CYBD Cyber Digital Inc (CE)

Cyber Digital, Inc. (which we refer to as we or the Company) was incorporated in the State of New York in 19 [__] . We are a designer, software developer and manufacturer of a range of unique distributed digital-voice-switching and Internet Protocol (IP) broadband infrastructure equipment as well as a communications service provider through our subsidiaries. Our technology division produces Class 5 local digital central office switches, Class 4 regional tandem digital central office switches, IP soft-switches, routers, gateways, firewalls, voice-over IP (VoIP) and virtual private network (VPN) systems for public-switched-telephone-network (PSTN) operators and Internet Service Providers (ISP) worldwide. Our communication service provider subsidiaries provide services to small businesses and residential subscribers in the states of New York, New Jersey and Pennsylvania.

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

Unlike our competitor's systems, our systems are neither labor nor capital intensive but are software intensive. This capability, in contrast to that of our competitor's, makes our systems more compact, less power consuming and more affordable. Our digital voice switching and Internet Protocol (IP) infrastructure systems are based on our proprietary operating system software, which provides high performance, reliability and functionality. We own the source code of our operating system. This allows us the flexibility to meet market demands without depending on third party operating systems. We believe that we are one of a very few companies in the world with proprietary hardware and software technology of distributed digital switching. We have expended over $20 million dollars on the development of our rock solid proprietary state-of-the-art technologies, which is built on 25 years of experience. Our systems are ideally suited for the U.S. pursuant to the recent Federal Communications Commission (FCC) rulings.

Beginning March 2005, FCC decided to phase out UNE-P rules that forced the Bells to lease its local switching networks to competitive local exchange carriers (CLECs) at cut-rate prices. FCC further rules that CLECs must migrate all customers to non-Bell networks by March 2010 or pay exorbitant rates to the Bells for using their local switching facilities. Today, CLECs lease 17 million lines for $4.5 billion per year from the Bells, creating an immediate market opportunity. Moreover, according to FCC and Legg Mason, the Bells own 173 million lines addressing an approximate annual revenue of $221 billion in wireline services consisting of local voice, local data, long distance voice and long distance data services. Hence, this deregulation by FCC has created an enormous market opportunity for many years to come. This ruling favors us to evolve as an alternative local switching network provider, as well as directly sell aggregated VoIP and digital broadband services to small businesses and residential customers.

On June 1, 2007, we acquired two CLECs, New Rochelle Telephone Corp., ("NRT") and Telecarrier Services, Inc. ("TSI"), based in White Plains, New York. These acquisitions have allowed us to expand our market presence in New York, New Jersey and Pennsylvania, and have also allowed us to become a facilities based provider of voice and data services as we build our network by deploying our proprietary network equipment. Upon migrating these customers to our network, we will significantly improve profitability through operating synergies.

We intend to deploy our vast array of local voice and IP broadband data switching infrastructure systems by co-locating our systems in various Bell central offices. In anticipation of this, we signed an agreement with Level 3 Communications who will provide for global voice and data termination services to all traffic originating on our local switching systems. In the U.S., providers of local switching networks retain substantial portion of the recurring revenues as call origination services, and payout smaller portion for call termination services. As we acquire more CLECs, we will be able to benefit from operating synergies by migrating the customer the customer lines onto our network. We provide affordable local, long distance and international calls as well as broadband Internet access, aggregated VoIP and virtual private network (VPN) services.

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

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

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

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

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

We believe that an emerging market opportunity has been created in the United States due to the recent FCC policy as follows:

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 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. FCC maintained the UNE-L policy that permits Bells' competitors to lease the copper wires to subscriber premises at cut-rate prices from the Bells. UNE-L is an acronym for Unbundled Network Element - Line, where Line means the Bells' copper wires for analog or digital transmission T1 lines. This allows the Bells' competitors to co-locate their switches in numerous central offices owned by the Bells to offer competitive voice and data services to their customers. 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 such services from alternative local switching service providers, like Cyber Digital, that are envisioning to enter this market.

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

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

Action by the Commission, December 15, 2004 by Order on Remand (FCC 04-290). Chairman Powell, Commissioners Abernathy and Martin, 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 services from other providers, such as Cyber Digital.

These competitors CLECs and LDCs have lost the battle with the Bells. Beginning year 2005, the Bells will begin to virtually shut off access to their local voice and data switches or the CLECs must pay exorbitant rates to the Bells for using their local switching facilities. The local voice switch access charges will be rising dramatically, making local voice switch ownership by CLECs and LDCs an increasingly key factor for their future or seek similar services from other alternative providers. 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 alternative local switching service providers, such a Cyber Digital.

We believe that the telecommunication service provision business will be rapidly consolidating in the next few years, especially in response to the recent deregulation 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. Competitors will have to offer other more reliable broadband services based on carrier grade T1 (1.5 Mbps) to T3 (45 Mbps) rates using private line (PPP) packet switching protocols as well as Ethernet rates of 10/100 Mbps. According to FCC findings, the Bells have artificially maintained very high tariffs for T1 and T3 transport. Hence, FCC mandates the competition with the Bells in this area. Such broadband competition is expected to enhance productivity for business-to-business e-commerce applications. Hence, competitors 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 competitors to effectively compete against the Bells. Our unique systems are positioned to address the inherent problems facing the telecom market today:

• Competitive service providers must build 'critical' local wireline voice and data switching networks and ensure cost efficient, high quality service to their customers.
• Businesses demand scalable broadband connectivity solutions, not offered by the Bells.
• The limitations of Dial-up, ISDN and DSL.
• The emergence of Managed IP Private Line and Ethernet packet switched "broadband" technology.

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 services from other providers. Our compact CDCO and CTSX digital voice switches, and CIAN routers enable us 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.

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 us to offer businesses complete scalability in this range for their broadband access needs. We are able to capture this market by utilizing our proprietary software technology embedded in our CIAN router. In addition, we 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.

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 1 Mbps 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.

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

Our strategy is to be a significant facilities-based local voice and data service provider in the Northeast by deploying our distributed digital voice and broadband data switching systems. We intend to implement the following strategies to achieve our goal:

CLEC industry is consolidating, creating merger and acquisitions opportunities for us. We have determined that we can grow rapidly through acquisition of certain non-facilities based CLECs, who do not want to build their own local voice and broadband data switching facilities, despite the FCC's local switching (UNE-P) phase-out ruling. While these CLECs are, generally, excellent marketing companies and have already established a customer base, they lack the technical and network engineering aspects of owning and maintaining local voice and data switching facilities, which are among our core competences. We intend to acquire as many small to medium sized profitable CLECs in the U.S. Northeast.

Effective June 1, 2007, we acquired NRT and TSI, each as an acquisition subsidiary wholly owned by Cyber Digital, Inc. These profitable companies were acquired on a cashless basis through the assumption of indebtedness to an accredited institutional investor. NRT is licensed to provide services in New York, New Jersey, Pennsylvania, Massachusetts, Ohio and Florida. TSI is licensed to provide services in New York, New Jersey, Pennsylvania and Massachusetts. Both NRT and TSI have certificates of authority under Section 214 of the Communications Act of 1934, as amended, from FCC.

Upon gaining substantial scale in customer base through acquisitions of additional contemplated switch-less CLECs, we will be able to launch our network roll-out at a faster pace than that if we were to build the customer base from zero. Currently, NRT and TSI have a gross profit margin of 37%. Upon migration of the customer lines to our network, the gross margins improve to 56%, resulting in net income increasing over 250%. We intend to expand through acquisitions while, at the same time, migrating those customer lines that, in the aggregate, reach several hundred lines per co-location Bell central office. We will use NRT and TSI proven customer services and provisioning facilities as a platform to build our local voice and data services business, while our technology development and manufacturing division supplies the requisite network equipment comprising of CDCO, CTSX, CIAN and CBIG.

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

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 our services division to create an alternative local voice and data networks or other competitive service providers (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.

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.

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).

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

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

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.

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.

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.

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.

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.

Under the AT&T Alliance program, we provided Internet services to many medium and small businesses in multiple-tenant office buildings 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 aggregated VoIP and digital broadband services using our Internet systems to customers gained through the acquisition of CLECs and to those customers in multiple-tenant office buildings.

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

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

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

Since, our competitor's digital voice switches are both bulky and heavy and cannot be co-located in the Bells' central offices, we find ourselves with limited competition in this upcoming high growth market. We believe that we are uniquely poised to take significant part of this market. The telecommunications and related networking industries are characterized by intense competition. We compete with numerous well-established foreign and domestic companies, many of which possess substantially greater financial, marketing, personnel and other resources than us. These companies have established reputations for success in the development, sale and service of digital switching and networking and related products.

Systems that perform many of the functions similar to our CDCO and CTSX digital voice switches are readily available from a limited number of competitors, namely Alcatel-Lucent Technologies, Nortel Networks, 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 new local switching services that require co-location at the Bells' central offices. Furthermore, these systems are large in physical size with fixed capacity, suffer from stranded capital, consume more power, and are cumbersome to use with modern wireless and optical backhaul network technologies. We have developed our systems on a next generation multi-function distributed switching technology offering superior reliability, performance, scalability and flexibility. Our systems offer modular growth in increments of 1,000 to unlimited number of subscribers and typically occupy 1/100 ^th the space that of our competitor's offerings; making our systems ideally suited for co-location in the Bells' central offices for UNE-P migration services. Most importantly, we have developed specialized software for modern wireless and optical backhaul network technologies, such as our CyberMesh software. We can easily and rapidly implement future advancements in our systems through software. On the other hand, our competitors also have the research and development capabilities, and financial and technical resources necessary to enable them to respond to technical advances as well as evolving industry requirements and standards.

Unlike the existing Bells' public voice telephone network that consists of monolithic centralized digital switches, the CSPs will be seeking for an alternative cost-effective approach, such as our CDCO and CTSX distributed digital switching systems. We believe that the upcoming trend in the telecommunications industry towards distributed switching for local switching networks from monolithic centralized switching will follow a similar trend in the computer industry towards distributed networking personal computers from monolithic centralized mainframe computers, which began the PC revolution in 1980s. We believe that with our distributed switching systems, the CSPs can rapidly provide telephone services to their customers by migrating from the Bell system to their own network. 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.

We believe that our systems have the following three strengths:

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

(2) our switches can be co-located at the Bells' central offices and put into service rapidly, and

(3) distributed architecture of our switches eliminates stranding capacity and capital.

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

Currently, there is limited competition in providing local broadband data services to customers in multiple-tenant office buildings 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 or in multiple-tenant office buildings. This approach provides 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, we 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.

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.

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.

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

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

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

Since the inception we have devoted substantial resources to the design and development of our systems. For the fiscal years ended March 31, 2008 and 2007, we expended approximately $32,500 and $25,000, respectively, on research and development. For the past few years, we substantially reduced our research and development expenditures due to lack of capital. Although our systems are fully developed such as our CDCO, CTSX, CRX, CSX, CBIG, CIAN, CFW and CWEB, we are continually seeking to refine and enhance our systems, including enhancements to comply with emerging regulatory or industry standards or the requirements of a particular customer or country. We believe that with our latest generation of CDCO, CTSX and CIAN systems we can provide UNE-P migration services for both voice and broadband data.

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

We believe that service, support and training are important factors in promoting sales and customer satisfaction. Our technology division offers services that include feasibility studies, site surveys, engineering planning, project estimating, network planning, network design, system planning, site preparation, system installation, customer training and maintenance to our service division or potential CSPs. However, we believe that CSPs 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 service division's ability to provide local voice and data 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.

As of the date hereof, we have 18 employees. At our headquarters, we have 5 employees engaged in general management, marketing, research and development, and administration. At our recently acquired wholly owned subsidiaries, New Rochelle Telephone Corp. and Telecarrier Services, Inc., we have 13 employees engaged in marketing, customer service, billing and provisioning. None of our employees is represented by a labor union. We consider our employee relations satisfactory.

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.

Since inception, we have generated limited revenues from the sale of our products. We incurred losses of $1,762,446 and $932,643, respectively, for the fiscal years ending March 31, 2008 and 2007, and we anticipate that losses will continue until such time, if ever, as revenue from operations is sufficient to offset our operating costs.

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 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.

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.

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.

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.

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

Our operating results 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.

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 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.

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.

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.

As of June 24, 2008, J.C. Chatpar, our President and Chief Executive Officer, beneficially owned approximately 48% of our outstanding common stock. Mr. Chatpar is able to influence all matters requiring shareholder 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 shareholders. He could, for example, make it more difficult for a potential acquirer to take control of us.

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.

As part of our growth strategy, we acquired NRT and TSI in June 2007, and may acquire additional businesses in the future. The integration of NRT, TSI and any businesses we may acquire in the future may not be successful or improve our revenues. We believe that the acquisitions of NRT and TSI will enhance our business opportunities and our growth prospects. However, these acquisitions, and any other acquisitions we may make in the future, involve risks that could materially and adversely affect our business and results of operations. These risks include, among others:

• distraction of management from our existing business operations;
• loss of key personnel and other employees;
• costs, delays and inefficiencies associated with integrating the operations and personnel of the acquired business;
• the impairment of acquired assets and goodwill; and
• acquiring the contingent and other liabilities of the acquired business.

In addition, businesses we acquire may not provide us with the desired increase in business opportunities or result in the growth that we anticipate. Furthermore, integrating acquired operations is a complex, time-consuming and expensive process. Combining acquired operations with our existing operations may result in lower overall operating margins, greater volatility in the price of our common stock and fluctuations in our quarterly earnings. Also, cultural incompatibilities, career uncertainties and other factors related to our acquisitions may result in the loss of employees. Failure to successfully integrate complementary practices of acquired businesses, or to achieve the business synergies or other anticipated benefits of our acquisitions, could materially and adversely affect our business and results of operations.

Pursuant to the terms of our securities purchase agreement with Laurus, we issued a secured convertible term note to Laurus in outstanding principal amount of $1,307,338.26, the proceeds of which were used to acquire NRT and TSI from eLEC Communications Corp., or eLEC. The note is secured by a lien on substantially all of our assets, other than intellectual property assets, pursuant to the terms of a master security agreement we executed in favor of Laurus. The note matures on July 1, 2010. Interest will accrue on the unpaid principal of the note at a rate per annum equal to the "prime rate" published in The Wall Street Journal from time to time, plus two percent, provided that this interest rate shall not at any time be less than nine percent. From July 1, 2007 through and until July 1, 2010, the maturity date of the note, interest on the note is payable monthly. Beginning on January 2, 2008, we will be required to make monthly amortizing principal payments of $39,616.31 to Laurus, in addition to the required interest payments. Although we believe that our operating cash flows will be sufficient for us to comply with our payment obligations under the note and to continue to fund our operating requirements, this indebtedness could materially and adversely affect our business and operating results. For example:

• The terms of our securities purchase agreement with Laurus contain numerous restrictive covenants which, among other things, will restrict us in our ability to incur additional indebtedness, declare or pay dividends on our common stock or materially change the scope of our business. If we do not comply with these or any of our other obligations under the securities purchase agreement, an event of default may result which, if not cured or waived, could require us to repay the outstanding indebtedness immediately.
• We may be more vulnerable in the event of downturns and adverse changes in our business, our industry or the economy generally due to our need for increased cash flow to service this indebtedness.
• We may have difficulty obtaining additional financing, if necessary, at favorable interest rates to meet requirements for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes.
• We will be required to dedicate a substantial portion of our cash flows to the payments of principal and interest on this indebtedness, which will reduce the amount of funds available to us for operations, capital expenditures and future acquisitions.

In December 2007, it came to our attention that NRT evidently had not been receiving telephone usage data from Verizon for the immediately preceding seven months, depriving NRT of the ability to bill its customers accordingly. Under our Wholesale Advantage Services Agreement with Verizon, we believe Verizon is obligated to provide this billing data. We also believe, among other things, that we had overpaid Verizon with respect to some of the months prior to that seven-month period, that Verizon failed to correctly apply current payments to current charges and instead continued to apply payments to past disputed amounts prior to 2007, that Verizon wrongly billed us for late charges, that Verizon billed NRT for usage with respect to which NRT was never provided the corresponding data , and that Verizon improperly charged us for ISP-bound traffic pursuant to FCC rules set forth in 16 FCC Red 9151 (2001). We have been discussing the foregoing matters with Verizon and believe we can reach an amicable resolution with Verizon of each of these disputes. However, there can be no assurance that these disputes will be resolved amicably or, if and when resolved, that they will be resolved in our favor, although if these disputes are not resolved in our favor, we believe eLEC may, in certain circumstances, be obligated to indemnify us for our resulting damages pursuant to the terms of the stock purchase agreement between us and eLEC pursuant to which we agreed to acquire NRT. However, there can be no assurance that eLEC will provide any such indemnification to us, and any adverse resolution of one or more of these disputes with Verizon could have a material and adverse effect on our company.

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

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

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.

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.

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.

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 shareholders to sell their shares, which could have a depressive effect on the price of our common stock.

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

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

There are no material legal proceedings against our company.

None.

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.

On March 31, 2008, the closing trade price of our common stock as reported on the Bulletin Board was $0.16 per share. On that date, there were approximately 470 stockholders of record of our common stock. We believe that on March 31, 2007, there were more than 2,400 beneficial holders of our common stock.

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

On November 30, 2007, at the Annual Meeting of Shareholders, our shareholders approved an amendment to the Company's Certificate of Incorporation to increase the authorized number of shares of the Company's common stock, par value $0.0066667 per share (the "Common Stock"), to 450,000,000.

On November 30, 2007, at the Annual Meeting of Shareholders, our shareholders approved an amendment to the Company's 1997 Stock Incentive Plan (the "1997 Plan") to increase the number of shares of Common Stock reserved for issuance thereunder to 100,000,000.

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, 2008. 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.

We are a designer, software developer and manufacturer of a range of unique distributed digital-voice-switching and Internet Protocol (IP) broadband infrastructure equipment as well as a communications service provider through our subsidiaries. Our technology division produces Class 5 local digital central office switches, Class 4 regional tandem digital central office switches, IP soft-switches, routers, gateways, firewalls, voice-over IP (VoIP) and virtual private network (VPN) systems for public-switched-telephone-network (PSTN) operators and Internet Service Providers (ISP) worldwide. Our communication service provider subsidiaries provide services to small businesses and residential subscribers in the states of New York, New Jersey and Pennsylvania.

On June 1, 2007, we acquired two CLECs, New Rochelle Telephone Corp., ("NRT") and Telecarrier Services, Inc. ("TSI"), based in White Plains, New York. These acquisitions have allowed us to expand our market presence in New York, New Jersey and Pennsylvania, and have also allowed us to become a facilities based provider of voice and data services as we build our network by deploying our proprietary network equipment. Upon migrating these customers to our network, we will significantly improve profitability through operating synergies.

Net sales

Net sales for the year ended March 31, 2008 (referred to as "fiscal year 2008"), were $3,863,840 from $0 for the year ended March 31, 2007 (referred to as "fiscal year 2007"). Net sales consist of local and long distance telephone service provided by our subsidiaries, NRT and TSI, from June 1, 2007, the date of acquisition. Revenues are generated on a recurring monthly basis from services provided to both small businesses and residential customers. The average revenue per user (ARPU) is approximately $43 per month. We are in early stages of developing the alternative local voice and data switching services market in the U.S. due to the recent creation of the market opportunity. We were waiting for the FCC's deregulation policies on local voice and data switching in order to enter this lucrative market with our systems. Our overall strategy is to grow through acquisitions of profitable non-facilities based CLECs in the post FCC deregulation.

Cost of Sales

Cost of sales for the fiscal year 2008 was $2,598,468 compared to $140,000 for the fiscal year 2007. Cost of sales predominantly consists of purchasing communication services from Verizon and Qwest on a resale basis. We also 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 $0 and $140,000 for the fiscal years 2008 and 2007, respectively.

Gross Profit

Gross profit for the fiscal year 2008 was $1,265,372 as compared to a gross loss of $(140,000) for the fiscal year 2007. Gross profit as a percentage of sales was 33% for the fiscal year 2008 as compared to 0% for the fiscal year 2007.

Selling, general and administrative

Selling, general and administrative expenses increased from $579,778 in fiscal year 2007 to $2,027,056 in fiscal year 2008, representing an increase of $1,447,278 or approximately 250%, principally due to selling, general and administrative expenses of NRT and TSI. The stock based compensation expense in fiscal year 2008 was $65,806 as compared to $215,482 in fiscal year 2007.

Research and development

Research and development expenses increased from $25,000 in fiscal year 2007 to $32,500 in fiscal year 2008, representing an increase of $7,500 or approximately 30%. All development costs are expensed in the period incurred.

Income (loss) from operations

Loss from operations in fiscal year 2008 was $(1,762,446) or $(.053) per share as compared with a loss of $(932,643) or $(.028) per share in fiscal year 2007.

Net income (loss) available to Common Stockholders

Preferred stock dividend was $12,500 and $12,526 in the fiscal years 2008 and 2007, respectively. As a result of the foregoing, the net loss available to common stockholders in fiscal year 2008 was $(1,774,946) or $(.053) per share as compared to a net loss of $(945,169) or $(.028) per share in fiscal year 2007.

Our ability to generate cash adequate to meet our needs results primarily from sale of preferred and common stock, cash flow from operations, issuance of debt, and cash advances in the form of loan from our Chief Executive Officer and a shareholder. Total working capital decreased by $2,133,230 to $(4,178,795) at March 31, 2008 from $(2,045,565) at March 31, 2007. The current ratio of current assets to current liabilities increased to 0.24 to 1 as at March 31, 2008 from 0.12 to 1 as at March 31, 2007. Current levels of inventory are adequate to meet sales for a few months. We believe that our current sources of liquidity pursuant to the acquisitions of New Rochelle Telephone Corp. and Telecarrier Services, Inc., as of June 1, 2007, are sufficient to meet our near-term growth needs. However, we need additional capital to pursue more acquisitions to support our future growth needs. We have no off-balance sheet arrangements.

Cash and cash equivalents were $311,992 and $33,506 for the fiscal years 2008 and 2007, respectively.

Marketable securities were $250,480 and $0 for the fiscal years 2008 and 2007, respectively.

Net cash provided by operating activities were $157,163 and $(340,057) for the fiscal years 2008 and 2007, respectively.

Net cash provided by investing activities were $172,015 and $(975) during the fiscal years 2008 and 2007, respectively, predominantly due to the cash portion of the acquisition.

Net cash used in financing activities were $(50,692) and $368,987 for the fiscal years 2008 and 2007, respectively.

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

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

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

On November 3, 2005, we entered into definitive agreement with an accredited institutional investor for a $10 million private equity line of credit to be drawn upon until December 8, 2008. At our discretion, we may draw down on the line up to $100,000 for each 7-day period, as defined. If we do not utilize the line of credit during the 7-day period, the line reduces by $100,000. As of March 31, 2008, approximately $2.3 million would have been available under the credit line, if our company had updated the registration statement for the line of credit. Hence, as of March 31, 2008, our company has no ability to draw down on this credit line. However, when and if, our company updates the registration statement, our ability to draw down will commence to an amount equal to the remaining balance. The ability to draw down depends on a number of factors such as price, volume and liquidity of our shares of common stock traded..

As of the fiscal years ended March 31, 2008 and 2007, our company has received cash advances of $1,256,300 and $1,256,300, respectively, from our Chief Executive Officer. As of the fiscal year ended March 31, 2008 and 2007, our company has received cash advances of $350,000 and $350,000 from a shareholder, respectively.

Effective June 1, 2007, we acquired two telephone companies, NRT and TSI, from eLEC. These companies were acquired on cashless basis through the issuance of secured convertible note in the principal amount of approximately $1.3 million with an accredited institutional investor. The note is due July 1, 2010 and bears interest at prime plus 2% but no less than 9%. All or portion of the outstanding principal and interest due under the note may be converted into shares of our common stock upon satisfaction of specified conditions. The note is convertible into shares of our common stock at a fixed price of $0.50 per share, provided however, (i) the average closing price of our common stock for the 5 trading days prior to conversion is greater than or equal to $0.58, and (ii) specified trading volume conditions are met. Otherwise, we must make the monthly principal and interest payments in cash. The note is secured by a lien on substantially all our assets, other than intellectual property assets. In connection with the note, we entered into a Registration Rights Agreement with the institutional investor to register the shares of our common stock issuable upon conversion of the note. The Registration Rights Agreement was declared effective by Securities Exchange Commission on October 18, 2007 for the issuance of up to 3,200,000 shares of our common stock pursuant to terms of the convertible note. In addition to our purchase agreement, we also received 808,000 restricted shares of common stock of eLEC Communications Corp., which is included as marketable securities for the fiscal year 2008.

In December 2007, it came to our attention that NRT evidently had not been receiving telephone usage data from Verizon for the immediately preceding seven months, depriving NRT of the ability to bill its customers accordingly. Under our Wholesale Advantage Services Agreement with Verizon, we believe Verizon is obligated to provide this billing data. We also believe, among other things, that we had overpaid Verizon with respect to some of the months prior to that seven-month period, that Verizon failed to correctly apply current payments to current charges and instead continued to apply payments to past disputed amounts prior to 2007, that Verizon wrongly billed us for late charges, that Verizon billed NRT for usage with respect to which NRT was never provided the corresponding data , and that Verizon improperly charged us for ISP-bound traffic pursuant to FCC rules set forth in 16 FCC Red 9151 (2001). We have been discussing the foregoing matters with Verizon and believe we can reach an amicable resolution with Verizon of each of these disputes. However, there can be no assurance that these disputes will be resolved amicably or, if and when resolved, that they will be resolved in our favor, although if these disputes are not resolved in our favor, we believe eLEC may, in certain circumstances, be obligated to indemnify us for our resulting damages pursuant to the terms of the stock purchase agreement between us and eLEC pursuant to which we agreed to acquire NRT. However, there can be no assurance that eLEC will provide any such indemnification to us, and any adverse resolution of one or more of these disputes with Verizon could have a material and adverse effect on our company.

Although the acquisitions of NRT and TSI have provided reasonable revenues and positive cash flow, additional financing will be needed to support our plans to grow by acquiring additional CLECs. We are in negotiations with a number of other profitable non-facilities based CLECs for potential acquisitions, although there can be no assurance that we will consummate these or any other acquisitions or, if consummated, that those acquisitions will be successful.

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

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

None.

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.

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

Jawahar C. Chatpar is the founder of our company and has served as Chief Executive Officer since our inception. Mr. Chatpar has served as Chairman of the Board since March 1991. He served as President of our company from inception until November 1986, and has again served as President of our company from March 1991 until present. Mr. Chatpar also served as Secretary from November 1986 until March 1991. 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 since April 2006. He has previously served as Secretary from October 1995 until March 2000. Mr. Dorfman has otherwise been retired since June 1996. Prior thereto, since 1992, Mr. Dorfman served as consultant and manager for a number of pharmacies. From 1990 to 1992, he served as a management consultant for Clark Container, a division of Mark IV Industries, a conglomerate. From 1988 to 1990, he served as Vice President and Treasurer of US Distribution, a transportation company. Prior to 1988, he owned, managed and operated an independent community pharmacy for over fifteen years.

Terry L. Jones has served as a Director of our company since November 1997. He has been the President of Syndicated Communications, Inc. ("Syncom"), a communications venture capital investment company, since 1990. 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.

Michael J. Cataro joined our company as Controller in May 2008. From 2004 to 2008, Mr. Cataro was employed by Robert Half International on long-term consulting assignments. From 2003 to 2004, Mr. Cataro served as Assistant Controller for M&S Fabricators & Erectors. From 1998 to 2002, Mr. Cataro was employed by Advica Health Resources, Inc. as Manager of Finance Operations. From 1995 to 1998, Mr. Cataro served as Accounting Manager / Controller for BCAM International, Inc. He holds an AS degree in Accounting from the Suffolk County Community College.

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.

The following table sets forth information concerning the compensation for services in all capacities for the fiscal years ended March 31, 2008, 2007 and 2006 of those persons who were, at March 31, 2008 the chief executive officer (the "named officer"). During such periods, no executive officer of our company received compensation in excess of $100,000.

____________

(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 2008, 2007 and 2006 fiscal years or $50,000, thus, such amounts are not included in the table.

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

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

(4) In fiscal year 2008, Mr. Chatpar was granted options to purchase 1,500,000 shares and 210,000 shares of our common stock at an exercise price of $0.21 and $0.19 per share, respectively.

The following table sets forth information concerning stock option grants made during fiscal year 2008 to the named officers. We have not granted any stock appreciation rights.

_________________

(1) During fiscal year 2008, options to purchase an aggregate of 1,710,000 shares of our common stock were granted to Mr. Chatpar and options to purchase an aggregate of 105,000 shares of our common stock were granted to two other directors.

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

(3) Options are not immediately exercisable. They vest over a period of four years at a rate of 25% of options granted each year.

The following table sets forth information concerning the number of unexercised options and the Fiscal 2008 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 2008.

____________

(1) Options are "in-the-money" if, on March 31, 2008 the market price of the Common Stock ($0.16) 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, 2008 and the aggregate exercise price of such options.

We pay our directors $250 per board meeting. During Fiscal 2008, the board of directors met five 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.

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 have a de facto audit committee composed of Jack Dorfman and Terry Jones who are also 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.

We do not have an audit committee financial expert. We do not currently have sufficient resources to maintain an audit committee financial expert. In addition, we believe that our de facto audit committee is sufficient as currently structured.

We have adopted a code of conduct that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of conduct is designed to deter wrongdoing and promote the following:

• the conduct of our business with honesty and integrity and in a professional manner that protects our public image and reputation;
• relationships with customers, vendors and fellow employees based on trust and the treatment of every individual with respect and dignity in the conduct of our business;
• familiarity and compliance with legal requirements and our policies and procedures;
• the avoidance of any activities that could involve or lead to involvement in any unlawful practice or any harm to our reputation or image; and
• the avoidance of actual or potential conflicts of interest with our company, or the appearance thereof, in all transactions.

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.

We offer basic health, major medical and life insurance to our employees. We have also adopted a 401(k) plan for our employees.

The following table sets forth certain information regarding beneficial ownership of our company's common stock as of March 31, 2008, 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.

*less than 1%

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

(2) Assumes the exercise of all of the outstanding options and warrants to purchase in the aggregate 14,376,630 and 13,552,500, respectively, shares of our common stock.

(3) Includes 11,618,050 shares as to which Mr. J.C. Chatpar holds non-qualified stock options, which are exercisable at any time. Includes warrants to purchase 10,672,500 shares. Excludes 1,710,000 shares, as to which Mr. J.C. Chatpar holds non-qualified stock options, which are not exercisable. Does not include 714,000 shares owned by his wife, Sylvie Chatpar, to which shares Mr. J.C. Chatpar disclaims beneficial ownership.

(4) Includes 330,000 shares as to which Mr. Dorfman holds a non-qualified stock option, which are exercisable at any time. Does not include 540,000 shares owned by his wife, Sandra Dorfman, to which shares Mr. Dorfman disclaims beneficial ownership.

(5) Mr. Terry Jones is a general partner of a limited partnership that is the general partner of Syndicated Communications Venture Partners III, L.P. ("Syncom III"), a fund which on April 14, 1998, Syncom III converted all of its outstanding Series B-1 preferred stock into 1,291,845 shares of our common stock at a conversion price of $1.93 per share. Includes 210,000 shares as to which Mr. Jones holds non-qualified stock options, which are exercisable at any time.

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

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

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

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.

As defined in Sarbanes-Oxley Act of 2002, we have a de facto audit committee composed of Jack Dorfman and Terry Jones who are also members of the board of independent directors.

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, 2008 and 2007 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, 2008, for filing with the Securities and Exchange Commission.

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, 2008

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.

_________________

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. Through its subsidiaries, the Company is a full-service telecommunications company that focus on developing integrated telephone service in the competitive local exchange carrier ("CLEC") industry services. The Company offers small and medium-sized businesses and residential customers an integrated set of telecommunications products and services, including local exchange, local access, and domestic and international long distance telephone.

The principal focus of the Company, as a communications provider, is to resell and provide low-cost alternative telecommunication services and other bundled services, focusing on small business users and residential customers.

The financial statements include the accounts of Cyber Digital, Inc. and four wholly owned subsidiaries, collectively "the Company", CYBD Acquisition, Inc. and CYBD Acquisition II, Inc. These subsidiaries were formed on October 11, 2006, in the State of New York for the purposes of acquiring other telephone companies. On June 1, 2007, CYBD Acquisition, Inc. acquired New Rochelle Telephone Corp. ("NRT") and CYBD Acquisition II, Inc. acquired Telecarrier Services, Inc. ("TSI"). All inter-company transactions have been eliminated.

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, 2008, the Company had an accumulated deficit of $23,086,366 and a shareholders' deficit of $3,723,272. The decrease in equity from March 31, 2007 to March 31, 2008 is due mainly to a net operating loss during the fiscal year ended March 31, 2008. During the fiscal years ended March 31, 2008, 2007 and 2006, the Company received cash advances of $75,000, $373,000 and $277,000, respectively, from the Chief Executive Officer and a shareholder. The Company historically has generated sufficient cash flow to support its operations mainly from issuances of debt and equity securities. The Company anticipates additional issuances of debt and/or equity. The viability of the Company is dependent upon future revenues and additional issuances of equity.

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.

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.

Page 7

Note 1 - Summary of Significant Accounting Policies (continued)

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.

Marketable securities are recorded at quoted market values. In accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" unrealized holding gains and losses are excluded from earnings. Under SFAS No. 130, "Reporting Comprehensive Income", unrealized holding gains and losses on the Company's available for sale equity securities are to be reported as components of comprehensive income.

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 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.

Intangible assets are amortized over its estimated useful life. The estimated useful lives of the Company's intangible assets are from 3 to 20 years.

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

Revenues from voice, data and other telecommunications-related services are recognized in the period in which subscribers use the related services. Revenues for carrier interconnection and access are recognized in the period in which the service is provided. Deferred revenue represents the unearned portion of telephone service plans that are billed a month in advance.

Trade receivables potentially subject the Company to credit risk. The Company extends credit to its customers and generally does not require collateral. During fiscal years ended March 31, 2008 and 2007, the Company accepted most new customers and extended initial credit based upon credit scored lists and payment history of telephone bills, when available. Once a customer is billed for services, the Company actively manages the accounts receivable to minimize credit risk.

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Note 1 - Summary of Significant Accounting Policies (continued)

In order to record the Company's accounts receivable at their net realizable value, the Company must assess their collectibility. A considerable amount of judgment is required in order to make this assessment, including an analysis of historical bad debts and other adjustments, a review of the aging of the Company's receivables, and the current creditworthiness of the Company's customers. Generally, when a customer account reaches a certain level of delinquency, the Company disconnects the customer's service and provides an allowance for the related amount receivable from the customer. The Company writes off the accounts receivable balance from a customer and the related allowance established when it believes it has exhausted all reasonable collection efforts. As of March 31, 2008 and 2007, the Company had no individual customer that constituted more than 10% of its accounts receivable.

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.

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

Research and development costs are charged to expense when incurred.

The Company periodically reviews its assets for impairment in accordance with Financial Accounting Standards Board ("FASB") Statement No. 121 "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of". Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future forecasted net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair values.

In January 2006, the Company adopted Statement of Financial Accounting Standards No. 123R which requires the Company to recognize the cost of employee compensation and services in exchange for awards of stock options and warrants based on the grant date fair value of those awards. Stock based compensation for the years ended March 31, 2008 and 2007, is in accordance with SFAS No. 123R

The Company present revenue net of taxes collected from customers and remitted to government authorities.

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Note 1 - Summary of Significant Accounting Policies (continued)

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") which requires the Company to account for business combinations using the purchase method. The statements of operations for the years ended March 31, 2008 and 2007, includes indirect and general expenses related to business acquisitions that have been expensed as required by SFAS 141.

In December 2007, the FASB issued SFAS 141R, which replaces SFAS 141. SFAS 141R retains the fundamental requirements of SFAS 41 but broadens its scope and better defines the acquirer in business combinations. This statement retains the guidance in SFAS 141 for identifying and recognizing intangible assets. The Company believes this statement will impact any future acquisitions the Company is contemplating.

In June 2006, the FASB issued interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in Income Taxes" which clarifies the accounting for uncertainties in income taxes. FIN48 establishes recognition thresholds for tax positions that may or may not be sustained by the relevant tax authorities and their recognition in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is evaluating the effect of adopting FIN 48 and does not expect it to have a material effect on the Company's financial statements.

In June 2006, the Emerging Issues Task Force issued EITF issue 06-3, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement." A company may present taxes either gross or net basis, however, the amount of taxes collected on the gross basis must be disclosed. The Company presents revenue net of taxes collected. EITF 06-3 will not impact the Company's financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (as amended). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurement. SFAS No. 157 is effective for periods beginning after November 15, 2007. The Company is currently evaluating the effects, if any, on the Company's financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115" (SFAS 159). SFAS 159 gives the Company the irrevocable option to carry most financial assets and liabilities at fair value, with changes in fair value recognized in earnings. SFAS 159 is effective for the Company's 2009 fiscal year, although early adoption is permitted. The Company is currently assessing the potential effect of SFAS 159 on its financial statements.

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.

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The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. However, the Company's annual report has been qualified for a going concern due to recurring losses and an alleged default of its financing agreements with its principal lender. As of March 31, 2008, substantially all of the Company assets had been pledged as security under the Company's debt agreements.

The Company anticipates generating positive cash flow in the near future, however, the Company will need to expend additional funds on marketing to maintain its customer base and attract new customers. Competition for customers is fierce and certain of the Company's competitors are better capitalized.

The Company may not be able to maintain current levels of cash flow, may not be able to raise additional debt or equity financing or achieve certain other business plan objectives. These could have a material adverse effect on the Company's ability to continue as a going concern.

Management's plans include (1) increasing marketing efforts to maintain and attract new customers, (2) seeking additional financing to acquire additional customers or business to increase cash flow, and (3) cut certain operating costs to achieve more profitable operations.

There can be no assurance that the Company will be able to achieve its business plan objectives or that it will achieve or maintain cash flow positive operating results. If the Company is unable to maintain adequate cash flow or obtain additional financing, they will be unable to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty.

At March 31, 2008, marketable securities consist of 808,000 shares of Pervasip Corp. received as part of the acquisition of NRT and TSI (see Note 15). The shares have been classified as available for sale in accordance.

Inventories consist of the following at March 31:

For the years ended March 31, 2008 and 2007, the Company has provided valuation allowances of $140,000 and $140,000, respectively, against its inventory.

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

Depreciation expense for the years ended March 31, 2008 and 2007 was $18,036 and $7,848, respectively.

Intangible assets consists of the following:

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

During the year ended March 31, 2004, the Company received advances from a shareholder in the amount of $177,000. During the year ended March 31, 2007 and 2008, the Company received additional advances of $98,000 and $75,000, respectively. These advances are due on demand and bear interest at 10%.

The loans payable to Officer/ Shareholder at March 31, 2008 and 2007 was $1,606,300 and $1,531,300, respectively. Accrued interest was $659,703 and $458,352 and interest expense was $201,351 and $ 164,756 for the years ended March 31, 2008 and 2007, respectively.

On November 3, 2005, the Company entered into definitive agreement with an accredited institutional investor for a $10 million private equity line of credit to be drawn upon until December 8, 2008. The Company, at its option, may draw down on the line up to $100,000 for each 7-day increment, as defined. If the Company does not utilize the line of credit during the 7-day period, the line reduces by $100,000. At March 31, 2008, approximately $2.3 million would have been available under the credit line, if the Company had updated the registration statement for the line of credit. Hence, as of March 31, 2008, the Company has no ability to draw down on this credit line. However, when and if, the Company updates the registration statement, the ability to draw down will commence to an amount equal to the remaining balance. The ability to draw down depends on a number of factors such as price, volume and liquidity of the shares of common stock traded.

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Notes payable consists of the following at March 31: