Attached files
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EX-31.1 - CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT OF 2002 - CYBRA CORP | f10k2009ex31i_cybra.htm |
EX-32.1 - CERTIFICATIONS PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT OF 2002 - CYBRA CORP | f10k2009ex32i_cybra.htm |
EX-31.2 - CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT OF 2002 - CYBRA CORP | f10k2009ex31ii_cybra.htm |
EX-32.2 - CERTIFICATIONS PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT OF 2002 - CYBRA CORP | f10k2009ex32ii_cybra.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2009
OR
o TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _______ to _______
Commission
File Number 000-52624
CYBRA
CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
13-3303290
|
||
Incorporation
or Organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
One
Executive Blvd., Yonkers, NY
|
10701
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant’s
Telephone Number, Including Area Code
|
(914)963-6600
|
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant section 12(g) of the Act:
Common
Stock, $0.001 par value
Title of
Class
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K . o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
One):
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o No
x
As of
June 30, 2009, which was the last business day of the registrant’s most recent
second fiscal quarter, the aggregate market value of the registrant’s Common
Stock held by non-affiliates of the registrant was approximately
$2,885,000.
As of
March 15, 2010, there were 13,766,662 shares of Common Stock
outstanding.
TABLE OF
CONTENTS
Page
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|||||
Part I
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|||||
Item
1.
|
Description
of Business
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1
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|||
Item
1A.
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Risk
Factors
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15
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|||
Item
1B.
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Unresolved
Staff Comments
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21
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|||
Item
2.
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Properties
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22
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|||
Item
3.
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Legal
Proceedings
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22
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Item
4.
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Reserved
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22
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Part II
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|||||
Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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22
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Item
6.
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Selected
Financial Data
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23
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|||
Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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23
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|||
Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
|
29
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|||
Item
8.
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Financial
Statements and Supplementary Data
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29
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|||
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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29
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Item
9A(T).
|
Controls
and Procedures
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29
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|||
Item
9B.
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Other
Information
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30
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Part III
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|||||
Item
10.
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Directors,
Executive Officers and Corporate Governance
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31
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Item
11.
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Executive
Compensation
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33
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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35
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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36
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||
Item
14.
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Principal
Accountant Fees and Services
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36
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Part IV
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|||||
Item
15.
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Exhibits,
Financial Statement Schedules
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37
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Signatures
|
38
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|
FORWARD
LOOKING STATEMENTS
This
report on Form 10-K contains forward-looking statements within the meaning of
Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the
Securities Exchange Act of 1934, as amended, that involve substantial risks and
uncertainties. These forward-looking statements are not historical facts, but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and our assumptions. Words such as “anticipates”,
“expects”, “intends”, “plans”, “believes”, “seeks” and “estimates” and
variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some of
which are beyond our control and difficult to predict and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Form 10-K.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company’s stock. The following
discussion and analysis should be read in conjunction with our financial
statements and summary of selected financial data for CYBRA Corporation. Such
discussion represents only the best present assessment from our
Management.
PART
I
ITEM
1. DESCRIPTION OF BUSINESS
THE
COMPANY
CYBRA
Corporation (“CYBRA” or the “Company”) was founded as a New York corporation in
1985 by Harold Brand, an Information Technology (“IT”) professional with
extensive experience in computer systems design, and Dr. Shlomo Kalish, an
authority in marketing for start up ventures. Initially, CYBRA was a
consulting organization for mid-range computing systems. Utilizing Mr. Brand’s
expertise in the IT industry, CYBRA resold and integrated Israeli software
products for the IBM System 34, 36, and 38 platforms in the North American
marketplace. In the early 1990’s, one of the Company’s main clients asked CYBRA
(in collaboration with Pitney Bowes) to develop a bar code label software
component. In order to accommodate its client’s needs, CYBRA agreed to develop
the new technology. The results had a profound effect on the
Company’s future. CYBRA became much more heavily involved in software
application development, and wrote the code for a new proprietary software
product known as MarkMagicTM. CYBRA
owns the trademark for MarkMagic. The MarkMagic software is not
patented. It is protected by use of standard secure software keys
that are locked to specific computer serial numbers. Computer source
code is not distributed with the product.
In August
1997, Monarch Marking Systems, a supplier of labels and printers to retail
customers, acquired a minority ownership position in CYBRA with the intention of
establishing a strategic partnership. Since that time, CYBRA’s
fundamental strategy has been to establish OEM partnerships that embed MarkMagic
in leading business software products. Vendors of these business software
products resell MarkMagic to their customers. In addition, CYBRA sells MarkMagic
directly to businesses needing radio frequency identification (RFID) and bar
code labels, as well as electronic forms. Today, the Company is well known for
its computerized bar code document design and printing. CYBRA’s R&D
department has core competencies in auto id/bar code and RFID expertise, object
oriented programming and design, and information technology — especially in
connection with the IBM System i.
IBM
System i and its predecessors (IBM iSeries and IBM AS/400) have been deployed
into midsize companies since the late 1980s. System i, however, has been
transformed since that time, meeting a new set of price points and performance
results that far outstrip the price/performance ratio offered in the 1990s, or
even a few years ago. The System i is a minicomputer platform aimed at meeting
the business information and technology needs of midsize businesses, and it is
designed to support the growth of a business over time.
-1-
CYBRA’s
key distributors and resellers are Manhattan Associates, Apparel Business
Systems, Vormittag Associates (“VAI”) and Solzon Corporation. CYBRA’s primary
suppliers are: Avery Dennison (bar code and RFID printers and printing
supplies), Psion Teklogix (bar scanners and wireless equipment), ScanSource
(wholesale distributors), Blue Star (wholesale distributors), and Nimax
(wholesale distributors).
|
Percentage of
Sales
Attributable to
Software
Manufacturers
|
Percentage of
Sales
to End Users
|
||||||
2009
|
75 | % | 25 | % | ||||
2008
|
75 | % | 25 | % | ||||
2007
|
78 | % | 22 | % |
CYBRA’s
annual revenues are derived from hundreds of customers. Sales to the largest
customers are as follows::
|
Total Sales
|
Sales to
the
largest
customer
|
Percentage
of
Total
Sales
|
||||||||||
2009
|
$ | 1,335,944 |
Foot
Locker
|
$ | 86,285 | 6.6 | % | ||||||
2008
|
$ | 1,397,150 |
VAI
|
$ | 92,026 | 6.6 | % | ||||||
2007
|
$ | 1,705,742 |
Wacoal
|
$ | 204,203 | 12.0 | % |
PRODUCTS AND
SERVICES
MarkMagicTM
With a
single, simple interface, MarkMagic lets businesses design and print all types
of documents, such as bar code labels, RFID tags, e-forms, and other media,
using live data, with little or no programming necessary. MarkMagic’s
“what-you-see-is-what-you-get” design component, JMagic, was developed in Java
specifically in order to be deployed across the Internet, as well as on diverse
computing platforms, including Windows, UNIX and Linux.
Until
recently, MarkMagic has addressed the IBM System i market. During 2008 CYBRA
developed a version of MarkMagic called MarkMagic Platform Independent
(PI) that is designed to run on all major computing platforms, such as
Windows, UNIX and Linux. MarkMagic PI is currently being evaluated by a number
of potential customers, including a major software company.
MarkMagic
Version 6, a major new product release, which contains enhanced RFID support and
advanced print management features, was officially launched in March 2007 after
being embraced during the beta testing period by customers and software
partners. It was followed by Version 6.1 in September 2007 containing enhanced
rules-based printing features and integration with CYBRA’s EdgeMagic. Version
6.5 was shipped in June 2008, providing a powerful, new MarkMagic add-on feature
called MarkMagic On Demand, for creating web-based customer support
applications.
MarkMagic
Version 7, a major new release, was launched in May 2009. It contains the
all-new MarkMagic FormsComposer feature that adds full report writing functions
to MarkMagic with a simple user interface. The other significant new feature in
Version 7 is the Print Transformer, which provides MarkMagic users with powerful
conditional printing capabilities.
-2-
EdgeMagic®
EdgeMagic,
released in February 2008, is an integrated RFID control solution for IBM System
i customers. It is also deployable on other platforms and is highly scalable.
EdgeMagic is designed to manage edge readers and analog control devices;
commission, read, filter and verify RFID tags to comply with Electronic Product
Code (EPC) compliance mandates and to track company assets; and integrate with
popular ERP and Warehouse Management application packages.
Throughout
2007 and 2008 management focused substantially all of the Company’s resources on
development and release of EdgeMagic with revenue potential that management
believes will be far in excess of the current product mix.
Auto-ID MagicTMSales Strategy
Together,
MarkMagic and EdgeMagic constitute CYBRA’s Auto-ID Magic family of products.
CYBRA’s primary sales strategy is to sell through Application Software Vendors
(ASV’s) that bundle MarkMagic and EdgeMagic with their package
offerings.
Auto-ID
(Automatic Identification) is a term that encompasses a wide range of
technologies that allow items to be automatically identified, including Bar
Code, RFID Tagging, Magnetic Stripe, Biometrics, etc.
The main
benefits of Auto-ID are:
·
|
Reducing
human error by eliminating manual look-up and
entry;
|
·
|
Significant
reductions in personnel training;
|
·
|
Increased
speed, reducing labor costs;
and
|
·
|
Improved
security, as it can be difficult to forge or
fool.
|
The key
benefits to the ASV of OEMing CYBRA’s Auto-ID Magic family of products
are:
·
|
Increased Revenues –
ASV’s can generate an additional source of revenue through sales of
CYBRA’s Auto-ID Magic family of products to future customers as well as to
their installed base. With MarkMagic integrated into their application,
their customers can quickly create new labels and change existing labels
with ease, including RFID “smart” labels. With CYBRA’s forms component,
they can eliminate many, or all, of the preprinted forms currently
required by their application. These net savings give ASV customers a
compelling reason to upgrade their ASV product. Utilizing EdgeMagic, ASV’s
can help their customers with the essential need to comply with trading
partner mandates, as well as developing tracking of their own assets, with
ease and at a reasonable price compared to other
alternatives.
|
·
|
Cost Avoidance – ASV’s
can greatly reduce, or eliminate, their staff costs for ongoing source
code maintenance and customer support for all Auto-ID customer
requirements. Their staff no longer needs to learn and maintain competence
on complex RFID printer or reader command
languages.
|
·
|
Competitive Advantage –
ASV’s can improve their competitive advantage by offering compliance
labeling solutions – including the printing of RFID smart labels, and the
commissioning, validating and management of RFID tags – to their customers
on a wide range of RFID and bar code equipment from numerous
manufacturers. ASV’s can avail themselves of a source for all RFID needs –
middleware, training, services, equipment, supplies, maintenance and
support – without having to develop their own
expertise.
|
-3-
The
Evolution of Auto-ID: From Bar Code To RFID
This
section will introduce you to two key Auto-ID technologies – Bar Coding and RFID
– briefly explaining what they are about, how businesses benefit from their use,
how bar coding evolved to RFID and what role CYBRA plays in these vital areas.
In
the beginning: UPC Bar Code
History
was made on June 26, 1974, when the first product with a UPC bar code was run
through a hand-made scanner at a check-out counter at Marsh’s supermarket in
Troy, Ohio. It was a 10-pack of Wrigley’s Juicy Fruit chewing gum.
The
supply chain would never be the same.
Today,
that pack of gum is on display at the Smithsonian Institution’s National Museum
of American History.
Grocery
items and other consumer products are well-suited for UPC bar codes. Developed
by the food industry to give every product a unique symbol and numeric code, the
multi-digit number identifies the manufacturer and the item. Scanners can read
the bars and spaces of the symbol. This system speeds customer checkout, reduces
item price marking requirements, and helps collect complete and accurate
information on all aspects of the sales transaction.
Since the
early seventies, bar code systems have spread far from the supermarket checkout
counter. In warehouses, hospitals, and automobile assembly lines, bar code
systems enter data at speeds, efficiency and accuracy levels far beyond human
ability.
Comply or Die
In the
late 1980s, manufacturers and distributors had no choice but to add bar code
technology to their operations. These companies had to “comply” and integrate
bar code technology because their customers had installed scanning systems to
read bar code labels to cut data entry and handling costs and demanded that they
either bar code or lose the business to a competitor.
Customer
demands (“compliance mandates”) typically include special shipping labels
developed by industry trade associations. Item ticketing is another type of
compliance. Across all industries, there are literally thousands of different
compliance label types. Industries that have established compliance
specification standards include retail consumer goods, the automobile industry,
and the health industry.
Customers
required to supply bar code shipping labels are given detailed, explicit
instructions defining how the label is supposed to look, what data should appear
on the label, how the bar code information is presented and how the label is to
be printed.
Compliance
specifications are complex and constantly changing, often without notice to the
supplier. If any portion of the label is defective, out of date, or “out of
spec”, the customer is liable for hefty fines called chargebacks. Typical fines
include:
·
|
A National Retailer
charges a minimum of $250 per order plus $3 per carton for incorrect
carton label placement.
|
-4-
·
|
A Regional Retail Chain
charges $300 for carton labels that do not
scan.
|
·
|
Another National
Retailer charges a minimum of $500 per order plus $75 per carton
for incorrect item labeling.
|
·
|
A Sporting Goods Chain charges suppliers $1,000 for unscannable
carton labels.
|
Chargebacks
can easily add up to hundreds of thousands of dollars per year for a small to
medium sized manufacturer. Major retailers such as Wal-Mart, Sears, Target,
etc., accrue tens of millions of dollars from chargeback revenue.
Chargebacks
are a significant cost center for a small to medium manufacturer and can mean
the difference between profit and loss. Software that can help reduce a
company’s chargeback expenses, by providing proper carton labeling and ticketing
of merchandise produces an immediate return on investment.
This is
where CYBRA’s MarkMagic comes in.
Thousands
of CYBRA customers reduce their chargeback burden daily by relying on MarkMagic
to handle their compliance labeling.
Manhattan
Associates, a $335 million supply chain solution company, is a CYBRA ASV Partner
that has built its business on this premise. Manhattan guarantees 100%
compliance with the top 100 U.S. and global retailers’ guidelines for shipping
and content labels. This is accomplished by integrating CYBRA’s MarkMagic bar
code label software into Manhattan’s Warehouse Management and Transportation
Execution software packages.
-5-
Second Generation: 2D Bar Codes
Advances
in bar code printing and scanning capabilities have led to the development of
new bar code types that can contain greater amounts of information in less and
less space. The newer bar code types are called “stacked” 2D (two dimensional)
bar codes because they encode data by layering a series of bars and spaces.
Stacked 2D bar codes can contain as many as 3,000 characters or more in the
space of a postage stamp, while the one dimensional bar codes are limited to
between twelve and thirty characters.
Another
2D bar code family includes “matrix” codes, such as the UPS MaxiCode. Because 2D
bar codes are able to encode entire packing lists or shipping label addresses,
these bar codes are now specified by a number of carriers for their labels.
Compliance with FedEx Ground and UPS is the biggest reason the use of these bar
code types is growing. MarkMagic has helped customers print 2D bar codes since
1994. In addition, MarkMagic makes it possible for customers in certain
industries, such as those that ship directly to the consumer, to produce
shipping documents containing both a pick ticket and a FedEx Ground or UPS
carrier label with a 2D bar code.
The Future Arrives:RFID
Bar codes
have one big shortcoming: a scanner has to “see” the bar code to read it. RFID,
by contrast, does not have this limitation. RFID tags – chips no larger than a
grain of sand plus an attached antenna – can be read without being “seen” as
long as they are within range of a reader, anywhere from a few inches to twenty
or more feet. The tags can be embedded into packaging or applied to a product in
a “smart” label. An entire pallet of 200 RFID tagged items can be read in an
instant.
RFID
technology was first used during World War II as an aircraft identification
system, and businesses have used RFID technology on a limited basis for years.
Drivers in twelve states in the Northeast United States are familiar with the
E-ZPass system for paying tolls, which is based on RFID technology.
-6-
Recent
technical breakthroughs have made RFID well-suited for retail, distribution, and
consumer packaged goods manufacturing. Major retailers such as Wal-Mart, Target,
and Metro Group Germany have mandated the tagging of items coming into their
businesses. The U. S. Department of Defense requires RFID tagged shipments to
solve such problems as tracking munitions.
Currently
retailers’ RFID mandates affect only the largest suppliers (the top Wal-Mart
vendors, for example). In the years ahead, however, the RFID compliance mandates
are expected to impact virtually all suppliers regardless of size. The supply
chain standards groups have adopted a new RFID standard, the EPC (Electronic
Product Code), to supplement the simple UPC bar code.
The UPC
bar code identifies the manufacturer and the product. Like a UPC bar code, the
EPC also identifies the manufacturer and product. The EPC, however, identifies
each item in the supply chain with a unique serial number.
Unlike
bar coding, where scanning of data one by one can be integrated into an
organization’s existing infrastructure in a relatively straightforward manner,
reading and managing RFID tags is a far more complex process. It requires a
class of software referred to as RFID management software.
RFID
management software, also referred to as RFID Edge Middleware, enables the rapid
development and deployment of RFID systems. The software absorbs differences in
various RFID tags from multiple suppliers and integrates that data, making it
possible to build flexible and scalable RFID solutions. The middleware also
includes tools to monitor and maintain RFID systems.
Middleware
needs to filter non-essential RFID data as close to the source as possible. It
is invisible to applications and does not overwhelm the existing system. The
transition from deployments to networks capable of handling this increased load
requires a solution that is scalable as the deployment grows.
CYBRA’s
EdgeMagic RFID middleware is designed to provide RFID management capabilities
with maximum scalability and minimum customization. EdgeMagic provides a
fully integrated RFID management system to manage readers and edge devices,
commission and read RFID tags, and interface to the major ERP and Warehouse
Management packages. EdgeMagic runs on the IBM System i, as well as other major
computing platforms such as Windows, UNIX and Linux.
THE
MARKET
Wal-Mart,
along with the U.S. Department of Defense and the FDA, kick started the entire
RFID industry in 2003 when they announced plans for revolutionizing the supply
chain with RFID technology. RFID would enable a more visible and effective
supply chain and better tracking of corporate assets. Other benefits included
lower labor cost, reduced product theft, elimination of counterfeiting and
reduced stock outages. According to figures released by the National Retail
Foundation, out of stock alone is a $92 billion annual problem.
Seven
years after proponents began insisting that radio frequency identification would
dramatically change the way companies track goods in the supply chain, it
remains a niche technology held back by the difficulties its pioneers have had
pulling in a critical mass of partners. A relatively small number of Wal-Mart’s
suppliers have started using RFID since the retailer announced its famous supply
chain “mandate”.
Although
use of RFID technology across a broad range of products in the supply chain has
not been universally adopted, many businesses are employing RFID to focus on
solving a specific business problem, particularly when it can be done as a
“closed loop”, i.e., without help from multiple partners. A majority of RFID
projects to date have been closed loop. These projects are typically designed
for tracking assets of all types – inventory, equipment, people,
etc.
-7-
A number
of market research companies cover the RFID marketplace as a whole, and are
often quoted as sources for market performance and projections. Among the
leading analysts in this space are: ABI Research of Oyster Bay, NY; VDC Research
of Natick, Massachusetts; IDTechEx, of Cambridge, United Kingdom; and Robert W.
Baird & Company of Milwaukee, WI.
In their
research report of March 2010 entitled “RFID Market to Reach $5.35 Billion This
Year,” ABI Research forecasts that the RFID market appears set to reach a size
of $4.47 billion in 2010 (excluding automobile immobilization), 15% more than
the adjusted 2009 figure, and that the overall RFID market will exceed $7.46
million in 2014 (excluding automobile immobilization), representing a 14%
compound annual growth rate over the next five years. The greatest
growth will be found in RTLS (Real Time Location Systems), baggage handling,
animal ID, and item-level tagging in fashion apparel and retail.
In ABI
Research’s “RFID Item-Level Tagging in Fashion and Apparel Report 3Q 2009”, they
state that: “RFID’s ability to help apparel companies do more with less in the
wake of economic downturn is driving an unprecedented surge in adoption
throughout the sector.” ABI predicts that: “[g]lobal sales of
item-level RFID systems to apparel companies will essentially triple in size over the next five
years, approaching $125 million by the end of 2014.”
Item-level
tagging in the fashion apparel and footwear market has experienced record growth
in 2009 as end-users strive to adopt technologies that help them become more
efficient and remain competitive in the wake of economic downturn. Through years
of extensive pilot testing, the industry has established a quick, demonstrable
ROI case and key business metrics for deployment. While installations at Marks
and Spencer and American Apparel currently represent the largest contributors to
market growth, hundreds of companies are now in various stages of
implementation. With a number of major deployments planned for late 2009 and
early 2010, item-level tagging in fashion apparel and footwear is on the cusp of
becoming a major application for RFID.
We
believe that this trend plays to CYBRA’s strengths. The most
significant segment of our customer base consists of apparel companies —
retailers, as well as manufacturers. The IBM System i has an
unusually high market share in the apparel business.
VDC
Research of Natick, Massachusetts, in their report of July 20, 2009,
stated:
“Middleware was the fastest growing
RFID product segment in 2008, despite recessionary pressures that began
impacting suppliers as early as Q2 (2008). According to recently published
research from VDC’s 2009 RFID Business Planning Service, RFID middleware
revenues …are expected to grow in excess of 60% (CAGR) annually over the next 5
years.”
“Middleware has become more critical to
the RFID solution as the hardware has become more commoditized” stated Drew
Nathanson, VDC’s Director of Research Operations. “This commoditization has
caused end users to increasingly shift their focus toward improving
functionality, scalability, and scope – concepts that are significantly
influenced by a solution’s middleware/edgeware.”
-8-
More than
115 qualified organizations from across the world responded to ABI Research’s
annual survey of end-user companies currently using, deploying, or
piloting/evaluating RFID. Survey results were released in December
2009 and found that:
“Nearly
half (49%) of those respondents currently using, deploying, evaluating, or
piloting RFID report that they expect their RFID budgets to increase in
2010. Moreover, 100% of those organizations with rollouts currently
in progress intend to increase their RFID budgets next year.”
“The
picture is fairly rosy in other parts of the market too: nearly another one
third of respondents report that their 2009 RFID spending levels will remain
unchanged in 2010, while only about 11% intend to cut their RFID budgets. As in
past years, the overwhelming majority of respondents rated ‘business process
improvement’ as the number one driver for their adoption of RFID.”
-9-
In their
report “RFID Forecasts, Players and Opportunities 2009-2019”, released in the
third quarter of 2009, IDTechEx.com stated:
“In 2009
the value of the entire RFID market will be $5.56 billion, up from $5.25 billion
in 2008. This includes tags, readers and software/services for RFID cards,
labels, fobs and all other form factors. By far the biggest segment of this is
RFID cards, and $2.57 billion of the total $5.56 billion being spent on all
other forms of RFID - from RFID labels to active tags.”
“The
tagging of pallets and cases as demanded by retailers (mostly in the US) will
use approximately 225 million RFID labels in 2009, but we see take off in retail
outside mandates, such as from Marks & Spencer and American Apparel, where
200 million tags will be used on apparel in 2009. In total, 2.35 billion tags
will be sold in 2009 versus 1.97 billion in 2008.”
Robert W.
Baird, in its report “Gen 2 Market Perspective” of March 2, 2010, predicted that
the Gen 2 RFID market will grow in excess of 40% during 2010, driven largely by
apparel, asset management and retail. Baird stated that: “Many
providers saw good sequential growth in the latter quarters of 2009, which has
carried into 1Q10. We see end users as happy with hardware capability and
increasingly encouraged with solution development.”
COMPETITION
— MarkMagic
CYBRA
Corporation’s MarkMagic product family faces competition for each of its feature
sets, but it is our belief that no single product, on any platform, offers the
wide range of output device and document support that MarkMagic brings to the
marketplace.
MarkMagic’s
advantage is that besides addressing the key requirements of thermal bar code
label and RFID printing, it alone provides virtually all other printing needs
that customers may demand. Only MarkMagic supports all the following
printer devices and document types:
·
|
Thermal
bar code tags
|
·
|
Thermal
care labels
|
·
|
RFID
smart labels
|
·
|
Laser
printed bar code documents
|
·
|
Ink
jet printed documents
|
·
|
Plastic
ID cards with magnetic stripe
encoding
|
In our
current market, which can be defined as IBM System i users of bar code and RFID
labeling, CYBRA faces one major competitor, T.L. Ashford, Covington, Kentucky, a
private company of similar size to CYBRA. The competitor entered the bar code
labeling software arena a few years before we did. To the best of our knowledge,
the competitor has a larger base of System i bar code labeling customers than we
have. The competitor’s base price is lower than ours, but additional features
can level out the price difference. To the best of our knowledge, the competitor
sells software only, and does not offer bar code and RFID equipment, supplies or
services.
We have
begun to expand beyond the IBM System i platform in 2010 and we anticipate a
number of additional competitors. We believe that many of these competitors are
well financed and have large customer installed bases. We expect CYBRA’s appeal
will be based on our multiple platform support, multiple document type support
and our experience and track record in integrating with business software
packages.
-10-
COMPETITION —
EdgeMagic
CYBRA’s
EdgeMagic product faces well financed competition for each of its feature
sets, but no single product offers the integrated solution that EdgeMagic brings
to the System i platform.
EdgeMagic’s
competitive advantage is that the functions of RFID tag reading and device
control it provides are native to the System i platform. No PC’s or additional
servers are required. The EdgeMagic solution significantly reduces the systems’
integration effort required to install competing solutions.
Competing
Windows, Linux, or Unix-based solutions may have more functions, but each
installation in a System i environment requires custom programming to match up
System i files and programs with RFID data.
EdgeMagic
alone provides a tightly integrated solution that has the functions System i
customers require, yet offers the flexibility for System i customers to
implement advanced RFID applications without costly custom
programming.
On
platforms other than System i, EdgeMagic’s advantages are scalability, ease of
integration, and ease of use.
Included
certified EPC-compliant label templates, pre-configured interfaces to leading
ERP and WMS packages, and modular device control allows customers to roll out
both open loop and closed loop industrial strength RFID solutions in far less
time than with competing solutions.
High-end
competitors (selling a suite of products to a specific industry)
include:
·
|
BEA
Weblogic RFID Platform Edge Server
|
|
·
|
OAT
Systems OAT Foundation Suite
|
|
·
|
IBM
Websphere RFID Premises
|
|
·
|
Manhattan
Associates EPC Manager
|
|
·
|
Seeburger
RFID Workbench
|
|
·
|
Sybase
iAnywhere
|
Low end
(selling stand-alone tools that are not industry-specific) includes EPCSolutions
Tag Manager.
Recent
RFID investments include:
-11-
Company
|
Profile
|
Recent
Investment
|
Total
Funds Raised
|
|||||
SIRIT
|
RFID
Technology
|
Jan,
10
|
Acquired by Federal
Signal for C$49.5
million
in cash
|
Undisclosed
|
||||
RUSH
TRACKING
|
RFID
Technology
|
Nov,
09
|
Acquired
by Pharos Capital Group
|
Undisclosed
|
||||
INTELLEFLEX
|
RFID
Technology
|
Nov,
09
|
$8
million recap round
|
$50
million
|
||||
INSYNC
|
RFID
Middleware
|
Oct,
09
|
$4.7
million Series B from Intel Capital
and
others
|
$12.2
million
|
||||
REVA
|
RFID
Middleware
|
Apr,
09
|
$5
million Series C from CISCO Systems
and
SAP
|
$25
million
|
||||
GLOBERANGER
|
RFID
Middleware
|
Mar,
09
|
$8.3
million Series C from new and
existing
investors
|
Over
$39 million
|
||||
OMNI-ID
|
RFID
Technology
|
Feb,
09
|
$15
million Series C
|
$20
million
|
In the
RFID market we anticipate that we will face many competitors as the market
grows. Many of these will be large companies, both public and private. There are
currently no clearly dominant companies in the RFID space. We anticipate that
CYBRA’s appeal will be based on our multiple platform support and our experience
and track record in providing solutions for developers of business software
packages.
PARTNERSHIPS
CYBRA has
established partnerships with key bar code and RFID companies. CYBRA partners
fall into one or more of the following categories:
·
|
OEM
ASV (Application Software Vendor) partners who have integrated MarkMagic
into their application software products that also sell through VARs and
Systems Integrators.
|
·
|
Technology
Partners with whom CYBRA works closely to support their printing
technologies or computing platforms. CYBRA has relationships with their
VAR channels.
|
·
|
Channel
Partners whose products CYBRA resells to provide a single source for a
customer’s entire bar code label and RFID needs. The table below contains
a list of our key partners, the type of relationship(s) and the product(s)
involved:
|
-12-
Company
|
ASV
|
Technology
|
Channel
|
Product
|
||||
Apparel
Business
|
√
|
MarkMagic
Labels Development
|
||||||
Infor
|
√
|
MarkMagic
Labels Runtime
|
||||||
Manhattan
Assoc.
|
√
|
MarkMagic
Labels Runtime
|
||||||
Network
Systems
|
√
|
MarkMagic
Labels Development
|
||||||
Vormittag
Assoc.
|
√
|
MarkMagic
Enterprise Development
|
||||||
Wynne
Systems
|
√
|
MarkMagic
Labels Development
|
||||||
Avery
Dennison
|
√
|
√
|
Printers,
Supplies, and RFID Encoders and Care
Label Printers and Supplies
|
|||||
Datamax
|
√
|
√
|
Printers,
Supplies, and RFID Encoders
|
|||||
HP
|
√
|
√
|
HP
PCL laser printers
|
|||||
IBM
|
√
|
√
|
Printers,
Supplies, and RFID Encoders, System servers
|
|||||
Intermec
|
√
|
√
|
Printers,
Supplies, and RFID Encoders
|
|||||
Motorola
|
√
|
√
|
RFID
Readers, Mobile Computers, Wireless Networks and Bar Code
Scanners
|
|||||
Printronix
|
√
|
√
|
Printers,
Supplies, and RFID Encoders
|
|||||
SATO
|
√
|
√
|
Printers,
Supplies, and RFID Encoders
|
|||||
Teklogix
|
√
|
√
|
RFID
Readers, Mobile Computers, Wireless Networks
|
|||||
Zebra
|
√
|
√
|
Label
and Plastic Card Printers, Supplies, and RFID Encoders
|
|||||
Alien
Technologies
|
√
|
RFID
UHF readers and tags
|
||||||
Hand
Held
|
√
|
Bar
code scanners and imagers
|
||||||
IIMAK
|
√
|
Thermal
Ribbons
|
||||||
Magellan
|
√
|
RFID
PJM technology – readers and tags
|
||||||
Microscan
|
√
|
Fixed
bar code scanners
|
||||||
PSC
|
√
|
Bar
code scanners and imagers
|
||||||
Tagsys
|
√
|
RFID
HF and UHF readers and tags
|
CYBRA’s
key distributors and resellers are Manhattan Associates, Inc., Vormittag
Associates, Inc., Apparel Business Systems, LLC and Solzon
Corporation.
On
October 20, 1998, the Company signed a five-year Software License, Sublicensing
and Distribution Commitment Agreement (the “License Agreement”) with Manhattan
Associates, Inc. (“MAI”). The License Agreement automatically renews on a
year-to-year basis unless cancelled by either party 30 days prior to each
renewal date. Pursuant to the License Agreement, the Company granted to MAI a
worldwide non-exclusive license to market and sell its MarkMagic software and
related products. MAI pays to the Company a per copy license fee for copies of
MarkMagic licensed by MAI or its distributors to end user customers. MAI agrees
to provide support to its customers and CYBRA agrees to provide back-up support
to MAI. The License Agreement contains other standard provisions such as a
source code escrow, copyright indemnification and limitation of
warranties.
-13-
Effective
April 20, 2007, the Company entered into a two year OEM Software Licensing
Agreement with Vormittag Associates, Inc. (“VAI”) (the “VAI Agreement”).
Pursuant to the VAI Agreement the reseller is granted marketing rights to the
MarkMagic and EdgeMagic suite of software products and ancillary products in the
United States and Canada. Thus VAI became the first OEM reseller for EdgeMagic.
The VAI Agreement provides for set commissions on the sale of products based
upon the then current list price. The VAI Agreement contains confidentiality
provisions, warranty and support obligations of CYBRA and the reseller’s
provisions governing selling methods, and related standard provisions. The VAI
Agreement automatically renews for additional one-year periods unless either
party notifies the other of its intention to terminate at least 30 days prior to
any termination or renewal date. Each party may terminate the VAI Agreement by
notifying the other party of its intent to do so three months in advance without
cause.
Effective
October 23, 2006, the Company entered into a two-year Domestic Reseller
Agreement with Apparel Business Systems, Inc. (“ABS”) (the “Reseller
Agreement”). Pursuant to this Reseller Agreement the Company granted ABS
marketing rights to the MarkMagic suite of software products and ancillary
products in the United States and Canada. The Reseller Agreement provides for
set commissions on the sale of products based upon the then current list price.
The Reseller Agreement contains confidentiality provisions, warranty and support
obligations of CYBRA and the reseller’s provisions governing selling methods,
and related standard provisions. The Reseller Agreement automatically renews for
additional one-year periods unless either party notifies the other of its
intention to terminate at least 30 days prior to any termination or renewal
date. Each party may terminate the Reseller Agreement by notifying the other
party of its intent to do so three months in advance without cause.
Effective
August 27, 2007, CYBRA entered into three agreements with Solzon Corporation,
Nashua, New Hampshire: (1) a Technology License Agreement; (2) a Contractor
Agreement for System Integration and Consulting Services; and (3) a Reseller
Agreement (the “Solzon Agreements”). Pursuant to the Solzon Agreements, Solzon
has assigned to CYBRA a perpetual world-wide license to utilize Solzon’s RFID
for iSeries Product and Solzon has agreed to provide support of the installation
and configuration of CYBRA’s EdgeMagic Application Software at certain of
CYBRA’s customer facilities. Pursuant to these Agreements, Solzon will abandon
future development of Solzon’s products and for so long as Solzon is a reseller
of CYBRA’s products, and for a period of two years thereafter, Solzon will cease
all sales and marketing of its products to any third party. Solzon will be
available to answer customers’ RFID and associated questions regarding
application and customer needs. In addition, the parties entered in a two-year
“Premier Reseller Software Licensing Agreement” (the “PRSLA”), pursuant to which
Solzon will market and sell CYBRA’s suite of software products anywhere in the
world. The PRSLA provides for set commissions on the sale of products based upon
the then current list price. The PRSLA contains confidentiality provisions,
warranty and support obligations of CYBRA and the reseller’s provisions
governing selling methods, and related standard provisions. The PRSLA
automatically renews for additional one-year periods unless either party
notifies the other of its intention to terminate at least 30 days prior to any
termination or renewal date. Each party may terminate the PRSLA by notifying the
other party of its intent to do so three months in advance without cause. For so
long as Solzon acts as a reseller of CYBRA’s products, and for a period of two
years thereafter, Solzon has agreed not to compete with CYBRA’s
business.
In May,
2008 CYBRA signed a strategic partnership agreement with Globe Tracker, Inc.
(GTI), a Beijing, China based provider of Global Tracking and Monitoring
solutions, to deliver comprehensive, integrated worldwide tracking solutions for
global trading partners. Says Jim Davis, Globe Tracker President,
“CYBRA’s technology will be a key component of GTI’s Global Tracking and
Monitoring Data Exchange Network. This partnership will provide its users the
ability to collect tracking and monitoring data from any GTI enabled server in
the world, in the same building or across the globe.”
Effective
August 6, 2008, the Company entered into a two year OEM Software Licensing
Agreement with DCS, Inc., a provider of IBM System i-based software solutions
for law enforcement. Pursuant to this agreement the reseller is granted
marketing rights to the MarkMagic™ and EdgeMagic® suite
of software products and ancillary products in the United States and Canada. The
agreement provides for set sales credits on the sale of products based upon the
then current list price. The agreement contains confidentiality provisions,
warranty and support obligations of CYBRA and the reseller's provisions
governing selling methods, and related standard provisions. The agreement
automatically renews for additional one-year periods unless either party
notifies the other of its intentions to terminate at least 30 days prior to any
termination or renewal date. Each party may terminate the agreement by notifying
the other party of its intent to do so three months in advance without
cause.
-14-
On August
3, 2009, the Company entered into an Agreement for Establishment of Beijing
Smart Shipping Technologies (SST) Co. Ltd. (the “Beijing Agreement”), with the
Waterborne Transportation Institute of the Ministry of Communications, a
governmental agency of the People’s Republic of China, and Key West
Technologies, Inc. The Beijing Agreement proposes to establish an
equity joint venture, and contemplates a subsequent definitive joint venture
agreement. The business scope of the proposed joint venture is to utilize
the Company’s identification software to develop and sell products and services that track and monitor
goods throughout the shipping supply chain. The Beijing Agreement contemplates a
financial commitment by the Company to the joint venture of $2.5 million over
eighteen months in exchange for a 52% equity interest in the joint venture. The
Company is under no obligation to make these capital contributions unless and
until the parties enter into a binding, definitive joint venture
agreement. The Company will require additional financing in the form
of debt and/or equity to participate in the joint venture and make the required
contributions. Both the agreement and the subsequent binding,
definitive joint venture agreement will be governed by the law of the People’s
Republic of China.
In fiscal
year 2009, CYBRA Corporation spent $204,509 on Research and Development
activities and in fiscal year 2008, the Company spent $215,283 on Research and
Development activities. For the years ended December 31, 2009 and 2008, $0 and
$358,867, respectively were capitalized and recorded as “Software Development”
on the Balance Sheet. All costs were borne directly by CYBRA. No
customers paid for these activities in any direct fashion.
Employees
As of
March 15, 2010, the Company employed 10 full time employees. In addition, the
Company retains the services of consultants and other third-parties on an
as-needed basis.
Stock
Option Plan
The
Company adopted an Incentive Stock Plan on April 30, 2006 and has reserved
5,000,000 shares of its Common Stock for issuance thereunder.
ITEM
1A. Risk Factors
There are
numerous and varied risks, known and unknown, that may prevent us from achieving
our goals, including those described below. The risks described below are not
the only ones we will face. Additional risks not presently known to us or that
we currently believe are immaterial may also impair our financial performance
and business operations. If any of these risks actually occurs, our business,
financial condition or results of operations may be materially adversely
affected.
We
may not be able to continue as a going concern.
In fiscal
year 2009, we had a net loss of
$1,090,284 and in fiscal year 2008, we had a net loss of
$3,184,549. Because of these losses, we may require additional
capital to develop our business operations. Since the beginning of 2009, we have
been operating at break-even. Despite achieving that status, our
relatively low cash reserves require us to raise additional capital through
private placements, public offerings, bank financings and/or advances from
related parties or shareholder loans. The continuation of our
business is dependent upon obtaining further financing and/or achieving a
profitable level of operations. No assurance can be given that additional
financing will be available, or if available, will be on terms acceptable to
us.
-15-
We
may not be able to pay, refinance or otherwise satisfy our obligations under
certain of the 8% Convertible Debentures (the “Debentures”).
We did
not pay the Debentures when they became due on April 10, 2009. Since
that time, we have been negotiating with holders of the Debentures to obtain
their agreement either to extend the term of their Debentures or to exchange
their Debentures for a new class of preferred stock. Holders of
Debentures having an aggregate principal amount of $1,445,000 have agreed to
extend the term of their Debentures until April 10, 2011. We can
provide no assurance that we will be able to generate adequate revenue from our
operations to pay such Debentures when they mature or to refinance or further
extend the term of the Debentures at that time. While holders of the
remaining outstanding Debentures having an aggregate principal amount of
$1,045,000 have agreed to exchange their Debentures for a new class of preferred
stock, creation of such a class is subject to shareholder
approval. Since Harold Brand, our Chairman and CEO, holds more than
50% of our outstanding shares and has agreed to approve the amendment to our
certificate of incorporation that would authorize the new class of preferred
stock, there can be no assurance that certain other shareholders will not
object, which could result in litigation.
Our
continued operations will depend upon the availability of cash flow from
operations and/or our ability to raise additional funds through various
financing methods. If sales or revenues do not meet expectations, or cost
estimates for development and expansion of business prove to be inaccurate, we
will require additional funding. If additional capital cannot be obtained, we
may have to delay or postpone acquisitions, development or other expenditures,
which can be expected to harm our competitive position, business operations and
growth potential. There can be no assurance that cash flow from operations will
be sufficient to fund our financial needs, or if such cash flow is not
sufficient, that additional financing will be available on satisfactory terms,
if at all. Changes in capital markets and the cost of capital are unpredictable.
Any failure to obtain such financing, or obtaining financing on unfavorable
terms, can be expected to have a material adverse effect on our business,
financial condition, results of operations and future business
prospects.
We have had limited revenues thus
far.
To date,
we have had limited revenues. We had revenues of $1,335,944 and $1,397,150 in
fiscal years 2009 and 2008, respectively. In fiscal year 2009, we had a net loss
of $ 1,090,284 and in fiscal year 2008, we had a net loss of
$3,184,549. Because we are subject to all risks inherent in a
business venture, it is not possible to predict whether we will be
profitable.
Accordingly,
it is not possible to predict whether or not our current and proposed activities
will be sufficiently profitable. Prospective purchasers of our securities should
bear in mind that, in light of the risks and contingencies involved, no
assurance can be given that we will ever generate enough revenue to offset
expenses or to generate a return on invested capital. There is no guarantee of
our successful, profitable operation. Our failure to achieve or maintain
profitability can be expected to have a material adverse effect on our business,
financial condition, results of operations and future business
prospects.
We
may experience significant fluctuations in our operating results and rate of
growth and may not be profitable in the future.
Our
results of operations may fluctuate significantly due to a variety of factors,
many of which are outside of our control and difficult to predict. The following
are some of the factors that may affect us from period to period and may affect
our long-term financial performance:
·
|
our
ability to retain and increase revenues associated with customers and
satisfy customers’ demands;
|
-16-
·
|
our
ability to be profitable in the
future;
|
·
|
our
investments in longer-term growth
opportunities;
|
·
|
our
ability to expand our marketing network, and to enter into, maintain,
renew and amend strategic alliance arrangements on favorable
terms;
|
·
|
changes
to offerings and pricing by us or our
competitors;
|
·
|
fluctuations
in the size of our customer base, including fluctuations caused by
marketing efforts and competitors’ marketing and pricing
strategies;
|
·
|
the
effects of commercial agreements and strategic alliances and our ability
to successfully integrate them into our
business;
|
·
|
technical
difficulties, system downtime or
interruptions;
|
·
|
the
effects of litigation and the timing of resolutions of
disputes;
|
·
|
the
amount and timing of operating costs and capital
expenditures;
|
·
|
changes
in governmental regulation and taxation
policies;
|
·
|
events,
such as a sustained decline in our stock price, that cause us to conclude
that goodwill or other long-term assets are impaired and for which a
significant charge to earnings is required;
and
|
·
|
changes
in, or the effect of, accounting rules, on our operating results,
including new rules regarding stock-based
compensation.
|
The
market for RFID services may not develop as anticipated, which would adversely
affect our ability to execute our business strategy.
The
success of our RFID offerings depends on growth in the number of RFID users,
which in turn depends on wider public acceptance of RFID software solutions. The
RFID market is in its early stages and may not develop as rapidly as is
expected. Potential new users may view RFID as unattractive relative to
traditional bar code products for a number of reasons, including implementation,
procurement, integration and supply costs, greater technical complexity,
immature technology, consumer privacy concerns, or the perception that the
performance advantage for RFID is insufficient to justify the increased costs.
There is no assurance that RFID will ever achieve broad user
acceptance.
We
may not successfully enhance existing products and services or develop new
products and services in a cost-effective manner to meet customer demand in the
evolving market for bar code and RFID software services.
The
market for bar code and RFID software solutions is characterized by evolving
technology and industry standards, changes in customer needs and frequent new
product introductions. We are currently focused on enhancing our RFID
capabilities through wider device coverage, additional application coverage and
supporting other computing platforms beyond the System i. Our future success
will depend, in part, on our ability to use leading technologies effectively, to
continue to develop our technical expertise, to enhance our existing services
and to develop new services that meet changing customer needs on a timely and
cost-effective basis. We may not be able to adapt quickly enough to changing
technology, customer requirements and industry standards. If we fail to use new
technologies effectively, to develop our technical expertise and new services,
or to enhance existing services on a timely basis, either internally or through
arrangements with third parties, our product and service offerings may fail to
meet customer needs, which would adversely affect our revenues and prospects for
growth.
-17-
We have
spent and will continue to spend significant resources enhancing our existing
capabilities and developing, implementing and launching our RFID products. We
believe RFID software solutions represent a significant growth opportunity.
However, losses are expected to result in the early stages until a sufficient
number of customers are added whose recurring revenues, net of recurring costs,
more than offset sales, marketing and other expenses incurred to add additional
customers.
RFID
solutions may have technological problems or may not be accepted by customers.
To the extent we pursue commercial agreements, acquisitions and/or strategic
alliances to facilitate new product activities, the agreements, acquisitions
and/or alliances may not be successful. If any of this were to occur, it could
damage our reputation, limit our growth, negatively affect our operating results
and harm our business.
Intense competition could reduce
market share and harm financial performance.
The
market for bar code and RFID encoding software is emerging, intensely
competitive and characterized by rapid technological change.
Bar code
and RFID software companies compete for customers based on industry experience,
know-how, technology and price, with the dominant providers conducting extensive
advertising campaigns to capture market share. Many of our competitors have (i)
greater financial, technical, engineering, personnel and marketing resources;
(ii) longer operating histories; (iii) better name recognition; and (iv) larger
consumer bases. These advantages afford our competitors the ability to (a) offer
greater pricing flexibility, (b) offer more attractive incentive packages to
encourage resellers to carry competitive products, (c) negotiate more favorable
distribution contracts with resellers and (d) negotiate more favorable contracts
with suppliers. We believe additional competitors may be attracted to the
market, including IBM, Sun Microsystems, Microsoft, and HP. We also believe
existing competitors are likely to continue to expand their
offerings.
Current
and prospective competitors include many large companies that have substantially
greater market presence and greater financial, technical, marketing and other
resources than we have. We compete directly or indirectly with the following
categories of companies:
·
|
System
i Label Software
|
·
|
System
i Forms Software
|
·
|
UNIX/Linux/Windows Label
Software
|
·
|
UNIX/Linux/Windows Forms
Software
|
·
|
UNIX/Linux/Windows RFID
Edge Software
|
As
competition in the bar code and RFID market continues to intensify, competitors
may continue to merge or form strategic alliances that would increase their
ability to compete with us for customers. These relationships may negatively
impact our ability to form or maintain our own strategic relationships and could
adversely affect our ability to expand our customer base. Because we operate in
a highly competitive environment, the number of customers we are able to add may
decline, and the cost of acquiring new customers through our own sales and
marketing efforts may increase.
Our
ability to compete effectively in the bar code and RFID services industry will
depend upon our ability to (i) continue to provide high quality products and
services at prices competitive with, or lower than, those charged by our
competitors and (ii) develop new and innovative products and services. There can
be no assurance that competition from existing or new competitors or a decrease
in prices by competitors will not have a material adverse effect on our
business, financial condition and results of operations, or that we will be able
to compete successfully in the future.
-18-
We may not be able to keep up with
rapid technological and other changes.
The
industry in which we compete is characterized, in part, by rapid growth,
evolving industry standards, significant technological changes and frequent
product enhancements. These characteristics could render existing systems and
strategies obsolete, and require us to continue to develop and implement new
products and services, anticipate changing customer demands and respond to
emerging industry standards and technological changes. We intend to evaluate
these developments and others that may allow us to improve service to our
customers. However, no assurance can be given that we will be able to keep pace
with rapidly changing customer demands, technological trends and evolving
industry standards. The failure to keep up with such changes is likely to have a
material adverse effect on our business, long-term growth prospects and results
of operations.
We are dependent on strategic
relationships.
Our
business is dependent, in part, upon current relationships and those we intend
to develop with suppliers, distributors and resellers in various markets and
other third parties. The failure to develop or maintain these relationships
could result in a material adverse effect on our financial condition and results
of operations.
Reliance
upon third-party suppliers for components may place us at risk of interruption
of supply or increase in costs.
We rely
on third-party suppliers for certain hardware and software necessary for our
services and we do not have any long-term supply agreements. Although we believe
we can secure other suppliers, we expect that the deterioration or cessation of
any relationship would have a material adverse effect, at least temporarily,
until the new relationships are satisfactorily in place. Adverse affects could
limit our ability to fill customer orders for bar code and RFID hardware and
supplies, resulting in potential loss of revenues and loss of goodwill.
Replacing any one supplier could take weeks.
Ongoing
success and our ability to compete depend upon hiring and retention of key
personnel.
Success
will be dependent to a significant degree upon the involvement of current
management, especially Harold Brand, our CEO. These individuals have critical
industry experience and relationships upon which we rely. The loss of services
of any of our key personnel could divert time and resources, delay the
development of our business and negatively affect our ability to sell our
services or execute our business plan. In addition, we will need to attract and
retain additional talented individuals in order to carry out our business
objectives. The competition for such persons is intense and there are no
assurances that these individuals will be available. Such problems might be
expected to have a material adverse impact on our financial condition, results
of operations and future business prospects.
We
are subject to control by officers and management and there could be conflicts
of interest with management which may be adverse to your
interests.
Management
of CYBRA currently beneficially owns approximately 62.8% of the outstanding
shares of our Common Stock. As a result, management possesses meaningful
influence and control over the Company, and may be able to control and direct
the Company’s affairs, including the election of directors and approval of
significant corporate transactions for the foreseeable future.
A
conflict of interest may arise between our management’s personal pecuniary
interest and its fiduciary duty to our shareholders. Conflicts of interest
create the risk that management may have an incentive to act adversely to the
interests of other investors. Such influence may not necessarily be consistent
with the interests of our other shareholders.
-19-
Director
and officer liability is limited.
As
permitted by New York law, our certificate of incorporation limits the personal
liability of directors to the fullest extent permitted by the provisions of New
York Business Corporation Law. As a result of our charter provision and New York
law, shareholders may have limited rights to recover against directors for
breach of fiduciary duty.
If
we raise additional funds through the issuance of equity securities, or
determine in the future to register additional Common Stock, your percentage
ownership will be reduced, you will experience dilution which could
substantially diminish the value of your stock and such issuance may convey
rights, preferences or privileges senior to your rights which could
substantially diminish your rights and the value of your stock.
We may
issue additional shares of Common Stock for various reasons and may grant
additional stock options to employees, officers, directors and third parties. If
we determine to register for sale to the public additional shares of Common
Stock or other debt or equity securities in any future financing or business
combination, a material amount of dilution can be expected to cause the market
price of the Common Stock to decline. One of the factors that generally affects
the market price of publicly traded equity securities is the number of shares
outstanding in relationship to assets, net worth, earnings or anticipated
earnings. Furthermore, the public perception of future dilution can have the
same effect even if actual dilution does not occur.
In order
for us to obtain additional capital, complete a business combination, or
refinance the Debentures, we may find it necessary to issue securities,
including but not limited to debentures, options, warrants or shares of
preferred stock, conveying rights senior to those of the holders of Common
Stock. Those rights may include voting rights, liquidation preferences and
conversion rights. To the extent senior rights are conveyed, the value of the
Common Stock can be expected to decline.
The
existence of outstanding warrants and shares available under our Incentive Stock
Plan may harm our ability to obtain additional financing and their exercise will
result in dilution to your interests.
We have
outstanding 10,571,003 warrants to purchase an aggregate of 10,571,003 shares of
Common Stock. Each of the Class A and Class B Warrants is exercisable for up to
five years from date of issue at an exercise price of $.75 per share (Class A
Warrants) and $1.75 per share (Class B Warrants). The holder of a warrant may
not exercise a warrant, if, after giving effect to such issuance after exercise,
such holder would beneficially own more than 4.99% of the Company’s outstanding
shares.
We also
have 5 million shares of Common Stock available for the grant of stock options
and other grants of equity-based compensation under our 2006 Incentive Stock
Plan.
The
warrants contain standard anti-dilution provisions in the event of stock
dividend, splits or other dilutive transactions. While these warrants are
outstanding and shares are available for option grants and other stock-based
awards, our ability to obtain future financing may be harmed. Upon exercise of
these warrants or options or grants of other equity-based awards, dilution to
your ownership interests will occur as the number of shares of Common Stock
outstanding increases.
Penny stock regulations may impose
certain restrictions on marketability of the Company’s
securities.
We are
subject to rules pertaining to “penny stocks”. The SEC has adopted regulations
which generally define a “penny stock” to be any equity security that has a
market price (as defined) of less than $5.00 per share or an exercise price of
less than $5.00 per share, subject to certain exceptions. Our shares have not
had a market price of or greater than $5.00 per share since they began trading,
nor is it likely that they will attain such price in the foreseeable future. As
a result, our Common Stock will be subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established clients and “accredited investors”. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser’s written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer’s presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the “penny stock” rules may
restrict the ability of broker-dealers to sell shares of our Common Stock and
may affect the ability of investors to sell such shares of Common Stock in the
secondary market and the price at which such investors can sell any of such
shares.
-20-
Investors
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such patterns
include:
·
|
control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or
issuer;
|
·
|
manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
|
·
|
“boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
|
·
|
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
·
|
the
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor
losses.
|
Our
management is aware of the abuses that have occurred historically in the penny
stock market.
Our
Common Stock is thinly traded, and as a result, the market price for our Common
Stock may be particularly volatile, which could lead to wide fluctuation in our
share price, as the sale of substantial amounts of our Common Stock in the
public market could depress the price of our Common Stock.
The
trading volume of our Common Stock on the OTC Bulletin Board has been relatively
low when compared with larger companies listed on the OTC Bulletin Board or
other stock exchanges. Thinly traded stocks, such as ours, can be more volatile
than stocks trading in an active public market. Because of this, our
shareholders may not be able to sell their shares at the volumes, prices, or
times that they desire.
We cannot
predict the effect, if any, that future sales of our Common Stock in the market,
or availability of shares of our Common Stock for sale in the market, will have
on the market prices of our Common Stock. Therefore, we can give no assurance
that sales of substantial amounts of our Common Stock in the market, or the
potential for large amounts of sale in the market, would not cause the price of
our Common Stock to decline or impair our ability to raise capital through sales
of our Common Stock.
The
market price of our Common Stock may fluctuate in the future, and these
fluctuations may be unrelated to our performance. General market price declines
or overall market volatility in the future could adversely affect the price of
our Common Stock, and the current market price may not be indicative of future
market prices.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
-21-
ITEM
2. DESCRIPTION OF PROPERTY
The
Company maintains its administrative and R&D offices in approximately 3,400
square feet of space located at One Executive Blvd., Yonkers, New York 10701.
The Company has leased this space for a period of four years, beginning January
2010. Monthly rent for 2010 and 2011 will be $5,937 and subsequent
years will be $6,312, which includes electricity.
CYBRA
also leases approximately 1,100 square feet in West Seneca (Buffalo), New York
for sales and customer support. The Company is leasing this space for a period
of 5 years, beginning June 1, 2005. Monthly rent is $908 for the
duration of the lease. Electricity is billed directly from the utility
company.
ITEM
3. LEGAL PROCEEDINGS
In December, 2006, Raz-Lee
Security Ltd. (“Raz-Lee”), a former distributor of the Company’s products, filed
a lawsuit in Herzliya, Israel (Case No. 8443/06) against the Company and its CEO
for moneys allegedly owed in connection with the distribution of the Company's
products in Israel. The action sought $50,000 in damages, plus interest, court
costs and attorneys' fees. The Company filed a counterclaim against Raz-Lee for
failure to report sales and royalties, and for a full accounting. The suit
against the Company's CEO was dismissed, and appeal of such dismissal was filed.
In July, 2009, the Herzliya court awarded Raz-Lee approximately (the
approximations are a result of currency fluctuations) $15,750 plus approximately
$7,500 of costs. The balance of Raz-Lee's claim was dismissed. Since the amount
awarded relates to past periods, the court also awarded interest charges,
bringing the total award including costs to approximately $34,500. Raz-Lee
collected the amount of approximately $6,500 which had been posted by the
Company with the Herzliya court. The balance has not been paid. The Company's
counterclaim against Raz-Lee was dismissed. The Company believes that Raz-Lee
will file an appeal of the dismissal of parts of its claim. The Company is
currently consulting with counsel concerning the filing of an appeal of the
dismissal of the counterclaim or a part thereof. In addition, Raz-Lee
has asserted that Harold Brand, CEO of the Company, is personally liable for the
Company’s obligation. This claim was dismissed, but was returned to the
Magistrate's Court on appeal. The Company has a reserve of $28,000 to provide
for payment of this claim.
On July
20, 2009, Fagey Steinberg, a holder of a Debenture in the principal amount of
$100,000, filed a Motion for Summary Judgment in Lieu of Complaint (the
“Motion”) against the Company for payment of the full principal amount of such
Debenture together with accrued and unpaid interest and such other and further
relief as is just and proper. The Company did not appear in
this action, and on September 17, 2009, the judge signed an order granting
summary judgment in favor of the plaintiff (the “Order”). Subsequent
to the grant of the Order, an unaffiliated third party entered into an agreement
with the plaintiff to purchase the plaintiff’s Debenture. The Company
has been informed that as a part of that agreement, the plaintiff has agreed not
to enter judgment against the Company pursuant to the Order. In
addition, the Company has issued to the purchaser a new Debenture in the
principal amount of $50,000, representing one-half of the principal amount of
plaintiff’s Debenture, which has been transferred to the
purchaser. The purchaser has agreed to purchase the remaining $50,000
principal amount of the plaintiff’s Debenture in two installments of $25,000
each in May and September 2010.
PART
II
ITEM
5.
|
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Trading
in our Common Stock began in the third quarter of 2008. Our Common Stock is
currently quoted on the OTC Bulletin Board under the symbol
“CYRP”. The following table sets forth the range of high and low bid
prices per share of our Common Stock for each of the calendar quarters
identified below as reported by the OTC Bulletin Board. These quotations
represent inter-dealer prices, without retail mark-up, markdown or commission,
and may not represent actual transactions.
-22-
2008:
|
High
|
Low
|
||||||
Quarter
ended September 30, 2008
|
$ | 0.9700 | $ | 0.2000 | ||||
Quarter
ended December 31, 2008
|
$ | 1.2500 | $ | 0.2500 | ||||
2009:
|
High
|
Low
|
||||||
Quarter
ended March 31, 2009
|
$ | 1.2500 | $ | 0.4000 | ||||
Quarter
ended June 30, 2009
|
$ | 1.2500 | $ | 0.6000 | ||||
Quarter
ended September 30, 2009
|
$ | 0.6000 | $ | 0.2000 | ||||
Quarter
ended December 31, 2009
|
$ | 0.6000 | $ | 0.2500 |
Holders
As of
March 13, 2010,
there were sixty-nine record owners of our Common Stock and twenty-five owners
of convertible debentures.
Dividends
Holders
of Common Stock are entitled to receive dividends as may be declared by our
Board of Directors and, in the event of liquidation, to share pro rata in any
distribution of assets after payment of liabilities. The Board of Directors is
not obligated to declare a dividend. In addition, the terms of the Debentures
restrict our ability to pay dividends. We have not paid any dividends and do not
have any current plans to pay any dividends.
Recent
Sales of Unregistered Securities
Securities
Authorized For Issuance under Equity Compensation Plan
Plan
Category
|
Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining available for
future issuance under
equity compensation plan
(excluding securities
reflected in column (a)
|
|||||||||
(a)
|
(b)
|
(c)
|
||||||||||
Equity
compensation plans approved by security holders
|
100,000 | $ | 0.75 | 4,821,046 | ||||||||
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
Total
|
100,000 | $ | 0.75 | 4,821,046 |
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable
This
report on Form 10-K contains forward-looking statements. Forward-looking
statements are statements not based on historical information and that relate to
future operations, strategies, financial results or other developments.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by us or on our behalf. We disclaim any obligation to update
forward-looking statements.
-23-
Comparison of the Year Ended
December 31, 2009 to the Year Ended December 31,
2008
Year
Ended
|
||||||||||||||||
2009
|
2008
|
Change $
|
Change %
|
|||||||||||||
Revenues
|
||||||||||||||||
Products
|
$ | 651,962 | $ | 792,002 | $ | (140,040 | ) | -18 | % | |||||||
Services
|
683,982 | 605,148 | 78,834 | 13 | % | |||||||||||
Total
Revenues
|
1,335,944 | 1,397,150 | (61,206 | ) | -4 | % | ||||||||||
Direct
Costs
|
||||||||||||||||
Equipment
Purchases
|
$ | 218,258 | $ | 257,414 | $ | (39,156 | ) | -15 | % | |||||||
Royalties
& Consulting
|
59,576 | 74,770 | (15,194 | ) | -20 | % | ||||||||||
Total
Direct Costs
|
$ | 277,834 | $ | 332,184 | $ | (54,350 | ) | -16 | % | |||||||
%
of total revenues
|
21 | % | 24 | % | ||||||||||||
Gross
margin
|
$ | 1,058,110 | $ | 1,064,966 | $ | (6,856 | ) | -1 | % | |||||||
%
of total revenues
|
79 | % | 76 | % | ||||||||||||
Research
and development costs
|
$ | 204,509 | $ | 215,283 | $ | (10,774 | ) | -5 | % | |||||||
%
of total revenues
|
15 | % | 15 | % | ||||||||||||
Sales
and marketing expenses
|
$ | 165,595 | $ | 212,027 | $ | (46,432 | ) | -22 | % | |||||||
%
of total revenues
|
12 | % | 15 | % | ||||||||||||
General
and administrative expenses
|
$ | 1,309,346 | $ | 1,809,503 | $ | (500,157 | ) | -28 | % | |||||||
%
of total revenues
|
98 | % | 130 | % | ||||||||||||
Interest
expense
|
$ | 407,698 | $ | 756,363 | $ | (348,665 | ) | -46 | % | |||||||
%
of total revenues
|
31 | % | 54 | % | ||||||||||||
Other
Income (Expenses)
|
$ | (61,246 | ) | $ | 4,058 | $ | (65,304 | ) | -1609 | % | ||||||
%
of total revenues
|
-5 | % | 0 | % | ||||||||||||
Loss
Before Taxes
|
$ | (1,090,284 | ) | $ | (1,924,152 | ) | $ | 833,868 | -43 | % | ||||||
-82 | % | -138 | % | |||||||||||||
Income
Taxes (Benefit)
|
$ | - | $ | 1,260,397 | $ | (1,260,397 | ) | 0 | % | |||||||
Net
loss
|
$ | (1,090,284 | ) | $ | (3,184,549 | ) | $ | 2,094,265 | -66 | % | ||||||
%
of total revenues
|
-82 | % | -228 | % |
-24-
Revenues
The
decrease in total revenues in absolute dollars for the year ended December 31,
2009, as compared to the same period in 2008, is primarily due to less demand
for hardware. Demand for services has increased for the year ended December 31,
2009. New MarkMagic features that we released in the third quarter of
the year ended December 31, 2009 met with positive reception from new and
existing customers, which we believe will allow revenues to remain
stable.
Direct
Costs
The costs
for equipment purchases for the year ended December 31, 2009, were lower, as
compared to 2008, due to a decrease in hardware sales for this
year.
Gross
Margin
Gross
Margin as a percentage of sales increased slightly in the year ended December
31, 2009 as compared to the same period in 2008. This was due to decreased costs
of hardware sold to our customers during the period. We expect that our margins
will improve into the first and second quarters of 2010 due to lower reliance on
equipment sales.
Software
Development Costs
Software
development costs consisted primarily of compensation of development personnel,
related overhead incurred to develop EdgeMagic and upgrades, and to enhance our
current products and fees paid to outside consultants. Substantially all of
these expenses have been incurred by us in the United States. Software
development costs are accounted for in accordance with Accounting Standards
Codification 985-20-25, Costs
of Computer Software to be Sold, Leased, or Marketed, under which we are
required to capitalize software development costs between the time technological
feasibility is established and the product is ready for general release. Costs
that do not qualify for capitalization are charged to research and development
expense when incurred. Our EdgeMagic software product was available for general
release on September 1, 2008, and all costs after that date have been expensed
in accordance with Accounting Standards Codification 985-20-25. During the years
ended December 31, 2009 and 2008, the software development costs that were
expensed were $204,509 and $215,283, respectively. Software development costs
decreased in 2009 due to reduced spending on consultants and a reduction in
personnel as a result of the substantial completion of our EdgeMagic
product.
Sales
and Marketing Expenses
Sales and
marketing expenses consisted primarily of commissions, advertising and
promotional expenses. The decrease in absolute dollars for the year ended
December 31, 2009, as compared to the same period in 2008, is due to cutbacks in
advertising and trade show activity.
General
and Administrative Expense
General
and administrative expenses consisted primarily of costs associated with our
executive, financial, human resources and information services functions.
General and administrative expenses decreased in absolute dollars for the year
ended December 31, 2009 as compared to the year ended December 31, 2008
primarily due to fewer employees and the attendant reduction in related
expenses.
-25-
Interest
Expense
Interest
expense represents interest accrued on, and amortization of deferred financing
costs related to, the Debentures. Amortization of these deferred
financing costs ceased in April 2009 and standard interest continued to accrue
on the Debentures.
Other
Income (Expenses)
Other
expenses increased for the year ended December 31, 2009 compared to the year
ended December 31, 2008 due to the default on the Debentures.
Provision
for Income Taxes
The
provision for income taxes consists of provisions for federal and state income
taxes.
We
recorded no income tax expense (benefit) for the year ended December 31, 2009
and an income tax expense of $1,260,397 for the year ended December 31, 2008.
The income tax expense for 2008 was caused by an increase in the valuation
allowances for the deferred tax asset. The effective tax rate differs from the
statutory U.S. federal income tax rate of 35%, primarily due to increases in
valuation allowance for deferred tax asset in 2008.
The
following table summarizes the our cash and cash equivalents, working capital,
long-term debt and cash flows for the years ended December 31, 2009 and
2008.
Years ended December 31, | ||||||||||||||||
2009
|
2008
|
Change $
|
Change %
|
|||||||||||||
Cash
and cash equivalents
|
$ | 58,039 | $ | 70,591 | (12,552 | ) | -18 | % | ||||||||
Working
capital deficit
|
(4,011,848 | ) | (3,431,973 | ) | (579,875 | ) | -17 | % | ||||||||
Net
cash used in operating activities
|
(11,162 | ) | (791,729 | ) | 780,567 | 99 | % | |||||||||
Net
cash used in investing activities
|
(1,390 | ) | (365,537 | ) | (364,147 | ) | -99 | % | ||||||||
Net
cash provided by financing activities
|
- | 440,701 | (440,701 | ) | -100 | % |
As of
December 31, 2009, our principal source of liquidity was cash of $58,039. Our
operations used $11,162 in cash during the year ended December 31, 2009 as
compared to cash used for operations of $791,729 for the year ended December 31,
2008.
To
sustain operations under our current structure, we need cash of approximately
$110,000 per month to fund research and administrative expenses. We believe that
we will be able to meet that continuing obligation at our current sales level
while continuing to pay down existing trade obligations at a moderate
rate.
Our
working capital deficiency was approximately $4,011,000 at December 31, 2009.
The deficiency in working capital included approximately $3,314,000 in
liabilities related to the Debentures, which is expected to be renegotiated and
not require cash settlement, as well as approximately $368,000 in deferred
revenues that require settlement in future services rather than
cash.
During
2009 we issued 70,000 shares of common stock for services.
-26-
As of the
first quarter of 2010, we are operating at better than break-even on a cash flow
basis. This is due to an upturn in business that we believe may be a result of
the overall improvement in the general business environment, positive market
acceptance of new product features, as well as our success in maintaining tight
control on expenses. We expect this trend to continue into the second
quarter of 2010. We believe we can sustain a positive cash flow throughout
2010. We will seek additional sources of financing for the short term
to provide initial funding for our joint venture in China as well as for sales
personnel. A number of current investors have indicated to management
their willingness to increase their current investment positions to be used for
short-term operating capital. As cash flow remains stable, we believe
that such short-term capital infusion will be adequate to permit us to maintain
our operations.
Critical
Accounting Policies
Critical
Accounting Policies and Estimates
The SEC
issued Financial Reporting Release No. 60, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, suggesting that companies
provide additional disclosure and commentary on their most critical accounting
policies. In Financial Reporting Release No. 60, the SEC has defined the most
critical accounting policies as the ones that are most important to the
portrayal of a company’s financial condition and operating results, and require
management to make its most difficult and subjective judgments, often as a
result of the need to make estimates of matters that are inherently uncertain.
Based on this definition, we have identified the following significant policies
as critical to the understanding of our financial statements.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.
Our
management expects to make judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increase, these judgments
become even more subjective and complex. Although we believe that our estimates
and assumptions are reasonable, actual results may differ significantly from
these estimates. Changes in estimates and assumptions based upon actual results
may have a material impact on our results of operation and/or financial
condition. We have identified certain accounting policies that we believe are
most important to the portrayal of our current financial condition and results
of operations.
Software
Costs
We
account for software development costs in accordance with ASC 985-20-25, Software to be Sold,
Leased or Marketed (“ASC 985-20-25”) and ASC 985-730, Software Research and
Development. ASC 985-20-25 requires that costs related to the development
of enhancements to MarkMagic be capitalized as an asset when incurred subsequent
to the point at which technological feasibility of the enhancement is
established. ASC 985-20-25 6 specifies that “technological feasibility” for
purposes of ASC 985-20-25 can only be established by the completion of a
“detailed program design” or if no such design is prepared, upon the completion
of a “working model” of the software. Our development process does not include a
detailed program design. Management believes that such a design could be
produced in the early stages of development but would entail significant wasted
expense and delay. Consequently, ASC 985-20-25 requires the development costs to
be recorded as an expense until the completion of a “working model”. In our case
the completion of a working model does not occur until almost the time when the
software is ready for sale.
Accounting
for Stock Based Compensation, Stock Options and Warrants Granted to Employees
and Non-employees
We
adopted ASC 718-10, as of January 1, 2006. ASC 718-10 replaced the existing
requirements under SFAS No. 123, Accounting for Stock Based
Compensation, and Accounting Principles Board Opinion No. 25, Accounting for Stock-based
Compensation to Employees, or APB 25. According to ASC 718-10, all forms
of share-based payments to employees, including employee stock options and
employee stock purchase plans, are treated the same as any other form of
compensation by recognizing the related cost in the statement of
income.
-27-
Under ASC
718, Compensation - Stock Compensation,
stock-based compensation expense is measured at the grant date based on the fair
value of the award, and the expense is recognized ratably over the award’s
vesting period. For all grants made, we recognize compensation cost under the
straight-line method.
We
measure the fair value of stock options on the date of grant using a
Black-Scholes option-pricing model which requires the use of several estimates,
including:
•
|
the
volatility of our stock price;
|
•
|
the
expected life of the option;
|
•
|
risk
free interest rates; and
|
•
|
expected
dividend yield.
|
Income
Taxes
We
account for income taxes using the liability method in accordance with FASB
ASC 740, Accounting for
Income Taxes, which requires the recognition of deferred tax assets or
liabilities for the tax-effected temporary differences between the financial
reporting and tax bases of our assets and liabilities and for net operating loss
and tax credit carry forwards. The tax expense or benefit for unusual items,
prior year tax exposure items or certain adjustments to valuation allowances are
treated as discrete items in the interim period in which the events
occur.
On
January 1, 2007, we adopted ASC 740-10-05, which provides guidance for
recognizing and measuring tax positions taken in a tax return that directly or
indirectly affect amounts reported in financial
statements. Under ASC 740-10-05, we may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. As a result of the implementation
of this provision, we did not recognize any current tax liability for
unrecognized tax benefits. We do not believe that there are any unrecognized tax
positions that would have a material effect on the net operating losses
disclosed. We have estimated the amount of our net operating loss carry-forwards
and we currently have engaged tax professionals to evaluate the amount of net
operating loss carry-forward available to us to offset future taxable income,
under Internal Revenue Code Section 382.
Revenue
Recognition
We
recognize revenues in accordance with ASC 985-605, Software Revenue
Recognition.
Revenue
from software license agreements is recognized when persuasive evidence of an
agreement exists, delivery of the software has occurred, the fee is fixed or
determinable, and collectibility is probable. In software arrangements that
include more than one element, we allocate the total arrangement fee among the
elements based on the relative fair value of each of the elements.
License
revenue allocated to software products generally is recognized upon delivery of
the products or deferred and recognized in future periods to the extent that an
arrangement includes one or more elements to be delivered at a future date and
for which fair values have not been established. Revenue allocated to
maintenance agreements is recognized ratably over the maintenance term and
revenue allocated to training and other service elements is recognized as the
services are performed. If evidence of fair value does not exist for all
elements of a license agreement and post customer support (PCS) is the only
undelivered element, then all revenue for the license arrangement is recognized
ratably over the term of the agreement as license revenue. If evidence of fair
value of all undelivered PCS elements exists but evidence does not exist for one
or more delivered elements, then revenue is recognized using the residual
method. Under the residual method, the fair value of the undelivered elements is
deferred and the remaining portion of the arrangement fee is recognized as
revenue.
-28-
Contingencies
Management
assesses the probability of loss for certain contingencies and accrues a
liability and/or discloses the relevant circumstances, as appropriate.
Management believes that any liability to the Company that may arise as a result
of having to pay out additional expenses that may have a material adverse effect
on the financial condition of the Company taken as a whole should be disclosed.
Refer to Note 8 of Notes to the Financial Statements.
Recent
Accounting Standards and Pronouncements
Refer to
Note 2 of Notes to the Financial Statements for a discussion of recent
accounting standards and pronouncements.
ITEM
7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements and notes thereto are set forth immediately after the
signature page in this Annual Report on Form 10-K. Set forth below is the table
of contents for the aforementioned financial statements and notes
thereto.
Page
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM – KBL,
LLP
|
F-1
|
FINANCIAL
STATEMENTS
|
|
BALANCE
SHEETS
|
F-2
|
STATEMENTS
OF OPERATIONS
|
F-3
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIT
|
F-4
|
STATEMENTS
OF CASH FLOWS
|
F-5
|
NOTES
TO FINANCIAL STATEMENTS
|
F-6
- F-20
|
Item
9. CHANGES IN AND DISGAREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item
9A(T). CONTROLS AND PROCEDURES.
Disclosure Controls and
Procedures.
As
required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange
Act”), we carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as of the end of the period
covered by this report on Form 10-K. This evaluation was carried out under the
supervision and with the participation of our management, including our
President and Chief Executive Officer and our interim Chief Financial Officer.
Based upon that evaluation, management concluded that our disclosure controls
and procedures are effective to ensure that information required to be disclosed
in the reports that it files or submits under the Exchange Act is accumulated
and communicated to management (including the chief executive officer and chief
financial officer) to allow timely decisions regarding required disclosure and
that our disclosure controls and procedures are effective to give reasonable
assurance that the information required to be disclosed by us in reports that we
file under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
SEC.
-29-
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Our
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”).
Under the
supervision and with the participation of our management, including our Chief
Executive Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework established by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as
set forth in Internal Control – Integrated Framework.
As a
result of that evaluation, management identified the following control
deficiencies as of December 31, 2009 that constituted material
weaknesses:
●
|
Control environment —
We did not maintain an effective control environment. Specifically,
we did not maintain a sufficient complement of personnel with an
appropriate level of accounting knowledge, experience, and training in the
application of GAAP commensurate with our financial reporting requirements
and business environment.
|
●
|
Period-end financial reporting
process — We did not maintain effective controls over the
period-end reporting process,
including controls with respect to the review, supervision, and monitoring
of accounting operations.
|
Based on
management's evaluation, because of the material weaknesses described above,
management has concluded that our internal control over financial reporting was
not effective as of December 31, 2009. We are planning to implement changes in
the second quarter of 2010 to remedy these weaknesses, including engaging the
services of a financial reporting consultant to regularly monitor accounting
operations.
This
annual report does not include an attestation report of our registered public
accounting firm regarding our internal control over financial reporting. Our
management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this annual report.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation performed that occurred during our last fiscal
quarter ended December 31, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Item
9B. OTHER INFORMATION.
None.
-30-
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANACE.
Set forth
below are the present directors and executive officers of the Company. There are
no arrangements or understandings between any of the directors, officers and
other persons pursuant to which such person was selected as a director or an
officer, except that Jonathan Rubin and Matt Rothman were chosen by the
purchasers of Debentures to serve as directors, as described below in Item
13. Directors are elected to serve until the next annual meeting of
shareholders and until their successors have been elected and have qualified.
Officers serve at the pleasure of the Board of Directors and may be terminated
at any time at will.
Directors
Name
|
Age
|
Present
Position and Offices
|
Term
of Office
|
|||
Harold
Brand
|
59
|
Chairman
of the Board, Chief Executive Officer and Interim Chief Financial
Officer
|
Since
1985
|
|||
Sheldon
Reich
|
52
|
Vice
President Solutions and Director
|
Since
1990
|
|||
Robert
J. Roskow
|
66
|
Executive
Vice President and Director
|
Since
1995
|
|||
Jonathan
Rubin
|
39
|
Director
|
Since
2007
|
|||
Matt
Rothman
|
31
|
Director
|
Since
2007
|
Set forth
below are brief accounts of the business experience during the past five years
of each director of the Company.
Harold
Brand is a founder of CYBRA and has been its Chairman of the Board and Chief
Executive Office since 1985. Mr. Brand has been the Company’s Interim Chief
Financial Officer since 2006. He is responsible for managing the Company’s
operations, monitoring its performance, and planning and overseeing R&D
projects. Mr. Brand developed much of CYBRA’s proprietary technology. Prior to
founding CYBRA, Mr. Brand was the Vice President of Personnel Systems at
Manufacturers Hanover Trust Company (currently JP Morgan Chase Bank), a New York
City money center bank, where he managed a multimillion dollar annual budget and
a staff of 25 professionals. A highly rated speaker at IBM technical
conferences, Mr. Brand holds a Masters of Science degree in Computer Science
from Rutgers University in New Brunswick, New Jersey. We have determined that
since he has been involved with the development of our business since its
inception, Mr. Brand is well suited to serve as a director of
CYBRA.
Sheldon
Reich has been Vice President of Marketing and a Director of the Company since
1990. His title was recently changed to Vice President Solutions to more
accurately reflect his role in the Company. He has expertise in the creative
application of Auto ID technology. In April 2004, Mr. Reich was selected by IBM
to help design their infrastructure solution for enabling RFID wireless
inventory systems. Prior to joining CYBRA, Mr. Reich held the position of Copy
Director at Bantam Doubleday Dell publishing. He developed business-to-business
marketing programs for such clients as: NYNEX, AT&T Microelectronics, and
Philips Information Systems. A frequent speaker at industry conferences and user
group meetings, Mr. Reich, holds a Bachelor of Arts degree in Linguistics from
the State University of New York at Stony Brook. We have determined
that Mr. Reich’s industry experience in RFID technology and his understanding of
the market makes him well suited to serve as a director of CYBRA.
-31-
Robert J.
Roskow joined CYBRA in 1994 in the capacity of Vice President of Sales and a
Director. His participation has recently transitioned to that of a sales
advisory role, along with a change in title to Executive Vice President. Bob is
also founder of Profit Horizons, Inc., a sales consultancy. He brings to CYBRA
more than 30 years of high technology marketing experience with the IBM
Corporation. Mr. Roskow’s marketing achievements with IBM were rewarded with
membership in 17 100% clubs and three Golden Circles, which signified reaching
the top 3% of sales professionals in the company. One of the chief architects of
IBM’s Business Partner Program, Mr. Roskow has consulted to more than 50 IBM
Business Partners with annual revenues ranging from $200,000 to $50 million. Bob
was a New Business Executive with IBM for the four years prior to his retiring
in 1992. We have determined that Mr. Roskow’s technology marketing
experience makes him well suited to serve as a director of CYBRA.
Jonathan
Rubin is an experienced small businessperson, having run his own businesses for
the past six years. Mr. Rubin is a partner in the Jefferson Title Agency, which
is licensed in several states. He is a seasoned real estate professional, with
extensive experience in numerous areas of the real estate field, including,
management, brokerage, title and finance. Mr. Rubin is active in the Lakewood,
NJ, community, where he manages a free loan society, and sits on the Township
Rent Control Board, the Board of Congregation Ohr Meir and other community
organizations. We have determined that Mr. Rubin’s experience as an
owner of small businesses makes him well suited to serve as a director of
CYBRA.
Matt
Rothman is the owner of MorFra Designs, a wholesale jewelry company supplying
retailers and catalog companies throughout the U.S. MorFra specializes in cubic
zirconia silver jewelry. Prior to the formation of MorFra in 2003, Mr. Rothman
was for one year, vice president - sales at Designs by FMC, Inc., a manufacturer
and distributor of gold and silver jewelry, selling to large retail chains,
through catalogues and various cable television channels. Mr. Rothman also
serves as a consultant to Global Equities, a real estate investment company with
interests in residential and commercial real estate. We have
determined that Mr. Rothman’s experience as an owner of small businesses, as
well as his experience with sales for a manufacturing company, makes him well
suited to serve as a director of CYBRA.
Officers
In
addition to Harold Brand, Sheldon Reich and Robert J. Roskow, the following
person also serves as an officer of the Company:
Name
|
Age
|
Present
Position and Offices
|
Term
of Office
|
|||
Charles
M. Roskow
|
38
|
Vice
President of Operations
|
Since
2006
|
Charles
M. Roskow heads CYBRA’s West Seneca, New York branch office and is chiefly
responsible for pre-sales and post-sales support of CYBRA Corporation’s software
products. He joined the Company in 1994 as an Account Manager and served as
Customer Support Manager from 1997 to 2005, when he became Branch Manager.
Acting in a sales engineering capacity, Mr. Roskow is CYBRA’s OEM customers’
primary point of contact and manages the end user support effort. Previously, as
a CYBRA marketing representative, Mr. Roskow tripled sales in his territory.
Before joining CYBRA, he was the owner and proprietor of Just Belts, a martial
art belt manufacturer, which he built from a standing start to profitability and
sale to new owners in 18 months. Mr. Roskow holds a Bachelor of Science degree
in Business Administration from the State University of New York College at
Fredonia.
Matt
Rothman is the son of Samuel Rothman, an investor in the Company and an investor
and control person of Global Equities. Robert J. Roskow is Charles M. Roskow’s
father. None of the other directors or officers is related to any
other director or officer of the Company.
-32-
No
officer or director has, during the past ten years, been involved in (a) any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time; (b) any conviction in a criminal proceeding
or being subject to a pending criminal proceeding (excluding traffic violations
and other minor offenses); (c) any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; (d) a
finding by a court of competent jurisdiction (in a civil action), the Commission
or the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed,
suspended, or vacated; (e) any federal or state judicial or administrative
order, judgment, decree or finding, not subsequently reversed,
suspended or vacated, relating to an alleged violation of (i) any federal or
state securities or common law or regulation; (ii) any law or regulation
respecting financial institutions or insurance companies including, but not
limited to, a temporary or permanent injunction, order of disgorgement or
restitution, civil money penalty or temporary or permanent cease-and-desist
order, or removal or prohibition order; or (iii) any law or regulation
prohibiting mail or wire fraud or fraud in connection with any business entity;
or (f) any sanction or order, not subsequently reversed, suspended or vacated,
of any self-regulatory organization, any registered entity, or any equivalent
exchange, association, entity or organization that has disciplinary authority
over its members or persons associated with a member.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who own more than 10% of a registered class of our equity securities to
file reports of ownership and changes in ownership with the SEC. SEC
regulations also require us to identify in this annual report any person subject
to this requirement who failed to file any such report on a timely
basis.
Based on
our records and other information available to us, we believe that, in 2009, all
Section 16(a) filing requirements were satisfied.
Code
of Ethics
Due to
the early stage nature of the business of CYBRA, it does not have a Code of
Ethics.
Audit
Committee
Due to
the early stage nature of the business of CYBRA, it does not have an audit
committee, nor has its board of directors deemed it necessary to have an audit
committee financial expert. CYBRA expects to have several committees in place,
including a compensation, budget and audit committee. At such time, CYBRA
Corporation intends to have a member of the Board of Directors that meets the
qualifications for an audit committee financial expert
.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth all the compensation earned by Mr. Harold Brand who
is serving as the Chief Executive Officer (Principal Executive Officer) and
Interim Chief Financial Officer (Principal Financial Officer) for the last three
completed fiscal years. The Company had no other executive officers whose
aggregate compensation was in excess of $100,000 during the aforementioned
fiscal years.
SUMMARY
COMPENSATION TABLE
Name
and principal position
|
Year
|
Salary
($)
|
All
Other Compensation
($)
|
Total
($)
|
||||||||||
Harold
Brand, Chairman, Chief Executive Officer
|
2009
|
$ | 140,191 | $ | 50,326(1) | $ | 190,517 | |||||||
and
Interim Chief Financial Officer
|
2008
|
$ | 165,847 | 22,096(2) | $ | 187,943 | ||||||||
2007
|
$ | 187,943 | -0- | $ | 187,943 |
(1) |
This
amount consists of $45,000 of salary, and $5,326 of bonus, that were
voluntarily deferred by Mr. Brand.
|
(2) | This amount consists of $14,153 of salary, and $7,943 of bonus, that were voluntarily deferred by Mr. Brand. |
-33-
Effective
April 30, 2006, the Company entered into a five-year Employment Agreement with
Mr. Brand, with base salary set at $180,000 per annum. In addition to this
salary, Mr. Brand is entitled to incentive compensation an amount equal to two
percent (2%) of annual gross sales of the Company on sales in excess of one
million dollars ($1,000,000). In addition, Mr. Brand is entitled to standard
benefits: four weeks of paid vacation, accident and health insurance, sick leave
benefits, holidays and personal days, personal expenses reimbursement, life
insurance, disability insurance and the use of a corporate car.
Director
Compensation
Inside
directors are not compensated in their roles as directors. They are reimbursed,
however, for reasonable expenses incurred on behalf of the Company. Outside
Director compensation is $7,500 per year, plus expenses, for up to four regular
meetings per year and an unspecified number of special meetings. For any
additional in person meetings, compensation is $750 per meeting. In
2009, Messrs. Rubin and Rothman each received 10,000 shares of common stock for
services rendered as a director in 2009. In 2008, Messrs. Rubin and
Rothman each received $3,750 in cash compensation and 5,000 shares of common
stock for services rendered as directors in 2008.
CYBRA
Corporation’s Advisory Board consists of executive officers, as well as two
outside advisors.
Arthur
Hershaft, the former Chairman of Paxar Corporation, grew Paxar from $2 million
in 1959 to over $800 million in 2007. He served as Paxar’s Chairman of the Board
since 1986 and as Chief Executive Officer from 1980 through August 2001,
resuming that position from May 2003 through late April 2005. In June 2007,
Paxar was acquired by Avery Dennison for $1.34 billion. Mr. Hershaft is one of
the pioneers of the labeling industry. Shortly after graduating from Carnegie
Mellon Institute in Pittsburgh with a degree in engineering, Mr. Hershaft went
into his father's business. Together they developed the first non-woven label to
be compatible with permanent-press fabric. Under Arthur Hershaft’s stewardship,
Paxar Corporation became a global leader in providing innovative merchandising
systems for the retail and apparel industry. As part of the Avery Dennison
Retail Information Services Group, Paxar designs and manufactures tickets, tags
and labels, and provides the technology-including the printers, software control
systems and necessary supplies-for retail product identification. Customers
include the world's major retailers, branded apparel companies and contract
manufacturers.
Dr.
Shlomo Kalish, a CYBRA founder, is an Israel-based technology investor. In
January 2007, Dr. Kalish made the 39th slot
in Forbes’ Midals List of top dealmakers in the world, and first among Israeli
dealmakers. In 1994, Dr. Kalish founded The Jerusalem Global Group, a technology
focused investment house, and in 1999 he founded Jerusalem Global Ventures, a
venture capital firm managing $120M. Jerusalem Global Ventures invests in seed
and early-stage communications, information technology and life sciences
companies. From 1997 to 1999, Dr. Kalish served as a General Partner of Concord
(K.T.) Ventures I, LP, a leading Israeli venture capital fund, where he was
responsible for the investments in Oridion Medical and Oren Semiconductors. Dr.
Kalish frequently appears in the media and has been featured on the cover of
Upside Magazine. He has also been cited in The Wall Street Journal, Dow Jones,
Business Week and other business publications. Dr. Kalish holds a Ph.D. in
Operations Research from MIT, a M.Sc. from the Sloan School of Management at MIT
and a B.Sc. from Tel Aviv University. From 1970 to 1975 Dr. Kalish served in the
Israeli Air Force as a fighter pilot. Dr. Kalish is active on the boards of many
non-profit organizations and academic institutions, including Shalom Beineinu, a
charitable organization of which he is Chairman; the Board of Governors of Bar
Ilan University; the Board of Governors of the Technion and The Jerusalem
College of Technology. Dr. Kalish serves on the board of Saifun Semiconductors —
selected by Globes, an Israeli business journal, as one of Israel’s most
successful startups, Valor Computerized systems, as well as a number of JGV’s
portfolio companies.
The
Advisory Board meets twice a year, in the fall and spring. Members of the
Advisory Board are not compensated but are reimbursed for travel-related
expenses.
-34-
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 15, 2010: (i) each person who is known
by CYBRA to own beneficially more than 5% of the outstanding Common Stock; (ii)
each of the directors of CYBRA; and (iii) all executive officers and directors
of CYBRA as a group. The address of each director and Named Executive Officer
listed in the table below is c/o CYBRA Corporation, One Executive Boulevard,
Yonkers, NY 10701.
Name
and Address of
Beneficial
Owner
|
Number
of Shares
Beneficially
Owned
|
Percentage of Shares
Beneficially Owned(1)
|
||||||
Directors
and Officers
|
||||||||
Harold
Brand
|
7,438,460
|
54.0%
|
||||||
Robert
Roskow
|
536,200
|
3.9%
|
||||||
Sheldon
Reich
|
943,220
|
(2)
|
6.6%
|
|||||
Matt
Rothman
|
20,500
|
*
|
||||||
Jonathan
Rubin
|
20,000
|
*
|
||||||
All
Officers and Directors as a Group (5 persons)
|
8,958,880
|
(3)
|
62.8%
|
|||||
Beneficial
Owners of More Than 5%
|
||||||||
Sam
Rothman
c/o
ABC, Inc.
149
Burd Street
Nyack,
NY 10960
|
1,600,833
|
(4)
|
11.6%
|
|||||
Sholom
Chaim Babad
c/o
ABC, Inc.
149
Burd Street
Nyack,
NY 10960
|
1,080,000
|
(5)
|
7.8%
|
*
|
Less
than 1%.
|
(1)
|
Based
upon 13,766,662 shares issued and outstanding as at March 15,
2010.
|
(2)
|
Includes
200,000 shares issuable to Mr. Reich’s wife upon conversion of 8%
Convertible Debentures, 100,000 shares issuable to his wife upon exercise
of Class A warrants, and 200,000 shares issuable upon exercise of Class B
warrants. Mr. Reich disclaims beneficial ownership of all such shares.
Does not include shares of Common Stock that may be issued upon payment of
accrued and unpaid interest of the 8% Convertible
Debentures.
|
(3)
|
Includes
200,000 shares issuable upon conversion of 8% Convertible Debentures,
100,000 shares issuable upon exercise of Class A warrants that are
presently exercisable, and 200,000 shares issuable upon exercise of Class
B warrants that are presently exercisable. Does not include shares of
Common Stock that may be issued upon payment of
accrued.
|
(4)
|
Includes
100,000 shares issuable upon conversion of 8% Convertible Debentures,
50,000 shares issuable upon exercise of Class A warrants that are
presently exercisable, and 100,000 shares issuable upon exercise of Class
B warrants that are presently exercisable. Does not include shares of
Common Stock that may be issued upon payment of accrued and unpaid
interest of the 8% Convertible Debentures.
|
Includes
175,000 shares issuable upon conversion of 8% Convertible Debentures,
87,500 shares issuable upon exercise of Class A warrants that are
presently exercisable, and 175,000 shares issuable upon exercise of Class
B warrants that are presently exercisable. Does not include shares of
Common Stock that may be issued upon payment of accrued and unpaid
interest of the 8% Convertible Debentures.
|
-35-
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
In 2006,
the Company sought to raise capital through a private placement of 8%
Convertible Debentures. Two shareholders of the Company, Sholom Chaim Babad and
Sam Rothman acted as finders in the private placement and were paid a 10% fee,
which they converted into Debentures and Warrants. They will also be entitled to
receive as additional fees equal to 5% of any cash received by the Company upon
the exercise of Warrants. In addition, Messrs. Babad and Rothman loaned $151,000
to the Company in 2005, and an additional $19,000 in the first quarter of 2006,
the proceeds of which were used to redeem Preferred Stock owned by a third
party. This loan, together with interest, was repaid out of the proceeds of the
private placement.
The
Company agreed, in connection with the private placement, to allow the
purchasers of Debentures to appoint two members to its Board of Directors.
Jonathan Rubin and Matt Rothman have been chosen by the Purchasers to join the
Board of Directors.
The Board
of the Company has confirmed, that in accordance with FINRA Rule 4200, only
Messrs. Matt Rothman and Jonathan Rubin are deemed Independent
Directors.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The firm
of Bernstein & Pinchuk LLP (“B&P”) audited our financial statements for
the fiscal year ended December 31, 2007. On January 7, 2009, our
Board of Directors dismissed B&P as our independent registered public
accounting firm effective immediately. On January 7, 2009, our Board
of Directors appointed KBL, LLP (“KBL”) as our independent registered public
accounting firm. KBL has audited our financial statements for the
fiscal years ended December 31, 2009 and December 31, 2008. The
aggregate fees we paid to KBL for the years ended December 31, 2009 and December
31, 2008, and to B&P for the year ended December 31, 2008 were as
follows:
KBL,
LLP
|
2009
|
2008
|
||||||
Audit
Fees
|
$ | 33,208 | $ | 18,000 | ||||
Audit-Related
Fees
|
-0- | -0- | ||||||
Total
Audit and Audit-Related Fees
|
$ | 33,208 | $ | 18,000 | ||||
Tax
Fees
|
-0- | -0- | ||||||
All
Other
Fees
|
-0- | -0- |
Bernstein
& Pinchuk, LLP
|
2009
|
2008
|
||||||
Audit
Fees
|
$ | -0- | $ | 48,000 | ||||
Audit-Related
Fees
|
-0- | -0- | ||||||
Total
Audit and Audit-Related Fees
|
$ | -0- | $ | 48,000 | ||||
Tax
Fees
|
-0- | -0- | ||||||
All
Other
Fees
|
-0- | -0- |
-36-
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE.
See
“Index to Exhibits” immediately following the financial statements and notes to
financial statements in this Form 10-K for a description of the documents that
are filed as Exhibits to this report on Form 10-K or incorporated by reference
herein.
-37-
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
April 15, 2010
By:
|
/s/
Harold Brand
|
HAROLD
BRAND
|
|
Chief
Executive Officer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons in the capacities and on the dates as indicated.
Name
|
|
Title
|
Date
|
|
/s/ Harold
Brand
|
|
Chairman
of the Board,
|
April
15, 2010
|
|
HAROLD
BRAND
|
Chief
Executive Officer
(Principal
Executive Officer), and
Interim
Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
|||
/s/
Sheldon Reich
|
|
Director
|
April
15, 2010
|
|
SHELDON
REICH
|
||||
/s/ Robert
J. Roskow
|
|
Director
|
April
15, 2010
|
|
ROBERT
J. ROSKOW
|
||||
/s/ Jonathan
Rubin
|
|
Director
|
April
15, 2010
|
|
JONATHAN
RUBIN
|
||||
/s/ Matt
Rothman
|
Director
|
April
15, 2010
|
||
MATT
ROTHMAN
|
-38-
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
CYBRA
Corporation
We have
audited the accompanying balance sheets of CYBRA Corporation ("the Company") as
of December 31, 2009 and 2008 and the related statements of operations, changes
in stockholders' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. 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 the Company as of December 31, 2009
and 2008 and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ KBL,
LLP
Forest
Hills, New York
April 15,
2010
F-1
CYBRA
CORPORATION
FINANCIAL
STATEMENTS
CYBRA
CORPORATION
BALANCE
SHEETS
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 58,039 | $ | 70,591 | ||||
Accounts
receivable, less allowance for doubtful accounts of $17,000 in 2009 and
2008
|
174,538 | 331,021 | ||||||
Total
Current Assets
|
232,577 | 401,612 | ||||||
PROPERTY
AND EQUIPMENT, at cost, less accumulated depreciation and amortization of
$263,425 (2009) and $327,186 (2008)
|
53,982 | 78,831 | ||||||
SOFTWARE
DEVELOPMENT, at cost, less accumulated amortization of $349,862 (2009) and
$124,129 (2008)
|
327,338 | 553,071 | ||||||
DEFERRED
FINANCE COSTS
|
- | 113,010 | ||||||
SECURITY
DEPOSITS AND OTHER ASSETS
|
11,654 | 18,711 | ||||||
TOTAL
ASSETS
|
$ | 625,551 | $ | 1,165,235 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
CURRENT
LIABILITIES
|
||||||||
8% Convertible Debentures
|
$ | 2,604,098 | $ | 2,402,791 | ||||
Accrued
liquidated damages - registration rights agreement
|
110,000 | 110,000 | ||||||
Accounts
payable and accrued expenses, including deferred unpaid officer/director
compensation
of $90,565 (2009) and $51,355 (2008)
|
562,776 | 437,088 | ||||||
Accrued
interest
|
599,728 | 537,290 | ||||||
Deferred
revenue
|
367,823 | 346,416 | ||||||
TOTAL
CURRENT LIABILITIES
|
4,244,425 | 3,833,585 | ||||||
STOCKHOLDERS'
DEFICIT
|
||||||||
Preferred
Stock, Class A 1,000 shares authorized, Class B 1,000
shares
|
||||||||
authorized,
no shares outstanding at December 31, 2009 and 2008
|
- | - | ||||||
Common
stock, par value $0.001 per share, 100,000,000 shares
authorized;
|
||||||||
13,766,662
and 13,512,143 shares issued and
|
||||||||
outstanding
at December 31, 2009 and 2008, respectively
|
13,767 | 13,512 | ||||||
Additional
Paid - in capital
|
2,892,126 | 2,752,621 | ||||||
Accumulated
deficit
|
(6,524,767 | ) | (5,434,483 | ) | ||||
Total
Stockholders' Deficit
|
(3,618,874 | ) | (2,668,350 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 625,551 | $ | 1,165,235 |
The
accompanying notes are an integral part of these financial
statements
F-2
CYBRA
CORPORATION
STATEMENTS
OF OPERATIONS
Years
Ended
|
||||||||
December
31
|
||||||||
2009
|
2008
|
|||||||
REVENUES
|
||||||||
Products
|
$ | 651,962 | $ | 792,002 | ||||
Services
|
683,982 | 605,148 | ||||||
TOTAL
REVENUES
|
1,335,944 | 1,397,150 | ||||||
COST
OF GOODS SOLD
|
||||||||
Equipment
purchases
|
218,258 | 257,414 | ||||||
Royalties
and consulting
|
59,576 | 74,770 | ||||||
277,834 | 332,184 | |||||||
GROSS
PROFIT
|
1,058,110 | 1,064,966 | ||||||
Research
and Development
|
204,509 | 215,283 | ||||||
Selling,
General and Administrative
|
1,474,941 | 2,021,530 | ||||||
TOTAL OPERATING
EXPENSES
|
1,679,450 | 2,236,813 | ||||||
LOSS
FROM OPERATIONS
|
(621,340 | ) | (1,171,847 | ) | ||||
OTHER
INCOME (EXPENSE)
|
||||||||
Loss
on debenture valuation adjustment
|
(61,316 | ) | - | |||||
Interest
expense, includes $113,010 (2009) and $301,847
(2008) of amortization of deferred finance costs
|
(407,698 | ) | (756,363 | ) | ||||
Interest
income
|
70 | 4,058 | ||||||
(468,944 | ) | (752,305 | ) | |||||
LOSS
BEFORE INCOME TAXES
|
$ | (1,090,284 | ) | $ | (1,924,152 | ) | ||
DEFERRED
INCOME TAXES (BENEFIT)
|
- | 1,260,397 | ||||||
NET
LOSS
|
$ | (1,090,284 | ) | $ | (3,184,549 | ) | ||
PER
SHARE DATA
|
||||||||
Basic
and diluted net loss per share
|
$ | (0.08 | ) | $ | (0.25 | ) | ||
Basic
and diluted weighted-average shares outstanding
|
13,499,937 | 12,936,951 |
The
accompanying notes are an integral part of these financial
statements
F-3
CYBRA
CORPORATION
STATEMENTS
OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
Common
Stock
|
Additional
|
Accumulated
|
||||||||||||||||||
Shares
|
Amount
|
paid-in-capital
|
Deficit
|
Total
|
||||||||||||||||
Balance
at December 31, 2007
|
12,610,954 | $ | 12,611 | $ | 2,044,537 | $ | (2,249,934 | ) | $ | (192,786 | ) | |||||||||
Common
stock issuance in private placement
|
587,335 | 587 | 440,114 | - | 440,701 | |||||||||||||||
Stock
issued for services
|
293,854 | 294 | 256,592 | - | 256,886 | |||||||||||||||
Conversion
of debentures to common stock
|
20,000 | 20 | 11,378 | - | 11,398 | |||||||||||||||
Net
loss for the year
|
- | - | - | (3,184,549 | ) | (3,184,549 | ) | |||||||||||||
Balance
at December 31, 2008
|
13,512,143 | 13,512 | 2,752,621 | $ | (5,434,483 | ) | $ | (2,668,350 | ) | |||||||||||
Common
stock issued for services
|
70,000 | 70 | 47,430 | - | 47,500 | |||||||||||||||
Accrued
interest converted into shares of common stock
|
184,519 | 185 | 92,075 | - | 92,260 | |||||||||||||||
Net
loss for the year
|
- | - | - | (1,090,284 | ) | (1,090,284 | ) | |||||||||||||
Balance
at December 31, 2009
|
13,776,662 | 13,767 | 2,892,126 | (6,524,767 | ) | (3,618,874 | ) |
The
accompanying notes are an integral part of these financial
statements
F-4
CYBRA
CORPORATION
STATEMENTS OF CASH FLOW
|
||||||||
|
Years
Ended
|
|||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (1,090,284 | ) | $ | (3,184,549 | ) | ||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities
|
||||||||
Provision for
doubtful accounts
|
- | 12,000 | ||||||
Depreciation
and Amortization
|
251,972 | 150,463 | ||||||
Stock
based compensation
|
47,500 | 256,886 | ||||||
Deferred income
tax expense resulting from increase in valuation allowance of
deferred tax asset
|
- | 1,260,397 | ||||||
Interest
expense - amortization of debt discount
|
139,992 | 253,389 | ||||||
Amortization of
deferred finance cost
|
113,010 | 301,847 | ||||||
Provision for
settlement of litigation
|
3,000 | 25,000 | ||||||
Loss on
debenture valuation adjustment
|
61,316 | - | ||||||
Changes
in operating assets and liabilities
|
||||||||
Accounts
receivable
|
156,483 | 9,626 | ||||||
Loan
Receivable
|
- | 6,000 | ||||||
Security
deposits and other assets
|
7,057 | (7,026 | ) | |||||
Accounts
payable and accrued expenses
|
125,688 | (138,309 | ) | |||||
Accrued
interest
|
154,698 | 201,121 | ||||||
Deferred
revenue
|
21,407 | 61,426 | ||||||
Net
Cash Used in Operating Activities
|
(11,162 | ) | (791,729 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Acquisition of
property and equipment
|
(1,390 | ) | (6,670 | ) | ||||
Additions to
software development costs
|
- | (358,867 | ) | |||||
Net
Cash Provided by Financing Activities
|
(1,390 | ) | (365,537 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds from
private placement
|
- | 440,701 | ||||||
Net
Cash from Financing Activities
|
- | 440,701 | ||||||
DECREASE
IN CASH AND CASH EQUIVALENTS
|
(12,552 | ) | (716,565 | ) | ||||
CASH
AND CASH EQUIVALENTS
|
||||||||
Beginning of
year
|
70,591 | 787,156 | ||||||
End of
year
|
$ | 58,039 | $ | 70,591 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | - | $ | - | ||||
Income
Taxes
|
$ | 3,752 | $ | 490 | ||||
NON-CASH
DISCLOSURE
|
||||||||
Accrued
interest converted into common stock
|
$ | 92,260 | $ | 11,398 |
The
accompanying notes are an integral part of these financial
statements
F-5
NOTES TO
FINANCIAL STATEMENTS
1. ORGANIZATION,
DESCRIPTION OF OPERATIONS, FINANCIAL STATUS OF THE COMPANY AND BASIS OF
PRESENATION
Organization and Description
of Operations
CYBRA
Corporation (“the Company”) was incorporated under the laws of the State of New
York on September 6, 1985. The Company is a software developer, publisher, and
systems integrator in the IBM midrange market. Their flagship product,
MarkMagicTM, is
an online bar code software product for IBM System i (formerly known as the
AS/400) computers. EdgeMagic®,
first released February 2008, is an integrated radio frequency identification
(“RFID”) control solution for IBM System i customers that is capable of
deployment on other platforms and is highly scalable. It is designed to manage edge
readers and analog control devices, commission, read, filter and verify RFID
tags to comply with Electronic Product Code (EPC) compliance mandates, as well
as for asset tracking applications and integration with popular ERP and
Warehouse Management application packages.
Substantially
all of the Company’s accounts receivable are due from manufacturing companies
and software vendors located throughout the United States.
Financial Status of the
Company-Going Concern
At
December 31, 2009, the Company had cash and cash equivalents of $58,039, and a
working capital deficit of $4,011,848, which includes certain current
liabilities that do not require near term cash settlement. Additionally, the
Company incurred a net loss of $1,090,284 for the year ended December 31, 2009,
and had a stockholders’ deficit of $3,618,874 at December 31, 2009. Management has taken
several steps to improve sales and reduce costs in order to ensure that its
cash flows will meet its operating cash requirements for the second quarter of
2010. These steps include increasing sales of EdgeMagic®,
which management believes has revenue potential far in excess of the current
product mix, as well as the formation of a field level sales team.
The
Company, as further discussed in Notes 3 and 13, is obligated under 8%
Convertible Debentures that became due on April 10, 2009. The Company
presently does not have the resources to pay the Debentures and these Debentures
are in default.
The
Company has renegotiated the terms of the Debentures (see Note 14, Subsequent
Events), either by extending the maturity date of the Debentures or by
exchanging the Debentures for a new series of preferred stock. The Company has
obtained the agreement of 12 holders of Debentures having an aggregate principal
amount of $1,445,000 to amend the terms of their Debentures and to extend their
maturity date to April 10, 2011. The Company has also obtained the
agreement of 16 holders of Debentures having an aggregate principal amount of
$1,045,000 to exchange their Debentures for a new class of preferred stock of
the Company having terms similar to those in the Debentures.
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Software
Costs
The
Company accounts for software development costs in accordance with FASB ASC
985.730, Software Research and
Development and ASC 985-20, Costs of Software to be Sold,
Leased or Marketed. ASC 985-20 requires that costs related to the
development of enhancements to MarkMagic be capitalized as an asset when
incurred subsequent to the point at which technological feasibility of the
enhancement is established. FASB ASC 985-20 specifies that “technological
feasibility” for can only be established by the completion of a “detailed
program design” or if no such design is prepared, upon the completion of a
“working model” of the software. The Company’s development process does not
include a detailed program design. Management believes that such a design could
be produced in the early stages of development but would entail significant
wasted expense and delay. Consequently, FASB ASC 980-20 requires the
development costs to be recorded as an expense until the completion of a
“working model”. In the Company’s case, the completion of a working model does
not occur until shortly before the time when the software is ready for
sale.
F-6
Research and Development
Costs
Research
and development costs incurred after completion of development of a product are
expensed as incurred. Total research and development expense for the years ended
December 31, 2009 and 2008 were $204,509 and $215,283,
respectively.
Accounting for Warrants
Classified as Equity Issued to Purchase Company Common Stock
Warrants
issued in conjunction with equity financings were accounted for under ASC
815-40, Contracts in Entity’s
own Stock. . ACS 825-20, Accounting for Registration Payment
Arrangements, establishes the standard that contingent obligations to
make future payments under a registration rights arrangement shall be recognized
and measured separately in accordance with the standard, Reasonable Estimation
of the Amount of a Loss. The Company has evaluated how these standards affected
these accompanying financial statements. The adoption of the accounting
pronouncement on January 1, 2007 changed the classification of the warrant
liability, which was $551,910 at January 1, 2007, to stockholders’ equity
(additional paid in capital).
Derivative Financial
Instruments
The
Company accounts for its Warrants which were issued in a private placement of
the 8% Convertible Debentures with detachable Warrants on April 10, 2006, as
derivatives under the guidance of ASC 815-10, Accounting for Derivative
Instruments and Hedging Activities, and Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled In, a Company’s Own Stock.
The Company considers these standards applicable by adopting “View A” of the
Issue Summary– The Effect of a
Liquidated Damages Clause on a Freestanding Financial Instrument in which
the Warrants and the related registration rights agreement are viewed together
as a combined instrument that is indexed to the Company's stock. The embedded
conversion feature of the Debentures has not been classified as a derivative
financial instrument because the Company believes that they are “conventional”
as defined in accounting standards – The Meaning of “Conventional
Convertible Debt Instrument.
Depreciation and
Amortization
Depreciation
and amortization are provided by the straight-line and accelerated methods over
the estimated useful lives indicated in Note 5.
Income
Taxes
Income taxes are accounted for under
the asset and liability method in accordance with FASB ASC 740, “Income Taxes”.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial carrying amounts
of existing assets and liabilities and their respective tax bases as well as
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the periods in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred tax assets are reduced by a valuation allowance to the
extent that the recoverability of the asset is unlikely to be
recognized.
The
Company follows accounting standards for Accounting for Uncertainty in Income
Taxes. This provides guidance for recognizing and measuring uncertain tax
positions, as defined in, Accounting for Income Taxes. This prescribes a
threshold condition that a tax position must meet for any of the benefits of the
uncertain tax position to be recognized in the financial statements. It also
provides accounting guidance on derecognizing, classification and disclosure of
these uncertain tax positions.
F-7
Interest
costs and penalties related to income taxes are classified as interest expense
and selling, general and administrative costs, respectively, in the Company's
financial statements. For the years ended December 31, 2009 and 2008, the
Company did not recognize any interest or penalty expense related to income
taxes. The Company is currently subject to a three-year statute of limitations
by major tax jurisdictions. The Company files income tax returns in the U.S.
federal jurisdiction and New York State.
Advertising
Costs
Advertising
costs are charged to expense as incurred. Total advertising amounted to
$11,504 and $59,983
for the years ended December 31, 2009 and 2008, respectively.
Use of
Estimates
The
preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, 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 revenue and expenses
during the reporting period. Actual results could differ from those estimates.
The most significant estimates relate to valuation of warrants, stock grants and
stock options, the net operating loss carry-forward, the valuation allowance for
deferred taxes and various contingent liabilities. It is reasonably possible
that these above-mentioned estimates and others may be adjusted as more current
information becomes available, and any adjustment could be significant in future
reporting periods.
Cash and Cash
Equivalents
We
classify marketable securities that are highly liquid and have maturities of six
months or less at the date of purchase as cash equivalents. We manage our
exposure to counterparty credit risk through specific minimum credit standards,
diversification of counterparties and procedures to monitor our credit risk
concentrations.
Revenue
Recognition
The
Company recognizes revenues in accordance with AICPA Statement of Position ASC
985-605, Software
Revenue Recognition.
Revenue
from software license agreements is recognized when persuasive evidence of an
agreement exists, delivery of the software has occurred, the fee is fixed or
determinable, and collectibility is probable. In software arrangements that
include more than one element, the Company allocates the total arrangement fee
among the elements based on the relative fair value of each of the
elements.
License
revenue allocated to software products generally is recognized upon delivery of
the products or deferred and recognized in future periods to the extent that an
arrangement includes one or more elements to be delivered at a future date and
for which fair values have not been established. Revenue allocated to
maintenance agreements is recognized ratably over the maintenance term and
revenue allocated to training and other service elements is recognized as the
services are performed. If evidence of fair value does not exist for all
elements of a license agreement and post customer support (PCS) is the only
undelivered element, then all revenue for the license arrangement is recognized
ratably over the term of the agreement as license revenue. If evidence of fair
value of all undelivered PCS elements exists but evidence does not exist for one
or more delivered elements, then revenue is recognized using the residual
method. Under the residual method, the fair value of the undelivered elements is
deferred and the remaining portion of the arrangement fee is recognized as
revenue.
Cost of
license revenue primarily includes product, delivery, and royalty costs. Cost of
maintenance and service revenue consists primarily of labor costs for engineers
performing implementation services, technical support, and training personnel as
well as facilities and equipment costs.
F-8
Deferred Finance
Costs
Deferred
finance costs were amortized over the term of the 8% Convertible Debentures on
the effective interest method.
Accounts
Receivable
We record
trade accounts receivable at net realizable value. This value includes an
appropriate allowance for estimated uncollectible accounts to reflect any loss
anticipated on the trade accounts receivable balances and charged to the
provision for doubtful accounts. We calculate this allowance based on our
history of write-offs, level of past-due accounts based on the contractual terms
of the receivables, and our relationships with and the economic status of our
customers.
Trade
receivables are presented net of an allowance for doubtful accounts of $17,000
as of December 31, 2009 and December 31, 2008.
Stock-Based
Compensation
In
addition to requiring supplemental disclosures, FASB ASC 718 Compensation – Stock
Compensation, addresses the accounting for share-based payment
transactions in which a company receives goods or services in exchange for (a)
equity instruments of the company or (b) liabilities that are based on the fair
value of the company’s equity instruments or that may be settled by the issuance
of such equity instruments. FASB ASC 718 focuses primarily on accounting for
transactions in which a company obtains employee services in share-based payment
transactions.
The
Company uses the modified prospective method. Stock issued to consultants for
consulting services was valued as of the date of the agreements with the various
consultants, which in all cases was earlier than the dates when the services
were committed to be performed by the various consultants.
References
to the issuances of restricted stock refer to stock of a public company issued
in private placement transactions to individuals who are eligible to sell all or
some of their shares of restricted Common Stock pursuant to Rule 144,
promulgated under the Securities Act of 1933 (“Rule 144”), subject to certain
limitations. In general, pursuant to Rule 144, a stockholder who is not an
affiliate and has satisfied a six-month holding period may sell all of his
restricted stock without restriction, provided that the Company has current
information publicly available. Rule 144 also permits, under certain
circumstances, the sale of restricted stock, without any limitations, by a
non-affiliate of our Company that has satisfied a one-period holding
period.
Fair Value of Financial
Instruments
The
Company is required to estimate the fair value of the stock-based financial
instruments issued in connection with the sale of the Debentures, which were
issued at the time that the Company was privately held. Estimating the values of
the stock-based financial instruments of privately held companies, which cannot
be referenced to a quoted market price, even to establish the value of the
underlying common shares, involves significant uncertainty. It also involves the
application of assumptions that may vary substantially from those that would be
applied by actual buyers and sellers of the instruments. Without a quoted stock
price to use as a basis of measurement, the Company has estimated the value of
the Common Stock, Warrants and the conversion feature of the Debentures based on
a value of approximately $0.13 per share. This value was estimated by 1)
assuming that the $2,500,000 received from investors, as an arm’s-length
transaction, represented the total fair value of the instruments issued to those
investors, 2) estimating the fair value of the Debentures issued if there were
no conversion feature or Warrants, 3) allocating the remainder to the derivative
financial instruments, and 4) using a 147% volatility factor, as discussed
below, to derive the implied Common Stock value, the value of conversion feature
(included as part of the initial value of the Debentures) and values for the two
classes of Warrants that are accounted for as separate derivative financial
instruments.
F-9
The
estimated initial fair value of the Debentures payable (separated from the
embedded conversion feature), is based on the discounted contractual cash flows
with the discount rate of 27.1%. This discount rate was based on the 22.6% mean
return on United States equity for companies with market capitalizations of
under $1,500,000 and then adding 4.5% as the long-term risk premium on software
companies as published in a respected independent source. An equity-related
discount rate was used because, in the Company’s situation, unsecured debt at
this amount would entail equity-like risks. The estimated initial value of the
embedded conversion feature was then added to this value to arrive at the total
initial value of the 8% Convertible Debenture.
In
valuing the embedded conversion features and Warrants, in the absence of quoted
market prices or historical volatilities for the Company stock, the total fair
value of the financial instruments issued in the April 10, 2006 financing was
considered to be equal to the proceeds, representing a valuation provided by an
arm’s-length transaction. Allocating the total, however, required estimation
subject to significant uncertainty. First, proceeds were allocated to the values
of the principal and interest payable on the Debentures based on a 27.1% p.a.
discount rate as described in the last paragraph. The remainder was allocated
between the conversion feature and the Warrants based on Black-Scholes related
option pricing models. The Black-Scholes computations used a volatility factor
of approximately 147%. The volatility was the average calculated volatility, for
the one-year period ended April 10, 2006, of a sample of software companies with
market capitalizations of over $1,000,000. The implied Common Stock value that
resulted in a value for the derivatives equal to the difference between the
debenture value and the gross proceeds was approximately $0.13 per share. This
value, less an estimated 26% discount for lack of marketability for a net value
of approximately $0.096 per share, was used to estimate the fair value of the
1,826,000 shares of Common Stock sold at a discount to three individuals
involved in finding investors for the Company. Management believes that the
discount on the finders’ stock is appropriate because 1) there are no liquidated
damages provisions associated with that stock, and 2) although they were
included among the shares being registered by the Company for sale by the
holders to the public, there was no certainty that the registration will become
and remain effective.
ASC
825-20, Accounting for
Registration Payment Arrangements, addresses an issuer’s accounting for
registration payment arrangements by specifying that the contingent obligation
to make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with Accounting for Contingencies.
This became effective for fiscal periods beginning after December 15, 2006, and
interim periods within those fiscal periods.
Basic and Diluted Loss per
Share
In
accordance with FASB ASC 260, Earnings Per Share, the basic
loss per common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed in a manner similar to basic loss per
common share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
At December 31, 2009 and 2008, the Company stock equivalents were anti-dilutive
and excluded in the diluted loss per share computation.
Commitments and
Contingencies
Liabilities
for loss contingencies arising from various claims, assessments, litigation,
fines and penalties and other sources are recorded when it is probable that a
liability has been incurred and the amount of the assessment can be reasonably
estimated.
Recently
issued accounting standards
FASB ASC
815, “Determining whether an
Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.”
ASC 815 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. Early
application is not permitted. Paragraph 11(a) of SFAS 133 specifies that a
contract that would otherwise meet the definition of a derivative but is both
(a) indexed to the Company’s own stock and (b) classified in stockholders’
equity in the statement of financial position would not be considered a
derivative financial instrument. ASC 815 provides a new two-step model to be
applied in determining whether a financial instrument or an embedded feature is
indexed to an issuer’s own stock and thus able to qualify for the SFAS 133
paragraph 11(a) scope exception.
F-10
FASB ASC 810. ASC 810
requires companies to measure non-controlling interests in subsidiaries at fair
value and to classify them as a separate component of equity. FASB
ASC 810 is effective as of each reporting fiscal year beginning after
December 15, 2008, and applies only to transactions occurring after the
effective date. We do not believe that the adoption of FASB ASC 810
will have a material effect on our financial position or results of
operations.
FASB ASC 805. ASC 805 will
require companies to measure assets acquired and liabilities assumed in a
business combination at fair value. In addition, liabilities related
to contingent consideration are to be re-measured at fair value in each
subsequent reporting period. FASB ASC 805 will also require the
acquirer in pre-acquisition periods to expense all acquisition-related
costs. FASB ASC 805 is effective for fiscal years beginning after
December 15, 2008, and is applicable only to transactions occurring after
the effective date. We do not believe that the adoption of FASB ASC
805 will have a material effect on our financial position or results of
operations.
FASB ASC
350-30-35-1. This ASC amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. FASB ASC 350-30-35-1
improves the consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the fair value of
the asset under other applicable accounting literature. We do not believe that
the adoption of FASB ASC 350-30-35-1will have a
material effect on our financial position or results of operations.
FASB ASC 820. ASC
820 clarifies the application of FASB ASC 820 to fair value measurements in the
current economic environment, modify the recognition of other-than-temporary
impairments of debt securities, and require companies to disclose the fair value
of financial instruments in interim periods. The final staff positions are
effective for interim and annual periods ending after June 15,
2009.
FASB ASC
820 (transitional 820-10-65-4), ASC 820 provides guidance on how to
determine the fair value of assets and liabilities under FASB ASC 820 in the
current economic environment and reemphasizes that the objective of a fair value
measurement remains the price that would be received to sell an asset or paid to
transfer a liability at the measurement date.
FASB ASC
320. ASC 320 modifies the requirements for recognizing other-than-temporarily
impaired debt securities and significantly changes the existing impairment model
for such securities. It also modifies the presentation of other-than-temporary
impairment losses and increases the frequency of and expands already required
disclosures about other-than-temporary impairment for debt and equity
securities.
FASB ASC
820-10-50. ASC 820-10-50 requires disclosures of the fair value of
financial instruments within the scope of FASB ASC 820 in interim financial
statements, adding to the current requirement to make those disclosures in
annual financial statements. The staff position also requires that companies
disclose the method or methods and significant assumptions used to estimate the
fair value of financial instruments and a discussion of changes, if any, in the
method or methods and significant assumptions during the period.
We do not
believe that the adoption of these new standards have a material impact on our
financial position and results of operations.
FASB ASC 860. ASC
860 eliminates the concept of a qualifying special-purpose entity, creates more
stringent conditions for reporting a transfer of a portion of a financial asset
as a sale, clarifies other sale-accounting criteria, and changes the initial
measurement of a transferor’s interest in transferred financial assets. FASB ASC
860 will be effective for transfers of financial assets in fiscal years
beginning after November 15, 2009 and in interim periods within those
fiscal years with earlier adoption prohibited. We will adopt FASB ASC 860 on
January 1, 2010.
F-11
Reclassifications
No
reclassifications have been made to the financial statements.
3. 8% CONVERTIBLE
DEBENTURES AND DERIVATIVE FINANCIAL INSTRUMENTS
On April
10, 2006, the Company issued 8% Convertible Debentures (the “Debentures”) with a
principal (“face”) value of $2,500,000, along with 7,500,000 detachable Stock
Warrants (the “Warrants”) to several investors. The gross proceeds of this
transaction were $2,500,000, consisting of $2,080,000 cash, $151,000 from the
cancellation of debt incurred in 2005, $19,000 from the cancellation of debt
incurred earlier in 2006 and $250,000 applied as finders’ fees. The
Debenture balances at December 31, 2009 and December 31, 2008 were $2,490,793
and $2,402,791, respectively. The amortization of deferred finance costs was
$113,010 and $301,847 for the years ended December 31, 2009 and 2008,
respectively. The deferred finance cost balance at December 31, 2009 and
December 31, 2008 was $-0- and $113,010, respectively.
Interest
on the Debentures is due semiannually at 8% per annum beginning December 31,
2006. Interest is also due upon conversion, redemption and maturity. The total
interest paid to two Debenture holders was $16,982. Another Debenture holder
converted their accrued interest to shares of common stock. No other payments
have been made. The Debentures matured on April 10, 2009 (see Notes 1
and 13).
Through
April 10, 2008 the Company had the right, subject to certain conditions, to
redeem the Debentures for 120% of the principal value. The Company declined to
do so.
The
investors also received 7,500,000 Warrants, 2,500,000 of Class A and 5,000,000
of Class B. Each Class A Warrant gives the holder the right to buy one share of
Common Stock for $0.75. Each Class B Warrant gives the holder the right to buy
one share of Common Stock for $1.75. The Warrants are exercisable at any time
through April 10, 2011. The 7,500,000 Warrants are the only outstanding Warrants
at December 31, 2009 that were issued in connection with the sale of the
Debentures.
As part
of the transaction, $250,000 principal amount of the Debentures were issued
along with 125,000 Class A Warrants and 250,000 Class B Warrants as finders’
fees. The finders will also receive as additional fees equal to 5% of any cash
collected as on the exercise of any of the Warrants. To date, no Warrants have
been exercised.
The
shares of Common Stock that underlie the conversion feature of the Debentures
and those that underlie the Warrants are subject to a registration rights
agreement. Pursuant to the registration rights agreement, the Company was
obligated to file a registration statement with the United States Securities and
Exchange Commission by June 8, 2006 registering the shares for public sale, and
to have the registration statement become effective by September 7, 2006 and to
keep the registration statement continuously effective. Failure to achieve these
registration requirements will result, in addition to other possible claims by
the holders for damages, partial liquidated damages equal to 1.5% per month
(pro-rated by day) of the aggregate purchase price originally paid by the
investors (i.e., the monthly partial liquidated damages would be $37,500 per
month). Any claims and liquidated damages that might have been due as a result
of filing the registration statement on June 16, 2006 have been waived by the
holders. The registration statement did not become effective until December 6,
2006. Liquidated damages of $110,000 for the period September 7 through December
6, 2006 and $3,151 of related interest have been accrued through December 31,
2009.
The
Warrants were classified as derivative financial instruments as a result of the
issuance of a registration rights agreement that includes a liquidated damages
clause, which is linked to an effective registration of such securities.
Accordingly, the Company accounted for the Warrants as liabilities at estimated
fair value. The Company’s value estimation methods which, in the case of a
private company, must inherently involve significant uncertainly are described
in the “fair value of financial instruments” section of Note 1,
above.
F-12
The fair
value of the financial instrument as shown on a company’s balance sheet assumes
that the shares will be registered. The liability under the alternative of the
shares never being registered and paying the full cash liquidated damages is
estimated to be approximately $892,000 greater than the fair value recorded on
the balance sheet. This estimate of value is subject to an extra level of
uncertainty concerning the amount at which a willing seller and buyer would
exchange such instruments. The estimated value represents discounting the
$450,000 p.a. ($2,500,000 at 18%) liquidated damages, in perpetuity, at a rate
of 33.875% and adding a separate value of the Warrants. The separate value of
the Warrants was in turn, based on the Black-Scholes calculation used for the
balance sheet (if registered estimate) but reducing the current share value
assumption by 45% for lack of marketability. The 45% was based on published
long-term studies.
The
derivative financial instruments have not been designated as hedges. The purpose
of their issuance was to raise additional capital in a more advantageous fashion
than could be done without the use of such instruments. In addition to expecting
the overall cost of capital to be less, the use of the derivative instruments
reduces the cost to the common shareholders when the value of their shares
declines in exchange for increasing the cost to the common shareholders when the
value of their shares increase, all of which should tend to reduce the
volatility of the value of the Company’s common shares.
4. STOCK BASED
COMPENSATION
During
the year ended December 31, 2009, the Company issued 20,000 shares of Common
Stock for services rendered to directors and 50,000 shares of Common Stock for
investor relations services. 60,000 of the shares of Common Stock were valued at
$.75 per share and 10,000 of the shares of the Common Stock were valued at $.25
per share for total compensation of $47,500.
The Company has adopted the CYBRA Corporation 2006 Incentive Stock Plan, a stock-based compensation plan to reward for services rendered by officers, directors, employees and consultants. The Company has reserved 5,000,000 shares of Common Stock of its unissued share capital for issuance under the plan.
The
Company recognizes share-based compensation expense for all service-based awards
with graded vesting schedules on a straight-line basis over the requisite
service period for the entire award. Initial accruals of compensation expense
are based on the estimated number of shares for which requisite service is
expected to be rendered. Estimates are revised if subsequent information
indicates that forfeitures will differ from previous estimates, and the
cumulative effect on compensation cost of a change in the estimated forfeitures
is recognized in the period of the change.
For
awards with service conditions and graded vesting that were granted prior to the
adoption of accounting standards, the Company estimates the requisite service
period and the number of shares expected to vest and recognize compensation
expense for each tranche on a straight-line basis over the estimated requisite
service period of the award or over a period ending with an employee's eligible
retirement date, if earlier. Adjustments to compensation expense as a result of
revising the estimated requisite service period are recognized
prospectively.
Total
stock options outstanding at December 31, 2009 were 100,000, all of which were
vested.
Stock
option transactions to the employees, directors, and consultants are summarized
as follows:
Stock
Options Outstanding
|
||||
Outstanding
at January 1, 2008
|
100,000
|
|||
Granted
|
0
|
|||
Exercised
|
0
|
|||
Outstanding
at December 31, 2008
|
100,000
|
|||
Options
exercisable at December 31, 2008
|
100,000
|
|||
Options
outstanding at January 1, 2009
|
100,000
|
|||
Granted
|
0
|
|||
Exercised
|
0
|
|||
Outstanding
at December 31, 2009
|
100,000
|
|||
Options
exercisable at December 31, 2009
|
100,000
|
F-13
The
100,000 options outstanding at December 31, 2009 were issued in December 2007,
have a remaining outstanding life of 3 years and have an exercise price of $0.75
per share.
Following
is a summary of the warrant activity:
Class
A and B Warrants
|
Total
Number of Shares
|
Class
A
|
Class
B
|
Average
Exercise Price per Share
|
Weighted
Average Remaining Contractual
Term
In Years
|
|||||||||||||||
Outstanding
at December 31, 2008
|
10,571,003 | 3,523,669 | 7,047,334 | 1.42 | 3.50 | |||||||||||||||
Total
Outstanding Warrants – December 31, 2008
|
10,571,003 | 3,523,669 | 7,047,334 | 1.42 | 3.50 | |||||||||||||||
Exercisable
at December 31, 2008
|
10,571,003 | 3,523,669 | 7,047,334 | 1.42 | 3.50 | |||||||||||||||
Granted
|
- | - | - | |||||||||||||||||
Exercised
|
- | - | - | |||||||||||||||||
Forfeited
|
- | - | - | |||||||||||||||||
Outstanding
at December 31, 2009
|
10,571,003 | 3,523,669 | 7,047,334 | 1.42 | 2.50 | |||||||||||||||
Total
Outstanding Warrants – December 31, 2009
|
10,571,003 | 3,523,669 | 7,047,334 | 1.42 | 2.50 | |||||||||||||||
Exercisable
at December 31, 2009
|
10,571,003 | 3,523,669 | 7,047,334 | 1.42 | 2.50 |
5. PROPERTY AND
EQUIPMENT
At
December 31, 2009 and 2008, property and equipment consisted of the
following:
December
31,
|
December
31,
|
Estimated Useful Life in | ||||||||||
2009
|
2008
|
Years
|
||||||||||
Furniture
and office equipment
|
$ | 186,869 | $ | 185,479 | 5 | |||||||
Computer
software
|
109,244 | 109,244 | 3 | |||||||||
Leasehold
Improvements
|
21,294 | 21,294 |
Life
of Lease
|
|||||||||
317,407 | 316,017 | |||||||||||
Less:
Accumulated Depreciation
|
263,425 | 237,186 | ||||||||||
$ | 53,982 | $ | 78,831 |
Depreciation
and amortization of property and equipment amounted to $251,972 and $150,463 for
the years ended December 31, 2009 and 2008, respectively
December
31,
|
December
31,
|
Estimated
Useful
Life in
|
||||||||||
2009
|
2008
|
Years
|
||||||||||
Software
Development Costs
|
$ | 677,200 | $ | 677,200 | 3 | |||||||
Less:
Accumulated Amortization
|
349,862 | 124,129 | ||||||||||
$ | 327,338 | $ | 553,071 |
F-14
The
Company’s policy is to capitalize software development costs in accordance with
FASB ASC 985.730 (See Note 2). Amortization
of Software Development Costs amounted to $ 225,733 and $124,129 for the years
ended December 31, 2009 and 2008, respectively, and is included within Selling,
General and Administrative Expenses.
6. INCOME
TAXES
The
Company has the following deferred tax assets and liabilities at December 31,
2009 and December 31, 2008:
December
31,
|
||||||||
2009
|
2008
|
|||||||
Current
assets and liabilities:
|
||||||||
Accounts
receivable
|
$ | (71,000 | ) | $ | (135,000 | ) | ||
Accounts
payable and accrued expenses
|
86,000 | 57,000 | ||||||
Deferred
revenues
|
149,000 | 141,000 | ||||||
164,000 | 63,000 | |||||||
Valuation
allowance
|
(164,000 | ) | (63,000 | ) | ||||
Net
current deferred tax asset
|
$ | - | $ | - | ||||
Noncurrent
assets and liabilities:
|
||||||||
Net
operating loss carryforwards
|
$ | 2,370,000 | $ | 2,117,000 | ||||
Depreciation
|
(68,000 | ) | (94,000 | ) | ||||
2,302,000 | 2,023,000 | |||||||
Valuation
allowance
|
(2,302,000 | ) | (2,023,000 | ) | ||||
Net
deferred tax asset
|
$ | - | $ | - |
The
valuation allowance for the deferred tax asset increased by $380,000 for the
year ended December 31, 2009.
The
Company has net operating losses amounting to approximately $5,800,000 that
expire in various periods from 2024 through 2029. The ultimate realization of
the net operating losses is dependent upon future taxable income, if any, of the
Company and may be limited in any one period by alternative minimum tax rules.
Although management believes that the Company will have sufficient future
taxable income to absorb the net operating loss carryovers before the expiration
of the carryover period, the current global economic crisis imposes additional
profitability risks that are beyond the Company’s control. Accordingly,
management has determined that a full valuation allowance of the deferred tax
asset is appropriate at this time.
Internal
Revenue Code Section 382 imposes limitations on the use of net operating loss
carryovers when the stock ownership of one or more 5% shareholders (shareholders
owning 5% or more of the Company’s outstanding capital stock) has increased by
more than 50 percentage points. Management intends to carefully monitor share
ownership of 5% shareholders but cannot control the ownership changes occurring
as a result of public trading of the Company’s Common Stock. Accordingly, there
is a risk of an ownership change beyond the control of the Company that could
trigger a limitation of the use of the loss carryover.
F-15
The
Company has no uncertain income tax positions.
The
provision (benefit) for income taxes, consist of the following:
Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Current
tax expense
|
$
|
-
|
$
|
-
|
||||
Deferred
tax (benefit)
|
(380,000)
|
(825,063
|
) | |||||
Net
change in valuation allowance
|
380,000
|
2,086,000
|
||||||
$
|
-
|
$
|
1,260,397
|
The
provision (benefit) for income taxes is comprised of the following:
Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Deferred:
|
||||||||
Federal
income taxes
|
$
|
(314,000)
|
$
|
(795,429)
|
||||
State
income taxes
|
(66,000)
|
(30,174)
|
||||||
Net
change in valuation allowance
|
380,000
|
2,086,000
|
||||||
$
|
-
|
$
|
1,260,397
|
The
statutory Federal income tax rate and the effective rate are reconciled as
follows:
Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Statutory
Federal income tax rate
|
34
|
%
|
34
|
%
|
||||
State
taxes, net of Federal tax benefit
|
5
|
%
|
5
|
%
|
||||
Valuation
allowance
|
-39
|
%
|
-108
|
%
|
||||
Reversal
of timing differences
|
-
|
3
|
%
|
|||||
0
|
%
|
-66
|
%
|
7. PREFERRED
STOCK
The
Company is authorized to issue 1,000 Class A Preferred shares and 1,000 Class B
Preferred shares, each of which has a par value of $1.00. No shares
of preferred stock are currently outstanding.
F-16
8. COMMITMENTS AND
CONTINGENCIES
a. Operating
lease
The
Company occupies office space in Yonkers, New York under an extended lease
agreement that expires on January 31, 2014. The Company also rents
space in West Seneca, New York, near Buffalo. This lease agreement expires on
May 31, 2010.
The
minimum rental commitment for both properties is as follows:
2010
|
$
|
76,209
|
||
2011
|
$
|
75,790
|
||
2012
|
$
|
75,375
|
||
2013
|
$
|
75,750
|
||
2014
|
$
|
6,312
|
||
$
|
309,436,
|
Rent
expense amounted to $85,755 and $92,787 for the years ended December 31, 2009
and 2008, respectively. This includes additional expense for
storage.
b. Line of
Credit
The
Company has a $115,000 credit line available through its bank. No money was
drawn from this line of credit in 2009 or 2008. In the event of borrowing, the
repayment period is 36 months. The line of credit is personally guaranteed by
Harold Brand, Chairman and Chief Executive and majority shareholder of the
Company. The Company’s right to draw on the credit line is subject to approval
of holders of Debentures constituting 60% of the principal amount of Debentures
outstanding.
c. Litigation
In
December, 2006, Raz-Lee Security Ltd. (“Raz-Lee”), a former distributor of the
Company's products, filed a lawsuit in Herzliya, Israel (Case No. 8443/06)
against the Company and its CEO for moneys allegedly owed in connection with the
distribution of the Company's products in Israel. The action sought $50,000 in
damages, plus interest, court costs and attorneys' fees. The Company filed a
counterclaim against Raz-Lee for failure to report sales and royalties, and for
a full accounting. The suit against the Company's CEO was dismissed, and appeal
of such dismissal was filed. In July, 2009, the Herzliya court awarded Raz-Lee
approximately (the approximations are a result of currency fluctuations) $15,750
plus approximately $7,500 of costs. The balance of Raz-Lee's claim was
dismissed. Since the amount awarded relates to past periods, the court also
awarded interest charges, bringing the total award including costs to
approximately $34,500. Raz-Lee collected the amount of approximately $6,500
which had been posted by the Company with the Herzliya court. The balance has
not been paid. The Company's counterclaim against Raz-Lee was dismissed. The
Company believes that Raz-Lee will file an appeal of the dismissal of parts of
its claim. The Company is currently consulting with counsel concerning the
filing of an appeal of the dismissal of the counterclaim or a part thereof. In
addition, Raz-Lee has asserted that Harold Brand, CEO of the Company, is
personally liable for the Company’s obligation. This claim was dismissed, but
was returned to the Magistrate's Court on appeal. The Company has a
reserve of $28,000 to provide for payment of this claim.
On July
20, 2009, Fagey Steinberg, a holder of a Debenture in the principal amount of
$100,000, filed a Motion for Summary Judgment in Lieu of Complaint (the
“Motion”) against the Company for Payment of the full principal amount of such
Debenture together with accrued and unpaid interest and such other and further
relief as is just and proper. The Company did not appear in this
action, and on September 17, 2009, the judge signed an order granting summary
judgment in favor of the plaintiff (the “Order”). Subsequent to the
grant of the Order, an unaffiliated third party entered into an agreement with
the plaintiff to purchase the plaintiff’s Debenture. The Company has
been informed that as a part of that agreement, the plaintiff has agreed not to
enter judgment against the Company pursuant to the Order. In
addition, the Company has issued to the purchaser a new Debenture in the
principal amount of $50,000, representing one-half of the principal amount of
plaintiff’s Debenture, which has been transferred to the
purchaser. The purchaser has agreed to purchase the remaining $50,000
principal amount of the plaintiff’s Debenture in two installments of $25,000
each in May and September 2010.
F-17
d. Executive Employment
Contract
Effective
April 30, 2006, the Company entered into a five-year Employment Agreement with
Mr. Brand, with base salary set at $180,000 per annum. In addition to this
salary, Mr. Brand is entitled to incentive compensation an amount equal to two
percent (2%) of annual gross sales of the Company on sales in excess of one
million dollars ($1,000,000). In addition, Mr. Brand is entitled to standard
benefits: four weeks of paid vacation, accident and health insurance, sick leave
benefits, holidays and personal days, personal expenses reimbursement, life
insurance, disability insurance and the use of a corporate car.
e.
Joint
Venture
On July
27, 2009, the Company entered into an agreement that outlines the intent to form
a joint venture in the People’s Republic of China with two other companies. The
purpose of this joint venture is to develop and sell leading edge products and
services that add intelligence to shipping products to track and monitor goods
throughout the supply chain.
The
agreement provides for a capital contribution by the Company to the joint
venture of $2,500,000 payable in four installments over eighteen months. The
Company is under no obligation to make these capital contributions unless and
until the parties enter into a binding, definitive joint venture agreement. The
Company will require additional financing in the form of debt and/or equity to
participate in the joint venture and make the required contributions. Both the
agreement and the subsequent binding, definitive joint venture agreement will be
governed by the law of the People’s Republic of China.
On June
1, 2009, the Company entered into a non-exclusive one-year agreement with an
investment banker to raise the capital necessary to fund the joint venture. The
investment banker will receive a fee of 5% of the transaction
proceeds.
9. PROFIT SHARING
PLAN
The Company has a qualified 401(k)
profit sharing plan covering all eligible employees. The plan provides for
contributions by the Company in such amounts as the Board of Directors may
annually determine but subject to statutory limitations.
No
contributions to the plan by the Company have been provided for either year
ended December 31, 2009 or 2008.
10. RELATED PARTY
TRANSACTIONS
Profit
Horizon, Inc., a company controlled by Robert J. Roskow, Executive Vice
President and Director of the Company, provides sales consulting services.
During the years ended December 31, 2009 and 2008, the Company incurred
approximately $30,000 and $34,000, respectively, in commissions to Profit
Horizon, Inc.
11. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The
Company’s financial instruments consisted of the following:
F-18
December
31, 2009
|
December
31, 2008
|
|||||||
8%
Convertible Debentures
|
2,604,098 | 2,402,791 | ||||||
12. LOSS PER
SHARE
Loss per
share for the year ended December 31, 2009 and 2008 does not include the effects
of the 10,571,003 Warrants or the 4,980,000 shares into which the 8% Convertible
Debentures are convertible because the effects would be
anti-dilutive.
13. CURRENT STATUS OF
CONVERTIBLE DEBENTURES
On April
10, 2009, the Company did not pay outstanding 8% Convertible Debentures (the
“Debentures”), in the aggregate principal amount of $2,490,000, which became due
on that date. The three-year Debentures were issued on April 10,
2006, pursuant to a Securities Purchase Agreement, also dated April 10, 2006
(the “Securities Purchase Agreement”).
The
Company’s failure to pay the full principal amount of the Debentures on their
Maturity Date constituted an “Event of Default” under the Debentures. Upon an
Event of Default, the full principal amount of the Debenture, together with
interest and other amounts owing in respect thereof, to the maturity date will
become, at the Debenture holder’s election, immediately due and payable in cash.
The aggregate amount payable upon an Event of Default is referred to in the
Debentures as the “Mandatory Prepayment Amount.”
The
Mandatory Prepayment Amount of a Debenture is equal to as the sum of: (i) the
greater of: (A) 120% of the principal amount of such Debenture, plus all accrued
and unpaid interest thereon, or (B) the principal amount of such Debenture, plus
all other accrued and unpaid interest thereon, divided by the Conversion Price
on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or
(y) the date the Mandatory Prepayment Amount is paid in full, whichever is less,
multiplied by the VWAP on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is greater, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such Debentures. The current Conversion
Price of the Debentures is $0.50. VWAP is the volume-weighted average price of
our common stock on the day in question.
"VWAP"
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on
a Business Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if
the Common Stock is not then listed or quoted on a Trading Market and if prices
for the Common Stock are then reported in the "Pink Sheets" published by the
Pink Sheets LLC (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Purchasers and reasonably acceptable to the Company.
14. SUBSEQUENT
EVENTS
We
evaluated events occurring between the end of our fiscal year, December 31,
2009, and April 15, 2010 when the financial statements were issued.
F-19
The
Company has obtained the agreement of 12 holders of Debentures having an
aggregate principal amount of $1,445,000 to amend the terms of their Debentures
and to extend their maturity date to April 10, 2011. As a part of
these agreements, the Company has agreed to issue new Class B Warrants having,
among other terms, a lower exercise price and an extended term in exchange for
the for the holders’ existing Class B Warrants. Consummation of the
amendment and exchange of those Debentures and the exchange of Class B Warrants
is subject only to acceptance by the Company and the completion of certain
affidavits relating to lost Debentures and Class B Warrants.
The
Company has also obtained the agreement of 16 holders of Debentures having an
aggregate principal amount of $1,045,000 to exchange their Debentures for a new
class of preferred stock of the Company having terms similar to those in the
Debentures. As a part of these agreements, the Company has agreed to
issue new Class B Warrants having, among other terms, a lower exercise price and
an extended term in exchange for the for the holders’ existing Class B Warrants.
Consummation of the exchange of those Debentures for shares of preferred stock
and the exchange of Class B Warrants is subject to acceptance by the Company,
the authorization by the Company’s shareholders to amend the Company’s
certificate of incorporation to authorize the Company to issue additional shares
of preferred stock, the creation of a new class of preferred stock pursuant to
such authorization, and the issuance of shares of preferred stock to such
holders pursuant to the terms of the exchange agreements.
F-20
INDEX
TO EXHIBITS
3.1
|
Certificate
of Incorporation*
|
3.2
|
Bylaws*
|
4.1
|
Form
of Securities Purchase Agreement dated as of April 10,
2006*
|
4.2
|
Form
of Common Class A and B Stock Purchase Warrant dated as of April 10,
2006*
|
4.3
|
Form
of 8% Convertible Debenture issued on April 10, 2006*
|
4.4
|
Form
of Registration Rights Agreement dated as of April 10,
2006*
|
4.5
|
Form
of Common Class A Stock Purchase Warrant issued in connection with private
placement****
|
4.6
|
Form
of Common Class B Stock Purchase Warrant issued in connection with private
placement****
|
10.1
|
2006
Incentive Stock Plan*†
|
10.2
|
Employment
Agreement between Harold Brand and CYBRA dated as of April 30,
2006*
|
10.3
|
Form
of Domestic Reseller Agreement**
|
10.4
|
Form
of International Reseller Agreement**
|
10.5
|
Form
of Premier Reseller Software Licensing Agreement between CYBRA Corporation
and Solzon Corporation dated as of August 27, 2007***
|
10.6
|
Form
of Technology License Agreement dated as of August 27,
2007***
|
10.7
|
Form
of Contractor Agreement for System Integration and Consulting Services
dated as of August 27, 2007***
|
31.1
|
Section
302 Sarbanes-Oxley Certification – CEO+
|
31.2
|
Section
302 Sarbanes-Oxley Certification – CFO+
|
32.1
|
Section
906 Sarbanes-Oxley Certification – CEO+
|
32.2
|
Section
906 Sarbanes-Oxley Certification –
CFO+
|
†
|
Compensatory
Plan or Arrangement
|
*
|
Incorporated
herein by reference to the Registrant’s Registration Statement on Form
SB-2 filed with the Commission on June 16, 2006, File No.
333-135068.
|
**
|
Incorporated
herein by reference to the Registrant’s report on Form 10-KSB filed with
the Commission on April 2, 2007.
|
***
|
Incorporated
herein by reference to the Registrant’s current report on Form 8-K, filed
with the Commission on September 27, 2007.
|
****
|
Incorporated
herein by reference to the Registrant’s annual report on Form 10-K filed
with the Commission on April 2, 2009.
|
+
|
Filed
herewith.
|