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EX-31.1 - CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT OF 2002 - CYBRA CORPf10k2009ex31i_cybra.htm
EX-32.1 - CERTIFICATIONS PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT OF 2002 - CYBRA CORPf10k2009ex32i_cybra.htm
EX-31.2 - CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT OF 2002 - CYBRA CORPf10k2009ex31ii_cybra.htm
EX-32.2 - CERTIFICATIONS PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT OF 2002 - CYBRA CORPf10k2009ex32ii_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)

New York
 
13-3303290
(State or Other Jurisdiction of
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.
 
Documents Incorporated by Reference: None

 

 
TABLE OF CONTENTS
 
       
Page
 
           
Part I
         
           
Item 1.  
 
Description of Business
 
1
 
           
Item 1A.  
 
Risk Factors
 
15
 
           
Item 1B.  
 
Unresolved Staff Comments
 
                    21
 
           
Item 2.  
 
Properties
 
22
 
           
Item 3.  
 
Legal Proceedings
 
22
 
           
Item 4.
 
Reserved
 
22
 
           
Part II
         
           
Item 5.  
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
22
 
           
Item 6.  
 
Selected Financial Data
 
23
 
           
Item 7.  
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
23
 
           
Item 7A.  
 
Quantitative and Qualitative Disclosures About Market Risk
 
29
 
           
Item 8.  
 
Financial Statements and Supplementary Data
 
29
 
           
Item 9.  
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
29
 
           
Item 9A(T). 
 
Controls and Procedures
 
29
 
           
Item 9B.  
 
Other Information
 
30
 
           
Part III
         
           
Item 10.  
 
Directors, Executive Officers and Corporate Governance
 
31
 
           
Item 11.  
 
Executive Compensation
 
33
 
           
Item 12.  
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
35
 
 
Item 13.  
 
Certain Relationships and Related Transactions, and Director Independence
 
    36
 
           
Item 14.  
 
Principal Accountant Fees and Services
 
36
 
           
Part IV
         
           
Item 15.  
 
Exhibits, Financial Statement Schedules
 
37
 
           
Signatures  
     
38
 
 

 
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-


 
RFID Business Forecasts

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.
 
 
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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.

Research and Development

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.

We may not be able to raise sufficient capital to successfully operate or expand our business.

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.

ITEM 4. Reserved.
 
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

None.
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
 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS

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    
 
The following table summarizes certain aspects of the Company’s results of operations for the year ended December 31, 2009, compared with 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.
 
Liquidity and Capital Resources

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

Not applicable to smaller reporting companies.
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-

 
PART III

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.

Advisory Board

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.
(5)
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.