred stock dividend                                                  | $                                            
|                                                                             | Stock option issued for services                                                  |                                              
|                                                                             |                                                                                   |                                              
|See independent accountant's report and notes to financial
      statements.
|                                                                            
|Page 5                                                                      



CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006



Note 1 - Summary of Significant Accounting
Policies



Description of Business



Cyber Digital, Inc. (the "Company") was incorporated in the
State of New York in April 1983. The Company designs, develops, manufactures and
markets digital switching, internet and networking systems that enable
simultaneous communication of voice and data to a large number of users. The
Company's systems are based on its proprietary software
technology.



Principles of Consolidation



The financial statements include the accounts of Cyber Digital,
Inc. and two wholly owned subsidiaries, CYBD Acquisition, Inc. and CYBD
Acquisition II, Inc. These subsidiaries were formed on October 11, 2006, in the
State of New York. These subsidiaries had no assets and have not begun
operations at March 31, 2007.



Operating and Financing Matters



Since inception, the Company has devoted substantial resources
to the design and development of the Company's systems and technology. As such,
the Company has not achieved revenue growth and has incurred operating losses.
At March 31, 2007, the Company had an accumulated deficit of $21,311,419 and a
shareholders' deficit of $1,997,946. The decrease in equity from March 31, 2006
to March 31, 2007 is due mainly to a net operating loss during the fiscal year
ended March 31, 2007. During the fiscal years ended March 31, 2007, 2006 and
2005, the Company received cash advances of $373,000, $277,000 and $209,000
respectively, from the Chief Executive Officer and a shareholder. The Company
historically has generated sufficient cash flow to support its operations mainly
from issuances of debt and equity securities. The Company anticipates additional
issuances of debt and/or equity. The viability of the Company is dependent upon
future revenues and additional issuances of equity.



Estimates



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



Fair Value of Financial Instruments



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



Cash and Cash Equivalents



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

Inventories



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

Page 6



CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006



Note 1 - Summary of Significant Accounting Policies
(continued)



Property and Equipment



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



Deferred Financing Costs



The Company amortizes deferred financing costs on a straight
line basis over the term of the credit agreement.



Revenue Recognition



The Company recognizes product system sales upon shipment and
acceptance by the customer. Component parts and software sales are recognized
upon shipment to the customer.



Income Taxes



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



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



Advertising



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



Research and Development Costs



Research and development costs are charged to expense when
incurred.



Impairment of Long Lived Assets

The Company periodically reviews its assets for impairment in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 121 "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of". As a
result, the Company has recognized an impairment loss $10,774 that is included
in other expense in the statement of operations. The loss is due to the write
off of intangible assets that were incurred in connection with business
opportunities outside the United States. The Company no longer intends to pursue
these business opportunities.

Page 7



CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006



Note 1 - Summary of Significant Accounting Policies
(continued)

Stock-Based Compensation

In January 2006, the Company adopted Statement of Financial Accounting
Standards No. 123R which requires the Company to recognize the cost of employee
compensation and services in exchange for awards of stock options and warrants
based on the grant date fair value of those awards. Stock based compensation for
the year ended March 31, 2007, is in accordance with SFAS No. 123R

For the year ended March 31, 2006, the Company accounted for stock based
compensation in accordance with Accounting Principles Board Opinion No. 25.("APB
25"). In accordance with APB 25, no compensation cost is recognized for the year
ended March 31, 2006, since the option exercise price was not less than the
market price of the underlying stock on the date of the grant. Pro forma
information is presented in the stock based compensation footnote (See note
9).

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" ('SFAS 141")
which requires the Company to account for future business combinations using the
purchase method. The statement of operations for the year ended March 31, 2007,
includes indirect and general expenses related to business acquisitions that
have been expensed as required by SFAS 141.

Concentration of Credit Risk



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



Note 2 - Inventories



Inventories consist of the following at March 31:





|               |   | 2007    |   | 2006   
|-------------- | - | ------- | - | -------
|Raw materials  | $ | 248,996 | $ | 388,996
|Finished goods |   | 0       |   | 0      
|               | $ | 248,996 | $ | 388,996



For the years ended March 31, 2007 and 2006, the Company has
provided valuation allowances of $140,000 and $137,616, respectively, against
its inventory.

Page 8



CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006



Note 3 - Property and Equipment



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



|                               |   | 2007    |   | 2006    | Useful Lives
|------------------------------ | - | ------- | - | ------- | ------------
|Machinery and equipment        | $ | 339,932 | $ | 339,394 | 5 years     
|Furniture and fixtures         |   | 64,355  |   | 64,355  | 7 years     
|Vehicle                        |   | 37,814  |   | 37,814  | 5 years     
|Leasehold improvements         |   | 4,786   |   | 4,786   | Lease term  
|                               |   | 446,887 |   | 446,349 |             
|Less: Accumulated depreciation |   | 418,127 |   | 410,280 |             
|                               | $ | 28,760  | $ | 36,069  |             



Note 4 - Other Assets



Other assets consist of various security deposits and deferred financing
costs of $18,667 and $25,667, respectively. Amortization expense for the years
ended March 31, 2007 and 2006 was $7,000 and $2,333, respectively.



Note 5 - Officer/ Shareholder Loans Payable



During the 2002 fiscal year the Company issued a promissory
note to its Chief Executive Officer, J.C Chatpar, in the amount of $325,000. The
note is secured by all assets of the Company. The note was due on March 11, 2003
with interest accrued at 10%. Overdue principal and, to the extent permitted by
applicable law, overdue interest shall bear interest at the applicable rate plus
2% per annum and shall be payable upon demand. The Company received additional
advances from J.C. Chatpar of $275,000, $277,000 and $209,000 during the years
ended March 31, 2007, 2006 and 2005, respectively. These additional advances
bear interest at 10% and are due on demand.

During the year ended March 31, 2004, the Company received advances from a
shareholder in the amount of $177,000. During the year ended March 31, 2007, the
Company received additional advances of $98,000. These advances are due on
demand and bear interest at 10%.

The loans payable to Officer/ Shareholder at March 31, 2007 and 2006 was
$1,531,300 and $1,158,300, respectively. Accrued interest was $458,352 and
$293,596 and interest expense was $164,756 and $ 96,372 for the years ended
March 31, 2007 and 2006, respectively.





Note 6 - Line of Credit



On November 3, 2005, the Company entered into definitive
agreement with an accredited institutional investor for a $10 million private
equity line of credit to be drawn upon until December 8, 2008. The Company, at
its option, may draw down on the line up to $100,000 for each 7-day increment,
as defined. If the Company does not utilize the line of credit during the 7-day
period, the line reduces by $100,000. At March 31, 2007, approximately $6
million was available under the line of credit. In June 2006, the Company drew
down $2,470 against the equity line and issued 10,000 shares of common stock.
The ability to draw down depends on a number of factors such as price, volume
and liquidity of our shares of common stock traded.

Page 9

CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006



Note 7 - Notes Payable

In April 2005, the Company financed the purchase of a vehicle
with a note payable. The note bears interest at 5.79% and is secured by the
vehicle. The note requires future payments as follows:

|2008  | $ 6,868
|----- | -------
|2009  | $ 7,276
|2010  | $ 7,709
|2011  | $ 663  
|Total | $22,516



Note 8 - Earnings (Loss) Per Share



On June 26, 2006, the Company declared 3-for-2 stock split. The weighted
average common shares outstanding have been adjusted for all periods presented
to give effect to the stock split. Earnings per share ("EPS") has been computed
and presented pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, Earnings per Share.

|                                           |   | 2007       |   | 2006      
|------------------------------------------ | - | ---------- | - | ----------
|Net Loss                                   | $ | (932,643)  | $ | (562,820) 
|Dividends on Preferred Stock               |   | 12,526     |   | 12,526    
|Income Available to Common Shareholders    | $ | (945,169)  | $ | (575,346) 
|Weighted Average Common Shares Outstanding |   | 33,502,101 |   | 33,489,813
|Basic EPS                                  | $ | (.028)     | $ | (.017)    
|Diluted EPS                                | $ | (.028)     | $ | (.017)    



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





Note 9 - Stock Option Plans



The Company's Board of Directors adopted, on November 7, 1997,
the 1997 Stock Incentive Plan (the "1997 Plan"). The 1997 plan is a successor to
the 1993 plan, which has been terminated. Under the terms of the 1997 Plan,
1,276,499 shares were reserved for issuance to officers, directors, other
employees and consultants meeting certain qualifications. During March 2001, the
1997 plan was amended to increase the number of shares reserved for issuance
from 1,276,499 to 4,276,499. Under the 1997 Plan, incentive stock options are
granted at 100% of fair market value on the date of grant. The right to exercise
the options accrues equally on each of the first, second, third and fourth
anniversaries of the date of grant. Options granted under the plan expire on the
day before the tenth anniversary of the plan.

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



Page 10

CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006



Note 9 - Stock Option Plans (continued)



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



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



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



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







|                            | Price            | Shares        
|--------------------------- | ---------------- | --------------
|Outstanding, April 1, 2006  | $0.10 to $1.81   | 25,696,450    
|                            | Granted options  | $0.20         
|                            | Granted warrants | $0.20         
|                            | Expired          | $3.00 to $4.00
|Outstanding, March 31, 2007 |                  | 31,374,850    







|                         | Options and Warrants Outstanding |                                                   | Options Exercisable             |                          
|------------------------ | -------------------------------- | ------------------------------------------------- | ------------------------------- | -------------------------
|Range of Exercise Prices | Outstanding at 3/31/07           | Weighted Average Remaining Contractual
      Life | Weighted Average Exercise Price | Exercisable as of 3/31/07
|$0.07 to $0.26           | $ 21,204,850                     | 4.31                                              | $ 0.13                          | $ 17,494,227             
|$0.27 to $1.00           | 8,325,000                        | 2.36                                              | 0.35                            | 8,321,250                
|$1.62 to $2.00           | 1,845,000                        | 1.72                                              | 1.79                            | 1,845,000                
|                         | $ 31,374,850                     | 3.64                                              | $ 0.29                          | $ 27,660,477             

Page 11

CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006



Note 9 - Stock Option Plans (continued)



The Company uses the Black-Scholes model to value its stock and
warrants. The following assumptions were employed to estimate the fair value of
stock options granted:





|                            | Fiscal Years Ended March 31,
|--------------------------- | ----------------------------
|                            | 2007                        
|Expected dividend yield     | 0.00%                       
|Expected price volatilities | 4.6%                        
|Risk-free interest rate     | 3.05%                       
|Expected life (years)       | 5                           





As of January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123R (SFAS No. 123R) which requires that
stock options and warrants issued for compensation or services be recorded at
their estimated fair value using option pricing models. The Company uses the
"Modified Prospective Method" as a result prior periods have not been
restated.



Pro forma information, as required for the period prior to the
adoption of SFAS 123R, is as follows:



|                               |             | 2007  |           | 2006 
|------------------------------ | ----------- | ----- | --------- | -----
|Weighted average fair value of |             |       |           |      
|Options granted                | $           | 0.055 | $         | 0.033
|Net Loss                       |             |       |           |      
|                               | As reported | $     | (932,643) | $    
|                               | Pro Forma   |       | (932,643) |      
|Net Loss Per Share             |             |       |           |      
|                               | As reported |       |           |      
|                               | Basic       | $     | (.028)    | $    
|                               | Diluted     | $     | (.028)    | $    
|                               | Pro Forma   |       |           |      
|                               | Basic       | $     | (.028)    | $    
|                               | Diluted     | $     | (.028)    | $    





Note 10 - Convertible, Cumulative and Participating Preferred
Stock



In August 2004, the Company issued 50 shares of Series E
convertible preferred stock and 50,000 warrants to purchase common stock in a
private placement. The Series E preferred stock is entitled to receive a
cumulative annual dividend equal to 25% of the Series E issue price. The
dividend shall be payable in cash or in shares of the Company upon conversion or
at the end of the three year term. Accrued dividend payable on the Series E
preferred stock was $32,343 at March 31, 2007 and $19,818 at March 31, 2006.



The Series E preferred stock is convertible from August 2005
through August 2007. The conversion price is the lesser of $2.00 or the variable
conversion price as defined, but not less than $0.20.



In July 1999, the Company completed a private placement of its
6% Series C preferred stock. The Company sold 310 shares at $1,000 per share.
The private placement resulted in the Company receiving proceeds of $310,000. As
of March 31, 2002, there are undeclared dividends of $86,002 on the Series C
preferred stock.

Page 12

CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006



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



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



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



The Company has a right to redeem the Series C preferred stock
at a price of 120% of the original Series C issue price, plus all unpaid
dividends at the date of redemption.



However, the holder has the right to block the redemption by
delivering a notice of conversion to the Company within seven (7) trading days
of the stockholder's receipt of a notice of general redemption.



In September 1999, the Company completed a private placement of
its 8% Series D-1 preferred stock. The Company sold 3,000 shares at $1,000 per
share. The private placement resulted in proceeds of $2,700,000, which is net of
the stock issuance costs.



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



1. If the Company fails to list all its shares of common stock on the New
  York Stock Exchange, the NASDAQ SmallCap Market or the NASDAQ National Market
  within ninety (90) days of the original issuance date, the conversion price
  will be the lesser of:
  
  
  115% of the arithmetic average of the closing bid price of the common
    stock for the ten (10) trading days preceding the issuance date.80% of the lesser of the average of the three lowest closing sales
    prices of common stock during the twenty (20) consecutive trading days prior
    to the conversion or the closing bid price on such date.
    
    
    The Company has a right to redeem the Series D-1 preferred stock if
      the conversion price drops below $3.00 per common share at the following
      prices:
      
      
      Prior to April 4, 2000, a price of $1,150 per share plus all accrued
        dividends.Between April 5, 2000 and October 4, 2000, a price of $1,200 per
        share plus all accrued dividends.
2. 115% of the arithmetic average of the closing bid price of the common
    stock for the ten (10) trading days preceding the issuance date.
3. 80% of the lesser of the average of the three lowest closing sales
    prices of common stock during the twenty (20) consecutive trading days prior
    to the conversion or the closing bid price on such date.
    
    
    The Company has a right to redeem the Series D-1 preferred stock if
      the conversion price drops below $3.00 per common share at the following
      prices:
      
      
      Prior to April 4, 2000, a price of $1,150 per share plus all accrued
        dividends.Between April 5, 2000 and October 4, 2000, a price of $1,200 per
        share plus all accrued dividends.
4. The Company has a right to redeem the Series D-1 preferred stock if
      the conversion price drops below $3.00 per common share at the following
      prices:
      
      
      Prior to April 4, 2000, a price of $1,150 per share plus all accrued
        dividends.Between April 5, 2000 and October 4, 2000, a price of $1,200 per
        share plus all accrued dividends.
5. Prior to April 4, 2000, a price of $1,150 per share plus all accrued
        dividends.
6. Between April 5, 2000 and October 4, 2000, a price of $1,200 per
        share plus all accrued dividends.



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



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

Page 13

CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 AND 2006

Note 11 - Income Taxes



The Company has net operating loss carryforwards for tax
purposes amounting to approximately $13 million that may be offset against
future taxable income which expire through 2027.



Deferred income taxes are recognized for differences between
the bases of assets and liabilities for financial statement and income tax
purposes. The utilization of these tax attributes is contingent upon the
Company's ability to generate future taxable income and tax before the tax
attributes expire as well as Internal Revenue Code limitations. As a result, a
valuation allowance equal to the full extent of the deferred tax asset has been
established.



The change in the deferred tax asset (as well as the valuation
account) was approximately $129,000 and $85,000 for the fiscal years ended March
31, 2007 and 2006, respectively.





Note 12 - Commitments and Contingencies



Employment Contract



On August 3, 2001, the Company renewed the employment agreement
with the Chairman. This agreement is automatically renewable for successive
three-year periods. The current agreement is for a three year period covering
August 4, 2004 through August 3, 2007.



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



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



The following payout terms apply if this agreement is
terminated:



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



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



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



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



Page 14

CYBER DIGITAL, INC. and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2007 and 2006



Operating Leases



The Company leases space under a noncancelable operating lease
in Hauppauge, New York. This lease is for a five-year period and expires on May
31, 2009. This location is the Company's executive offices and operations. Rent
expense was $72,839 and $70,471 for the years ended March 31, 2007 and 2006,
respectively.



Future minimum rentals are as follows:





|For years ending | March 31, 2008 | $58,220
|---------------- | -------------- | -------
|                 | March 31, 2009 | $58,220
|                 | March 31, 2010 | $15,703





Government Regulation



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



Litigation



The Company is subject to legal proceedings and claims that
arise in the ordinary course of business. In the opinion, of management, the
amount of any liability is not likely to have a material effect on the financial
statements.





Note 13 - Subsequent Event



Effective June 1, 2007, the Company issued a secured
convertible term note in the principal amount of approximately $1,300,000. The
note is due July 1, 2010 and bears interest at prime plus 2% but no less than
9%. The note may be paid in cash or common stock based on the Company's stock
price, as defined. In addition, the Company entered into a Registration Rights
Agreement with the purchaser that requires the Company to register its
securities for resale to the purchaser. The Registration Rights Agreement
includes liquidating damages for failure to file the Registration Statement by
certain date, as defined.



Effective June 1, 2007, the Company acquired two telephone
companies, New Rochelle Telephone Corp. and Telecarrier Services, Inc., from
eLEC Communications Corp., ("Seller"). These companies were acquired on cashless
basis through the issuance of approximately $1.3 million of secured convertible
debt. The Company also received 808,000 restricted shares of common stock of the
Seller.



In addition, the Seller has indemnified the Company against
certain liabilities of the acquired companies. Selected information related to
the acquired companies for the year ended November 30, 2006 is as follows:



|                        | 2006      | 2005       
|----------------------- | --------- | -----------
|Total assets            | $ 839,769 | $ 2,963,765
|Revenue                 | 8,153,328 | 15,849,561 
|Operating income (loss) | 913,791   | (660,794)  
|Net income (loss)       | $ 903,224 | $ (666,308)

Page 15