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, 2005                                          
|    |                                                                                   
|[_] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|    |                                                                                   
|    | For the transition period from _____ to _____.                                    



Commission File No.:  0-13992

CYBER DIGITAL, INC.              .

(Name of small business issuer in its charter)



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

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

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

|Securities registered under Section 12(b) of the Exchange Act:
|--------------------------------------------------------------
|Title of Classes                                              
|                                                              
|Common Stock, $.01 par value                                  

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











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



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



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



As of June 22, 2005, Registrant had 22,326,542 shares of Common Stock outstanding ($.01 par value).  On that Date, the aggregate market value of the Common Stock held by persons other than those who may be deemed affiliates of Registrant was $2,076,000 (based on the last sale price reported on over-the-counter market electronic bulletin board on such date).



Transitional Small Business Disclosure Format (check one):



|Yes [_] |  | No [X]
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PART 1



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



ITEM 1 - DESCRIPTION OF BUSINESS



OVERVIEW



We are a designer, software developer, manufacturer and seller of a range of unique distributed digital-voice-switching infrastructure equipment for public switched-voice-network operators worldwide.  We are also a software developer, systems integrator and seller of a vast array of high-performance Internet infrastructure systems, such as soft-switches, routers, gateways, firewalls and servers for Internet service providers to create digital broadband services, voice-over Internet protocol (VoIP) services, and virtual private networks (VPN) services.  With our latest generation of switching systems, we can offer affordable voice and broadband data local switching services to competitive service providers (CSPs) such as competitive local exchange carriers (CLECs), long distance carriers (LDCs) and Internet service providers (ISPs).  Our new mission is to become a leading alternative local switching service provider to competitive service providers by deploying our vast array of local voice and broadband data switching infrastructure systems in the United States.  We expect to generate recurring revenues from wholesaling our local voice and broadband data services to competitive service providers at affordable rates.  We believe that we are one of the first companies to offer such services.

Unlike our competitor's systems, our systems are neither labor nor capital intensive but are software intensive.  This capability, in contrast to that of our competitor's, makes our systems more affordable for both voice and Internet service providers worldwide.  Our digital voice switching and Internet Protocol (IP) infrastructure systems are based on our proprietary operating system software, which provides high performance, reliability and functionality.  We believe that we are one of a very few companies in the world with proprietary technology of distributed digital switching.  We have expended over $20 million dollars on the development of our rock solid proprietary state-of-the-art technology, which is built on 21 years of experience.  Our systems are ideally suited for the U.S. pursuant to the recent FCC rulings.



Beginning March 2005, the U.S. Federal Communications Commission (FCC) decided to phase out UNE-P rules that forced the Bells to lease local switching networks to its competitors (CSPs) at cut-rate prices.  This ruling favors us to evolve as an alternative local switching network provider, that is as an UNE-P migration service provider, to these CSPs for Mass Market Local Circuit Switching and High-Capacity Loops for broadband markets.  FCC further rules that CSPs must move all customers to non-Bell networks by March 2006.  Today, CSPs lease 17 million lines for $4.5 billion per year from the Bells, creating an immediate market opportunity for us.  Morover, the Bells own 163 million lines creating a huge migration services opportunity for many years to come.  We intend to be the first company to offer such UNE-P migration services to CSPs by deploying our vast array of local voice and broadband data switching infrastructure systems in the U.S., beginning with New York Metro in partnership with Level 3 Communications.  Under an agreement, Level 3 will provide for voice and data termination services to all traffic generated on our local switching systems.  We will wholesale our UNE-P migration services to CSPs at affordable rates on recurring basis for local, long distance and international calls as well as broadband Internet access and virtual private network (VPN) services.



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





INDUSTRY BACKGROUND



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.  The local voice switch access charges will be rising from 40 percent to over 60 percent by 2006, 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.  Beginning in 2005, 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; according to the Investor's Business Daily article dated February 28, 2005, "As UNE-P Laws Fade Away".



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 frame-relay (FR) and private line (PPP) packet switching protocols as well as Ethernet rates of 10/100 Mbps.  According to FCC findings, the Bells have artificially maintained very 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, Frame Relay 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, Frame Relay and Ethernet Packet Switched "broadband" Technology

Managed Internet Protocol (IP) enabled private-line (PPP), frame relay (FR) and Ethernet (PPPoE) are packet-switching based "broadband" technologies that dramatically increases the reliability of packet 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, FR 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 frame-relay or Ethernet packet-based networks allow multiple users to share broadband access to Internet or frame relay network.





OUR BUSINESS STRATEGY

Our strategy is to be a leading niche provider of UNE-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:

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 15% 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.

Roll out in first MSA

Our objective is to build, own and operate (BOO) our UNE-P migration network by using our voice and broadband local switching systems in the first Metropolitan Service Areas (MSA) of New York Metro as rapidly as our financial resources allow us.  There is abundant capacity of optically-enabled TDM (voice) and IP (broadband) backbone network available between all major cities in the United States, but as yet businesses or consumers do not have any access to that capacity for both voice and broadband without using the Bells' switches.  Industry experts estimate that only between 2.6% to 5% of this capacity is currently being utilized.  Our high-performance CDCO and CTSX distributed TDM switches, and CIAN IP distribution softswitch/routers are specifically designed to allow us as UNE-P migration provider to efficiently deploy, on co-location basis, local digital TDM (voice) and IP (broadband) networks including TDMoIP (TDM voice over IP).  Fortunately, in major MSAs, abundant optical fiber backbone capacity is available at costs far below their actual construction costs.  We can rapidly deploy and co-locate our switching systems, and connect to this inexpensive optical fiber backbone.  We believe that we will establish a strong market position with early adopters of our UNE-P migration service and underlying technology as this competitive service provision market establishes itself.

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 FOR UNE-P MIGRATION SERVICES

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.



OUR RANGE OF BROADBAND SYSTEMS FOR UNE-P MIGRATION SERVICES



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 generation 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 aftermath of the telecommunications meltdown in the U.S.





COMPETITION



Digital Voice Switches for UNE-P Migration Services



Currently, there is virtually 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 and residential subscribers, minimal competition from DSL equipment suppliers is expected.  In addition, DSL equipment is not only expensive but also larger in size; making it unsuitable for providing voice services on a co-located basis in the Bells' central offices.  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 little or no competition in this upcoming high growth market.  We believe that we are uniquely poised to be the leader in this market, since our CDCO, CTSX and CIAN systems have been developed over many years in anticipation 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 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 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 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, especially after the October 2004 Supreme Court and March 2005 FCC rulings.  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 or wireline) for local switching applications is less than those of the competition;



1. our switches can be co-located at the Bells' central offices and put into service rapidly, and
2. distributed architecture of our switches eliminates stranding capacity and capital.



Broadband Systems For UNE-P Migration Services



The Internet related networking products business is characterized by intense competition, except for certain products for niche markets such as the market for our CIAN distribution softswitch/routers, when applied for the new market of UNE-P broadband data migration services.  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, however, these companies are not yet organized to provide UNE-P migration services.

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.



Proposed Voice and Broadband Data UNE-P Migration Network Implementation in the first MSA



Cyber plans to build, own and operate (BOO) and engineer, furnish and install (EF&I) in the first MSA of New York Metro, a UNE-P migration based voice and broadband local network for CSPs, as rapidly as our financial resources allow us and subject to raising the requisite capital.  We expect to provide UNE-P migration services by co-locating our switching systems in various Bell central offices (hereinafter referred to as "colo Bell central office").  We expect to install our CDCO, CTSX and CIAN switches to provide UNE-P migration services for 1,152 voice lines, 48 voice T1 lines and 64 T1 broadband data lines, respectively, at each colo Bell central office.  All voice traffic will be carried over 1 DS3 and broadband data traffic on 1/2 DS3 from each colo Bell central office and terminating at the Level(3) colo site.  We have a Master Service Agreement with Level(3) Communications where Level(3) will provide our originating UNE-P migration network with voice termination in U.S., Canada and in any international country.  Level(3) will also provide our originating UNE-P migration broadband network with appropriate bandwidth for Internet access from Level(3) colo sites.  At level(3) colo site we will install our CTSX and CIAN switches for the purposes of aggregating traffic from various colo Bell central offices before handing off all voice and broadband data traffic to Level(3) network for termination purposes.



We expect to begin with installation of 1 colo Bell central office in the first quarter of first year, after raising the requisite capital.  Thereafter, we expect to install at a growth rate of 1 additional colo Bell central office each subsequent quarter.  Hence, by the end of third year, we hope to have installed and put into service 42 colo Bell central offices mainly in New York Metro.  There are 106 Bell central offices in New York Metro.  During this period we would be providing 48,384 voice lines, 48,384 voice lines on 2,016 voice T1 lines and 2,688 broadband data T1 lines.  A total of 96,768 voice lines out of 3 million lines is approximately 3% of the available New York Metro market.  Our growth in this market is directly proportional to our capital raise activities and available financial resources to us.





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 these are discontinued by their respective manufacturers, we would be required to redesign some of our systems by using other vendors components, which could cause delays in delivery of systems.  We believe that alternative sources of supply for such components are available.  We are substantially dependent on the ability of our suppliers, among other things, to satisfy performance and quality specifications and dedicate sufficient production capacity for parts within scheduled delivery times.  We do not maintain contracts with any of our suppliers.  We purchase components pursuant to purchase orders placed from time to time in the ordinary course of business.  Our ability to deliver systems on timely and competitive basis could be adversely affected due to failure or delay in delivery of parts caused by our suppliers.



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



RESEARCH AND DEVELOPMENT



Since the inception we have devoted substantial resources to the design and development of our systems.  For the fiscal years ended March 31, 2005 and 2004, we expended approximately $25,000 and $22,921, respectively, on research and development.  During the year ended March 31, 2004, we substantially reduced our research and development expenditures due to lack of capital.  Although our systems are fully developed such as our CDCO, CTSX, CRX, CSX, CBIG, CIAN, CFW and CWEB, we are continually seeking to refine and enhance our systems, including enhancements to comply with emerging regulatory or industry standards or the requirements of a particular customer or country.  We believe that with our latest generation of CDCO, CTSX and CIAN systems we can provide UNE-P migration services for both voice and broadband data.  However, we expect that these systems may require some software tweaking and adjustments as we roll out our network.



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



SERVICE SUPPORT



We believe that service, support and training are important factors in promoting sales and customer satisfaction.  Services we provide our 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 five employees, of which two were engaged in marketing and sales activities, one was engaged in research and development, and two were in administration.  None of our employees is represented by a labor union.  We consider our employee relations satisfactory.





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







ITEM 2 - Description of Property



Our executive offices and assembly operations are located in approximately 8,200 square feet of leased space in Hauppauge, New York.  The lease provides for annual 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.



ITEM 3 - Legal Proceedings



Although, as of the date hereof, no legal action has commenced against our company by our former legal counsel, Mr. Rajan K. Pillai and Uniworld Communications Co., ("UCC"), a New York company, in which Mr. Pillai is the principal, Mr. Pillai has threatened our company for a possible litigation arising due to the contention that our company refused to remove restrictive legend on 500,000 shares of our common stock held by UCC.  Our company had issued 500,000 restricted shares to UCC pursuant to a stock option agreement for the purposes of UCC to deliver "Cyber India Project".  On March 23, 2000, Mr. Pillai notified our company officially, for the first time, that he or UCC did not intend to deliver "Cyber India Project".  Mr. Pillai was also our company's Managing Director (Asia) from June 1997 until his resignation on March 9, 2000.  Our company believes that Mr. Pillai's or UCC's threatened claims, if any, are without merit and our company will vigorously defend its position, if and when required.



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, 2005 |                         
|                                 | First Quarter           
|                                 | Second Quarter          
|                                 | Third Quarter           
|                                 | Fourth Quarter          
|                                 |                         
|Fiscal Year Ended March 31, 2004 |                         
|                                 | First Quarter           
|                                 | Second Quarter          
|                                 | Third Quarter           
|                                 | Fourth Quarter          



On March 31, 2005, the closing trade price of our common stock as reported on the Bulletin Board was $0.21 per share.  On that date, there were approximately 436 stockholders of record of our common stock.   We believe that on March 31, 2005, there were more than 2,400 beneficial holders of our common stock.



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









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



Forward Looking Statements



When used in this report, press releases and elsewhere by the management of our company from time to time, the words "believes", "anticipates", and "expects" and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties.  Additionally, certain statements contained in this discussion may be deemed forward-looking statements that involve a number of risks and uncertainties.  Among the factors that could cause actual results to differ materially or adversely are the following: the ability of our company to meet its working capital and liquidity needs, the status of relations between our company, its primary customers and distributors, the availability of long-term credit, unanticipated changes in the U.S. and international economies, business conditions and growth in the international and the U.S. telecommunications industry, level of growth in both voice and internet systems sales generally, the timely development and acceptance of new products, the impact of competitive products and pricing, changes in the cost of component materials, changes in product mix, the outcome of litigation in which our company is involved, along with product delays and other risks detailed from time to time in our company's SEC reports, including but not limited to this Annual Report on Form 10-KSB for the year ended March 31, 2005.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  Our company undertakes no obligation to publicly release the results of any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.





Overview



We are a designer, software developer, manufacturer and seller of a range of unique distributed digital-voice-switching infrastructure equipment for public switched-voice-network operators worldwide.  We are also a software developer, systems integrator and seller of a vast array of high-performance Internet infrastructure systems, such as soft-switches, routers, gateways, firewalls and servers for Internet service providers to create digital broadband services, voice-over Internet protocol (VoIP) services, and virtual private networks (VPN) services.  With our latest generation of switching systems, we can offer affordable voice and broadband data local switching services to competitive service providers (CSPs) such as competitive local exchange carriers (CLECs), long distance carriers (LDCs) and Internet service providers (ISPs).  Our new mission is to become a leading alternative local switching service provider to competitive service providers by deploying our vast array of local voice and broadband data switching infrastructure systems in the United States.  We expect to generate recurring revenues from wholesaling our local voice and broadband data services to competitive service providers at affordable rates.  We believe that we are one of the first companies to offer such services.

Unlike our competitor's systems, our systems are neither labor nor capital intensive but are software intensive.  This capability, in contrast to that of our competitor's, makes our systems more affordable for both voice and Internet service providers worldwide.  Our digital voice switching and Internet Protocol (IP) infrastructure systems are based on our proprietary operating system software, which provides high performance, reliability and functionality.  We believe that we are one of a very few companies in the world with proprietary technology of distributed digital switching.  We have expended over $20 million dollars on the development of our rock solid proprietary state-of-the-art technology, which is built on 21 years of experience.  Our systems are ideally suited for the U.S. pursuant to the recent FCC rulings



Beginning March 2005, the U.S. Federal Communications Commission (FCC) decided to phase out UNE-P rules that forced the Bells to lease local switching networks to its competitors (CSPs) at cut-rate prices.  This ruling favors us to evolve as an alternative local switching network provider, that is as an UNE-P migration service provider, to these CSPs for Mass Market Local Circuit Switching and High-Capacity Loops for broadband markets.  FCC further rules that CSPs must move all customers to non-Bell networks by March 2006.  Today, CSPs lease 17 million lines for $4.5 billion per year from the Bells, creating an immediate market opportunity for us.  Morover, the Bells own 163 million lines creating a huge migration services opportunity for many years to come.  We intend to be the first company to offer such UNE-P migration services to CSPs by deploying our vast array of local voice and broadband data switching infrastructure systems in the U.S., beginning with New York Metro in partnership with Level 3 Communications.  Under an agreement, Level 3 will provide for voice and data termination services to all traffic generated on our local switching systems.  We will wholesale our UNE-P migration services to CSPs at affordable rates on recurring basis for local, long distance and international calls as well as broadband Internet access and virtual private network (VPN) services.



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.

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.  The local voice switch access charges will be rising from 40 percent to over 60 percent by 2006, 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.  Beginning in 2005, 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; according to the Investor's Business Daily article dated February 28, 2005, "As UNE-P Laws Fade Away".



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.



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



1. Cyber Distributed Central Office (CDCO) CLASS 5 TDM switches provide numerous voice subscriber lines such as POTS, ISDN, analog trunk lines for PABXs, etc.
2. Cyber Tandem Exchange (CTSX) CLASS 4 TDM switches provide numerous T1 carrier grade voice and data trunks.
3. Cyber Internet Access Network (CIAN), a high performance IP (Internet Protocol) distribution softswitch/router, provides numerous business customers simultaneous broadband access at multiple T1 speeds up to T3 and Ethernet 10/100 Mbps.



We believe that our CDCO, CTSX and CIAN systems are ideally suited for building local digital voice switching and broadband data networks that requires increased reliability, performance, scalability, interoperability, and flexibility.  Due to the UNE-P Phase Out Policy, we believe that we are poised to be a premier UNE-P migration service provider to CSPs because of our highly compact digital voice switches and broadband systems.

Our objective is to build, own and operate (BOO) UNE-P migration based voice and broadband local networks for CSPs initially in 1 Metropolitan Service Areas (MSA), namely New York, as rapidly as our financial resources allow us and subject to raising the requisite capital.  There is abundant capacity of optically-enabled TDM (voice) and IP (broadband) backbone network between all major cities in the United States, but as yet businesses or consumers do not have any access to that capacity for both voice and broadband without using the Bell switches.  Industry experts estimate that only between 2.6% to 5% of this capacity is currently being utilized.  Our high-performance CDCO and CTSX distributed TDM switches, and CIAN IP distribution softswitch/ routers are specifically designed to allow nascent UNE-P migration providers and CSPs to efficiently deploy, on co-location basis, local digital TDM (voice) and IP (broadband) networks including TDMoIP (TDM voice over IP), connecting their customers to their respective TDM and IP backbone network.  Fortunately, in major MSAs, abundant optical fiber backbone capacity is available at costs far below their actual construction costs.  Nascent UNE-P migration providers and CSPs can rapidly deploy our local switching systems and connect to this inexpensive optical fiber backbone.  We believe that we will establish a strong market position ourselves as well as with early adopters of our technology as this competitive service provision market establishes itself, however, there can be no assurance that we will be successful in this market.

Market Opportunity in Developing Countries



We were selected, over established companies such as Alcatel and Siemens, to provide Nigeria with a 10,000-line digital voice switch, IP network switches and optical network for $26 million for their Public Switched Telephone Network (PSTN).  Since we offer affordable systems, the Nigerian authorities have selected us as one of the suppliers of digital voice switches and Internet systems.  However, there can be no assurance that we will be successful in supplying any of our digital voice switches or Internet systems to the Nigerian telecommunications market.



Results of Operations



Year Ended March 31, 2005, Compared to Year Ended March 31, 2004



Net sales



Net sales for the year ended March 31, 2005 (referred to as "fiscal year 2005"), were $0 from $0 for the year ended March 31, 2004 (referred to as "fiscal year 2004").  We are in early stages of developing the UNE-P migration services market in the U.S. due to newness of the market.  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.



Gross profit



We include in our cost of sales the materials and labor used, subcontractor costs and overhead incurred in the manufacture of our systems as well as any change in the valuation of our inventory, which was $(56,000) and $0 for fiscal years 2005 and 2004, respectively.  During fiscal year 2005, the valuation of our inventory reduced by $56,000.



Selling, general and administrative



Selling, general and administrative expenses decreased from $321,202 in fiscal year 2004 to $245,741 in fiscal year 2005, representing a decrease of $75,461 or approximately 23%, principally due to cutback in marketing efforts in Nigeria and capital constraints to enter the U.S. market.



Research and development



Research and development expenses increased from $22,921 in fiscal year 2003 to $25,000 in fiscal year 2005, representing an increase of $2,079 or approximately 8%.  All development costs are expensed in the period incurred.



Income (loss) from operations



Loss from operations in fiscal year 2005 was $(417,360) or $(.02) per share as compared with a loss of $(404,558) or $(.02) per share in fiscal year 2004.



Net income (loss) available to Common Stockholders



Preferred stock dividend was $7,292 and $0 in fiscal year 2005 and 2004, respectively.  As a result of the foregoing, the net loss available to common stockholders in fiscal year 2005 was $(424,652) or $(.02) per share as compared to a net loss of $(404,558) or $(.02) per share in fiscal year 2004.



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 $388,510 to $(730,985) at March 31, 2005 from $(342,475) at March 31, 2004.  The current ratio of current assets to current liabilities decreased to 0.4 to 1 as at March 31, 2005 from 0.7 to 1 as at March 31, 2004.  Current levels of inventory are adequate to meet sales for a few months.  We believe that our current sources of liquidity are insufficient to meet our needs.  We need to obtain funds to pursue the domestic market.  We have no off-balance sheet arrangements.



Net cash used in operating activities was $272,908 and $368,096 for fiscal year 2005 and fiscal year 2004, respectively.



We used $0 and $1,421 during fiscal year 2005 and fiscal year 2004, respectively, for investing activities.  The cash used for investing activities relates primarily to purchases of equipment in fiscal year 2005 and fiscal year 2004.



Net cash provided by financing activities was $259,000 and $392,062 for fiscal year 2005 and fiscal year 2004, respectively.



On July 11, 1996, we concluded a private placement of its Series A preferred stock and accompanying warrants to accredited institutional investors and received net proceeds of approximately $7.1 million.  The Series A preferred stock was issued without registration in reliance on Regulation S promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended.  Some of the proceeds from this offering have been used to retire long-term debt, redeem Series A preferred shares prior to conversion and to fund research and development, marketing and production expenses.  All of the Series A preferred stock has been converted or redeemed and there are no such shares outstanding.  On July 10, 2001, 824,013 warrants expired in connection with the offering of Series A preferred stock at an exercise price of $6.35 per share.



On December 30, 1996, we concluded a private placement of 2,000 shares of its Series B-1 preferred stock to Syndicated Communications Venture Partners III, L.P. and received net proceeds of $1.7 million. The Series B-1 preferred stock was issued without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended.  On each of December 30, 1997 and December 30, 1998, the Series B-1 preferred stockholders received a 10% stock dividend of 200 and 220 shares, respectively, of Series B-1 preferred stock in accordance with the terms of the private placement.  On April 14, 1999, all of outstanding Series B-1 preferred stock was converted into 861,230 shares of our common stock at a conversion price of $2.89 per share.



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



On October 5, 1999, we concluded a private placement of 3,000 shares of our Series D1 preferred stock, par value $.05 per share, and accompanying warrants to an accredited institutional investor and received net proceeds of approximately $2.7 million.  In connection with this placement, we issued warrants to the accredited institutional investor to purchase an aggregate of 190,678 shares of our common stock, par value $.01 per share, at an exercise price of $5.70 per share for an aggregate amount of $1,086,865.  In connection with this transaction, the Zanett Securities Corporation, financial advisor to our company, has been issued a warrant to purchase 45,000 shares of our common stock, par value $.01 per share, at an exercise price of $5.70 per share.  The Series D1 preferred stock was issued without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended.  All of the Series D1 preferred stock has been converted or redeemed and there are no such shares outstanding.  On October 4, 2002, all accompanying warrants in the aggregate amount of 235,678 expired in connection with the offering of Series D1 preferred stock at an exercise price of $5.70 per share.



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



On July 2, 2001, we concluded a firm commitment of $6 million private equity line from an accredited institutional investor.  We are able to draw down, at our discretion, up to a maximum of $250,000 and a minimum of $100,000 per month, during a term of thirty months from July 2, 2001.  We are allowed to make a maximum of 24 draw downs over this period, including a cushion period of 7 days during which no draw down can be made.  If we do not draw down in a specific month, our available equity line reduces by $250,000.  During the years ended March 31, 2004 and 2003, we drew down $86,000 and $413,000 against the equity line and issued 348,255 and 842,934 shares of common stock, respectively.  As of March 31, 2004, the equity line has expired.  In consideration for the accredited institutional investor's commitment to purchase shares of our common stock under our equity-line agreement with them, we have issued to the institutional investor a warrant to purchase 250,000 of our shares of our common stock at $4.10 per share and a warrant to purchase 125,000 of our shares of our common stock at $5.15 per share.  We have also issued to Ladenburg Thalmann & Co. Inc., in consideration for their having introduced us to the institutional investor, a warrant to purchase 250,000 of our shares of our common stock at $4.10 per share and a warrant to purchase 125,000 of our shares of our common stock at $5.15 per share.  All four warrants expire on July 1, 2005.



On March 12, 2002, we borrowed $325,000 from J.C. Chatpar, 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 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.



During the fiscal years ended March 31, 2005 and 2004, the Company received cash advances of $209,000 and $305,700, respectively, from our Chief Executive Officer and a shareholder.  As of the fiscal year ended March 31, 2005, our company has received cash advances of $704,300 and $177,000 from our Chief Executive Officer and a shareholder, respectively.



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



Risk Factors



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

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

Since inception, we have generated limited revenues from the sale of our products.  We incurred losses of $417,360 and $404,588, respectively, for the fiscal years ending March 31, 2005 and 2004, 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 Lucent Technologies, Nortel Networks, Siemens Corp., L.M. Ericsson Corp., Alcatel Telecom, and others that have developed systems that perform many of the same functions as our systems.  In addition, computer networking companies engaged in empowering the Internet include companies such as Cisco Systems Inc., Juniper Networks, Check Point Software Technologies, Novell Inc., 3Com, and IBM Corp. which dominate the industry.  All of these companies have substantially greater financing, marketing personnel and other resources than we do.  In addition, they have established reputations for success in developing, selling, and servicing digital switching and networking and related systems and have established significant market penetration for their systems.  These competitors also have the research-and-development capabilities and financial and technical resources necessary to enable them to respond to technological advances as well as evolving industry standards.

Our operating results may fluctuate.

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

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

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

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

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

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

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

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

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

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

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

We depend on third-party suppliers.

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

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

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

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

We are subject to various governmental regulations.

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

Trading in our common stock may be limited.

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

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

Our common stock is a "penny stock," as it is not listed on an exchange and trades at less than $5.00 a share.  Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC.  This document provides information about penny stocks and the nature and level of risks involved in investing in the penny-stock market.  A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser, and obtain the 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, 2005, J.C. Chatpar, our President and Chief Executive Officer, owned beneficially approximately 49%of our outstanding common stock.  Mr. Chatpar is able to influence all matters requiring stockholder approval, including election of directors and approval of significant corporate transactions.  This concentration of ownership, which is not subject to any voting restrictions, could limit the price that investors might be willing to pay for our common stock.  In addition, Mr. Chatpar is in a position to impede transactions that may be desirable for other stockholders.  He could, for example, make it more difficult for anyone to take control of us.

Impact of Inflation



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



ITEM 7 - Financial Statements



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



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



None.



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 | 57  | Chairman of the Board, President, and Chief Executive Officer
|                   |     |                                                              
|Jack P. Dorfman    | 67  | Director                                                     
|                   |     |                                                              
|Jatinder V. Wadhwa | 70  | Director                                                     
|                   |     |                                                              
|Terry L. Jones     | 57  | Director                                                     
|                   |     |                                                              
|Andrew Van Etten   | 43  | 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.



Jatinder Wadhwa has served as a Director of our company since 1986 and as Treasurer from August 1997 until March 2000.  He had been the Secretary of our company from 1993 to 1995.  Since 1994, Mr. Wadhwa has served as the Chief Executive Officer of Security First Financial Corp., a financial institution dealing with first and second mortgages on residential and commercial properties.  From 1989 to 1994, Mr. Wadhwa had served as a management consultant to Gibbons Goodwin van Amerongen, an investment banking firm, Wells Aluminum Corporation, a manufacturer of aluminum extrusion products and Sealy Mattress Company.  From 1970 to 1990, Mr. Wadhwa had served as Chief Operating Officer and Vice President of Operations of EZ Por Corporation, a manufacturer of aluminum products.



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



Andrew Van Etten joined our company as a Director in March 2000.  He is currently serving as Senior Director, Strategic Business Development, Consumer Services Division at Mitsui & Company, (USA) Inc.  He joined Mitsui & Company in 1988.  Mitsui & Company is one of the oldest and largest international trading companies headquartered in Japan.  Mr. Van Etten holds an B.S. degree in Business Administration from the University of Plymouth.



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, 2005, 2004 and 2003 of those persons who were, at March 31, 2005 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 | 2005
2004
2003      | $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 2005, 2004 and 2003 fiscal years or $50,000, thus, such amounts are not included in the table.



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



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



(4)  In fiscal year 2005, Mr. Chatpar was granted options to purchase 1,000,000 shares of our common stock at an exercise price of $0.10 per share.



Option Grants In Last Fiscal Year



The following table sets forth information concerning stock option grants made during fiscal year 2005 to the named officers.  We have not granted any stock appreciation rights.



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

_________________

(1)  During fiscal year 2005, options to purchase an aggregate of 1,000,000 shares of our common stock were granted to Mr. Chatpar and options to purchase an aggregate of 40,000 shares of our common stock were granted to four other directors.



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



1. Options are immediately exercisable.



Aggregated Fiscal Year End Option Values



The following table sets forth information concerning the number of unexercised options and the Fiscal 2005 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 2005.





|             |  | Number of Securities
Underlying Unexercised
Options at Fiscal Year-End (#) |  | Value of
Unexercised In-The-Money
Options at Fiscal Year-End ($)
|------------ |  | -------------------------------------------------------------------------- |  | ----------------------------------------------------------------
|Name         |  | Exercisable                                                                |  | Unexercisable                                                   
|             |  |                                                                            |  |                                                                 
|J.C. Chatpar |  | 5,885,366                                                                  |  | 3,000,000                                                       

____________

(1)  Options are "in-the-money" if, on March 31, 2005, the market price of the Common Stock ($0.21) 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, 2005 and the aggregate exercise price of such options.



Compensation of Directors



We pay our directors $250 per board meeting.  During Fiscal 2004, the board of directors met three times and each director attended at least 75% of the meetings of the board of directors.  In addition, we currently reimburse each director for expenses incurred in connection with his attendance at each meeting of the board of directors.



Committees of the Board of Directors



We have a standing compensation committee composed of all members of the board of directors.  The compensation committee reviews and acts on matters relating to compensation levels and benefit plans for our executive officers and key employees, including salary and stock options.  The compensation committee is also responsible for granting stock awards, stock options and stock appreciation rights and other awards to be made under our existing incentive compensation plans.  We also have a standing audit committee composed of 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, 2005, for (i) each person or group that is known to us to be a beneficial owner of more than 5% of the outstanding shares of our common stock, (ii) each of the named officers and directors, and (iii) all directors and executive officers of our company as a group.  Except as otherwise indicated, we believe that such beneficial owners, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws, where applicable.



|Names and Address
Of Beneficial Owners                                      | Number of Shares | Percentage Owned (1)(2)
|--------------------------------------------------------------------------- | ---------------- | -----------------------
|J.C. Chatpar(3)
c/o Cyber Digital, Inc.
400 Oser Avenue
Hauppauge, NY 11788 | 12,904,778       | 49.5%                  
|Jack P. Dorfman(4)                                                          | 240,000          | 0.9%                   
|Jatinder V. Wadhwa(5)                                                       | 307,812          | 1.1%                   
|Terry L. Jones (6)                                                          | 971,230          | 3.7%                   
|Andrew Van Etten(7)                                                         | 90,000           | *                      
|Prem Chatpar (8)                                                            | 2,807,074        | 10.8%                  
|All directors and executive officers as a group:  (5) persons               | 14,513,820       | 55.7%                  

*less than 1%



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



(2)	Assumes the exercise of the warrants to purchase in the aggregate 750,000 shares of our common stock issued in connection with the private equity line agreement.  Assumes the exercise of all other outstanding warrants to purchase in the aggregate 2,989,200 shares of our common stock.



(3)	Includes 5,885,366 shares as to which Mr. J.C. Chatpar holds non-qualified stock options, which are exercisable at any time.  Includes warrants to purchase 1,981,200 shares.   Excludes 3,000,000 shares, as to which Mr. J.C. Chatpar holds non-qualified stock options, which are not exercisable, until certain conditions are attained.  Does not include 476,000 shares owned by his wife, Sylvie Chatpar, to which shares Mr. J.C. Chatpar disclaims beneficial ownership.



(4)	Includes 180,000 shares as to which Mr. Dorfman holds a non-qualified stock option, which are exercisable at any time.  Does not include 360,000 shares owned by his wife, Sandra Dorfman, to which shares Mr. Dorfman disclaims beneficial ownership.



(5)	Includes 150,000 shares as to which Mr. Wadhwa holds non-qualified stock options which are exercisable at any time.



(6)	Mr. Terry Jones is a general partner of a limited partnership that is the general partner of Syndicated Communications Venture Partners III, L.P. ("Syncom III"), a fund which on April 14, 1998, Syncom III converted all of its outstanding Series B-1 preferred stock into 861,230 shares of our common stock at a conversion price of $2.89 per share.  Includes 110,000 shares as to which Mr. Jones holds non-qualified stock options which are exercisable at any time.



(7)	Includes 90,000 shares as to which Mr. Van Etten holds non-qualified stock options that are exercisable at any time.



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





ITEM 12 - Certain Relationships and Related Transactions



On December 30, 1996, we consummated a private placement of its Series B-1 convertible preferred stock, par value $.05 per share, to Syncom III.  We issued 2,000 shares of its Series B-1 stock to Syncom III in return for $2,000,000.  On April 14, 1998, Syncom III converted all of its outstanding Series B-1 preferred stock into 861,230 shares of common stock at a conversion price of $2.89 per share.



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















ITEM 13 - Exhibits and Reports on Form 8-K



1. Exhibits.





|3.1   | Composite Amended and  Restated Certificate of Incorporation of the Company (including the Certificate of Amendment for the Series D1 Preferred Stock) (incorporated herein by reference to Exhibit 3.1 to the Company's Report on Form 8-K filed on October 8, 1999 (the "8-K").
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   | Composite Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1997 (the "September 1997 Form 10-QSB")).                                              
|4.1   | Form of Warrant Certificate (incorporated herein by reference to Exhibit 4.1 to the 8-K).                                                                                                                                                                                        
|4.2   | Form of Registration Rights Agreement, dated as of September 30, 1999, relating to the Series D1 Preferred Stock (incorporated herein by reference to Exhibit 4.2 to the 8-K).                                                                                                   
|10.1  | 1993 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 (the "1994 Form 10-K").                                                                                        
|10.2  | Amended and Restated Employment Agreement dated as of August 4, 1997, between the Company and J.C. Chatpar (incorporated herein by reference to Exhibit 10.1 to the September 1997 Form 10-QSB).                                                                                 
|10.3  | Manufacturing License Contract between the Company and National Telecommunications Co., dated as of December 4, 1995 (incorporated herein by reference to Exhibit 10(c) to the Company's 1996 Form 10-KSB/A).                                                                    
|10.4  | Manufacturing License Contract between the Company and Gujarat Communications and Electronics, Ltd. dated as of May 30, 1996 (incorporated herein by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997).          
|10.5  | Securities Purchase Agreement, dated as of September 30, 1999, by and among the Company and the Purchaser named therein, relating to the Series D1 Preferred Stock (incorporated herein by reference to Exhibit 10.1 to the 8-K).                                                
|10.6  | 1997 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the Company's 1999 Form 10-KSB/A).                                                                                                                                                                
|10.7  | Private equity line of credit agreement dated as of July 2, 2001, between Cyber Digital and Grenville Finance Ltd. (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form SB2 dated August 2, 2001).                                  
|10.8  | Registration rights agreement between Cyber Digital and Grenville Finance Ltd. (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form SB2 dated August 2, 2001).                                                                      
|10.9  | Form of warrant dated July 2, 2001, issued by Cyber Digital to Grenville Finance Ltd. (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form SB2 dated August 2, 2001).                                                               
|10.10 | Form of warrant dated July 2,2001, issued by Cyber Digital to Ladenburg Thalmann & Co. Inc. (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form SB2 dated August 2, 2001).                                                        
|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.                                                                                                   



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





ITEM 14 - Principal Accountant Fees and Services



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





|    |                    | Year ended
March 31, 2005 | Year ended
March 31, 2004
|--- | ------------------ | ------------------------- | -------------------------
|    |                    |                           |                          
|(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, 2005 and 2004 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, 2005, 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, 2005

| | 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. ChatparJ.C. Chatpar         | Chairman of the Board, President and
Chief Executive Officer (Principal
Executive and Financial Officer) | June 27, 2005
|                                     |                                                                                                          |              
|/s/ Jack P. DorfmanJack P. Dorfman   | Director                                                                                                 | June 27, 2005
|                                     |                                                                                                          |              
|/s/ Jatinder WadhwaJatinder Wadhwa   | Director                                                                                                 | June 27, 2005
|                                     |                                                                                                          |              
|/s/ Terry JonesTerry Jones           | Director                                                                                                 | June 27, 2005
|                                     |                                                                                                          |              
|/s/ Andrew Van EttenAndrew Van Etten | Director                                                                                                 | June 27, 2005



Index to Exhibits





|Exhibit No. | Description of Document                                                                                                                                                                                                                                                          
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         | Composite Amended and  Restated Certificate of Incorporation of the Company (including the Certificate of Amendment for the Series D1 Preferred Stock) (incorporated herein by reference to Exhibit 3.1 to the Company's Report on Form 8-K filed on October 8, 1999 (the "8-K").
|3.2         | Composite Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1997 (the "September 1997 Form 10-QSB")).                                              
|4.1         | Form of Warrant Certificate (incorporated herein by reference to Exhibit 4.1 to the 8-K).                                                                                                                                                                                        
|4.2         | Form of Registration Rights Agreement, dated as of September 30, 1999, relating to the Series D1 Preferred Stock (incorporated herein by reference to Exhibit 4.2 to the 8-K).                                                                                                   
|10.1        | 1993 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 (the "1994 Form 10-K").                                                                                        
|10.2        | Amended and Restated Employment Agreement dated as of August 4, 1997, between the Company and J.C. Chatpar (incorporated herein by reference to Exhibit 10.1 to the September 1997 Form 10-QSB).                                                                                 
|10.3        | Manufacturing License Contract between the Company and National Telecommunications Co., dated as of December 4, 1995 (incorporated herein by reference to Exhibit 10(c) to the Company's 1996 Form 10-KSB/A).                                                                    
|10.4        | Manufacturing License Contract between the Company and Gujarat Communications and Electronics, Ltd. dated as of May 30, 1996 (incorporated herein by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997).          
|10.5        | Securities Purchase Agreement, dated as of September 30, 1999, by and among the Company and the Purchaser named therein, relating to the Series D1 Preferred Stock (incorporated herein by reference to Exhibit 10.1 to the 8-K).                                                
|10.6        | 1997 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the Company's 1999 Form 10-KSB/A).                                                                                                                                                                
|10.7        | Private equity line of credit agreement dated as of July 2, 2001, between Cyber Digital and Grenville Finance Ltd. (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form SB2 dated August 2, 2001).                                  
|10.8        | Registration rights agreement between Cyber Digital and Grenville Finance Ltd. (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form SB2 dated August 2, 2001).                                                                      
|10.9        | Form of warrant dated July 2, 2001, issued by Cyber Digital to Grenville Finance Ltd. (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form SB2 dated August 2, 2001).                                                               
|10.10       | Form of warrant dated July 2,2001, issued by Cyber Digital to Ladenburg Thalmann & Co. Inc. (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form SB2 dated August 2, 2001).                                                        
|31.1        | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  
|32.1        | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                   





























CYBER DIGITAL, INC.

FINANCIAL STATEMENTS



AND



AUDITORS REPORT













































|                             | TABLE OF CONTENTS                                       |     
|---------------------------- | ------------------------------------------------------- | ----
|                             |                                                         | Page
|                             |                                                         |     
|Independent Auditors' Report |                                                         | 1   
|                             |                                                         |     
|Financial Statements         |                                                         |     
|                             |                                                         |     
|                             | Balance Sheets                                          |     
|                             |                                                         |     
|                             | Statements of Operations                                |     
|                             |                                                         |     
|                             | Statements of Changes in Shareholders' Equity (Deficit) |     
|                             |                                                         |     
|                             | Statements of Cash Flows                                |     
|                             |                                                         |     
|                             | Notes to Financial Statements                           |     
|                             |                                                         |     





































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

CERTIFIED PUBLIC ACCOUNTANTS



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









Report of Independent Registered Public Accounting Firm





To the Board of Directors and Shareholders

Cyber Digital, Inc.

Hauppauge, New York





We have audited the accompanying balance sheets of Cyber Digital, Inc. as of March 31, 2005 and 2004, and the related statements of operations, shareholders' equity, and cash flows for each of the two years in the period ended March 31, 2005.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.



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



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2005 and 2004, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2005 in conformity with U.S. generally accepted accounting principles.



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





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



Hauppauge, New York

June 27, 2005









|                                                                       | CYBER DIGITAL, INC.                                           |                                                      
|---------------------------------------------------------------------- | ------------------------------------------------------------- | -----------------------------------------------------
|                                                                       | BALANCE SHEETS                                                |                                                      
|                                                                       | March 31, 2005 and 2004                                       |                                                      
|                                                                       |                                                               |                                                      
|                                                                       |                                                               | 2005                                                 
|ASSETS                                                                 |                                                               |                                                      
|                                                                       |                                                               |                                                      
|Current Assets                                                         |                                                               |                                                      
|                                                                       | Cash and cash equivalents                                     | $                                                    
|                                                                       | Inventories                                                   |                                                      
|                                                                       | Prepaid and other current assets                              |                                                      
|                                                                       |                                                               |                                                      
|                                                                       | Total Current Assets                                          |                                                      
|                                                                       |                                                               |                                                      
|Property and Equipment, net                                            |                                                               | 6,311                                                
|                                                                       |                                                               |                                                      
|Other Assets                                                           |                                                               | 26,374                                               
|                                                                       |                                                               |                                                      
|TOTAL ASSETS                                                           | $                                                             | 610,517                                              
|                                                                       |                                                               |                                                      
|LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                         |                                                               |                                                      
|                                                                       |                                                               |                                                      
|Current Liabilities                                                    |                                                               |                                                      
|                                                                       | Accounts payable, accrued expenses, and taxes                 | $                                                    
|                                                                       | Accrued interest                                              |                                                      
|                                                                       | Officer/ shareholder  notes payable                           |                                                      
|                                                                       | Accrued dividend payable                                      |                                                      
|                                                                       | Settlement payable-current portion                            |                                                      
|                                                                       |                                                               |                                                      
|                                                                       | Total Current Liabilities                                     |                                                      
|                                                                       |                                                               |                                                      
|Long Term Debt                                                         |                                                               |                                                      
|                                                                       | Settlement payable                                            |                                                      
|                                                                       |                                                               |                                                      
|Total Liabilities                                                      |                                                               | 1,311,400                                            
|                                                                       |                                                               |                                                      
|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, 2005 and 2004                              
|                                                                       |                                                               | Series E; issued and outstanding - 50 and 0 shares at
|                                                                       |                                                               | March 31, 2005 and 2004, respectively                
|                                                                       | Common stock - $.01 par value; authorized 60,000,000 shares;  |                                                      
|                                                                       |                                                               | Issued and outstanding 22,326,542 and 22,326,542     
|                                                                       |                                                               | Shares at March 31, 2005 and 2004, respectively      
|                                                                       | Additional paid-in-capital                                    |                                                      
|                                                                       | Accumulated deficit                                           |                                                      
|                                                                       |                                                               |                                                      
|                                                                       | Total Shareholders' Equity (Deficit)                          |                                                      
|                                                                       |                                                               |                                                      
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                             | $                                                             | 610,517                                              
|                                                                       |                                                               |                                                      
|                                                                       |                                                               |                                                      
|See independent accountant's report and notes to financial statements.
|                                                                       |                                                               |                                                      
|Page 2                                                                







|                                                                       | CYBER DIGITAL, INC.                          |                             
|---------------------------------------------------------------------- | -------------------------------------------- | ----------------------------
|                                                                       | STATEMENTS OF OPERATIONS                     |                             
|                                                                       | March 31, 2005 and 2004                      |                             
|                                                                       |                                              |                             
|                                                                       |                                              | 2005                        
|                                                                       |                                              |                             
|Net Sales                                                              | $                                            | 0                           
|                                                                       |                                              |                             
|Cost of Sales                                                          |                                              | 56,000                      
|                                                                       |                                              |                             
|                                                                       | 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                                             |                                              | 370                         
|                                                                       |                                              |                             
|Net Loss                                                               |                                              | (417,360)                   
|                                                                       |                                              |                             
|Preferred Stock Dividend                                               |                                              | 7,292                       
|                                                                       |                                              |                             
|Income Available to Common Shareholders                                | $                                            | (424,652)                   
|                                                                       |                                              |                             
|Net Loss Per Share of Common Stock (See Note 7)                        |                                              |                             
|                                                                       |                                              |                             
|                                                                       |                                              | Loss from Operations - Basic
|                                                                       |                                              | Diluted                     
|                                                                       |                                              |                             
|                                                                       |                                              | Net Loss - Basic            
|                                                                       |                                              | Diluted                     
|                                                                       |                                              |                             
|Weighted average number of common shares outstanding                   |                                              | 22,326,542                  
|                                                                       |                                              |                             
|                                                                       |                                              |                             
|                                                                       |                                              |                             
|                                                                       |                                              |                             
|                                                                       |                                              |                             
|                                                                       |                                              |                             
|                                                                       |                                              |                             
|                                                                       |                                              |                             
|See independent accountant's report and notes to financial statements.
|                                                                      
|Page 3                                                                











|                                                                       |                                                         | CYBER DIGITAL, INC. |              |          
|---------------------------------------------------------------------- | ------------------------------------------------------- | ------------------- | ------------ | ---------
|                                                                       | STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) |                    
|                                                                       | Years ended March 31, 2005 and 2004                     |                    
|                                                                       |                                                         |                     |              |          
|                                                                       |                                                         |                     |              |          
|                                                                       | Preferred Stock                                         |                     |              |          
|                                                                       | Series C                                                | Series E            | Common Stock | Paid in  
|                                                                       | Shares    Amount                                        | Shares    Amount    | Shares       | Amount   
|                                                                       |                                                         |                     |              |          
|Balance at March 31, 2003                                              | 310                                                     | $   16              | -0-          | $     -0-
|                                                                       |                                                         |                     |              |          
|Issuance of Common Stock                                               |                                                         |                     |              |          
|                                                                       |                                                         |                     |              |          
|Net Loss                                                               |                                                         |                     |              |          
|                                                                       |                                                         |                     |              |          
|Balance at March 31, 2004                                              | 310                                                     | $   16              | -0-          | $     -0-
|                                                                       |                                                         |                     |              |          
|Issuance of E Preferred Stock                                          |                                                         |                     | 50           | 3        
|                                                                       |                                                         |                     |              |          
|Net Loss                                                               |                                                         |                     |              |          
|                                                                       |                                                         |                     |              |          
|Accrued Dividend on E Preferred                                        |                                                         |                     |              |          
|                                                                       |                                                         |                     |              |          
|Balance at March 31, 2005                                              | 310                                                     | $   16              | 50           | $       3
|                                                                       |                                                         |                     |              |          
|                                                                       |                                                         |                     |              |          
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|See independent accountant's report and notes to financial statements.
|                                                                      
|Page 4                                                                







|                                                                       | CYBER DIGITAL, INC.                                                         |                                              
|---------------------------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------
|                                                                       | STATEMENTS OF CASH FLOWS                                                    |                                              
|                                                                       | Years ended March 31, 2005 and 2004                                         |                                              
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             | 2005                                         
|                                                                       |                                                                             |                                              
|Cash Flows from Operating Activities                                   |                                                                             |                                              
|                                                                       | Net loss                                                                    | $                                            
|                                                                       | Adjustments to reconcile net loss to net cash used in operating activities: |                                              
|                                                                       |                                                                             | Depreciation                                 
|                                                                       |                                                                             | Inventory valuation allowance                
|                                                                       |                                                                             | (Increase) decrease in operating assets:     
|                                                                       |                                                                             | Prepaid and other current assets             
|                                                                       |                                                                             | 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 preferred stock                                                 |                                              
|                                                                       | Issuance of common stock                                                    |                                              
|                                                                       | Proceeds from officer/shareholder loan                                      |                                              
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             | Net Cash Provided by Financing Activities    
|                                                                       |                                                                             |                                              
|Net Increase (Decrease) in Cash and Cash Equivalents                   |                                                                             | (13,908)                                     
|                                                                       |                                                                             |                                              
|Cash and Cash Equivalents at Beginning of Period                       |                                                                             | 29,990                                       
|                                                                       |                                                                             |                                              
|Cash and Cash Equivalents at End of Period                             | $                                                                           | 16,082                                       
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             |                                              
|Supplemental Disclosures of Cash Flow Information                      |                                                                             |                                              
|                                                                       | Cash paid during the period for:                                            |                                              
|                                                                       |                                                                             | Income taxes                                 
|                                                                       |                                                                             |                                              
|Noncash Operating and Financing Activities                             |                                                                             |                                              
|                                                                       | Accrued preferred stock dividend                                            | $                                            
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             |                                              
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|                                                                       |                                                                             |                                              
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             |                                              
|                                                                       |                                                                             |                                              
|See independent accountant's report and notes to financial statements.
|                                                                      
|Page 5                                                                



CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



Note 1 - Summary of Significant Accounting Policies



Description of Business



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



Operating and Financing Matters



Since inception, the Company has devoted substantial resources to the design and development of the Company's systems and technology.  As such, the Company has not achieved revenue growth and has incurred operating losses.  At March 31, 2005, the Company had an accumulated deficit of $19,790,905 and a shareholders' deficit of $700,883.  The decrease in equity from March 31, 2004 to March 31, 2005 is due mainly to a net operating loss during the fiscal year ended March 31, 2005.  During the fiscal years ended March 31, 2005, 2004 and 2003, the Company received cash advances of $209,000, $305,700 and $41,600 respectively, from the Chief Executive Officer and a shareholder.  An additional $50,000 was raised in August 2004 from the private placement of unregistered Series E preferred stock.  In addition, the Company issued common stock under an equity line of credit of $86,362 and $416,366 for the years ended March 31, 2004 and 2003 respectively.  An additional $100,000 was raised in December 2002 from a private placement of unregistered restricted common stock.  The Company historically has generated sufficient cash flow to support its operations mainly from issuances of debt and equity securities.  The Company anticipates additional issuances of debt and/or equity.  The viability of the Company is dependent upon future revenues and additional issuances of equity.



Estimates



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



Fair Value of Financial Instruments



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



Cash and Cash Equivalents



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



Page 6

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



Note 1 - Summary of Significant Accounting Policies (continued)



Inventories



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



Property and Equipment



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



Revenue Recognition



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



Income Taxes



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



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



Advertising



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



Research and Development Costs



Research and development costs are charged to expense when incurred.



Warranty Expense



The Company records warranty expense as incurred and does not make a provision as shipments are made.  Such expense has not been significant.











Page 7

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



Note 1 - Summary of Significant Accounting Policies (continued)





Impairment of Long-Lived Assets



The Financial Accounting Standards Board has issued Statement No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FASB 121), which the Company has adopted effective April 1, 1996.  FASB No. 121 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for possible impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable.  FASB No. 121 also requires that long-lived assets and certain identifiable intangibles held for sale be reported at the lower of carrying amount of fair value less cost to sell.  The Company determined that no impairment loss need be recognized for the applicable assets.





Stock-Based Compensation



The Company accounts for stock options as prescribed by Accounting Principles Board ("APB") Opinion No. 25 and includes pro forma information in the stock-based compensation footnote, as permitted by Financial Accounting Standards Board ("FASB") Statement No. 123, Accounting for Stock-Based Compensation ("SFAS 123").  Accordingly, no compensation cost is recognized for stock options granted in 2004 and 2003 since the option exercise price is not less than the market price of the underlying stock on the date of grant.  In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting For Certain Transactions Involving Stock-an interpretation of APB Opinion No. 25" ("FIN 44").  FIN 44 clarifies the application of APB No. 25 and among other issues clarifies the definition of an employee for purposes of applying APB Opinion No. 25.  The Company adopted FIN 44 in the first quarter of 2001 with no material effect on the Company's financial position, results of operations or cash flows.





Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123(R), "Share Based Payment".  SFAS No. 123(R) is a revision to SFAS No. 123.  SFAS No. 123(R) requires the Company to recognize the cost of employee services received in exchange for awards of stock options based on the grant date fair value of those awards.  The statement is effective for the interim reporting period that begins January 1, 2006.



Concentration of Credit Risk



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













Page 8

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



Note 1 - Summary of Significant Accounting Policies (continued)





Earnings (Loss) Per Share



Effective for the Company's financial statements for the year ended March 31, 1998, the Company adopted SFAS No. 128, "Earnings per Share," which replaces the presentation of primary earnings per share ("EPS") and fully diluted EPS with a presentation of basic EPS and diluted EPS, respectively.  Basic EPS excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period.  Similar to fully diluted EPS, diluted EPS assumes conversion of the convertible preferred stock, the elimination of the related preferred stock dividend requirement, and the issuance of common stock for all other potentially dilutive equivalent shares outstanding.





Note 2 - Inventories



Inventories consist of the following at March 31:





|               |   | 2005    |   | 2004   
|-------------- | - | ------- | - | -------
|Raw materials  | $ | 492,918 | $ | 515,918
|Finished goods |   | 33,657  |   | 66,657 
|               | $ | 526,575 | $ | 582,575



For the year ended March 31, 2005, the Company has provided a valuation allowance of $56,000 against its inventory.





Note 3 - Property and Equipment



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



|                                |   | 2005    |   | 2004    | Useful Lives
|------------------------------- | - | ------- | - | ------- | ------------
|Machinery and equipment         | $ | 339,394 | $ | 339,394 | 5 years     
|Furniture and fixtures          |   | 64,355  |   | 64,355  | 7 years     
|Leasehold improvements          |   | 4,786   |   | 4,786   | Lease term  
|                                |   | 408,535 |   | 408,535 |             
|Less:  Accumulated depreciation |   | 402,224 |   | 401,784 |             
|                                | $ | 6,311   | $ | 6,751   |             



Note 4 - Other Assets



Other assets consist of various security deposits.





Page 9

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004





Note 5 - Officer/ Shareholder Loans Payable



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



During the 2005 fiscal year the Company received additional advances from J.C. Chatpar in the amount of $209,000.  During the 2004 fiscal year the Company received additional advances from J.C. Chatpar and a shareholder in the total amount of $305,700.  These additional advances bear the same interest rate as the promissory note, are unsecured and are due on demand.  Interest expense for the years ended March 31, 2005, 2004 and 2003 was $86,855, $59,072 and $34,992 respectively.





Note 6 - Line of Credit



During July 2001, the Company secured a $6,000,000 equity line of credit.  The line allows for the Company to take advances a maximum of twenty-four times during the thirty-month term of the agreement.  The maximum amount of each draw down is $250,000.  For the year ended March 31, 2004, the Company utilized approximately $86,000 of this equity line.  As of March 31, 2004, the entire equity line has expired.





Note 7 - Earnings (Loss) Per Share



Earnings per share ("EPS") has been computed and presented pursuant to the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share.



|                                           |   | 2005       |   | 2004      
|------------------------------------------ | - | ---------- | - | ----------
|Net Loss                                   | $ | (417,360)  | $ | (404,588) 
|Dividends paid on Preferred Stock          |   | 7,292      |   | 0         
|Income Available to Common Shareholders    | $ | (424,652)  | $ | (404,588) 
|Weighted Average Common Shares Outstanding |   | 22,326,542 |   | 22,182,551
|Basic EPS                                  | $ | (.02)      | $ | (.02)     
|Diluted EPS                                | $ | (.02)      | $ | (.02)     



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





Note 8 - Common Stock Transactions



During the year ended March 31, 2004 the Company issued 348,255 shares of common stock under the equity line of credit.







Page 10

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004





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, 850,999 shares were reserved for issuance to officers, directors, other employees and consultants meeting certain qualifications.  During March 2001, the 1997 plan was amended to increase the number of shares reserved for issuance from 850,999 to 2,850,999.  Under the 1997 Plan, incentive stock options are granted at 100% of fair market value on the date of grant.  The right to exercise the options accrues equally on each of the first, second, third and fourth anniversaries of the date of grant.  Options granted under the plan expire on the day before the tenth anniversary of the plan.

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



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



A restricted stock award, entitling the recipient to acquire shares of common stock for a purchase price at least equal to par value may be granted to such persons and in such amounts and subject to such terms and 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.



Page 11

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



Note 9 - Stock Option Plans (continued)



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, 2004  | $0.15 to $6.00 | 12,599,268    
|                            | Canceled       | $0.40 to $6.00
|                            | Granted        | $0.10 to $0.25
|Outstanding, March 31, 2005 |                | 13,585,768    



A summary of options and warrants as of March 31, 2005 follows:



|                         | Options Outstanding    |                                             | Options Exercisable             |                          
|------------------------ | ---------------------- | ------------------------------------------- | ------------------------------- | -------------------------
|Range of Exercise Prices | Outstanding at 3/31/05 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Exercisable as of 3/31/05
|$  .10 to $1.50          | $      5,455,768       | 6.77                                        | $             0.17              | $       5,455,768        
|$  .40 to $1.50          | 6,040,000              | 2.55                                        | 0.56                            | 4,877,500                
|$2.43 to $3.00           | 1,230,000              | 3.72                                        | 2.68                            | 1,230,000                
|$4.00 to $5.15           | 760,000                | 0.27                                        | 4.45                            | 760,000                  
|$5.70 to $6.00           | 100,000                | 1.17                                        | 6.00                            | 100,000                  
|                         | $    13,585,768        | 4.21                                        | $            0.85               | $    12,423,268          



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



The following assumptions were employed to estimate the fair value of stock options granted:





|                            | Fiscal Years Ended March 31,
|--------------------------- | ----------------------------
|                            | 2005                        
|Expected dividend yield     | 0.00%                       
|Expected price volatilities | 150%                        
|Risk-free interest rate     | 2.65%                       
|Expected life (years)       | 5                           











Page 12

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004





Note 9 - Stock Option Plans (continued)



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



|                               |             | 2005 |           | 2004
|------------------------------ | ----------- | ---- | --------- | ----
|Weighted average fair value of |             |      |           |     
|Options granted                | $           | 0.01 | $         | 0.01
|Net Loss                       |             |      |           |     
|                               | As reported | $    | (417,360) | $   
|                               | Pro Forma   |      | (441,463) |     
|Net Loss Per Share             |             |      |           |     
|                               | As reported |      |           |     
|                               | Basic       | $    | (.02)     | $   
|                               | Diluted     | $    | (.02)     | $   
|                               | Pro Forma   |      |           |     
|                               | Basic       | $    | (.02)     | $   
|                               | Diluted     | $    | (.02)     | $   



Note 10 - Convertible, Cumulative and Participating Preferred Stock



In 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 $7,292 at March 31, 2005.



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.



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













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





Page 13

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004





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



However, the holder has the right to block the redemption by delivering a notice of conversion to the Company within seven (7) trading days of the 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:



































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



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



Note 11 - Income Taxes



The Company has net operating loss carryforwards for tax purposes amounting to approximately $12.4 million that may be offset against future taxable income which expire through 2025.



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 $105,000 and $132,000 for the fiscal years ended March 31, 2005 and 2004, respectively.



Page 14

CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 and 2004



Note 12 - Commitments and Contingencies



Employment Contract



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



Under this employment agreement, the Company is obligated to pay the Chairman $150,000 for the period ending August 3, 1998 with an annual increase of 10% for each subsequent year under the terms of employment. The Company also agrees that its Board of Directors may raise the 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:









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.



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 $55,481 and $71,516 for the years ended March 31, 2005 and 2004, respectively.



The Company also has noncancelable operating leases for vehicles and equipment.  The monthly rental is $835. The amount charged to expense was $10,484 and $12,775 for the years ended March 31, 2005 and 2004, respectively.



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CYBER DIGITAL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004



Note 12 - Commitments and Contingencies (continued)

Operating Leases (continued)



Future minimum rentals are as follows:



|For years ending | March 31, 2006 | $58,220
|---------------- | -------------- | -------
|                 | March 31, 2007 | $58,220
|                 | 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.



Pending Litigation



Although, as of the issuance date, no legal action has commenced against the Company or its directors by Uniworld Communications Co., ("UCC"), a New York company, they have threatened the Company and its directors for a possible litigation arising due to the contention that the Company refused to remove restrictive legend on 500,000 shares of common stock of the Company held by UCC.  The Company had issued 500,000 restricted shares to UCC pursuant to a stock option agreement.  The Company believes that UCC's threatened claims, if any, are without merit and the Company will vigorously defend its position.



The Company is a defendant in an action arising from an alleged improper termination of a licensing and lease agreement with Cummings Properties, LLC.   In June 2003, this action was settled.  The settlement requires the Company to pay $28,223 over 36 months.  The settlement bears interest at 15%.  The Company has charged the cost of the settlement to other expense for the year ended March 31, 2003.  The balance of the settlement payable at March 31, 2005 was $16,845.



Note 13 - Foreign Operations



During the fiscal year ended March 31, 1998, the Company formed a wholly owned subsidiary, Cyber Digital (India) Private Limited, under the rules and regulations of the government of India.  The subsidiary has not begun operations and has no assets as of March 31, 2005 and 2004.



During the fiscal year ended March 31, 2002, the Company financed a wholly owned subsidiary, Cyber Digital (Nigeria) Ltd. under the rules and regulations of the government of Nigeria.  The subsidiary has not begun operations and has no assets as of March 31, 2005 and 2004.



Note 14 - Going Concern Uncertainty



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



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