CYBER DIGITAL INC, SB-2, 1999-11-19

CYBER DIGITAL INC
SB-2, 1999-11-19
TELEPHONE & TELEGRAPH APPARATUS

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As filed with the Securities and Exchange Commission on November 19, 1999

Registration No. _________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

CYBER DIGITAL, INC.
(Name of Small Business Issuer in its Charter)

New York 3661 11-2644640
(State or (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation or Code Number)
Organization)
400 Oser Avenue
Suite 1650
Hauppauge, New York 11788
(516) 231-1200
(Address and Telephone Number of Principal Executive Offices)

400 Oser Avenue
Suite 1650
Hauppauge, New York 11788
(Address of Principal Place of Business or Intended Principal Place of Business)

J.C. Chatpar
Cyber Digital, Inc.
400 Oser Avenue
Suite 1650
Hauppauge, New York 11788
(516) 231-1200
(Name, Address and Telephone Number of Agent For Service)

Copies to:

Scott S. Rosenblum, Esq.
Kramer Levin Naftalis & Frankel
919 Third Avenue
New York, New York 10022
(212) 715-9100

Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

------------------

<PAGE>

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

------------------

If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

------------------

If delivery of the Prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [ ]

------------------

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box. [X]
<TABLE>
<CAPTION>

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Proposed Proposed Proposed Maximum Amount of
Registered Amount To Be Maximum Aggregate Registration
Registered(1) Offering Offering Price Fee
Price Per
Share (2)

<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 5,000,000 $3.24 16,200,000 $4503.60
</TABLE>

(1) For all purposes herein, the number of shares that are being registered
assumes a conversion price of the Series D1 Preferred of $3.2708 and a
conversion price of the Series C Preferred of $3.00. This Prospectus registers
shares of our Common Stock underlying: (i) shares of our Series C and Series D1
Preferred Stock that are currently outstanding, (ii) warrants that have been
issued and that are exercisable at $5.70 per share, (iii) shares of our Series
D1 Preferred Stock that will be issued pursuant to certain contractual
obligations as further described herein and (iv) warrants that will be issued
pursuant to certain contractual obligations as further described herein and that
will be exercisable at $5.70 per share.

(2) Based upon the average of the high and low prices on November 15, 1999.

---------------------

The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted pursuant to this prospectus prior to the time the
registration statement becomes effective. This Prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of these securities in any state in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such state.

SUBJECT TO COMPLETION, DATED NOVEMBER , 1999

PROSPECTUS

CYBER DIGITAL, INC.
5,000,000 Shares of Common Stock
(Par Value $0.01 Per Share)

The stockholders listed in this Prospectus under the section entitled
"Selling Stockholders" may offer and sell up to a total of up to 5,000,000
shares of Common Stock pursuant to this prospectus, which includes shares that
are issuable upon conversion of shares of the Company's Series C and D1
Convertible Preferred Stock and the exercise of warrants. The shares of Common
Stock included in this offering consist of 3,057,356 shares of Common Stock
which reflects 200% of the shares of Common Stock issuable upon conversion of
5,000 shares of the Company's Series D1 Preferred Stock (of which 2,000 shares
shall be sold pursuant to the terms of a transaction as further described
herein), 635,594 shares issuable upon the exercise of warrants at an exercise
price of $5.70 (which reflects 200% of the shares of Common Stock to be issued
upon exercise of the warrants), 103,334 shares of Common Stock issuable upon
conversion of 310 shares of the Series C Preferred Stock, an additional 861,230
shares of Common Stock that are currently held by the holders as restricted
securities and a certain number of shares to cover shares of Common Stock
issuable upon the payment of dividends.

The Selling Stockholders may sell the shares of Common Stock described
in this Prospectus in public or private transactions, on or off the OTC Bulletin
Board, at prevailing market prices, or at privately negotiated prices. The
Selling Stockholders may sell shares directly to purchasers or through brokers
or dealers. Brokers or dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders. We will not
receive any proceeds from the Selling Stockholders' sale of the shares of Common
Stock and will only receive $2,000,000 to be paid to us by the holders of the
Series D1 Convertible Preferred for the sale by the Company of 2,000 shares of
the Series D1 Convertible Preferred Stock to such holders. A partial amount of
the Common Stock which may be sold under this Prospectus will require the
Selling Stockholders to first (i) convert shares of the Series C and D1
Convertible Preferred Stock or (ii) exercise warrants. We have agreed to pay the
expenses associated with the registration and sale of the Common Stock offered
by the Selling Stockholders. More information is provided in the section titled
"Plan of Distribution."

In this Prospectus, the "Company," the "Registrant," "Cyber Digital,"
"we," "us" and "our" refer to Cyber Digital, Inc.

- - - - - - - - - - - - - - -

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AT PAGE 1 HEREOF.

- - - - - - - - - - - - - - -

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

- - - - - - - - - - - - - - - - -

This Prospectus includes references to trademarks of entities other than the
Company, which have reserved all rights with respect to their respective
trademarks.

- - - - - - - - - - - - - - - -

Our Common Stock is currently traded on the OTC Bulletin Board under the symbol
"CYBD."

<PAGE>

TABLE OF CONTENTS

PAGE
----

Forward-Looking and Cautionary Statements.................................. i
Where You Can Find More Information.........................................ii
Prospectus Summary.........................................................iii
The Offering............................................................... iv
Summary Consolidated Financial Data......................................... v
Risk Factors................................................................ 1
Use of Proceeds............................................................. 8
Price Range of Common Stock................................................. 8
Capitalization.............................................................. 9
Dividend Policy............................................................. 9
Selected Consolidated Financial Data........................................10
Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................11
Business .................................................................. 16
Management................................................................. 33
Certain Transactions....................................................... 38
Principal Shareholders..................................................... 38
Description of Securities.................................................. 40
Selling Stockholders....................................................... 41
Shares Eligible for Future Sale............................................ 42
Plan of Distribution....................................................... 42
Legal Matters.............................................................. 43
Experts.................................................................... 43
Index to Financial Statements..............................................F-1

You must not rely on any unauthorized information. This Prospectus does
not offer to sell or buy any shares in any jurisdiction where it is unlawful.
The information in this Prospectus is current as of November 19, 1999.

<PAGE>

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993 (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934 (the "Exchange Act") and such
forward-looking statements are subject to the safe harbors created thereby. For
this purpose, any statements contained in this registration statement and
accompanying prospectus except for historical information may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements. In
addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements.

The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties, as well as on
certain assumptions. For example, any statements regarding future cash flow,
financing activities, and research and development programs are forward-looking
statements and there can be no assurance that we will generate positive cash
flow in the future or that we will be able to obtain financing on satisfactory
terms, if at all. Additional risks and uncertainties include possible delays in
the completion of products, the possible lack of market acceptance of products
released by us, failure of our products to be and remain accepted within their
respective markets, material adverse changes in competitive conditions within
our markets, failure to retain key research and development personnel, failure
of the company to accurately anticipate market demand, and material adverse
changes in our operations or business. Additional factors that may affect future
operating results are discussed in more detail under the Section entitled "Risk
Factors." Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Although we believe that
the assumptions underlying the forward-looking statements are reasonable, our
business and operations are subject to substantial risks that increase the
uncertainty inherent in the forward-looking statements, and the inclusion of
such information should not be regarded as a representation by us or any other
person that our objectives or plans of will be achieved. In addition, risks,
uncertainties and assumptions change as events or circumstances change.

(i)

<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
file reports and other information with the Securities and Exchange Commission
("Commission"). Reports, proxy statements and other information filed by us can
be inspected and copied at the principal office of the Commission, Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60651-2511 and at 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies can be obtained from
the Commission at prescribed rates by writing to the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such Web site is http://www.sec.gov.

We have filed with the Commission a registration statement
("Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with respect to sales of the shares of Common Stock offered
by this Prospectus. This Prospectus omits certain information contained in the
Registration Statement. For further information, reference is made to the
Registration Statement, the exhibits and financial statements filed as a part
thereof, which may be examined without charge at the office of the Commission,
and photocopies of which, or any portion thereof, may be obtained upon payment
of the prescribed fee.

Statements contained in this Prospectus as to the contents of any
agreement or other document referred to are not complete, and where such
agreement or other document is an exhibit to the Registration Statement, each
statement is deemed to be qualified and amplified in all respects by the
provisions of the exhibit.

(ii)

<PAGE>

PROSPECTUS SUMMARY

This summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus, including the information set forth
under "Risk Factors." This Prospectus registers shares of our Common Stock
underlying: (i) shares of our Series C and Series D1 Preferred Stock that are
currently outstanding, (ii) warrants that have been issued, (iii) shares of our
Series D1 Preferred Stock that will be issued pursuant to certain contractual
obligations and (iv) warrants that will be issued pursuant to certain
contractual obligations. Each prospective investor is urged to read this
Prospectus in its entirety

The Company

We design, develop, market and service IP Frame Relay Internet
infrastructure equipment, as well as advanced integrated packet and circuit
digital switching equipment employing SS7 or C7 signaling for private and public
switched voice network operators worldwide. We offer high-bandwidth,
high-availability, robust Internet access services geared towards corporate
users demanding broadband access on a full-time, full-service, Internet Protocol
(IP) connectivity basis over dedicated end-to-end 100% digital circuits.

We offer access solutions to companies that require large file
transfer capability, high-capacity e-mail traffic, or that need to host an
active web site. We can enable the distribution and receipt of enterprise-wide,
internetworked communications and corporate materials, assist in companies in
their conduct of electronic transactions and help them to access vast
information resources all from the convenience of desktop computers and with the
immediacy of the Internet.

One of our top priorities is to provide companies with adequate
bandwidth for continuous, reliable high-speed `modem-less' Internet
connectivity. Companies may select the appropriate speed based on their number
of users and the amount of traffic they expect to send and receive on the
Internet.

We believe our network solutions permit users to distribute and receive
enterprise-wide, inter-networked communications and corporate materials, conduct
electronic transactions and access information resources all from the
convenience of their desktop computer. We also believe our network solutions can
be used to increase remote office and worker productivity and to reduce the
complexity of communications for businesses.

(iii)

<PAGE>

The Offering

Common Stock Offered...................... Up to 5,000,000 shares.

Common Stock Outstanding Prior to
this Offering (1)......................... 18,467,283 shares

Common Stock to be Outstanding After
Completion of this Offering (2) ......... 22,606,053 shares

Risk Factors.............................. Investment in these
securities is uncertain and
risky. See "Risk Factors."

Use of Proceeds........................... We will not receive any
proceeds from the sale of
the Common Stock being sold
in this offering and will
only receive $2,000,000 to
be paid to us by the holders
of the series D1 Convertible
Preferred for the sale by
the Company of 2,000 shares
of the Series D1 Convertible
Preferred stock to such
holders.

Dividend Policy........................... We do not anticipate paying
cash dividends in the
foreseeable future as
earnings will be invested in
the growth of our business.
See "Dividend Policy."

OTC Bulletin Board Symbol
Common Stock.............................. CYBD

(1) Based upon the number of outstanding shares at November 8, 1999. Does
not include (i) 2,228,500 shares reserved for issuance upon exercise of
outstanding stock options, (ii) 1,136,723 shares reserved for issuance
upon exercise of outstanding warrants, (iii) shares that will be issued
upon conversion of shares of the Series C Convertible Preferred Stock
and (iv) shares that will be issued upon conversion of the Series D1
Preferred Stock.

(2) Assumes the conversion of shares of the Series C Convertible Preferred
Stock at a conversion price of $3.00 per share, shares of the Series D1
Preferred Stock at a conversion price of $3.2708 per share, and the
exercise of warrants at an exercise price of $5.70 per share.

(iv)

<PAGE>

Summary Consolidated Financial Data
(in thousands, except per share amounts)

The following summary consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, including
the Notes thereto, included elsewhere in this Prospectus. The consolidated
statement of operations data for the years ended March 31, 1997, 1998 and 1999
and the consolidated balance sheet data at March 31, 1999 are derived from the
Company's audited Consolidated Financial Statements, which have been audited by
Albrecht, Viggiano, Zureck & Company, P.C., independent auditors, included
elsewhere in this Prospectus. The consolidated statement of operations data for
the six months ended September 30, 1999 and 1998 and the consolidated balance
sheet data at September 30, 1999 have been derived from unaudited interim
financial statements included elsewhere in this Prospectus and include all
adjustments that the Company considers necessary for a fair presentation of the
financial position and results of operations at that date and for such periods.
The operating results for the six months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full year or for
any future period.
<TABLE>
<CAPTION>

Year Ended Six Months Ended
March 31, September 30,
-------- -------------------------------- ---------------------------
1997 1998 1999 1998 1999(1)
---- ---- ---- ---- -------

Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues.................................... $45 $66 $280 $264 $
Cost of revenues............................ 26 45 135 275 0
Gross profit................................ 19 21 145 (11) 0
Operating expenses
Research and development................ 109 389 650 371 217
Selling, general and administrative..... 850 1,675 1,682 872 575

Operating income (loss)..................... (940) (2,043) (2,187) (1,254) (792)
Net income (loss)........................... (414) $(2,097) $(2,762) $(1,210) $(790)
Primary net income (loss) per common
share .................................... $(.02) $(.12) $(.16) $(.07) $(.04)
Weighted average number of
shares outstanding........................ 16,959,095 17,312,550 17,386,053 17,386,053 18,016,873

Balance Sheet Data:

Cash and cash equivalents................... $5,003 $2,436 $247 $1,051 $2,789
Working capital............................. 5,733 3,150 635 1,888 3,142
Total current assets........................ 5,775 3,291 759 1,998 3,309
Goodwill.................................... 0 0 0 0 0
Total assets................................ 5,829 3,534 1,024 2,292 3,544
Current liabilities......................... 42 141 124 110 167
Total liabilities........................... 42 141 124 110 167
Shareholders' equity........................ $5,787 $3,393 $900 $2,182 $3,377
</TABLE>

(v)

<PAGE>

RISK FACTORS

Investing in the Common Stock being offered by the Selling Shareholders
is very risky. You should be able to bear a complete loss of your investment.
You should carefully consider the following factors and other information in
this Prospectus before deciding to invest in shares of the Common Stock being
offered by the Selling Stockholder.

We cannot predict our success because we have a history of operating losses and
we anticipate future losses.

Since our formation in 1983, we have generated limited revenues from
the sale of our products and services relating to digital switching and
networking systems for voice and data communications. We recently made a
strategic shift to enter the high-speed Internet access market. We re-engineered
our company and changed our sales strategy to grow our business through
strategic alliances and partnerships with major companies for both voice and
high-speed Internet access businesses. We have no revenues from our Internet
business. As of September 30, 1999, we had an accumulated deficit of
approximately $14 million and working capital of $3.1 million.

We predict future losses as we accelerate our marketing and sales
efforts, and substantially increase our capital expenditures and operating
expenses in an effort to expand our recent formation of the Internet services
business. We make no guarantee that we will achieve increased levels of revenues
in the future or ever become profitable. We will need additional funds to
continue our expansion programs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

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

Historically, we have spent, and will continue to spend, more money
than we can generate from operations related to the design, development and
commercialization of our products, systems and services. Based on our currently
planned programs, we believe that our current financial resources should support
our capital and operating needs until September 2000. We will require additional
funds to continue our operations after that time. We intend to seek substantial
additional financing in the future to fund the growth of our operations,
including those funds necessary to provide Internet service in our targeted
markets.

We have historically satisfied our working capital requirements through
the public and private issuances of equity securities and borrowings from
government agencies. 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, our anticipated expansion and/or
curtail our operations, all of which may have an adverse effect on our business.
Currently, we have no arrangements with respect to additional financing.

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

The technology related to digital switching and networking systems
including Internet Protocol (IP) packet-based high-speed broadband systems is
changing and evolving at a rapid pace. To maintain our competitiveness in the
market, we must ensure that our services remain competitive. Toward that end, we
must invest significant time and resources in research, development and testing.
If we are unsuccessful, our current services may become obsolete and irrelevant.
We also confront the risk that any upgrades to our current services and any new
services that we develop may not address the evolving needs of our customers.

Also, in connection with the services that we currently provide, we
have only commercialized CSX and CRX systems for private branch exchange and
rural public telephone exchange applications, respectively, to a limited number
of users. While we have designed and intend to market CDCO and CTSX systems for
metropolitan and urban public telephone exchange applications, and CBIG and CIAN
for Internet services, we cannot ensure any commercial success to leverage,
market and/or sell our services for such uses. Further, we cannot guarantee any
success in our efforts to refine and enhance our systems so that they are
attractive to users or that we will be able to

1
<PAGE>

satisfy our pricing and performance objectives. Unanticipated or other problems
may impede our ability to maintain or enhance the viability of our services,
which would materially adversely affect our business.

We cannot guarantee market demand or acceptance.

Our involvement in the telecommunications and related networking
industries is characterized by the continuous evolution of the market for
products and services and by the growing number of market entrants who have
introduced or are developing an array of new switching and networking products
and services. Each of these entrants is seeking to position its products and
services as the preferred method for the networking of voice and data
communications. We cannot assure that the demand for and acceptance of newly
introduced products and services will not surpass the demand for and acceptance
of the products and services that we offer.

The market for IP packet-based high-speed digital broadband
communication services is in the early stages of development. Since this market
is new and evolving and because our current and future competitors are likely to
introduce competing services, we cannot accurately predict the rate at which
this new market will grow, if at all, or whether new or increased competition
will result in market saturation. Various providers of high-speed digital
broadband communication services are testing products from various suppliers for
various applications. Although we have resolved certain critical issues
concerning commercial use of digital broadband for Internet and local area
network access, including security, reliability, ease and cost of access and
quality of service, we cannot guarantee market acceptance of our Internet
services, which may impact its growth. If the market for our services fails to
develop, grows more slowly than anticipated or becomes saturated with
competitors, our business could be materially adversely affected.

Our limited marketing activity may materially adversely affect our business.

We have not begun significant marketing activities and we lack the
resources to do so. We have not conducted, and do not intend to conduct, formal
market or concept feasibility studies and have not formulated a marketing
strategy for our current or proposed products. To achieve awareness and
acceptance of our products and services, we will need to expend significant
resources. Our failure to expend such resources and to create demand for our
products and services will adversely affect our business. We offer no assurances
regarding our ability to foster demand and market acceptance for our products
and services.

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

We compete in an intensely competitive environment in which the drive
of our competitors for market share is great. Among our greatest competitors are
well established foreign and domestic companies, which include Lucent
Technologies, Nortel Networks, Siemans Corp., L.M. Ericsson Corp., Alactel
Telecom, Fujitsu Limited and others that have developed products which 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., Newbridge Networks, Novell Inc., 3Com, and IBM which dominate the
industry. All of these companies have substantially greater financing,
marketing, personnel and other resources than we do. In addition, they have well
established reputations for success in the development, sale and service of
high-speed digital switching and networking and related products and have
established significant market penetration for their products. 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 requirements and standards.

We depend on our alliance with AT&T

In April 1999, we entered into an agreement with AT&T to provide
high-speed Internet access and to create Virtual Private Networks (VPN) for
businesses using our Internet Protocol (IP) Frame Relay and Private Line based
"broadband" technology. As part of our reseller agreement with AT&T, we will
bundle our high-speed broadband Internet products and services with AT&T's
Managed Internet Service. The bundled services will be marketed to end users
within the United States on a co-branded basis using AT&T and Cyber Digital
brands, but the

2
<PAGE>

relationship between the parties will be that of independent contractors. We
rely heavily on this relationship, which can be terminated by either party under
certain circumstances. Such termination could adversely effect our business.

We depend on third parties, particularly AT&T, for the marketing and sales of
our Internet Services.

We expect to particularly rely on the sales and marketing aspects of
our alliance with AT&T. While our agreement provides for AT&T to furnish us with
sales leads under the Alliance Member Program and to provide for certain market
development funds for marketing activities such as coop advertising, collateral
brochure content creation and end user seminar, we might fail to succeed in
these activities, which would have an adverse effect on our business. Our
agreement with AT&T is on a non-exclusive basis and we believe that they have
offered similar agreements to our competitors who may have greater resources
than us. These competitors may substantially reduce our market share in an
already intensely competitive market.

We will also rely significantly on indirect sales channels for the
marketing and sales of our Internet services. To gain access to customers, we
will seek relationships with numerous service providers, including Internet
Service Providers, system integrators and e-commerce resellers. Our current
agreements with service providers are non-exclusive, and we anticipate that
future agreements will also be non-exclusive, allowing service providers to
resell services offered by our competitors. Our agreements are generally short
term, and can be cancelled by the service provider without significant financial
consequence. We cannot control how these service providers perform and cannot be
certain that their performance will be satisfactory to us or our customers.
Also, many of these companies compete with us. If the number of customers we
obtain through indirect sales channels is significantly lower than our forecast,
our business would be materially adversely affected.

We depend on AT&T for Internet transport facilities.

We depend on the availability of AT&T's IP Backbone or its Managed
Internet Service to connect our IP Frame Relay or Private Line equipment to
provide high-speed Internet access and Virtual Private Network services to our
customers or end users. This dependence on AT&T includes a number of risks. For
instance, we depend on the timeliness of AT&T to process our customer orders. We
have experienced provisioning delays in the past, and we may experience delays
in the future. Also, AT&T may not be able to bring its IP Backbone or its
Managed Internet Service to our customers' premises that do not have designated
areas for service availability. Lack of availability of AT&T's IP Backbone or
Managed Internet Service would reduce our market share and operating revenues,
although we intend to rollout our services where AT&T can provide its IP
Backbone service.

We risk infringement on our proprietary technology.

We rely solely on trade secret, copyright and trademark laws, common
law principals and confidentiality letter agreements with our employees to
protect our software and hardware technology which we consider proprietary. We
do not hold any patents and we have not filed any patent applications that
relate to any of our products or software technology. We make no guarantees or
assurances that our methods of protecting our core technology will be
successful. It is possible that competitors, employees, strategic partners and
others may copy one or more of our products or obtain information that we regard
as proprietary. Costs related to settling any disputes that may arise from our
need to protect our proprietary rights may be significant.

Additionally, we do not believe that our technology infringes any
patents or the proprietary rights of others. However, we may need to expend
resources to defend against any infringement claims should such situations
arise. Any adverse determination in a judicial or administrative proceeding, or
our failure to successfully protect our proprietary technology would
substantially hurt our operating results, financial condition and ultimately our
business.

3
<PAGE>

The loss of certain key personnel would likely have an adverse effect on our
business.

We are dependent upon J.C. Chatpar, our founder, President and Chief
Executive Officer, and our future success will depend largely on our ability to
retain his services. Mr. Chatpar is primarily responsible for the development of
our proprietary technology, management of our company, business development and
marketing. We currently have a three-year employment contract with Mr. Chatpar
which includes terms that prevent him from competing with us during his
employment. We do not have a "key person" life insurance policies for any of our
personnel, including Mr. Chatpar. The loss of Mr. Chatpar's services would
materially adversely affect our business..

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

Our success is also dependent on our ability to hire and retain skilled
operating, marketing, technical, financial and management personnel. In the
telecommunications and network servicing business sectors, competition in
connection with the hiring and retention of skilled and dependable personnel is
intense. We may not offer salaries and/or benefits that are competitive with
those offered by our competitors, universities, research entities and other
organizations which may have significantly more resources than we have. We offer
no assurances that we will be successful in hiring and retaining such personnel
and our business may be hurt by our inability to do so.

Our common stock has certain restrictions and is not listed on an exchange or on
the NASDAQ System.

Our Common Stock is neither listed on any exchange nor on the Nasdaq
System; it is reported on the OTC Bulletin Board. Because our shares are not
listed on Nasdaq, they are subject to the regulations regarding trading in
"penny stocks" which are those securities trading for less than $5.00 per share.
The following is a list of the restrictions on the sale of penny stocks:

- - Before a broker/dealer sells a penny stock to a new purchaser, the
broker-dealer must determine whether the purchaser can invest in penny
stocks. To decide, a broker-dealer must obtain from a prospective investor
information regarding the purchaser's financial condition and investment
experience and objectives. The broker-dealer must then give the purchaser a
written statement describing the suitability finding.

- - A broker-dealer must get from the purchaser a written agreement to purchase
the securities. This agreement is needed for every purchase until the
purchaser becomes an "established customer."

- - Federal law requires that prior to effecting any transaction in any penny
stock, a broker-dealer must give the purchaser a "risk disclosure document"
that contains, among other things, a description of the penny stock market,
how it functions and the risks associated with such investment. These
disclosure rules apply to both purchases and sales by investors.

- - A dealer that sells penny stock must send to the purchaser, within ten days
after the end of each calendar month, a written account statement including
prescribed information about the security.

As a result of our securities not being listed on an exchange or on
Nasdaq, and because of the rules regarding penny stock transactions, your
ability to convert shares of our Common Stock into cash or to sell to a third
party may be very limited. We make no guarantee that our current market-makers
will continue to make a market in our securities, or that any market for our
securities will continue to exist.

We cannot assure any public market for our Common Stock and we expect volatility
of our stock price.

Historically, there has been a limited trading market for our Common
Stock. We offer no assurance that a regular trading market will develop or that,
if developed, it will be sustained. The market price for our Common Stock has
been subject to volatility and may be highly volatile as has been the case with
the securities of other small capitalization companies. In recent years, the
securities markets have experienced a high level of price and volume volatility
and the market prices of securities for many companies, particularly small
capitalization companies, have

4
<PAGE>

experienced wide fluctuations which have not necessarily been related to the
operating performances or underlying asset values of such companies.

You may incur substantial dilution upon conversion of the Series C and Series D1
Preferred Stock.

The issuance of Common Stock upon conversion of the Series C and Series
D1 Preferred Stock, as well as future sales of such Common Stock by the Company
or by its existing stockholders, or the perception that such sales could occur,
could adversely affect the market price of our Common Stock. The shares of
Common Stock issuable upon conversion of the Series C and Series D1 Preferred
Stock are being registered hereunder. Such conversion into shares of Common
Stock could adversely affect the market price of the Common Stock. In addition,
investors could experience substantial dilution upon conversion of the Series C
and Series D1 Preferred Stock into Common Stock as a result of either (i) a
decline in the market price of the Company's Common Stock prior to conversion or
(ii) an event triggering antidilution adjustments to the conversion price of the
outstanding shares of Series D1 Preferred Stock.

Our management and principal stockholders will be able to exercise significant
control over our operations.

Our current officers, directors and shareholders owning 5% or more of
our Common Stock, own beneficially or of record, an aggregate of approximately
41.6% of the issued and outstanding shares of Common Stock, and will own
approximately 34.0% after sales made by the Selling Shareholders (assuming the
conversion of all shares of the Series C and D1 Preferred on November 15, 1999
at a conversion price of $3.00 and $3.2708 per share, respectively, and the
exercise of all warrants). Accordingly, such persons acting together, may be in
a position to effectively control the Company, elect all or a majority of the
Company's directors, increase authorized capital, merge or sell the assets of
the Company and generally direct the affairs of the Company. For a more detailed
description of our stock ownership, please see the "Principal Stockholders"
section.

We depend on third party suppliers.

We are dependent on third-party arrangements for the manufacture 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 are readily available for most component parts. We
are substantially dependent on the ability of our suppliers, among other things,
to satisfy performance and quality specifications and to dedicate sufficient
production capacity for components within scheduled delivery times. We offer no
assurance that our suppliers will have sufficient production capacity to satisfy
our component requirements during any period of sustained demand. We do not
maintain contracts with any of our suppliers and purchase our system components
pursuant to purchase orders placed from time to time in the ordinary course of
business. Failure, delay or increase in prices by our suppliers would adversely
affect our ability to obtain and deliver products on a timely and competitive
basis.

We are dependent on single source suppliers for certain semiconductor
chips, such as Pentium processors from Intel Corporation, ISDN chips from
Motorola, PLDs and FPGAs from Altera, and T1 chips from Rockwell Semiconductors.
If such semiconductor components are discontinued by their respective
manufacturers, we would have to redesign some of our products by using other
vendors components, which will cause delays in product delivery and may harm our
business.

If our systems, or those of certain third parties, are not Year 2000 (Y2K)
compliant, our business could be seriously disrupted.

We have conducted a review of our operating and computer systems to
identify the areas which could be affected by the Y2K issue. We believe that the
Y2K problem will not pose significant operational problems for us and our
estimated cost of achieving compliance is minimal and is not expected to
adversely affect our business.

As part of our assessment of the Y2K issue, we have considered the
possible impact that our use of purchased software, suppliers and outside
service providers may have. Our efforts in this regard are dependent in part on
information that we receive from such suppliers and vendors upon which we rely.
Although we have

5
<PAGE>

received assurances from some of our suppliers and vendors that they are Y2K
compliant, we do not independently verify or make assurances as to their Y2K
compliance.

We expect to have limited foreign sales.

A limited portion of our revenues will be derived from sales of our
products in foreign markets. Accordingly, we are and will continue to be subject
to all of the risks associated with foreign trade, which could have a material
adverse effect on our operating margins and results of operations could and
increase the risks inherent in our business. These risks include:

- - shipping delays

- - increased credit risks, trade restrictions

- - export duties and tariffs

- - fluctuations in foreign currency

- - exchange rates

- - international, political, regulatory and economic developments

We may expand our sales and marketing activities in foreign markets,
by, among other ways, seeking to establish relationships with foreign
governmental agencies which typically operate telecommunications networks. Our
prospects will be dependent on our ability to establish satisfactory
relationships with foreign governmental agencies and on the efforts of such
agencies in connection with commercialization of our products. To the extent
that we are able to successfully expand sales of our products in foreign
markets, we will become increasingly subject to foreign political and economic
factors beyond our control, including governmentally imposed moratoriums on new
network development and construction as a result of budgetary constraints or
otherwise, which could have a material adverse effect on our business.

We anticipate that foreign operations will require us to devote
significant resources to system installation, training and service. We have
limited experience in training and service, system installation and conducting
foreign operations.

Failure to maintain certification for government contracts could have a negative
effect on our business.

For fiscal 1997, fiscal 1998 and fiscal 1999, approximately 100%, 9%
and 0%, respectively, of our revenues were derived from contracts with Federal
and local government agencies and we anticipate that an insignificant portion of
our future revenues will be derived from governmental customers. In the event
that any of our revenues are derived from government contracts, we will be
subject to the special risks involved in such contracts, including:

- - delays in funding

- - lengthy review processes for awarding contracts

- - non-renewal

- - delay

- - termination

6
<PAGE>

- - reduction or modification of contracts in the event of changes in the
government's policies or as a result of budgeting constraints and
increased or unexpected costs resulting in losses

Any or all of these risks could have a negative effect on our
business. We believe that we are among a limited number of companies to have
received General Services Administration ("GSA") certification to sell digital
switching equipment to Federal government agencies. If we fail to maintain GSA
certification for our products or GSA certification is granted to additional
competitors, it could have a negative effect on our business.

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

We have sold our Cyber Switch Exchange Switches ("CSX") to defense
agencies of the United States and to the Tianchi Telecommunications Company
("TTC") in China. Due to cutbacks in domestic defense spending and constrained
financial resources of the TTC, we do not anticipate future sales of the CSX
product to these customers. If we are unable to replace these customers with new
ones, our digital voice switching line of business may be adversely affected.

We are subject to various governmental regulations.

The telecommunications and related networking industries in which we
compete are highly regulated in both the United States and internationally.
Imposition of public carrier tariffs and taxation of telecommunications services
could materially adversely affect demand for our products. Furthermore,
regulation or deregulation of public carrier services by the United States and
other governments, including recent proposals to permit local carriers to
manufacture switching equipment, 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, which would significantly
impact our future operating results.

Furthermore, our products must comply with equipment, interface and
installation standards promulgated by communications regulatory authorities and
industry standards imposed by domestic and foreign carriers. Changes in
government policies, regulations and interface and installation standards or
industry standards imposed by domestic and foreign carriers in the future could
require us to alter methods of operation, resulting in additional costs which
could have a material adverse effect on our business.

7
<PAGE>

USE OF PROCEEDS

The Company will not receive any proceeds from the Selling
Shareholders' sales of their Common Stock.

PRICE RANGE OF COMMON STOCK

Our Common Stock trades on the OTC Bulletin Board under the symbol
"CYBD." The following table presents quarterly information on the high and low
bid prices on the OTC Bulletin Board, which reflects inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.

FISCAL YEAR ENDED MARCH 31, 1999 Low High
--- ----

First Quarter..................................... $1.81 $1.19
Second Quarter.................................... 1.56 0.50
Third Quarter..................................... 0.87 0.22
Fourth Quarter.................................... 3.12 0.65

FISCAL YEAR ENDED MARCH 31, 1998

First Quarter..................................... $3.56 $1.69
Second Quarter.................................... 2.87 2.03
Third Quarter..................................... 2.87 1.38
Fourth Quarter.................................... 2.50 1.25
FISCAL YEAR ENDED MARCH 31, 1997

First Quarter..................................... $6.93 $2.43
Second Quarter.................................... $7.50 $3.62
Third Quarter..................................... $4.18 $1.93
Fourth Quarter.................................... $3.06 $1.75

On November 15, 1999 the last reported sale price of the Common Stock
as reported by the OTC Bulletin Board was $3.31 per share. As of such date,
there were 18,467,283 shares of Common Stock outstanding, held of record by 454
holders. We believe that as of November 8, 1999 there were more than 2,475
beneficial holders of our Common Stock.

8
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of September 30,
1999.

September 30, 1999
----------------------------

Short-term debt ...................................... $166,585
Shareholders' equity:

Preferred Stock, par value $.05 per share:
10,000,000 shares authorized, 310 shares of
Series C issued and outstanding and 3,000 16
shares of Series D1 150
issued and outstanding......................
Common Stock, par value $.01 per share:
30,000,000 shares authorized, 18,467,283
shares issued and outstanding............... 184,673

Additional paid-in capital.......................... 17,418,507
Accumulated deficit................................. (14,226,109)
------------
Total shareholders' equity.................. 3,377,237
------------
Total capitalization (including short-term debt)...... $3.543.822
============

DIVIDEND POLICY

We have not paid cash dividends in the past and do not intend to pay
cash dividends in the foreseeable future.

9
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected financial and operating data in
conjunction with the accompanying financial statements and related notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The selected financial data
set forth below as of and for the years ended March 31, 1997, 1998 and 1999 have
been derived from our audited financial statements. The selected data for the
six months ended September 30, 1998 and 1999 are derived from unaudited
financial statements and include all adjustments, consisting only of normal
recurring adjustments that we consider necessary for a fair presentation of the
financial position and operating results for these periods.

Years Ended Six Months Ended
March 31 September 30
------------------------------------------------------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues.................................... $45 $66 $280 $264 $
Cost of revenues............................ 26 45 135 275 0
Gross profit................................ 19 21 145 (11) 0
Operating expenses
Research and development................ 109 389 650 371 217
Selling, general and administrative..... 850 1,675 1,682 872 575
Operating income (loss)..................... (940) (2,043) (2,187) (1,254) (792)
Net income (loss)........................... $(414) $(2,097) $(2,762) $(1,210) $(790)
Primary net income (loss) per common
share .................................... $(.02) $(.12) $(.16) $(.07) $(.04)
Weighted average number of
shares outstanding........................ 16,959,095 17,312,550 17,386,053 17,386,053 18,016,873

Years Ended Six Months Ended
March 31 September 30
---------------------------------------------------------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $5,003 $2,436 $247 $1,051 $2,789
Working capital ......................... 5,733 3,150 635 1,888 3,142
Total current assets..................... 5,775 3,291 759 1,998 3,309
Goodwill................................. 0 0 0 0 0
Total assets............................. 5,829 3,534 1,024 2,292 3,544
Current liabilities...................... 42 141 124 110 167
Total liabilities........................ 42 141 124 110 167
Shareholders' equity..................... $5,787 $3.393 $900 $2,182 $3,377
</TABLE>

10
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis below should be read in conjunction with
the Consolidated Financial Statements of the Company, including the Notes
thereto, included elsewhere in this Prospectus.

This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from those
anticipated in the forward-looking statement as a result of certain factors,
including, but not limited to, those set forth in "Risk Factors" and elsewhere
in this Prospectus.

During the year ended March 31, 1999 ("Fiscal 1999"), we made a
strategic shift to enter the fast growing, lucrative high-speed internet access
market. We rapidly developed our Cyber Business Internet Gateway (CBIG) and
Cyber Internet Access Network (CIAN) switch. We forged an alliance with AT&T
Corporation to become a provider of high-speed internet access and to create
Virtual Private Networks (VPN) for businesses using our Internet Protocol (IP)
Frame Relay based "broadband" technology. We have recently developed our
Internet Protocol (IP) Frame Relay infrastructure equipment to piggyback on
AT&T's rapid deployment of Internet Protocol (IP) Frame Relay based "broadband"
internet backbone.

We will build, operate and own the internet facilities in such
buildings using its proprietary Cyber Business Internet Gateway (CBIG) and Cyber
Internet Access Network (CIAN). We believe that we are the first company to have
signed such an agreement with AT&T. We intend to implement a scalable nationwide
network. We expect to begin offering commercial services in New York and Boston
in the fall of 1999, and subsequently to begin service in six additional
markets: Washington DC, Atlanta, Chicago, Philadelphia, Miami and Dallas. We
intend to continue our network rollout into 31 additional markets in the year
2000. Upon completion of this network expansion, we anticipate providing
services in 39 of the nation's largest metropolitan areas, which we believe,
contain 60% of the nation's local area networks. Our agreement with AT&T
provides that AT&T will make its internet backbone available to us anywhere in
the United States including the Commonwealth of Puerto Rico and the U.S. Virgin
Islands.

RESULTS OF OPERATIONS

Six Months Ended September 30, 1998 and 1999

For Six Months Ended September 30, 1999

Net sales for the six month period ended September 30, 1999 were zero as
compared with $264,060 for the period ended September 30, 1998. The Company
discontinued direct sales in connection with its strategic shift to the high
speed internet access and Virtual Private Network (VPN) service provision
business. The Company's shift in business focus continued through the quarter
ended September 30, 1999 and produced no sales. Gross profit (loss) for the
period ended September 30, 1999 was zero of net sales as compared to $(10,949)
or (4%) of net sales for the period ended September 30, 1998. Selling, general
and administrative expenses decreased $296,517 or 34% to $575,488 for the period
ended September 30, 1999 as compared to $872,005 the period ended September 30,
1998. Research and development expenses for the period ended September 30, 1999
were $217,149 as compared to $370,979 for the period ended September 30, 1998.
Net loss for the period ended September 30, 1999 was

11
<PAGE>

$(790,196) or $(0.04) per share as compared to $(1,210,150) or ($0.07) per share
for the period ended September 30, 1999.

For Six Months Ended September 30, 1998

Net sales for the six month period ended September 30, 1998 were $264,060 as
compared with $28,410 for the period ended September 30, 1997. Gross profit
(loss) for the period ended September 30, 1998 was (4)% of net sales as compared
to (56)% for the period ended September 30, 1997. Selling, general and
administrative expenses for the period ended September 30, 1998 were $872,005 as
compared to $641,535 for the period ended September 30, 1997. Loss from
operations for the period ended September 30, 1998 was $(1,253,933) as compared
with $(749,015) for the period ended September 30, 1997. Net loss for the period
ended September 30, 1998 was $(1,210,150) or $(.07) per share as compared with
$(641,520) or $(.02) per share for the period ended September 30, 1997.

Year Ended March 31, 1999, Compared to Year Ended March 31, 1998

Net sales

Our net sales for the year ended March 31, 1999 ("Fiscal 1999"), were
$279,926 representing an increase of $213,816 or approximately 323% from $66,110
for the year ended March 31, 1998 ("Fiscal 1998"). Increases in sales were due
to volume increases in services. Net sales for Fiscal 1999 and Fiscal 1988 were
insignificant, primarily attributable to lack of digital voice switch sales to
CLECs. During Fiscal 1999, management focused on strategic shift towards
high-speed internet access business and completing the development of Cyber
Business Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN)
products.

We include in our cost of goods sold the materials and labor used,
subcontractor costs and overhead incurred in the manufacture of its systems. Our
average gross margins increased from approximately 32% to approximately 52% of
net sales from Fiscal 1998 to Fiscal 1999. Increase in gross margins was
primarily attributable to increase in volume of services.

Selling, general and administrative

Selling, general and administrative expenses marginally increased from
$1,674,977 in Fiscal 1998 to $1,682,368 in Fiscal 1999, representing an increase
of $7,391. The absolute dollar selling, general and administrative expenses in
Fiscal 1998 and Fiscal 1999 were principally the result of increased selling
expenses incurred with respect to introductory and exploratory marketing efforts
in the U.S. Such efforts have not resulted in any sales to date.

Research and development

Research and development expenses increased from $388,854 in Fiscal
1998 to $650,072 in Fiscal 1999, representing an increase of $261,218 or
approximately 67%. This increase in research and development expenses was
primarily due to the development of Cyber Business Internet Gateway (CBIG) and
Cyber Internet Access Network (CIAN) for the high speed internet access
business. All development costs are expensed in the period incurred.

Income (loss) from operations

Loss from operations in Fiscal 1999 was $(2,187,413) or $(.13) per
share as compared with $(2,042,667) or $(.12) per share in Fiscal 1998. We
incurred these losses in Fiscal 1999 and Fiscal 1998 primarily due to lack of
sales and sustained selling, general and administrative expenses as well as
increases in research and development expenses.

12
<PAGE>

Provision for bad debt

Bad debt expense amounted to $355,012 in Fiscal 1999 versus $0 in Fiscal
1998. Accounts receivable are presented net of a zero allowance for doubtful
accounts in Fiscal 1999 and Fiscal 1998.

Net income (loss) available to Common Stockholder

As a result of the foregoing, the net loss in Fiscal 1999 was
$(2,761,812) or $(.16) per share as compared to a net loss of $(2,097,486) or
$(.12) per share in Fiscal 1998.

Year Ended March 31, 1997, Compared to Year Ended March 31, 1998

Net sales

Our net sales for the year ended March 31, 1998, were $66,110
representing an increase of $20,725 or approximately 45% from $45,385 for the
year ended March 31, 1997 primarily due to volume increases. Net sales were
insignificant, primarily attributable to management's focus on completing the
development of new products and introduction of these products to the domestic
and international market.

Gross margin

We include in our cost of sales the materials and labor used,
subcontractor costs and overhead incurred in the manufacture of its systems. Our
gross margin decreased from 42% to 32% of net sales from fiscal 1997 to 1998.
Fluctuations in gross margins are primarily attributable to inventory changes,
material price changes and changes in sales mix by system.

Selling, general and administrative

Selling, general and administrative expenses increased from $849,491 in
fiscal 1997 to $1,674,977 in fiscal 1998, representing an increase of $825,486
or approximately 97%. The absolute dollar increases in selling, general and
administrative expenses from fiscal 1997 to fiscal 1998 were principally the
result of increased selling expenses incurred with respect to introductory and
exploratory marketing efforts in the U.S. Such efforts have not resulted in any
sales to date.

Provision for bad debt

Bad debt expense amounted to zero in fiscal 1998 as well as fiscal
1997.

Research and development

Research and development expenses increased from $109,322 in fiscal
1997 to $388,854 in fiscal 1998, representing an increase of $279,532 or
approximately 255%. These dollar increases in research and development expenses
were primarily due to development of CDCO for the U.S. market. All development
costs are expensed in the period incurred. We expect to continue to commit
reasonable resources to research and development in the future, as
commercialization of ISDN applications for CDCO and CSX continue to be developed
in the U.S. and digital voice applications in the developing countries.

Income (loss) from operations or income (loss) before extraordinary item

Loss from operations in fiscal 1998 was $(1,864,876) or $(.10) per
share as compared with $(706,102) or $(.04) per share in fiscal 1997.

Extraordinary item

Extraordinary gain on debt restructure in fiscal 1998 was $0 or $.00
per share as compared to $291,756 or $.02 per share in fiscal 1997.

13
<PAGE>

Net income (loss)

As a result of the foregoing, the net loss in fiscal 1998 was
$(1,864,876) or $(.10) per share as compared to a net loss of $(414,346) or $.02
per share in fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

Our ability to generate cash adequate to meet our needs results
primarily from sale of preferred and common stock and cash flow from operations.
Total working capital decreased by $2,515,748 to $634,674 at March 31, 1999 from
$3,150,422 at March 31, 1998, primarily due to sustained selling, general and
administrative expenses as well as increases in research and development
expenses. The current ratio of current assets to current liabilities decreased
to 6.1 to 1 as at March 31, 1999 from 23.3 to 1 as at March 31, 1998. Current
levels of inventory are adequate to meet sales for the next 6 months. We believe
that our current sources of liquidity will be sufficient to meet our needs for
the next 12 months. We believe that, if needed, we will be able to obtain
additional funds required for future needs.

We used $92,442 and $219,625 during Fiscal 1999 and Fiscal 1998
respectively, for investing activities. The cash used for investing activities
relates primarily to purchases of equipment in Fiscal 1999 and Fiscal 1998.
During Fiscal 1998 we expanded our production equipment capacity in anticipation
of greater product sales.

Net cash used by financing activities was $0 and $529,470 for Fiscal
1999 and Fiscal 1998, respectively. On July 11, 1996, the Company concluded a
private placement of its Series A Preferred Stock and accompanying warrants to
accredited institutional investors and received net proceeds of approximately
$7.1 million. The Series A Preferred Stock was issued without registration in
reliance on Regulation S promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended. On December 30, 1996, the Company
concluded a private placement of 2,000 shares of its Series B-1 Preferred Stock
to Syndicated Communications Venture Partners III, L.P. and received net
proceeds of $1.7 million. The Series B-1 Preferred Stock was issued without
registration in reliance on Section 4(2) of the Securities Act of 1933, as
amended. Some of the proceeds from these offerings have been used to retire
long-term debt, redeem Series A Preferred Shares prior to conversion and to fund
research and development, marketing and production expenses. All of the Series A
Preferred Stock has been converted or redeemed and there are no such shares
outstanding.

However, there are 824,013 warrants outstanding in connection with the
offering of Series A preferred stock at an exercise price of $6.35 per share for
an aggregate amount of $5,232,482. On each of December 30, 1997 and December 30,
1998, the Series B-1 preferred Stockholder received a 10% stock dividend of 200
and 220 shares, respectively, of Series B-1 Preferred Stock in accordance with
the terms of the private placement. On April 14, 1999, all of the Company's
outstanding Series B-1 Preferred Stock was converted into 861,230 shares of the
Company's Common Stock at a conversion price of $2.89 per share.

On July 12, 1999, the Company concluded a private placement of its
Series C Preferred Stock and accompanying warrants to accredited investors and
received net proceeds of approximately $310,000. The Series C Preferred Stock
was issued without registration in reliance on Section 4(2) of the Securities
Act of 1933, as amended.

Due to the completion of the Series A, Series B and Series C Preferred
Stock transactions, expected exercise of options and warrants and together with
expected cash flow from operations, the Company believes its liquidity will be
sufficient to meets its needs for the next 12 months. Impact of Inflation

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

Impact of the Year 2000 ("Y2K") Issue

We have conducted a review of our operating and computer systems to
identify the areas, which could be affected by the Y2K issue. We presently
believe the Year 2000 problem will not pose significant operational

14
<PAGE>

problems for our business and the estimated cost of achieving compliance is
minimal and is not expected to have a material adverse effect on the financial
condition, liquidity or results of operations of our business.

Our internet gateway, digital voice switching and networking systems
which we design, develop, manufacture, market and service have been designed to
be Y2K compliant and the Y2K issue is not expected to have a material effect on
our ability to serve our customers.

As part of our assessment of the Y2K issue, consideration was given to
the possible impact upon our business from using purchased software, suppliers
and outside service providers. Our efforts with regard to Y2K issues are
dependent in part on information received from such suppliers and vendors upon
which we have relied. While it is not possible for us to predict all future
outcomes and events, we are not aware, at this time, of any Y2K non-compliant
situations with regard to any of our purchased software or our use of suppliers
and outside service providers.

15
<PAGE>

BUSINESS

CYBER DIGITAL

We were incorporated under the laws of the State of New York in 1983.
We enable network operators to provide cost effective internet access, data and
voice communication services with minimal or no infrastructure cabling through
our "broadband" Cyber Business Internet Gateway (CBIG). We design, develop,
manufacture, market and service an Internet Protocol (IP) infrastructure
equipment for the high speed internet applications. We offer two types of
Internet platforms: (i) Frame relay and (ii) Private Line. We also design,
develop, manufacture, market and service our high performance distributed,
integrated packet and circuit digital switching systems, employing SS7 or C7
signaling, for both private and public switch data and voice network operators
worldwide. Our systems are based on our proprietary software technology.

We have an alliance with AT&T Corporation ("AT&T") to provide
high-speed internet access and to create Virtual Private Networks (VPN) for
businesses using our Internet Protocol (IP) based "broadband" technology. We
have recently developed our Internet Protocol (IP) Frame Relay or Private Line
infrastructure equipment to piggyback on AT&T's rapid deployment of Internet
Protocol (IP) based "broadband" internet backbone using either Frame Relay or
Private Line platforms. We offer "modem-less" end-to-end Internet Protocol (IP)
connectivity and data integrity using our proprietary Cyber Business Internet
Gateway (CBIG) which is typically located on the customer's premises.

Our Cyber Business Internet Gateway (CBIG) delivers Internet Protocol
(IP) Frame Relay/Private Line based high-speed symmetrical data transfer rates
ranging from 64 Kbps to 1.5 Mbps compatible with AT&T's Internet Protocol (IP)
backbone. Since Internet Protocol (IP) Frame Relay or Private Line packet
switched technology is at least ten times more efficient and many million times
more reliable than modem based technologies, a 64 Kbps Internet Protocol (IP)
Frame Relay can out perform any digital subscriber lines (DSL) modem intended to
operate at 640 Kbps and is ten times faster than any 56Kbps dial-up modem. For
customers that subscribe at the 1.5 Mbps rate, our network provides symmetrical
"true" transfer speeds at approximately 250 times the speed of the fastest
dial-up modem and over 30 times the speed of integrated services digital network
(ISDN) lines. Through our packet-based network and Cyber Internet Access Network
(CIAN) switch, multiple business users can simultaneously access the internet at
a fixed committed bandwidth rate (CBR) and an "always on" basis. Beyond "true"
high-speed access, our Internet Protocol (IP) Frame Relay based gateway, Cyber
Business Internet Gateway (CBIG), offers an ideal solution for virtual private
networks (VPN) applications that require "firewall" capability. Cyber Business
Internet Gateway's (CBIG) firewalls are created by use of Internet Protocol (IP)
packet filtering, Internet Protocol (IP) masquerading, Internet Protocol (IP)
tunneling and Internet Protocol encryption security (IPSec). Such firewall
capabilities cannot be offered by "modem" based technologies.

We made a strategic shift to the high speed internet access and Virtual
Private Network (VPN) service provision business in November 1998. In April
1999, we proceeded with this shift in business with our alliance with AT&T. In
conjunction with AT&T, we will begin marketing our high speed broadband Internet
service for businesses as part of a package of services that includes AT&T's
Internet backbone, which is provided through AT&T's Managed Internet Service.
Under the terms of our agreement with AT&T, we will resell AT&T's Managed
Internet Service bundled with our own 1.5 Mbps Internet Protocol (IP) Frame
Relay or Private Line based internet gateway (i.e. Cyber Business Internet
Gateway (CBIG) and Cyber Internet Access Network (CIAN)). According to our
agreement, AT&T will bring the Internet backbone to commercial buildings that we
mutually serve. Cyber Digital will build, operate and own the Internet
facilities in buildings using its proprietary Cyber Business Internet Gateway
(CBIG) and Cyber Internet Access Network (CIAN). Our agreement with AT&T
provides that AT&T will make its Internet backbone available to us anywhere in
the United States including the Commonwealth of Puerto Rico and the U.S. Virgin
Islands.

We intend to implement a scalable nationwide network. We began
offering commercial services in New York and Boston in the fall of 1999, and
subsequently we expect to begin service in six additional markets:

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Washington DC, Atlanta, Chicago, Philadelphia, Miami and Dallas. We intend to
continue our network rollout into 31 additional markets in the year 2000. Upon
completion of this network expansion, we anticipate providing services in 39 of
the nation's largest metropolitan areas, which we believe, contain 60% of the
nation's local area networks.

Unlike digital subscriber line (DSL) modem technology, our services do
not use Incumbent Local Exchange Carriers (ILEC). We expect the customer to deal
only with us and AT&T. We expect AT&T to handle all regulatory compliance
issues. Our Cyber Business Internet Gateway (CBIG) and Cyber Internet Access
Network (CIAN) combination gives us the freedom to deploy Internet access
rapidly in alliance with AT&T. We believe that we will recognize significant
savings from our bypass of the Incumbent Local Exchange Carrier's (ILEC)
"narrowband" local loop.

In addition, we have designed and developed a family of digital voice
switches which we believe, by interfacing with appropriate methods of wireless
transmission, can easily and rapidly provide telecommunications services to
consumers who are under-served or have no service at all, as in the case of many
developing countries. The Company's products are suitable for both
densely-packed urban areas as well as sparsely populated rural areas. In the
United States, we believe that the enactment of the Telecommunications Act of
1996 (the "Telecommunications Act") has resulted in the creation of a large
market for our voice products since such products are capable of meeting the
requirements of Competitive Local Exchange Carriers (CLEC) who are now
attempting to bypass the ILECs.

INDUSTRY BACKGROUND

In technologically advanced countries such as the United States,
extensive public voice telephone networks are already in place. Therefore,
innovation and change in Internet access and data communications are now taking
place in the domain serviced by private network operators. Private networks
providing new types of Internet and data services are, therefore, growing at a
much faster rate than public voice networks. On the other hand, in the
developing world (Eastern Europe, China, India, Latin America and Africa), there
is demand for voice-only public networks to serve individual and business
subscribers in cities, towns and villages. We have designed our systems to meet
the sophisticated high speed internet and data needs of private networks in the
United States and the basic voice-only needs of public networks in developing
countries.

We believe that a substantial market opportunity exists as a result of
the convergence of seven factors in the United States:

o The growing demand for high-speed access to the Internet and
Virtual Private Networks;

o The inherent limitations of modems as a connection to data
networks;

o The need for large companies to create enterprise-wide networks to
improve the productivity of their branch office workers;

o The need for small and medium sized businesses to have an
integrated gateway solution for their networking requirements;

o Emergence of Internet Protocol (IP) Frame Relay and Private Line
packet switched "broadband" technology;

o The need for "firewall" or data security by businesses; and

o The 1996 Telecommunications Act, as amended.

Growing Demand for High-Speed Access to the Internet and Virtual Private
Networks

The value of goods and services sold through the Internet will grow
from $2.6 billion in 1996 to $400 billion in 2002, according to analysts'
projections. Currently, business spending for connecting remote workers, branch
offices and corporate headquarters to each other and to customers, suppliers and
partners - either through the Internet or VPN - is large and growing. Industry
analysts estimate that the U.S. market for remote Internet and local area
network access will grow from $5.9 billion in 1997 to $11.7 billion by 2002.
Industry sources estimate that spending in the United States on distributed
networking and network services and applications will grow from $54.2 billion in
1998 to $173 billion in 2002. Much of that growth is expected to result from
increased demand for e-mail,

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Web hosting services, e-commerce, collaboration and real-time video services and
applications. Industry sources expect spending on distributed networking and
network services and applications to encompass 57% of a company's total annual
information technology spending by 2002.

Limitations of Dial-up and DSL Modems and Integrated Services Digital Networks
(ISDN)

Only five percent of buildings in the United States are currently
connected to high-speed fiber rings, typically large buildings in metropolitan
areas or clusters of buildings in regional campus parks. The vast majority of
Internet users access data networks through slow dial-up modems connected to the
traditional circuit-switched public telephone network. These traditional dial-up
modems create a bottleneck in data communications because the data-carrying
capacity of the fastest commercially available dial-up modem is only 56 Kbps
(and operates on the average at only 6.4 Kbps). The capacity of another
alternative, an integrated services digital network (ISDN) line, is only 128
Kbps (and operates on the average at only 51.2 Kbps). While integrated services
digital network (ISDN) technology provides improved capacity relative to dial-up
modems, the cost of an ISDN solution is often prohibitive. The experimental
capacity of another alternative, a digital subscriber line (DSL) modem-based
technology, ranges from 128 Kbps to 7.1 Mbps downstream and 64 Kbps upstream, in
a laboratory environment. When implemented in the field, however, the fastest
DSL modem offers bandwidth as low as 16 Kbps downstream. DSL technology is
unproven and is very sensitive to the quality of the voice grade existing lines.
DSL is based on analog voice modem technology and is therefore severely limited
by the length of wire from an Incumbent Local Exchange Carrier's (ILEC) central
office to a subscriber location; generally less than a few thousand feet. DSL
lines require precision fine tuning of the voice grade lines. Since both dial-up
and DSL modem technologies are inherently analog based transmission
technologies, they cannot support packet switched data nor can they provide the
mandatory "firewalls" for virtual private network (VPN) applications. These
impairments are created by the Incumbent Local Exchange Carrier's (ILEC)
existing voice grade lines and are incurable.

Need for Large Businesses to Create Enterprise-wide Network to Improve Branch
Office Worker Productivity

Many large companies are currently interconnecting increasing numbers
of branch and remote offices by point-to-point high-speed T1 carrier grade lines
to their local area networks. This approach is cost prohibitive for many
companies. At present, some other large businesses are incurring significant
capital expenditures to purchase equipment to support integrated services
digital network (ISDN) connections and experimenting with digital subscriber
line (DSL) modems, and paying for expensive technical support personnel only to
implement networking solutions that may fail to optimize their worker
productivity. These companies face the challenge of finding a cost effective way
to make their branch and remote office workers as productive as those who have
access to all of the high performance communications and networking resources
available to workers located at corporate headquarters. A high-speed VPN
solution, such as Cyber Virtual Private Network (CVPN) that encompasses access
to the corporate local area network, the internet, the corporate video
conferencing system, customers, suppliers and partners could substantially
increase branch office worker productivity.

Need for Small and Medium Businesses to have an Integrated Gateway Solution

A significant number of small and medium sized businesses have no
practical alternative to dial-up modems or ISDN or experimental DSL modems for
their workers to access the internet. As a result, these businesses suffer
productivity limitations associated with slow transmission speeds. In addition,
these companies have to pay heavy monthly subscription rates for each e-mail
address that is maintained by an Internet Service Provider (ISP) on its e-mail
servers. These businesses must contend with the cost and complexity of retaining
multiple vendors for their internet needs, such as an Incumbent Local Exchange
Carrier (ILEC) for dial-up modem or DSL modem or ISDN connection, Internet
Service Providers for internet access, and equipment integrators for on-premises
systems. We believe that these businesses can benefit from working with a single
service provider that offers an on-premise integrated gateway solution with
high-speed internet access and built-in e-mail server with automatic messaging
flags, such as CBIG.

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Emergence of Internet Protocol (IP) Frame Relay and Private Line Packet Switched
"broadband" Technology

Internet Protocol (IP) Frame Relay and Private Line is a packet
switching based "broadband" technology that dramatically increases the
data-carrying capacity over standard T1 carrier grade copper lines. It also
dramatically increases the reliability of packet data transmission because of
end-to-end Internet Protocol (IP) data integrity and connectivity. AT&T's
massive long distance network is a digital "broadband" network. AT&T has decided
to deploy Internet Protocol (IP) Frame Relay and Private Line over carrier grade
T1 lines as the only solution for businesses desiring to have high-speed
internet access and to create enterprise-wide VPN. Since AT&T has already
massively deployed T1 carrier grade network in all major cities nationwide, a
broad network deployment can be implemented rapidly based on Internet Protocol
(IP) Frame Relay and Private Line Internet gateways, such as Cyber Business
Internet Gateway (CBIG). This requires a lower fixed investment than some
existing alternative technologies, such as fiber, cable modems and satellite
communications systems. We believe Internet Protocol (IP) Frame Relay and
Private Line 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 Internet Protocol address. Traditional
point-to-point networks, including the traditional telephone network and private
line networks, are less efficient because they require a dedicated connection
between two locations. IP Frame Relay and Private Line packet-based networks
allow multiple users to share connections between locations.

Need for "Firewall" or Data Security for Businesses

Security of data transmission over the public Internet is of paramount
importance to businesses and is referred to in the industry as "Firewall." This
Firewall must exist at the customer's premises. It can only be supported by
packet switching technology and not by dial-up modems, DSL modems or ISDN
technologies. Among the packet switching technologies such as X.25, Frame Relay,
Private Line and Asynchronous Transmission Mode (ATM), Internet Protocol (IP)
Frame Relay and Private Line has been selected by AT&T as the most cost
effective choice for customer end equipment interface to AT&T's Internet
backbone network. CBIG provides the "Ultimate Firewall" by Internet Protocol
(IP) Packet Filtering, Internet Protocol (IP) Masquerading, Internet Protocol
(IP) Tunneling and Internet Protocol encryption security (IPSec). This Firewall
capability makes an enterprise-wide VPN a reality .

1996 Telecommunications Act

The 1996 Telecommunications Act, as amended, allows competitive
carriers to leverage the existing Incumbent Local Exchange Carrier (ILEC)
infrastructure, as opposed to building a competing infrastructure at significant
cost. The 1996 Telecommunications Act requires all ILECs to allow competitive
carriers to co-locate their equipment along with ILEC's equipment in ILEC's
central offices, which enables competitive carriers to access end users through
existing telephone line connections. ILEC's existing telephone line
infrastructure is a "narrowband" network, however, and suitable for analog voice
transmission only. The infrastructure limitation of (a) low bandwidth and (b)
lack of integrated packet switching imposed by the current ILEC's network does
not make economic or technical sense for long distance carriers (LDC), such as
AT&T to enter the internet market using ILEC's network. AT&T has announced that
it will enter the lucrative internet market by building its own digital
"broadband" network based on Internet Protocol (IP) Frame Relay and Private Line
technology. As AT&T rolls out this Internet backbone service nationwide, the end
customers need a suitable Internet gateway with Firewall and e-mail server
capabilities, such as Cyber Business Internet Gateway (CBIG), to connect to
AT&T's Internet backbone.

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. 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 the
public telephone operating companies in developing countries can rapidly provide
telephone services to their customers. It is substantially easier to install
small, distributed

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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.

THE CYBER DIGITAL SOLUTIONS FOR INTERNET SERVICES

We believe our network solutions effectively address many of the unmet
enterprise-wide inter-networked communications needs of today's businesses by
offering an appealing combination of quality, performance, price and service.

Our network consists of:

o High-Speed, "Always On" End-to-End IP Connectivity to AT&T Internet
Backbone. Our network delivers high-speed, "always on" connectivity to
AT&T internet backbone. Using our Cyber Business Internet Gateway's
(CBIG) Internet Protocol (IP) Frame Relay and Private Line based
"broadband" technology over standard copper telephone lines, our
network is capable of delivering "true" data transfer rates at speeds
ranging from 64 Kbps to 1.5 Mbps. For customers that subscribe at the
1.5 Mbps rate, our network provides symmetrical data transfer speeds of
approximately 250 times the speed of the fastest dial-up modem and over
30 times the speed of ISDN lines. Moreover, unlike dial-up modems and
integrated services digital network (ISDN) lines, our CBIG's IP Frame
Relay and Private Line packet switched based solution is "always- on" -
it does not require users to dial-up to connect to the Internet or
their local area network for each use.

o Simple Network. We have designed our network elements, Cyber Business
Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN), to
provide "direct" IP Frame Relay and Private Line based "broadband"
connectivity to AT&T Internet backbone. There are no intermediate
Incumbent Local Exchange Carriers (ILEC), Internet Service Providers
(ISP) or Long Distance Carriers (LDC) networks to create traffic
bottle- necks. Our customer premises equipment, Cyber Business Internet
Gateway (CBIG) and Cyber Internet Access Network (CIAN), can be
remotely maintained over the Internet as well as ordinary telephone
lines. We manage our network and monitor service levels on a nationwide
basis from our Network Operations Center in Hauppauge, NY.

o Virtual Private Network Applications. Our Cyber Business Internet
Gateway (CBIG) offers built-in standard security features and enhanced
security options, making it what we believe to be an ideal
enterprise-wide VPN. The Firewalls are provided by Internet Protocol
(IP) filtering, Internet Protocol (IP) masquerading and Internet
Protocol (IP) tunneling and Internet Protocol encryption security
(IPSec). We believe that our VPN offering is the most advanced in the
industry.

o Productivity Enhancing Features. We offer a personal e-mail service,
that is custom e-mail delivery with automatic message-waiting flags.
Whenever a user receives e-mail, it is shown as a flag on their
personal computer.

o Service Flexibility. We have designed our network so that we are able
to individually configure each network user's features and
applications.

o End-to-End Solution & Support. We intend to provide "hassle-free"
connections to the AT&T Internet backbone. We perform all circuit
ordering, on-site cabling and customer premised hardware installation.
The equipment and infrastructure will remain our property and therefore
will be entirely our responsibility.

o Customer Premised Equipment. Our high speed Internet access platform
consists of the Cyber Internet Access Network (CIAN) switch (usually
located in a switch-room) and a Cyber Business Internet Gateway (CBIG)
located in each customer's office. Customers connect their local area

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networks (LAN) to our Cyber Business Internet Gateway (CBIG) via either
a personal computer Network Interface Card (NIC) or a network hub for
multiple personal computer connectivity.

STRATEGY

Exploit Early Market Entrance

We intend to exploit our early market entrance to deploy our Internet
Protocol (IP) Frame Relay and Private Line based network in conjunction with
AT&T. We believe that we are one of the first companies to implement Internet
Protocol (IP) Frame Relay and Private Line technology without using Incumbent
Local Exchange Carrier's (ILEC) local loop facilities. In addition, we have the
advantage that we develop and manufacture our own Cyber Business Internet
Gateway (CBIG), a fully integrated Internet gateway for business applications.
Cyber Business Internet Gateway (CBIG) is a very powerful integrated Internet
gateway equipment that replaces many single function equipment such as router,
network address translator, Ethernet-to-T1 converter, Internet Protocol (IP)
Frame Relay and Private Line equipment, CSU/DSU, Firewall equipment and e-mail
servers.

Focus on Performance-Driven Business Customers

We believe that the under-served segment of the business networking
market that demands high performance is currently relying on dial-up modems or
ISDN for network access. Many large businesses have workers at branch offices
that are not able to take advantage of the full array of communications and
networking resources available to workers at the main office. In addition to
offering these businesses high-speed access to the internet, we intend to offer
them the ability to enjoy the cost and productivity benefits from their
enterprise-wide inter-networked Virtual Private Network. Further, we believe
that small and medium businesses are also looking for integrated gateway
equipment to reduce their monthly costs and reliance on multiple vendors. Our
Cyber Business Internet Gateway (CBIG) is ideal for all performance-driven
businesses.

Expand e-commerce Applications

While we seek to have our network facilitate the delivery of
productivity-enhancing applications to businesses and their employees, AT&T will
offer e-commerce software and applications to our mutual end-customers. By
collaborating with AT&T, we believe that our end customers will have the best
e-commerce content and software technologies. Although AT&T develops and markets
its e-commerce applications directly to our mutual end-customers, AT&T pays us a
certain percent of their gross revenue for using our Internet Protocol (IP)
Frame Relay and Private Line network. Since our products and services are
co-branded with AT&T, we expect customer loyalty will be strengthened and
revenue per user will be increased.

Establish Strong Distribution Channels

We intend to build strong distribution channels. As an alliance member
with AT&T, we regularly receive qualified sales leads from AT&T for businesses
that want our services. In order to serve these businesses, we intend to
establish a strong team of independent sales agents exclusive to specific
properties or commercial buildings that they will serve locally. We will
coordinate the efforts of our local independent sales agent and AT&T sales
personnel who will sell e-commerce applications and promote our Internet
Protocol (IP) Frame Relay and Private Line based "broadband" technology. We have
already established strong distribution channels in Boston and New York City by
appointing independent sales agents in those cities. Instead of a direct sales
force, we intend to grow rapidly through aggressive recruitment of independent
sales agents nationwide. We intend to build a strong marketing, sales support
and customer care team working in harmony with AT&T. Over time, we expect to
develop additional strategic alliances, focusing on partners that can add value
to our network and give us additional meaningful distribution channels.

Provide Superior Customer Service

As part of our strategy to obtain and retain business customers, we
intend to provide superior service and customer care. We expect to deliver
high-quality service by providing T1 carrier-grade IP Frame Relay and Private
Line based networking solutions and superior customer service. Our carrier-grade
networking solutions include

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end-to-end proactive network monitoring and management through our Network
Operations Center, 24 hours a day, seven days a week. We also intend to offer
multiple security features and a network that we can scale to meet demand. Our
customer service includes a personal and web-based single point of contact, a
complete packaged solution including Cyber Business Internet Gateway (CBIG) and
Cyber Internet Access Network (CIAN) installation, activation and network
management, and specific customer service objectives against which we measure
our performance. Our objective in providing outstanding customer service is to
provide a high level of customer satisfaction, achieve customer loyalty and
accelerate the adoption rate of our service.

Our Alliance With AT&T

In April 1999, we entered into an alliance with AT&T, pursuant to
which, among other things:

o Reseller Agreement. Under the terms of our agreement with AT&T, we will
resell AT&T's Managed Internet Service bundled or repackaged with our
own 1.5 Mbps Internet Protocol (IP) Frame Relay and Private Line based
internet gateway i.e. Cyber Business Internet Gateway (CBIG) and Cyber
Internet Access Network (CIAN). We believe our alliance with AT&T is
unique with respect to high speed Internet access and virtual private
network (VPN) markets. AT&T will bring the Internet backbone to
commercial buildings that we mutually serve. We will build, operate and
own the Internet facilities in the building using its proprietary Cyber
Business Internet Gateway (CBIG) and Cyber Internet Access Network
(CIAN).

o Managed Internet Service Agreement. Under the terms of our agreement,
AT&T will provide its Internet backbone network at 1.5 Mbps to us on a
nationwide basis. AT&T has waived all installation charges as well as
moving fees for re-installation at another location for a period of
sixteen months from the initial contract term.

o Market Development Fund Program. Under this program AT&T will fund our
cooperative advertising in local and trade publications, collateral
marketing and sales brochures, trade shows, end user seminars and
training.

o Co-branded with AT&T. Our products and services (CBIG and CIAN) are
co-branded with AT&T leveraging our ability to market our services to
our mutual end customers. All our product brochures and services reveal
AT&T logo along with ours. Our Web site is hosted by AT&T WorldNet at
www.cyberatt.com, which includes AT&T logo along with ours.

o AT&T Alliance Program Member. As an AT&T Alliance Program Member we
receive regular sales leads. We will also receive a certain percent of
their e-commerce gross revenue for using our Internet Protocol (IP)
Frame Relay and Private Line network.

PRODUCTS/SYSTEMS

Our Network Architecture of Internet Technologies Network Technology

The key design features allowing us to be a business-class network are:

o Carrier-Class Network Management. Our network is designed to be
carrier-class throughout. For example, it has been designed with
redundant network electronics and transmission paths. We have the
ability to electronically view our entire network including the CBIG
and CIAN at the customer's premises from our Network Operations Center
in Hauppauge, NY. We provide our business customers with service level
agreements that guarantee specific levels of network performance.

o Scalable Systems. We use industry standard, off-the-shelf software to
support preordering, ordering, provisioning, billing, network
monitoring and trouble management. We have implemented these systems
using distributed client-server systems architecture that operates
using a single, integrated database. This approach allows us to
increase our customer support and

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network management capabilities as customer demand increases by giving
our personnel faster, more accurate access to a fully integrated
business information system.

o Network Security. Non-dedicated access, such as dial-up or digital
subscriber line (DSL) modem or integrated services digital network
(ISDN) lines, represents security risks for business networks. These
security risks may be mitigated through the use of Virtual Private
Network technologies such as authentication, tunneling, encryption, and
through the use of permanent virtual circuits that define a logical
dedicated connection between the end user and the corporate network. We
believe our network enables businesses to fully employ these Virtual
Private Network technologies by using our Cyber Business Internet
Gateway (CBIG) or Cyber Virtual Private Network (CVPN).

o Network Components. The primary components of our network are customer
end equipment, local transport, AT&T Internet backbone and our Network
Operations Center.

o Customer End Equipment. We currently offer our Cyber Business Internet
Gateway (CBIG) as customer end equipment. We configure and install our
CBIG with the end user's computer or local area network. CBIG is a
powerful Internet Protocol (IP) Frame Relay and Private Line based
gateway that can replace many single function equipment such as router,
network address translator, Ethernet-to-T1 converter, Internet Protocol
(IP) Frame Relay and Private Line equipment, CSU/DSU, Firewall
equipment and e-mail server.

o Local Transport. Our local transport consists of our in-building
cabling. It connects customer end equipment, our Cyber Business
Internet Gateway (CBIG), to our Cyber Internet Access Network (CIAN)
switch located within the building.

o AT&T Internet Backbone. Our Cyber Internet Access Network (CIAN) switch
connects to AT&T's Internet backbone.

o Network Operations Center. Our entire network is managed from the
Network Operations Center located in Hauppauge, NY. From this center,
we provide end-to-end network monitoring and management using advanced
network management tools 24 hours a day, seven days a week. This
enhances our ability to address performance or connection issues before
they affect our end user. From the Network Operations Center, we
monitor each Cyber Business Internet Gateway (CBIG), local transport
and Cyber Internet Access Network (CIAN) switch as well as connectivity
to AT&T Internet backbone.

Digital Voice Switches

We intend to constantly develop additional new technologies and
software. Our commitment to research and development has enabled us to create
new systems employing SS7 and C7 signaling such as Cyber Distributed Central
Office (CDCO), Cyber Tandum Exchange (CTSX) and Cyber Rural Exchange (CRX) for
various applications, primarily for use in developing countries and for domestic
Competitive Local Exchange Carriers (CLEC) attempting to bypass Incumbent Local
Exchange Carriers (ILEC). We believe that these systems are capable of providing
the functions for which they have been designed.

We have developed and intend to market the Cyber Distributed Central
Office (CDCO) which is designed to provide digital voice communications to
subscribers in densely populated urban areas. The Cyber Distributed Central
Office (CDCO) is a digital switch with trunk and tandem exchange capabilities
enabling it to connect subscribers served by other exchanges. The Cyber
Distributed Central Office (CDCO) system is designed to interface with both
modern digital telecommunications networks and older analog telephone networks.
The Cyber Distributed Central Office (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. We believe
the modular nature of the nodal structure of the Cyber Distributed Central
Office (CDCO) will provide an economical digital switching exchange from as
little as a few hundred lines to as many as 1,000,000 lines of capacity.

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We expect the nodal structure of the system to permit changes to the
function of the system simply by the use of different software with the same
common hardware. The expected flexibility of Cyber Distributed Central Office
(CDCO) will offer a vast array of system configurations to telephone operating
companies and administrations to fulfill a wide range of applications, including
the following:

o Local Cyber Distributed Central Office (CDCO) exchange serves
subscribers in cities and towns.

o Cyber Tandem Exchange (CTSX), a regional exchange connecting to various
local exchanges.

o Toll and transit Cyber Distributed Central Officer (CDCO) exchanges for
long distance national service and international gateway.

o Integrated local, tandem, toll and transit exchanges.

o Cyber Digital Access Cross-connect (CDAC), a network management system
providing optimal routing and control of heavy traffic through
software.

o Cyber Multi-tenant exchange (CMT) for subscribers in large office
complexes and buildings where many business tenants can be served by a
resident exchange.

The control functions of the Cyber Distributed Central Office (CDCO)
system are totally distributed in autonomous processing sub-systems (nodes).
Node processors are loosely coupled and exchange information through
standardized inter-nodal communication digital links. We believe the distributed
approach will permit switching systems to be located closer to groups of
subscribers or at subscribers' premises which could dramatically reduce the cost
of wiring and cabling and should result in instant installation. Moreover, a
failure in one node should not affect other nodes. In addition, the distributed
approach should eliminate bottlenecks as the system offers multiple routes for
call completion.

Cyber Rural Exchange

We have developed and marketed the Cyber Rural Exchange (CRX), which is
a specialized version of Cyber Distributed Central Office (CDCO). Cyber Rural
Exchange (CRX) is designed to handle the traffic requirements of widely
dispersed single-line users, such as users in a small town or rural area Cyber
Switch Exchange

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

CUSTOMER, SALES AND MARKETING

Internet Sales Channels

We market our Internet services to businesses through indirect sales
force consisting of independent sales agents and in conjunction with AT&T. Our
target account profile is an information-intensive enterprise with multiple
locations and large numbers of distributed workers. We have appointed
independent sales agents in Boston and New York City as well as opened our own
sales an service office in the Boston area. We intend to open our sales and
service office in New York shortly. We intend to appoint sales agents in six
additional markets soon: Washington DC, Atlanta, Chicago, Philadelphia, Miami
and Dallas. Our relationship with large business customers can involve multiple
phases. A customer typically initially agrees to a first phase commitment for a
specific bandwidth at a fixed price and a one year contract term. Thereafter, a
customer may request a Virtual Private Network (VPN) set-up or an increase in
bandwidth. We anticipate that upon receipt of an order a customer can be served
within eight weeks. It takes AT&T about six weeks after receipt of an order to
bring its Internet backbone to the customer's premises. We believe this time
interval is quite short compared to industry standards and will help us to
market and build our network.

We supplement our sales effort to our sales agents by offering
marketing support services including training, Property Manager Agreements,
customer proposal development, sales lead generation, product support materials,
web promotion, joint participation in regional customer events and press
announcements. We also offer additional sales incentives to those sales agents
who recommend other sales agents. Additionally, we support our

24
<PAGE>

customers by ordering connections, installing equipment on the customer's
premises, monitoring the network, troubleshooting, making repairs and invoicing
the customer on a single bill.

Customer Care Internet Services

We offer our business customers a single point of contact for
implementation, maintenance and billing. Our Network Operations Center provides
both proactive and customer initiated maintenance services 24 hours a day, seven
days a week. We also provide a broad range of customer service and Network
Operations Center services through our Web interface.

o Implementation. Our customer service technicians and sales engineers
develop an implementation plan for each customer. The plan includes
qualifying the customer for our service offerings, placing orders for
the connection facilities and coordinating the delivery of the
connection and installation.

o Maintenance. Our Network Operations Center in Hauppauge, NY provides
network surveillance through standard Simple Network Management
Protocol tools for all equipment in our network. Because we have
complete end-to-end visibility of our network, we are able to
proactively detect and correct the majority of our customer's
maintenance problems remotely. Our goal is to proactively detect and
repair 90% of our customer's maintenance problems before our customer
is aware of a problem. Customer initiated maintenance and repair
requests are managed and resolved primarily through the Customer
Service Center. We utilize a trouble ticket management system to
communicate customer maintenance problems from the Customer Service
Center to the Network Operations Center engineers and the field
services engineers. Because our Network Operations Center is fully
staffed 24 hours a day, seven days a week, we believe our ability to
provide superior proactive maintenance is significantly enhanced.

o Billing. Customer bills are currently issued on a monthly basis through
an internal billing system. Customer billing inquiries are managed by
our Customer Service Center. In the future, we intend also to support
billing inquiries through our web interface.

o Customer Support Systems. We designed our system architecture to
facilitate rapid service responsiveness and reduce the cost of customer
support. We use an integrated set of standard, off-the-shelf systems to
support our business processes. We have designed all business
functions, including sales, ordering, provisioning, maintenance and
repair, billing, accounting and decision support to use a single
database, ensuring that every function has accurate, up-to-date
information.

Digital Voice Switches Customers

To date, we have sold approximately 76 digital voice switches,
substantially all of which have been Cyber Switch Exchange (CSX). We have
previously sold our CSX systems to the defense agencies of the U.S. federal
government and to Tianchi Telecommunications Company ("TTC") in China. Due to
massive cutbacks in defense program procurement and constrained financial
resources of TTC, we do not anticipate any further sales of our CSX to these
customers.

In December 1995, we signed a manufacturing licensing contract with the
National Telecommunications Company (NTC) of Egypt, pursuant to which NTC will
assemble the systems in Egypt with electronic circuit cards provided by us. In
addition, NTC will market, install, maintain and service our digital voice
switches in Egypt, Kenya, Tanzania, Uganda, Sudan, Yemen, United Arab Emirates
and Qatar. Sales of our products to NTC have not yet commenced. As at present,
NTC has trained its personnel to fulfill its obligations under the contract. NTC
has been delayed in its performance for a variety of reasons, such as a lack of
a suitable assembly facility in Egypt at this time. There can be no assurance as
to when or if such an assembly facility will be available to NTC.

25
<PAGE>

Digital Voice Switches Markets

In the year ended March 31, 1998, we assembled a direct sales and
marketing team to explore domestic opportunities for digital voice switches. In
the year ended March 31, 1999, we dismantled this team as our target markets
failed to materialize. We had anticipated that our target markets would be open
for competition pursuant to the Telecommunications Act of 1996. These target
markets still remain closed with significant regulatory restrictions imposed by
Incumbent Local Exchange Carriers (ILEC). Potential target markets in the United
States for our digital voice switches may be categorized as follows:

o Existing national inter-exchange carriers such a AT&T, MCI and Sprint
which will be building local networks both to compete with the
incumbent local exchange carriers and also to protect their long
distance market share.

o Newly formed telecommunications companies, such as ICG Communications
and GST Telecom, which are building local networks and offering both
local and long distance service.

o Start-up Competitive Local Exchange Carriers (CLEC) which we anticipate
may build local telephone networks and offer long distance service to
their customers by resale of other companies' long distance network
offerings.

o Large companies such as electric utilities with certain rights-of-way
and other capabilities in place which are studying whether and where to
enter the telephone business.

o Independent telephone companies that must upgrade their networks
rapidly or risk losing their franchise to aggressive competition.

COMPETITION

Internet Services

We expect to face competition from many competitors with significantly
greater financial resources and established brand names and reputations. We
expect to benefit from co-branding our products and services with AT&T. We
expect the level of competition to intensify in the future. We expect
significant competition from:

o Traditional Inter-exchange Carriers. We believe that many of the
leading traditional inter-exchange carriers, such as MCI WorldCom and
Sprint, are expanding their capabilities to support high-speed
end-to-end networking services. Increasingly, their bundled services
include high-speed local access combined with metropolitan and wide
area networks, and a full range of Internet services and applications.
We expect them to offer combined data, voice and video services over
these networks.

These carriers have deployed large-scale networks, have large numbers
of existing business and residential customers and enjoy strong brand
recognition, and as a result represent significant competition. For
instance, they have extensive fiber networks in many metropolitan areas
that primarily provide high-speed data and voice communications to
large companies. They could deploy Internet Protocol (IP) Frame Relay
and Private Line based services.

o Newer Inter-exchange Carriers. The newer inter-exchange carriers, such
as Williams, Qwest Communications International and Level 3
Communications, are building and managing high bandwidth, packet-based
networks nationwide.

They are also building direct sales forces and partnering with Internet
Service Providers to offer services directly to business customers.
They could extend their existing networks to include fiber metropolitan
area networks and high-speed, off-net services using IP Frame Relay and
Private Line, either alone, or in partnership with others.

26
<PAGE>

o Cable Modem Service Providers. Cable modem service providers, like AT&T
and @Home Networks and its cable partners, are offering or preparing to
offer high-speed internet access over hybrid fiber coaxial cable
networks to consumers. @Home Networks has positioned itself to do the
same for businesses. Where deployed, these networks provide local
access services similar to our services. They typically offer these
services at lower prices than our services, in part by sharing the
bandwidth available on their cable networks among multiple end users.
Neither can they offer Internet Protocol (IP) Frame Relay and Private
Line based technology nor can they provide the requisite Firewalls.

o Wireless and Satellite Data Service Providers. Several new companies
are emerging as wireless and satellite-based data service providers,
over a variety of frequency allocations. These include:

o WinStar Communications, Inc.
o Teligent, Inc.
o Teledesic LLC.
o Hughes Space Communications, and
o Iridium World Communications Ltd.

These companies use a variety of new and emerging technologies, such as
terrestrial wireless services, point-to-point and point-to-multi-point
fixed wireless services, satellite-based networking and high-speed
wireless digital communications.

o Internet Service Providers. Internet Service Providers provide internet
access to residential and business customers. These companies generally
provide such internet access over the incumbent carriers' circuit
switched networks at integrated services digital network (ISDN) speeds
or below. Some Internet Service Providers have significant and even
nationwide marketing presence, such as Concentric Network Corporation,
Mindspring Enterprises, Inc., PSINet Inc. and Verio.

o Competitive Carriers. Certain competitive carriers, including Covad
Communications Group, Inc. and NorthPoint Communications, Inc., MGC
Communications, Rythms NetConnections, Inc., have begun offering
DSL-based data services piggybacking on "narrowband" ILEC telephone
lines; but with not much success as DSL is extremely hard to implement
and is totally unreliable.

Digital Voice Switches

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

Products that perform many of the functions similar to our digital
voice switches are readily available from several competitors, including Lucent
Technologies, Nortel, Ericsson, DSC, Alcatel, Siemens, Fujitsu and NEC. These
competitors also have the research and development capabilities and financial
and technical resources necessary to enable them to respond to technical
advances as well as evolving industry requirements and standards.

We believe that our products have the following three strengths in the
United States marketplace: (a) the installed cost of our digital voice switches
is less than those of the competition; (b) our switches can be engineered,
installed and put into service much more quickly; and (c) our distributed
architecture fits with the marketing strategy of the competitive local exchange
carriers who will target specific customers rather than entire geographic areas;
our switch architecture will allow these carriers to tailor their local networks
to their marketplace successes without stranding capacity and capital.

27
<PAGE>

PROPRIETARY TECHNOLOGY

We do not hold any patents or copyrights and has no patent or copyright
applications pending. Our software technology and certain components of its
system hardware, we believe, are proprietary and we rely for protection upon
copyright and trade secret laws and confidentiality agreements with its
employees. In addition, we require 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.

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
products or its technology or obtain information that we regard as proprietary.
In addition, there can be no assurance that others will not independently
develop products or technologies similar to ours, that confidentiality
agreements will not be breached or that we will have adequate resources to
protect our proprietary technology. We believe that because of the rapid pace of
technological change in the digital switching and networking industries,
protection for our systems is less significant than the knowledge, ability and
experience of our employees, the frequency of product enhancements and the level
of service and support provided to customers by us.

GOVERNMENT REGULATION AND INDUSTRY STANDARDS

The telecommunications and related networking industries in which we
compete are highly regulated in both the United States and internationally.
Imposition of public carrier tariffs and taxation of telecommunications services
could materially adversely affect demand for our products. 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 products 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 the
Company, however, would probably be based upon a policy which would also affect
other U.S. companies exporting similar products.

Industry standards organizations, such as International Telephone Union
("ITU") and Bellcore in the U.S., have created committees to address the matter
of standards within the telecommunications industry. 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 the Company's products
incorporates the OSI Model and accommodates most existing and pending ISDN
standards, including applicable BELLCORE and ITU 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 us to alter methods of operation, resulting
in additional costs, which could have a material adverse effect on us.

MANUFACTURING PRODUCTION AND SUPPLY

We are engaged in manufacturing, software programming, assembly, system
testing and quality assurance operations 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

28
<PAGE>

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 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,
such as Pentium processors manufactured by Intel Corporation and ISDN chips
manufactured by Motorola, Inc. If such semiconductor components are discontinued
by their respective manufacturers, we would be required to redesign some of its
products by using other vendors components, which could cause delays in product
delivery. We currently purchase all of our requirements for specially designed
plastic parts for the iST. We believe that alternative sources of supply for
such components are available. We are substantially dependent on the ability of
its suppliers, among other things, to satisfy performance and quality
specifications and dedicate sufficient production capacity for plastic parts
within scheduled delivery times. We do not maintain contracts with any of our
suppliers and purchases system components pursuant to purchase orders placed
from time to time in the ordinary course of business. Failure or delay by our
suppliers in supplying necessary components to us could adversely affect our
ability to deliver products on a timely and competitive basis.

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

RESEARCH AND DEVELOPMENT

Since its inception, we have devoted substantial resources to the
design and development of our systems. For the fiscal years ended March 31, 1999
and 1998, we expended approximately $724,000 and $389,000, respectively, on
research and development. During the year ended March 31, 1999, almost all
research and development expenditures were due to the development of Cyber
Business Internet Gateway (CBIG) and Cyber Internet Access Network (CIAN)
products for the high speed internet access service business. During the period
April 1, 1999 to September 30, 1999 we expended approximately $220,000 and
enhanced our CBIG and CIAN to include Private Line packet switching technology
as well as Internet Protocol (IP) encription security (IPSec). Although our
systems are fully developed such as Cyber Business Internet Gateway (CBIG),
Cyber Internet Access Network (CIAN) and Cyber Distributed Central Office
(CDCO), we are continually seeking to refine and enhance its systems, including
enhancements to comply with emerging regulatory or industry standards or the
requirements of a particular customer or country.

The markets for our products are characterized by rapidly changing
technology and evolving industry standards, often resulting in rapid product
obsolescence. Accordingly, our ability to compete depends in large part on its
ability to introduce its products to the marketplace in a timely manner, to
enhance and improve continually such products and maintain development
capabilities to adapt to technological changes and advances in the
communications industry, including assuring continuing compatibility with
evolving industry standards such as IP Frame Relay, IP Private Line, IPSec, SS7
and C7 signaling which we have developed. 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 its products to satisfy industry standards.

SERVICE AND SUPPORT

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

In addition, we intend to enter into agreements with third party
service providers to provide customer support on a local basis in foreign
markets, as needed.

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<PAGE>

GLOSSARY OF TERMS

Analog Analog transmission employs continuously variable signal.

Asynchronous Transfer Mode High bandwidth, low-delay,
connection-oriented, packet switching
technique requiring 53-byte, fixed-sized
cells.

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

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

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

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

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

Competitive Local Exchange
Carrier (CLEC) Category of telephone service
provider that offers local exchange services
in competition with those of the incumbent
carrier.

Copper Line or Loop A pair of traditional copper
telephone lines using electric current to
carry signals.

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

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

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

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

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

Incumbent Local Exchange
Carrier (ILEC) A company providing local exchange services.

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<PAGE>

Interconnection Agreement A contract between an incumbent
carrier and a competitive carrier for the
connection of a competitive carrier network
to the public switched telephone network.

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

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

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

Internet Service Provider A company that provides direct access to the
internet.

Inter-exchange Carrier Usually referred to as a long-distance
carrier.

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

Kbps Kilobits per second. 1,000 bits per second.

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

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

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

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

T-1 This is a Bell System term for a digital
transmission link with a capacity of 1.544
Mbps.

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<PAGE>

Employees

As of the date hereof, we have twenty-three full time employees, of
which six were engaged in marketing and sales activities, one was engaged in
technical support, eight were engaged in research and development, four were
engaged in production testing and operations and four were in administration.
None of the Company's employees is represented by a labor union. We consider our
employee relations to be satisfactory.

Property

Our executive offices and assembly operations are located in
approximately 8,200 square feet of leased space in Hauppauge, New York. The
lease provides for annual rent of $55,350 and expires on March 31, 2004. 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.

Legal Proceedings

On or about August 5, 1996, Brockington Securities, Inc.
("Brockington") commenced an action, in the Supreme Court of the State of New
York, County of Suffolk, against us for wrongful termination of a purported
agreement for investment banking services. Brockington is seeking damages in the
amount of (i) $775,000 based upon the alleged net aggregate value of the shares
of our Common Stock, par value $.01 per share (the "Common Stock"), upon which
Brockington alleges it had a purchase option and (ii) $1 million for the alleged
wrongful termination.

We have asserted counterclaims based upon Brockington's wrongful
conduct and are seeking damages in the amount of $428,000 or, in the
alternative, recession of the alleged contract and the return of the 100,000
shares previously issued to Brockington.

We believe that Brockington's claims are without merit and intend to
vigorously defend our position.

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<PAGE>

MANAGEMENT

Directors and Executive Officers

The current executive officers and directors of the Company are as
follows:

Name Age Positions Held
- ---- --- --------------
Jawahar C. Chatpar 51 Chairman of the Board, President and
Chief Executive Officer
Jack P. Dorfman 61 Director and Secretary
Jatinder V. Wadhwa 64 Director and Treasurer
Terry L. Jones 51 Director
Khushi A. Nichani 61 Director
Larry S. Shulger 60 Vice President of Operations

Jawahar C. Chatpar is a founder of the Company and has served as
Chairman of the Board, Chief Executive Officer and President since March 1991,
as Chairman of the Board, Chief Executive Officer and Secretary from November
1986 until March 1991, and as President and Chief Executive Officer since
inception until November 1986. Mr. Chatpar has also served as a director since
inception. Mr. Chatpar founded the Company in 1983 as a successor to a Canadian
corporation of the same name, which he founded in 1982. 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 the Company as a Director in November 1993, and
has served as Secretary since October 1995. Mr. Dorfman has otherwise been
retired since June 1996. Prior thereto, since 1992, Mr. Dorfman served as
consultant and manager for a number of pharmacies. From 1990 to 1992, he served
as a management consultant for Clark Container, a division of Mark IV
Industries, a conglomerate. From 1988 to 1990, he served as Vice President and
Treasurer of US Distribution, a transportation company. Prior to 1988, he owned,
managed and operated an independent community pharmacy for over fifteen years.

Jatinder Wadhwa has served as a Director of the Company since 1986 and
as Treasurer of the Company since August 1997. He had been the Secretary of the
Company from 1993 to 1995. Since 1994, Mr. Wadhwa has served as the Chief
Executive Officer of Security First Financial Corp., a financial institution
dealing with first and second mortgages on residential and commercial
properties.

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

Khushi A. Nichani has served as a Director of the Company since
November 1997. He has been a commercial manager at Black & Veatch Incorporated,
an engineering and architectural firm for power industrial projects, since May
1997, where his responsibilities included negotiating orders for turnkey power
plants. From 1973 to May 1997, he held various positions (most recently as
Manager of Proposals & Estimating) at GE Co. Power Generation, the power project
division of General Electric.

Larry S. Shluger has been Vice President of Operations of the Company
since August 1996. From 1991 to 1996, Mr. Shluger was Director of Purchasing and
Operations at Cashtek Corporation, a company which designs, develops and
manufactures computerized gaming systems. From 1975 to 1991, he was Director of
Purchasing and Operations at Kenilworth Systems Corporation until its
acquisition by Cashtek Corporation. Prior to 1975 he was employed in various
management positions at Ecologic Instruments Corporation, a company which
designs,

33
<PAGE>

develops and manufactures test equipment for the environment and pollution
control fields, and Dynamic Instruments Corporation, a manufacturer of battery
chargers.

There are no family relationships among the Directors and Officers of
the Company.

Board of Directors

Each director is elected to hold office until the next succeeding
annual meeting of shareholders and until his successor is elected and qualified
or until his death, resignation or removal.

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<PAGE>

Executive Compensation

The following table sets forth information concerning the compensation
for services in all capacities for the fiscal years ended March 31, 1999, 1998
and 1997 of those persons (the "Named Officers") who were, as of [November 1,
1999] the chief executive officer of the Company. During such periods, no
executive officer of the Company received compensation in excess of $100,000
other than J.C. Chatpar.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

Long-Term
Annual Compensation Compensation
Awards

Securities
Name and Principal Position Fiscal Salary($) Bonus($) Underlying
Year Options(#)

<S> <C> <C> <C>
J.C. Chatpar, Chairman of the Board, President and 1999 $165,000 None 120,000(3)
Chief Executive Officer 1998 $150,000 None 140,000(4)
1997 $130,000(1) $100,000 None
(1)
</TABLE>

(1) We have concluded that the aggregate amount of perquisites and other
personal benefits paid to the Named Officer named in the table did not exceed
the lesser of 10% of such officer's total annual salary and bonus for the 1999,
1998 and 1997 fiscal years or $50,000, thus, such amounts are not included in
the table.

(2) Mr. Chatpar's salary was raised from $80,000 per annum to $150,000 per annum
effective August 12, 1996.

(3) Mr. Chatpar was granted 110,000 options each to purchase one share of Common
Stock exercisable at $2.56 and 30,000 options each to purchase one share of
Common Stock exercisable at $2.43 in Fiscal 1998.

(4) Mr. Chatpar was granted 120,000 options each to purchase one share of Common
Stock exercisable at $0.75 in Fiscal 1999.

35
<PAGE>

The following table sets forth information concerning stock option
grants made during Fiscal Year 1999 to the Named Officers. We have not granted
any stock appreciation rights:
<TABLE>
<CAPTION>

OPTION GRANTS IN LAST FISCAL YEAR

Individual Grants

Name Number of % of Total Options Exercise Price Expiration Date
Securities Granted to ($/Sh)
Underlying Options Employees in Fiscal (2)
Granted (#) Year 1999 (1)

<S> <C> <C> <C> <C>
J.C. Chatpar 120,000 60% $0.75 8/30/08
</TABLE>

(1) During Fiscal 1999, options to purchase an aggregate of 120,000 shares of
Common Stock were granted to Mr. Chatpar and options to purchase an aggregate of
200,000 shares of Common Stock were granted to six other employees.

(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 immediately exercisable.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning the number of
unexercised options and the fiscal 1999 year-end value of unexercised options on
an aggregated basis held by the Named Officers. No options were exercised in
fiscal 1999.

Number of Securities Value of
Underlying Unexercised Unexercised In-The-Money
Options at Fiscal Year-End Options at Fiscal Year-End
(#) ($)(1)

Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------

J.C. Chatpar 740,000 0 $792,400 $0

(1) Options are "in-the-money" if, on March 31, 1999, the market price of the
Common Stock ($2.25) exceeded the exercise price of such options. The value of
such options is calculated by determining the difference between the aggregate
market price of the Common Stock underlying the options on March 31, 1999 and
the aggregate exercise price of such options.

Employment Agreements and Insurance

We have entered into an Amended and Restated Employment Agreement with
Mr. J.C. Chatpar dated as of August 4, 1997 (the "Employment Agreement") for a
three year term. Such three-year term shall be automatically extended for
successive three-year terms unless either party gives the other party 120 days
prior written notice of termination before the end of any such three-year
period. The 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%. We have also agreed that our Board of Directors may raise his
salary during the term of his employment as soon as the financial resources of
the Company

36
<PAGE>

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 the 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 the 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
of the Company (as defined in the Employment Agreement) 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.

Director Compensation

The directors of the Company are paid $250 per Board meeting. During
Fiscal 1999, the Board of Directors met two times and each director attended at
least 75% of the meetings of the Board of Directors. The Board does not have any
committees. In addition, we currently reimburse each director for expenses
incurred in connection with his attendance at each meeting of the Board of
Directors.

On August 31, 1998, the Company issued to J.C. Chatpar, Jack Dorfman,
Jatinder Wadhwa, Terry Jones and Khushi Nichani, directors of the Company,
non-qualified stock options to purchase 120,000, 20,000, 20,000, 10,000 and
10,000 shares of Common Stock, respectively, at an exercise price of $0.75 per
share.

Employee Benefit Plan

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

Stock Option Plan

Our Board of Directors adopted, on November 7, 1997, the 1997 Stock
Incentive Plan (the "1997 Plan"). The 1997 plan is a successor to the 1993
plan,which has been terminated. Under the terms of the 1997 Plan, 850,999 shares
have been reserved for issuance to officers, directors, other employees and
consultants meeting certain qualifications. Under the 1997 Plan, incentive stock
options are granted at 100% of fair market value on the date of grant. The right
to exercise the options accrues equally on each of the first, second, third and
fourth anniversaries of the date of grant. Options granted under the plan expire
on the day before the tenth anniversary of the plan. Pursuant to the 1997 Plan,
incentive stock options, nonqualified stock options, restricted stock and stock
appreciation rights may be granted to such officers, directors, and employees of
the Company, and to such consultants to the Company and such other persons or
entities, as the Stock Option Committee of the Board of Directors (the
"Committee") shall select.

All incentive stock options ("ISO"), which may be granted only to
employees and which provide certain tax advantages to the optionee, must have an
exercise price of at least 100 percent of the fair market value of a share of
common stock on the date the option is granted. No ISOs will be exercisable more
than 10 years after the date of grant.ISOs granted to ten percent shareholders
must have an exercise price of at least110 percent of fair market value and may
not be exercisable after the expiration of five years from grant. The exercise
price and the term of nonqualified stock options will be determined by the
Committee at the time of grant.

37
<PAGE>

Stock appreciation rights ("SARS") may be granted independently or in
connection with all or any part of any option granted under the 1997 Plan,
either at the time of grant of the option or at any time thereafter. The holder
of an SAR has the right to receive from the Company, in cash or in shares as the
Committee shall determine, an amount equal to the excess of the fair market
value of the shares covered by the SAR at the date of exercise over the exercise
price set at the date of grant of the SAR. At the request of the holder of an
option, the committee may at its discretion substitute for the exercise of the
option, compensation (in cash or in shares) in an amount equal to or less than
the excess of the fair market value of the shares covered by the option at the
request date over the exercise price set at the grant of the option. A
restricted stock award, entitling the recipient to acquire shares of common
stock for a purchase price at least equal to par value may be granted to such
persons and in such amounts and subject to such terms and conditions as the
Committee may determine. Shares of restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as specified
in the 1997 Plan or the written agreement governing the grant. The Committee, at
the time of grant, will specify the date or dates on which the
non-transferability of the restricted stock shall lapse. During the 90 days
following the termination of the grantee's employment for any reason, the
Company has the right to require the return of any shares to which restrictions
on transferability apply, in exchange for which the Company shall repay to the
grantee any amount paid by the grantee for such shares.

CERTAIN TRANSACTIONS

On December 30, 1996, the Company consummated a private placement of
its Series B Stock, to Syncom III. The Company issued 2,000 shares of its Series
B Stock to Syncom III in return for $2,000,000. Such shares are convertible into
shares of the Company's Common Stock commencing one year from closing date. The
conversion price is lesser of either eighty-five (85%) per cent of the average
closing price during the five trading days preceding the conversion date or
$7.50 per share. All shares of Series B Stock shall automatically be converted
into shares of the Company's Common Stock on December 21, 2001. On December 30,
1997 and December 30, 1998, Syncom III received 10% dividend through issuance of
200 and 220 shares of Series B Stock, respectively. On April 14, 1999, all of
the Company's outstanding Series B-1 Preferred Stock was converted into 861,230
shares of the Company's Common Stock at a conversion price of $2.89 per share.

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 entered into in connection with such placement, so long
as Syncom III holds at least 750 shares of Series B Stock and/or shares of the
Company's Common Stock issued upon conversion of such shares of Series B Stock,
or any combination thereof, the Company's Board of Directors shall consist of
not less than five members and the Company shall use its best efforts to cause
Terry Jones (or another partner of WJM) to be elected as a director.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information known to us
regarding beneficial ownership of the Common Stock as of the date of this
Prospectus for (i) each person or group that is known by us to be a beneficial
owner of more than 5% of the outstanding shares of Common Stock, (ii) each of
the Named Officers and directors, and (iii) all of our directors and executive
officers 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.

38
<PAGE>

Shares Percent Percent
Beneficially Before After
Beneficial Owner Owned (1) Offering Offering
---------------- --------- -------- --------

J.C. Chatpar (3) 7,205,712 39.0% 31.9%
c/o Cyber Digital, Inc.
400 Oser Avenue
Hauppauge, NY 11788

Jack P. Dorfman (4) 220,000 1.2% *

Jatinder V. Wadhwa (5) 217,812 1.2% *

Terry L. Jones (6) 20,000 * *

Khushi A. Nichani (7) 28,000 * *

All directors and executive 7,691,524 41.6% 34.0%
officers as a group (6)

*less than 1%

(1) A person is deemed to be the beneficial owner of voting securities that can
be acquired by such person within 60 days from the date of this Prospectus upon
the exercise of options, warrants or convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that convertible
securities, options or warrants that are held by such person (but not those held
by any other person) and which are exercisable within 60 days of this Prospectus
have been exercised. Unless otherwise noted, we believe that all persons named
in the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.

(2) Assumes the exercise of the warrants to purchase 824,013 shares of Common
Stock issued in connection with the offering of the Company's Series A Preferred
stock.

(3) Does not include 476,000 shares owned by Sylvie Chatpar, his wife, and
175,000 shares owned by certain other relatives, to which shares Mr. Chatpar
disclaims beneficial ownership. Includes 1,620,000 shares as to which Mr.
Chatpar holds non-qualified stock options, which are exercisable at any time.

(4) Includes 100,000 shares as to which Mr. Dorfman holds a non-qualified stock
option, which are exercisable at any time. Does not include 360,000 shares owned
by his wife, Sandra Dorfman, to which shares Mr. Dorfman disclaims beneficial
ownership.

(5) Includes 60,000 shares as to which Mr. Wadwa holds non-qualified stock
options which are exercisable at any time.

(6) Includes 20,000 shares as to which Mr. Jones holds non-qualified stock
options which are exercisable at any time.

(7) Includes 20,000 shares to which Mr. Nichani holds non-qualified stock
options which are exercisable at any time.

39
<PAGE>

DESCRIPTION OF SECURITIES

General

Our authorized capital stock is 40,000,000 shares, consisting of
30,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000
shares of Preferred Stock, par value $.05 per share. As of November 15 1999,
there were 18,238,941 shares of Common Stock outstanding. In addition, 310
shares of Series C and 3,000 Series D1 are currently outstanding.

Common Stock

The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted can elect all of the
directors then being elected. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of our liquidation, dissolution
or winding up, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of shares of Common Stock, as such,
have no redemption, preemptive or other subscription rights, and there are no
conversion provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby, when
issued and paid for as set forth in this Prospectus, will be, fully paid and
nonassessable.

Preferred Stock

Our authorized shares of Preferred Stock may be issued in one or more
series. The Board of Directors is expressly vested with the authority to fix by
resolution the designations, powers, preferences, qualifications, limitations or
restrictions of and upon shares of each series, including, without limitation,
voting, dividend, conversion, redemption and liquidation rights. In addition,
our Board of Directors may fix the number of shares constituting any such series
and increase or decrease the number of shares in any such series.

We believe that the availability of Preferred Stock issuable in series
provides us with increased flexibility for structuring possible future
financings and acquisitions, if any, and in meeting other corporate needs. It is
not possible to state the actual effect of the authorization and issuance of any
series of Preferred Stock upon the rights of holders of Common Stock until the
Board of Directors determines the specific terms, rights and preferences of a
series of Preferred Stock. However, such effects might include, among other
things, restricting dividends on the Common Stock, diluting the voting power of
the Common Stock, or impairing liquidation rights of such shares without further
action by holders of the Common Stock. In addition, under various circumstances,
the issuance of Preferred Stock may have the effect of facilitating, as well as
impeding or discouraging, a merger, tender offer, proxy contest, the assumption
of control by a holder of a large block of the Company's securities or the
removal of incumbent management. The issuance of Preferred Stock could also
adversely affect the market price of the Common Stock.

On May 28, 1999 the Company designated 1,200 of the 10,000,000
authorized Preferred Shares as Series C. On July 12, 1999, the Company closed a
private placement of 310 of the 1,200 shares priced at $1,000 per share for a
total of $310,000. Such shares are convertible at a conversion price of $3.00
per share.

On October 5, 1999 the Company designated 5,000 of the 10,000,000
authorized Preferred Shares as Series D1. On October 5, 1999, the Company closed
a private placement of 3,000 of the 5,000 shares priced at $1,000 per share for
a total of $3,000,000.00.

The Series D1 Preferred Stock convert into shares of common stock at a
conversion price that is equal to the amount obtained by multiplying 100%
(subject to adjustment) by either (i) that price of the Common Stock which shall
be computed as the arithmetic average of the three lowest Closing Sales Prices
(as defined in the Certificate of Amendment) of the Common Stock during the
twenty consecutive trading days immediately preceding the date of such
determination and (ii) the Closing Bid Price (as defined in the Certificate of
Amendment to the

40
<PAGE>

Company's Certificate of Incorporation) on such date, whichever is lower. Such
amount shall not, in any case, exceed $5.43 subject to certain adjustments as
set forth in the Certificate of Amendment. The shares of the Series D1 Preferred
Stock are subject to redemption by the holder, upon the occurrence of certain
events as described therein. In addition, the shares of the Series D1 Preferred
Stock are subject to redemption by the Company subject to the Company's
satisfaction of certain conditions. The holders of the Series D1 Preferred Stock
have no voting rights other than those required by law or as expressly provided
in the Certificate of Amendment of the Certificate of Incorporation.

Transfer Agent and Registrar

The transfer agent and registrar for the Common Stock is Continental
Stock Transfer & Trust Company.

SELLING STOCKHOLDERS

The table below presents the following information: (1) the number of
shares of Series C and D1 Preferred and the number of shares of Common Stock
owned by the Selling Stockholders as of November 15, 1999, (2) the number of
shares of common stock beneficially owned by the Selling Stockholders as of
November 15, 1999, (3) the number of shares that such Selling Stockholders are
offering under this Prospectus, and (4) the number of shares that such Selling
Stockholders will beneficially own after the completion of this offering.

Except as otherwise noted below and in the table, the number of shares
beneficially owned by each Selling Stockholder is determined as of November 15,
1999 in accordance with Rule 13d-3 of the Securities Exchange Act, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the Selling Stockholder has sole or shared voting power or investment power and
also any shares which the Selling Stockholder has the right to acquire within 60
days of the date of this Prospectus through the conversion of the Series C and
D1 Preferred Stock or the exercise of warrants or stock option or other right.
Under the Certificate of Designations for the Series D1 Preferred Stock, no
Selling Stockholder can convert Series D1 Preferred Stock to the extent such
conversion would cause such Selling Stockholder's beneficial ownership of our
Common Stock (other than shares deemed beneficially owned through ownership of
unconverted shares of the Series D1 Preferred Stock or unexercised Warrants) to
exceed 4.99% of the outstanding shares of our common stock.

The number of shares of our common stock shown as beneficially owned by
the Selling Stockholders prior to the offering and the number of shares offered
by such Selling Stockholders represents shares of our common stock currently
held by the holders and shares issuable to holders assuming conversion, as of
November 15, 1999, of all shares of the Series C and D1 Preferred Stock and
exercise of all warrants owned by the Selling Stockholders. The number of
shares was calculated using conversion prices of $3.00 and $3.2708,
respectively.

The number of shares shown as being beneficially owned by the Selling
Stockholders after the offering assumes that the Selling Stockholder has sold
all of the shares of our common stock which may be sold pursuant to this
Prospectus.

The Selling Stockholders have not had material relationships with us
prior to their purchase of shares of our Common Stock, Series C and D1 Preferred
Stock. As of the date hereof, the holders of the Series C and D1 Preferred Stock
do not own any shares of our Common Stock other than the shares they may acquire
upon conversion of the Series C and D1 stock.
<TABLE>
<CAPTION>

Shares Selling
Shares of Preferred Shares of Number of Shares Stockholder Will
Stock Owned Common Stock Offered Under Beneficially Own
Selling Stockholders Prior to the Offering Beneficially Owned This Prospectus Post Offering
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
HFTP Investment 5,000 1,107,885* 3,815,244 0**
L.L.C. (1)

SERIES C HOLDERS (2) 310 103,334 103,334 103,334

SYNCOM III (3) 861,230 861,230 861,230 861,230
</TABLE>

41
<PAGE>

*Based upon a conversion price of $3.2708 as arrived at according to terms set
forth in our Certificate of Amendment of the Certificate of Incorporation.

**Assumes the conversion of all shares of the Series D1 Preferred Stock and the
sale of all underlying shares of common stock.

(1) Promethean Investment Group L.L.C. is the investment advisor for HFTP
Investment L.L.C. and consequently has voting control and investment
discretion over securities held by such entity. Promethean Investment
Group L.L.C. is indirectly controlled by Mr. James O'Brien, Jr.
Promethean Investment Group L.L.C. is disclaims beneficial ownership of
any of our securities held by HFTP Investment L.L.C. Mr. James O'Brien
may be deemed to be the beneficial owner of any of our securities
beneficially owned by Promethean Investment Group L.L.C. or HFTP
Investments L.L.C. However, Mr. O'Brien disclaims beneficial ownership
of such securities.

(2) The Series C Holders are comprised of a group of individual accredited
investors.

(3) Terry Jones, a director, is the general partner of WJM Partners III,
L.P. ("WJM"), the general partner of Sycom III. Pursuant to the terms
of the Stock Purchase Agreement entered into in connection with such
placement, so long as Sycom III holds at least 750 shares of our common
stock, our Board of Directors consists of not less than five members
and we use our best efforts to cause Terry Jones (or another partner of
WJM) to be elected as a director.

SHARES ELIGIBLE FOR FUTURE SALE

The Company will have 23,467,283 shares of Common Stock outstanding if
all of the Series C and D1 Preferred are converted and all of the Warrants are
exercised.

No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market price prevailing from time to time. The possibility that substantial
amounts of Common Stock may be sold in the public market, or sales of
substantial amounts of the Common Stock in the public market, is likely to have
a material adverse effect on the price of the Common Stock and could impair the
Company's ability to raise capital through the future sale of its equity
securities.

PLAN OF DISTRIBUTION

We anticipate that the selling shareholders may sell all or a portion
of the shares offered by this Prospectus from time to time on the Over The
Counter Bulletin Board, on securities exchanges or in private transactions, at
fixed prices, at market prices prevailing at the time of sale or at prices
reasonably related to the market price, at negotiated prices, or by a
combination of these methods of sale through:

o ordinary brokerage transactions and transactions in which the broker
solicits purchases;

o sales to one or more brokers or dealers as principal, and the resale by
those brokers or dealers for their account, including resales to other
brokers and dealers;

o block trades in which a broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; or

o privately negotiated transactions with purchasers.

We are not aware as of the date of this Prospectus of any agreements
between the selling shareholders and any broker-dealers regarding the sale of
the shares offered by this Prospectus, although we have made no inquiry in

42
<PAGE>

that regard. In connection with sales of the shares or otherwise, the
selling shareholders may enter into hedging transactions with
broker-dealers. In connection with these transactions:

o broker-dealers may engage in short sales of the shares covered by this
Prospectus in the course of hedging the positions they assume with
selling shareholders;

o the selling shareholders may sell shares of our common stock short and
deliver the shares to close out their short positions;

o the selling shareholders may enter into option or other transactions
with broker-dealers that require the delivery to the broker-dealer of
the shares covered by this Prospectus, which the broker-dealer may
resell according to this Prospectus; and

o the selling shareholders may pledge the shares covered by this
Prospectus to a broker, dealer or financial institution and upon a
default, the broker, dealer or financial institution may effect sales
of the pledged shares according to this Prospectus.

The selling shareholders and any broker, dealer or other agent
executing sell orders on behalf of the selling shareholders may be considered to
be underwriters within the meaning of the Securities Act, in which case
commissions received by any of these brokers, dealers or agents and profit on
any resale of the shares may be considered to be underwriting commissions under
the Securities Act. These commissions received by a broker, dealer or agent may
be in excess of customary compensation.

All costs, fees and expenses of registration incurred in connection
with the offering will be borne by us. All selling and other expenses incurred
by the selling shareholders will be borne by the selling shareholders.

We have notified the selling shareholders that they will be subject to
applicable provisions of the Exchange Act and its rules and regulations, which
may include, without limitation, Rule 102 under Regulation M. These provisions
may limit the timing of purchases and sales of any of the common stock by the
selling shareholders. Rule 102 under Regulation M provides, with some
exceptions, that it is unlawful for any person engaged in the distribution of
our common stock to, directly or indirectly, bid for or purchase, or attempt to
induce any person to bid for or purchase, an account in which the selling
shareholders or affiliated purchasers have a beneficial interest in any
securities that are the subject of the distribution during the applicable
restricted period under Regulation M. All of the above may affect the
marketability of the common stock.

LEGAL MATTERS

The legality of the shares being offered will be passed upon by Kramer
Levin Naftalis & Frankel LLP, New York, New York. This firm holds shares of the
Common Stock of Cyber Digital.

EXPERTS

The financial statements of the Company at March 31, 1999, which have
been audited, and for the six months ended September 30, 1999, which have been
reviewed, appearing in this Prospectus and Registration Statement have been
provided by Albrecht, Viggiano, Zureck & Company, P.C., independent auditors, as
set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.

43
<PAGE>

CYBER DIGITAL, INC.

FINANCIAL STATEMENTS

TABLE OF CONTENTS

Page No.
--------

Independent Auditors' Report .................................. F-1

Financial Statements

Balance Sheet ............................................. F-2

Statements of Operations .................................. F-3

Statements of Changes in Shareholders' Equity ............. F-4

Statements of Cash Flows .................................. F-5

Notes to Financial Statements ............................. F-6 - F-15

All schedules omitted are not required, not applicable, or the information is
provided in the financial statements or notes therein.

F-1

<PAGE>

A L B R E C H T , V I G G I A N O , Z U R E C K & C O M P A
N Y , P . C .
CERTIFIED PUBLIC ACCOUNTANTS
25 SUFFOLK COURT
HAUPPAUGE, NY 11788
(516) 434-9500

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Cyber Digital, Inc.
Hauppauge, New York

We have audited the accompanying balance sheet of Cyber Digital, Inc. as of
March 31, 1999 and the related statements of operations, shareholders' equity,
and cash flows for each of the two years in the period ended March 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cyber Digital, Inc. as of March
31, 1999 and the results of their operations and their cash flows for each of
the two years in the period ended March 31, 1999 in conformity with generally
accepted accounting principles.

Albrecht, Viggiano, Zureck and Company, P. C.

Hauppauge, New York
June 15, 1999

F-2

<PAGE>

CYBER DIGITAL, INC.
BALANCE SHEET
March 31, 1999

ASSETS

<S> <C>
Current Assets
Cash and cash equivalents $ 246,832
Accounts receivable, net -0-
Inventories 482,633
Prepaid and other current assets 29,190
------------

Total Current Assets 758,655

Property and Equipment, net 250,809

Other Assets 14,350
------------

$ 1,023,814
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Accounts payable, accrued expenses, and taxes $ 123,981
------------

Total Current Liabilities 123,981
------------
Commitments and Contingencies

Shareholders' Equity
Preferred stock - $.05 par value; cumulative, convertible and
participating; authorized 10,000,000 shares
Series A issued and outstanding - none -0-
Series B-1 issued and outstanding 2,420 121
Series B-2 issued and outstanding - none -0-
Common stock - $.01 par value; authorized 30,000,000
shares; issued and outstanding 17,386,053 shares 173,861
Additional paid-in capital 14,161,764
Accumulated deficit (13,435,913)
------------

899,833
------------
$ 1,023,814
============

See accompanying notes to financial statements.
</TABLE>

F-3
<PAGE>

CYBER DIGITAL, INC.
STATEMENTS OF OPERATIONS
Years ended March 31,

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net Sales $ 279,926 $ 66,110

Cost of Sales 134,899 44,946
------------ ------------

Gross Profit 145,027 21,164
------------ ------------

Operating Expenses
Selling, general and administrative expenses 1,682,368 1,674,977
Research and development 650,072 388,854
------------ ------------

Total Operating Expenses 2,332,440 2,063,831
------------ ------------

Loss from Operations (2,187,413) (2,042,667)
------------ ------------

Other Income (Expense)
Interest income 58,395 188,146
Interest expense -0- (4,606)
Other expense (4,361) (972)
Bad debt expense (355,012) -0-

Total Other Income (Expense) (300,978) 182,568

Loss Before Income Taxes (2,488,391) (1,860,099)

Provision for Income Taxes 4,513 4,777
------------ ------------

Net Loss $ (2,492,904) $ (1,864,876)

Preferred Stock Dividend (268,908) (232,610)
------------ ------------

Income Available to Common Shareholders (2,761,812) (2,097,486)
============ ============

Net Loss Per Share of Common Stock (See Note 5)

Net Loss - Basic $ (.16) $ (.12)
============ ============
Diluted $ (.16) $ (.12)
============ ============

Weighted average number of common shares outstanding 17,386,053 17,312,550
============ ============
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

CYBER DIGITAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS'EQUITY
Years ended March 31, 1999 and 1998

<TABLE>
<CAPTION>
Preferred Stock
-------------------------------------------------------------------------------
Series A Series B-1 Series B-2
------------------ --------------------- ---------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1997 86 $ 4 2,000 $ 100 -0- $ -0-

Exercise of stock options

10% Preferred stock dividend - Series B-1 200 10

Conversion of preferred stock - Series A (38) (2)

Redemption of Series A preferred stock (48) (2)

Net Loss
---------- ----------- ------------ ------------ ----------- -------
Balance at March 31, 1998 -0- $ -0- 2,200 $ 110 -0- $ -0-

10% Preferred stock dividend - Series B-1 220 11

Net Loss
---------- ----------- ------------ ------------ ----------- -------
Balance at March 31, 1999 -0- $ -0- 2,420 $ 121 -0- $ -0-
========== =========== ============ ============ =========== =======

<CAPTION>
Common Stock
------------------------ Additional Paid- Accumulated Shareholders'
Shares Amount in Capital Deficit Equity
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1997 17,095,176 $ 170,952 $ 13,919,241 $ (8,303,214) $ 5,787,083

Exercise of stock options 90,000 900 82,900 83,800

10% Preferred stock dividend - Series B-1 232,600 (232,610) -0-

Conversion of preferred stock - Series A 200,877 2,009 78,466 (80,473) -0-

Redemption of Series A preferred stock (420,340) (192,928) (613,270)

Net Loss (1,864,876) (1,864,876)
---------- ------------ ------------ ------------ ------------
Balance at March 31, 1998 17,386,053 $ 173,861 $ 13,892,867 $(10,674,101) $ 3,392,737

10% Preferred stock dividend - Series B-1 268,897 (268,908) -0-

Net Loss (2,492,904) (2,492,904)
---------- ------------ ------------ ------------ ------------
Balance at March 31, 1999 17,386,053 $ 173,861 $ 14,161,764 $(13,435,913) $ 899,833
========== ============ ============ ============ ============

</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

CYBER DIGITAL, INC.
STATEMENTS OF CASH FLOWS
Years ended March 31,

<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $(2,492,904) $(1,864,876)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 69,598 35,758
Bad debt expense 355,012 -0-
(Increase) decrease in operating assets:
Accounts receivable 28,591 (56,226)
Inventories (34,883) (13,277)
Prepaid and other current assets (5,645) (17,260)
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses, and taxes (16,968) 98,676
----------- -----------

Net Cash Used in Operating Activities (2,097,199) (1,817,205)
----------- -----------

Cash Flows from Investing Activities
Purchase of equipment (92,442) (219,625)
----------- -----------

Net Cash Used in Investing Activities (92,442) (219,625)
----------- -----------

Cash Flows from Financing Activities
Issuance of common stock -0- 83,800
Redemption of preferred stock -0- (613,270)

Net Cash Used in Financing Activities -0- (529,470)
----------- -----------

Net Decrease in Cash and Cash Equivalents (2,189,641) (2,566,300)

Cash and Cash Equivalents at Beginning of Period 2,436,473 5,002,773
----------- -----------

Cash and Cash Equivalents at End of Period $ 246,832 $ 2,436,473
=========== ===========

Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Income taxes $ 4,140 $ 6,949
Interest -0- 4,606
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Description of Business

Cyber Digital, Inc. (the "Company") was incorporated in the state of New York in
April 1983. The Company designs, develops, manufactures and markets digital
switching 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 which permits "modemless" transmission of data
between a variety of incompatible and dissimilar end-user equipment, such as
personal computers, printers, work stations and data terminals, over standard
telephone lines.

Operating and Financing Matters

Since inception, the Company has devoted substantial resources to the design and
development of the Company's systems. As such, the Company has not achieved
revenue growth and has incurred operating losses. At March 31, 1999, the Company
had an accumulated deficit of $13,435,913 and a shareholders' equity of
$899,833. The decrease in equity from March 31, 1998 to March 31, 1999 is due
mainly to a net loss of $2,492,904 for the fiscal year ended March 31, 1999. The
Company had working capital of $634,674 at March 31, 1999 relating largely to
cash and cash equivalents from prior year's stock issuances as discussed in Note
7, and inventories. The Company historically has generated sufficient cash flow
to support its operations mainly from these issuance of debt and equity
securities.

Estimates

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

Fair Value of Financial Instruments

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

Cash and Cash Equivalents

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

F-7

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies (continued)

Accounts Receivable

Accounts receivable are presented net of a zero allowance for doubtful accounts
at March 31, 1999. The allowance is based on prior experience and management's
evaluation of the collectibility of accounts receivable. Management believes
that the allowance is adequate. However, additions to the allowance may be
necessary based on changes in economic conditions.

Inventories

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

Property and Equipment

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

Revenue Recognition

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

Income Taxes

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

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

Research and Development Costs

Research and development costs are charged to expense when incurred.

Warranty Expense

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

F-8

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies (continued)

Impairment of Long-Lived Assets

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

Reclassifications

Certain prior period amounts have been reclassified to conform with the current
financial statement presentation.

Earnings (Loss) Per Share

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

New Accounting Pronouncements

In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which is effective for fiscal years
beginning after December 15, 1998. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits. The Company is
evaluating methods for adoption of this statement, if necessary, and currently
does not expect this new pronouncement to have a material impact on its
financial statements.

Note 2 - Inventories

At March 31, 1999, inventories consist of:

Raw materials $ 345,024
Work-in-process -0-
Finished goods 137,609
---------
$ 482,633

F-9

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 3 - Property and Equipment

Major classes of property and equipment consist of the following at March 31,
1999:

Useful Lives

Machinery and equipment $ 366,395 5 years
Furniture and fixtures 68,271 7 years
Leasehold improvements 4,786 lease term
----------
439,452
Less: Accumulated depreciation 188,643
----------
$ 250,809
==========

Note 4 - Other Assets

Other assets consist of various security deposits.

Note 5 - Earnings (Loss) Per Share

Earnings per share ("EPS") has been computed and presented pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, Earnings per
Share, which was adopted during the fiscal year ended March 31, 1998.

1999 1998
------------- -------------
Net Loss $ (2,492,904) $ (1,864,876)
Dividends paid on Preferred Stock Series B-1 (268,908) (232,610)
------------ -------------
Income Available to Common Shareholders $ (2,761,812) $ (2,097,486)
------------- -------------
Weighted Average Common Shares Outstanding 17,386,053 17,312,550
------------- -------------
Basic EPS $ (.16) $ (.12)
Diluted EPS $ (.16) $ (.12)

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

F-10

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 6 - Stock Option Plans

The Company's Board of Directors adopted, on November 7, 1997, the 1997 Stock
Incentive Plan (the "1997 Plan"). The 1997 plan is a successor to the 1993 plan,
which has been terminated. Under the terms of the 1997 Plan, 850,999 shares were
reserved for issuance to officers, directors, other employees and consultants
meeting certain qualifications. Under the 1997 Plan, incentive stock options are
granted at 100% of fair market value on the date of grant. The right to exercise
the options accrues equally on each of the first, second, third and fourth
anniversaries of the date of grant. Options granted under the plan expire on the
day before the tenth anniversary of the plan.

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

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

F-11

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 6 - Stock Option Plans (continued)

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

In addition to these plans, the Company has issued non-qualified stock options
and warrants upon the approval by the Board of Directors. Such options and
warrants are granted at 100% of fair market value on the date of the grant.
Information with respect to non-qualified stock options and warrants are
summarized as follows:
Price Shares
----- ------
Outstanding, April 1, 1998 $.38 to $10.00 3,051,013
Granted $.75 to $1.43 200,000
Canceled $1.50 to $10.00 ( 692,000)
-------------
Outstanding March 31, 1999 2,559,013
=============

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

The following assumptions were employed to estimate the fair value of stock
options granted:
Fiscal Year Ended March 31,
---------------------------
1999 1998
---- ----
Expected dividend yield 0.00% 0.00%
Expected price volatilities 96.00% 95.20%
Risk-free interest rate 4.40% 5.00%
Expected life (years) 5.20 6.75

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

1999 1998
-------------- -------------
Weighted average fair value of
Options granted $ 0.05 $ 0.19

Net Loss
As reported $ (2,492,904) $ (1,864,876)
Pro Forma (2,524,906) (1,882,448)

Net Loss Per Share
As reported
Basic $ (0.16) $ (0.12)
Diluted $ (0.16) $ (0.12)
Pro Forma
Basic $ (0.16) $ (0.12)
Diluted $ (0.16) $ (0.12)

F-12

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 7 - Convertible, Cumulative and Participating Preferred Stock

In the fiscal year ended March 31, 1997, the Company completed two private
placements of preferred stock. The Company sold 805 shares of 10% Series A
convertible preferred stock, priced at $10,000 per share. The Company also sold
2,000 shares of 10% Series B-1 convertible, cumulative and participating
preferred stock, priced at $1,000 per share.

During the fiscal year ended March 31, 1998, pursuant to an optional conversion
or redemption of Series A preferred stock, 38 shares were converted into 200,877
shares of common stock and 48 shares were redeemed leaving no shares
outstanding. These shares were converted based upon 85% of the average closing
bid price for the five trading days prior to the conversion.

The 10% Series B-1 convertible, cumulative and participating preferred stock is
convertible into restricted common shares at a price which is the lesser of (a)
$7.50 per share or (b) 85% of the average closing price for the five days prior
to the conversion date. As of March 31, 1999, there are $60,334 of undeclared
dividends on the Series B-1 preferred stock.

In December 1998 and 1997, the Board of Directors declared and distributed a
stock dividend on the preferred Series B-1 stock. The stock amounted to 220 and
200 shares of preferred Series B-1 stock at $1,000 per share, respectively. The
stock dividends were equivalent to the 10% annual dividend on the preferred
Series B-1 stock, plus $48,908 and $32,610 representing the beneficial
conversion feature on the preferred stock dividend, respectively.

The 10% Series B-2 preferred stock is convertible into restricted common shares
at a price which is the greater of (a) $7.50 per share or (b) 85% of the average
closing price for the five days prior to the conversion date. As of March 31,
1999, this preferred stock remains unissued.

Note 8 - Income Taxes

The Company has net operating loss carryforwards for tax purposes amounting to
approximately $12 million that may be offset against future taxable income which
expire through 2014. In addition, the Company has investment and research and
development tax credits for tax purposes amounting to approximately $196,000
which expire through 2003.

Deferred income taxes are recognized for differences between the bases of assets
and liabilities for financial statement and income tax purposes. The utilization
of these tax attributes is contingent upon the Company's ability to generate
future taxable income and tax before the tax attributes expire as well as
Internal Revenue Code limitations. As a result, a valuation allowance equal to
the full extent of the deferred tax asset has been established. The change in
the deferred tax asset (as well as the valuation account) was approximately
$848,000 for the fiscal year ended March 31, 1999.

The Company was subject to capital based taxes for New York State for the years
ended March 31, 1999 and 1998.

F-13

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 9 - Commitments and Contingencies

Employment Contract

During the year ended March 31, 1998, the Company entered into a new employment
agreement with the Chairman. The new agreement is for a three year period
covering August 4, 1997 through August 3, 2000. This agreement is renewable for
successive three year periods.

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

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

The following payout terms apply if this agreement is terminated:

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

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

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

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

F-14

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 9 - Commitments and Contingencies (continued)

Operating Leases

Effective April 1, 1994, the Company commenced a noncancellable operating lease
that expired on March 31, 1998. In April 1998 this lease was renewed at the same
terms for a one year period with respect to the Company's executive offices and
operations. Rent expense was $55,688 and $58,714 for the years ended March 31,
1999 and 1998, respectively. Subsequent to year end, the Company renewed the
lease for a five year period.

In January 1998, the Company commenced a noncancellable operating lease that
expires on February 28, 2000, with a renewal option for two additional, two year
periods, with respect to the companies Indiana office. In October 1998, the
Company began subleasing their Indiana office on a month-to-month basis. Rent
expense was $9,450 and $3,092 for the year ended March 31, 1999 and 1998. The
expense for 1999 is net of sublease income.

The Company also has non-cancelable operating leases for vehicles. The monthly
rental on the vehicles $1,293. The amount charged to expense was $12,676 and
$3,636, for the years ended March 31, 1999 and 1998, respectively.

Future minimum rentals are as follows:

For years ending March 31, 2000 $ 70,200
2001 57,564
2002 59,867
2003 62,261
2004 64,752
----------
$ 314,644
==========

Government Regulation

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

Pending Litigation

The Company is a defendant in an action arising from an alleged wrongful
termination of a purported agreement with Brockington Securities, Inc. The
Company has asserted counter claims and intends to vigorously defend its
position. The outcome and range of damages or settlement (if any) is unknown.

F-15

<PAGE>

CYBER DIGITAL, INC.
NOTES TO FINANCIAL STATEMENTS

Note 10 - Segment Information and Significant Customers

Significant Customers

For fiscal years ended March 31, 1999 and 1998, the Company derived 0% and 9%,
respectively, of its revenue from Federal government agencies. For the fiscal
years ended March 31, 1999 and 1998, the Company had sales representing 99% and
91% of its revenue from two customers, namely GTE Data Services GMBH and Sprint
representing 79% and 20%, respectively, for the year ended March 31, 1999 and
GTE Data Services GMBH and National Telecommunications Company representing 48%
and 43%, respectively, for the year ended March 31, 1998. The accounts
receivable for these customers accounted for 0% and 100% of the total accounts
receivable at March 31, 1999 and 1998, respectively.

Note 11 - Foreign Operations

During the fiscal year ended March 31, 1998, the Company formed a wholly owned
subsidiary, Cyber Digital (India) Private Limited, under the rules and
regulations of the Government of India. The subsidiary has not begun operations
and has no assets as of March 31, 1999 and 1998.

Note 12 - Subsequent Events

Preferred Stock Conversion

During April 1999, all of the Company's outstanding Series B-1 preferred stock
in accordance with terms discussed in Note 7 (2,420 shares) was converted into
861,230 shares of the Company's common stock.

New Contract

In April 1999, the Company signed a reseller agreement with AT & T Corporation.
Under the terms and conditions of this agreement, the Company will have the
right to market "AT & T Business IP Services" and "AT & T Managed Internet
Services" for a period of one year which shall automatically renew for
additional one year terms at the discretion of either party.

Private Placement

On May 28, 1999, the Company designated 1,200 of the 10,000,000 authorized
preferred shares as Series C. On July 12, 1999, the Company closed on a private
placement of 310 of the 1,200 shares priced at $1,000 per share for a total of
$310,000.

F-16

<PAGE>

No dealer, salesperson or other person
has been authorized to give any information or to
make any representations in connection with this
Offering other than those contained in this
Prospectus and, if given or made, such information
or representations must not be relied upon as
having been authorized by the Company or by the
Underwriters. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to
buy any security other than the securities offered
by this Prospectus, or an offer to sell or a
solicitation of an offer to buy any securities by CYBER DIGITAL, INC.
person in any jurisdiction in which such offer or
solicitation is not authorized or is unlawful. The
delivery of this Prospectus shall not, under any
circumstances, create any implication that the
information herein is correct as of any time
subsequent to the date of this Prospectus.

----------------- 5,000,000 Shares of Common Stock

PROSPECTUS

November 19, 1999

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

To the fullest extent that limitations on the liability of directors
and officers are permitted by the New York Business Corporation Law, no director
or officer of the Registrant shall have any liability to the Registrant or its
Stockholder for damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the Registrant
whether or not such person is a director or officer at the time of any
proceeding in which liability is asserted.

The Registrant shall indemnify and advance expenses to its currently
acting and its former directors to the fullest extent that indemnification of
directors is permitted by the New York Business Corporation Law. The Registrant
shall indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The Board of
Directors may, through a by-law, resolution or agreement, make further
provisions for indemnification of directors, officers, employees and agents to
the fullest extent permitted by the New York Business Corporation Law.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.

Item 25. Other Expenses of Issuance and Distribution.

The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement (other
than the underwriting discount and commissions and reasonable expense allowance)
will be as follows:

SEC registration fee................................... $4503.60
Nasdaq filing fees..................................... $10,000.00

Accounting fees and expenses........................... $1,000.00
Legal fees and expenses (except Blue Sky).............. $
Blue sky fees and expenses............................. $
Miscellaneous.......................................... $
Total................................................ $

Item 26. Recent Sales of Unregistered Securities.

On October 5, 1999, the Company concluded a private placement of its
Series D1 Preferred stock and accompanying warrants to accredited investors and
received net proceeds of approximately $3,000,000. The Series D1 Preferred Stock
was issued without registration in reliance on Rule 506 of Regulation D of the
Securities Act of 1933, as amended.

As set forth in the Company's Certificate of Amendment to its
Certificate of Incorporation for the Preferred Stock, the Preferred Stock is
convertible into shares of the Company's Common Stock, par value $0.01 per
share, at a price that is equal to the amount obtained by multiplying 100%
(subject to adjustment) by either (i) that price of

II-1

<PAGE>

the Common Stock which shall be computed as the arithmetic average of the three
lowest Closing Sales Prices (as defined in the Certificate of Amendment) of the
Common Stock during the twenty consecutive trading days immediately preceding
the date of such determination and (ii) the Closing Bid Price (as defined in the
Certificate of Amendment) on such date, whichever is lower. Such amount shall
not, in any case, exceed $5.43 subject to certain adjustments as set forth in
the Certificate of Amendment.

Pursuant to the Agreement, the Purchaser has purchased an aggregate of
3,000 shares of the Company's Series D1 Preferred Stock, par value $0.05 per
share (the "Preferred Stock"), and a warrant to purchase 190,678 shares of the
Company's Common Stock (the "Warrant") for an aggregate purchase price
of$3,000,000. The price at which the Warrant is exercisable is $5.70.

Subject to certain conditions as set forth in the Agreement, the
Purchaser is also required to buy and the Company is required to sell (i) an
additional 2,000 shares of Preferred Stock and (ii) warrants to purchase a
number of shares of Common Stock based on a formula set forth in the Agreement.

II-2

<PAGE>

Item 27. Exhibits and Financial Statement Schedules.

(a) Exhibits.

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

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

4.1 Form of Warrant Certificate
(incorporated herein by reference
to Exhibit 4.1 to the 8-K).

4.2 Form of Registration Rights
Agreement, dated as of September
30, 1999, relating to the Series
D1 Preferred Stock (incorporated
herein by reference to Exhibit 4.2
to the 8-K).

5.1 Opinion of Kramer Levin Naftalis &
Frankel LLP.* 10.1 1993 Stock
Incentive Plan (incorporated
herein by reference to Exhibit
10(a) to the Company's Annual
Report on Form 10-K for the fiscal
year ended March 31, 1994 (the
"1994 Form 10-K").

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

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

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

10.5 Securities Purchase Agreement,
dated as of September 30, 1999, by
and among the Company and the
Purchaser named therein, relating
to the Series D1 Preferred Stock
(incorporated herein by reference
to Exhibit 10.1 to the 8-K).

10.6 1997 Stock Incentive Plan
(incorporated herein by reference
to Exhibit 10.5 to the Company's
1999 Form 10-KSB/A).

23.1 Consent of Albrecht, Viggiano,
Zureck & Company, P.C., C.P.A.

23.2 Consent of Kramer Levin Naftalis &
Frankel LLP (to be contained in
the opinion to be filed as Exhibit
5.1 hereto).

27.1 Financial Data Schedule
(incorporated herein by reference
to Exhibit 27 to the Company's
Form 10-Q filed on November 5,
1999).

*To be filed by amendment hereto.

II-3

<PAGE>

Item 28. Undertakings.

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to;

(i) Include any Prospectus required by Section
10(a)(3) of the Securities Act;

(ii) Reflect in the Prospectus any facts or
events which, individually or together,
represent a fundamental change in the
information in the Registration Statement;

(iii) Include any additional or changed material
information on the plan of distribution.

(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration of the securities offered,
and the offering of such securities at that time to be the initial bona fide
offering.

(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.

(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

11-4

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Hauppauge, State of New York, on November 16, 1999.

CYBER DIGITAL, INC.

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

POWER OF ATTORNEY

We, the undersigned directors and officers of Cyber Digital, Inc. do
hereby constitute and appoint J.C. Chatpar or Jack Dorfman, or either of them,
as our true and lawful attorneys and agents, to do any and all acts and things
in our name and behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act, as amended, and any rules, regulations and requirements of the SEC in
connection with this Registration Statement, including specifically, but without
limitation, power and authority to sign for us or any of us in our names and in
the capacities indicated below, any and all amendments (including post-effective
amendments) hereto or any related registration statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act, as amended; and we
do hereby ratify and confirm all that the said attorneys and agents, or either
of them, shall do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.

Signature Title Date
--------- ----- ----

/s/ J.C.Chatpar President, Chief Executive November 18, 1999
-------------------
J.C. Chatpar Officer and Director

/s/ Jack P. Dorfman Secretary and Director November 18, 1999
-------------------
Jack P. Dorfman

/s/ Jatinder Wadhwa Treasurer and Director November 18,1999
-------------------
Jatinder Wadhwa

/s/ Terry Jones Director November 18,1999
-------------------
Terry Jones

/s/ Khushi Nichani Director November 18,1999
-------------------
Khushi Nichani

II-5

<PAGE>

INDEX TO EXHIBITS

Exhibit Number Sequential Page
Description of Document Number
----------------------- ------

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

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

4.1 Form of Warrant Certificate (incorporated
herein by reference to Exhibit 4.1 to the
8-K).

4.2 Form of Registration Rights Agreement,
dated as of September 30, 1999, relating
to the Series D1 Preferred Stock
(incorporated herein by reference to
Exhibit 4.2 to the 8-K).

5.1 Opinion of Kramer Levin Naftalis &
Frankel LLP.* 10.1 1993 Stock Incentive
Plan (incorporated herein by reference to
Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1994 (the "1994 Form
10-K").

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

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

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

10.5 Securities Purchase Agreement, dated as
of September 30, 1999, by and among the
Company and the Purchaser named therein,
relating to the Series D1 Preferred Stock
(incorporated herein by reference to
Exhibit 10.1 to the 8-K).

10.6 1997 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.5 to
the Company's 1999 Form 10-KSB/A).

23.1 Consent of Albrecht, Viggiano, Zureck &
Company, P.C., C.P.A.

23.2 Consent of Kramer Levin Naftalis &
Frankel LLP (to be contained in the
opinion to be filed as Exhibit 5.1
hereto).

27.1 Financial Data Schedule (incorporated
herein by reference to Exhibit 27 to the
Company's Form 10-Q filed on November 5,
1999).

*To be filed by amendment hereto.

II-6

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.

II-7

A L B R E C H T , V I G G I A N O , Z U R E C K
& C O M P A N Y , P . C .

CERTIFIED PUBLIC ACCOUNTANTS
25 SUFFOLK COURT
HAUPPAUGE, NY 11788
(516) 434-9500

To the Board of Directors
Cyber Digital, Inc.
Hauppauge, New York

We consent to the use of our report dated June 15, 1999 for the year ended March
31, 1999 included herein and to the reference to our firm under the heading
"Experts".

Albrecht, Viggiano, Zureck and Company, P. C.

Hauppauge, New York
June 15, 1999