UNITED STATES


SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended March 31, 2010
 
 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
 
 Not Applicable
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
 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.
 þ Yes            ̈ No
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
  ̈ Yes            ̈ No
  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.
  Large accelerated filer  ̈                                                                Accelerated filer  ̈
  Non-accelerated filer   ̈                                                                Smaller Reporting Company  þ
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈  No þ
  As of May 13, 2010 the registrant had 13,766,662 shares of Common Stock outstanding.
   
  CYBRA Corporation
 
 Table of Contents
 
 PagePart I.
Financial Information
1Item 1.
Financial Statements
1Balance Sheets as of March 31, 2010 and December 31, 2009
1Statements of Operations for the three months ended March 31, 2010 and 2009
2Statements of Cash Flows for the three months ended March 31, 2010 and 2009
3Notes to Financial Statements
4Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16Item 3.
Quantitative and Qualitative Disclosures About Market Risk
19Item 4T.
Controls and Procedures
19Part II.
Other Information
20Item 1.
Legal Proceedings
20Item 6.
Exhibits
20Signatures
   
  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CYBRA CORPORATION
 
 BALANCE SHEETS
  March 31,


December 31,2010


2009ASSETSCURRENT ASSETSCash and cash equivalents

$
59,258


$
58,039Accounts receivable, less allowance for doubtful accounts of $17,000 at both  dates


230,273



174,538Total Current Assets


289,531



232,577PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and amortization of$268,818 at March 31, 2010 and $263,425 at December 31, 2009


51,528



53,982SOFTWARE DEVELOPMENT, at cost, less accumulated amortization of$406,297 at March 31, 2010 and $349,862 at December 31, 2009


270,903



327,338SECURITY DEPOSITS AND OTHER ASSETS


11,654



11,654TOTAL ASSETS

$
623,616


$
625,551LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIES8% Convertible Debentures

$
2,609,030


$
2,604,098Accrued liquidated damages - registration rights agreement


110,000



110,000Accounts payable and accrued expenses, including deferred unpaid officer/directorcompensation of $160,229 at March 31, 2010 and $90,565 at December 31, 2009


567,530



562,776Accrued interest


652,314



599,728Deferred revenue


394,041



367,823Loans from stockholders in contemplation of private placement of common stock


47,500



-TOTAL CURRENT LIABILITIES


4,380,415



4,244,425STOCKHOLDERS' DEFICITPreferred Stock, Class A 1,000 shares authorized, Class B 1,000 sharesauthorized, no shares outstanding


-



-Common stock, par value $0.001 per share, 100,000,000 shares authorized;13,766,662 shares issued and outstanding


13,767



13,767Additional Paid - in capital


2,892,126



2,892,126Accumulated deficit


(6,662,692
)


(6,524,767
)Total Stockholders' Deficit


(3,756,799
)


(3,618,874
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$
623,616


$
625,551
 
 See Accompanying Notes to the Financial Statements
  -1-
  CYBRA CORPORATION
 
 STATEMENT OF OPERATIONS
 
 Three Months EndedMarch 31,2010


2009REVENUESProducts

$
203,568


$
256,098Services


169,232



162,575TOTAL REVENUES


372,800



418,673COST OF GOODS SOLDEquipment purchases


51,796



135,775Royalties and consulting


13,619



16,03665,415



151,811GROSS PROFIT


307,385



266,862Research and Development


46,435



52,333Selling, General and Administrative


341,365



414,647TOTAL OPERATING EXPENSES


387,800



466,980LOSS FROM OPERATIONS


(80,415
)


(200,118
)OTHER INCOME (EXPENSE)Loss on debenture valuation adjustment


(4,931
)


-Interest expense, includes amortization of deferred finance costsof $101,073 for the 3 months ended March 31, 2009


(52,586
)


(229,426
)Interest income


7



11(57,510
)


(229,415
)NET LOSS

$
(137,925
)

$
(429,533
)PER SHARE DATABasic and diluted net loss per share

$
(0.01
)

$
(0.03
)Basic and diluted weighted-average shares outstanding


13,766,662



13,544,143
  See Accompanying Notes to the Financial Statements
  -2-
   CYBRA CORPORATION
 
 STATEMENT OF CASH FLOWS
 
 Three Months EndedMarch 31,2010


2009(Audited)


(Audited)CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(137,925
)

$
(429,533
)Adjustments to reconcile net loss to net cash provided by (used in) operating activitiesDepreciation and Amortization


61,828



62,988Stock based compensation


-



45,000Interest expense - amortization of debt discount


-



78,352Amortization of deferred finance cost


-



101,073Loss on debenture valuation adjustment


4,932



-Changes in operating assets and liabilitiesAccounts receivable


(55,735
)


166,198Accounts payable and accrued expenses


4,754



(67,823
)Accrued interest


52,586



50,001Deferred revenue


26,218



5,101Net Cash (Used for) Provided by Operating Activities


(43,342
)


11,357CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of property and equipment


(2,939
)


(1,390
)Net Cash Used in Investing Activities


(2,939
)


(1,390
)CASH FLOWS FROM FINANCING ACTIVITIESLoans from stockholders in contemplation of private placement of common stock


47,500



-Net Cash Provided by Financing Activities


47,500



-INCREASE IN CASH AND CASH EQUIVALENTS


1,219



9,967CASH AND CASH EQUIVALENTSBeginning of period


58,039



70,591End of period

$
59,258


$
80,558SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the period for:Income Taxes

$
-


$
2,194
 
 See Accompanying Notes to the Financial Statements
  -3-
   CYBRA CORPORATION
 
 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 specializing in Auto Identification technology solutions. The Company’s flagship product, MarkMagicTM, is a barcode, radio frequency identification (“RFID”) and forms middleware solution relied upon daily by thousands of customers worldwide. It helps customers easily integrate bar code labels, RFID technology and electronic forms into their business systems.. EdgeMagic®, first released in February 2008, is an integrated RFID control solution that 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.  CYBRA software solutions run on all major computing platforms including IBM Power Systems (System i, iSeries, AS/400, AIX) as well as Linux, Unix, and Microsoft Windows.
 
 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 March 31, 2010, the Company had cash and cash equivalents of $59,258, and a working capital deficit of $4,090,884, which includes certain current liabilities that do not require near term cash settlement. Additionally, the Company incurred a net loss of $137,925 for the period ended March 31, 2010, and had a stockholders’ deficit of $3,756,799 at March 31, 2010. 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.  However, the Company has renegotiated the terms of the Debentures (see Note 13, Current Status of Convertible Debentures), 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 Developmentand 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” 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 985-20 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.
  -4-
  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 three months ended March 31, 2010 and 2009 was $46,435 and $52,333, 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.  ASC 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 ASC 815-40, Contracts In an Entity’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 Instrumentin 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 ASC 470-20, “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 ASC 740 rules governing uncertain tax positions which provides guidance for recognition and measurement. 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 derecognization, classification and disclosure of these uncertain tax positions.
 
 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 three months ended March 31, 2010 and 2009, 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 $1,017and $2,051 for the three months ended March 31, 2010 and 2009, respectively.
   -5-
 
 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
 
 The Company classifies marketable securities that are highly liquid and have maturities of six months or less at the date of purchase as cash equivalents.  The Company manages exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor its 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.
 
 Deferred Finance Costs
 
 Deferred finance costs were amortized over the term of the 8% Convertible Debentures on the effective interest method.
 
 Accounts Receivable
 
 The Company records 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. The Company calculates this allowance based on its history of write-offs, level of past-due accounts based on the contractual terms of the receivables, and its relationships with and the economic status of its customers.
 
 Trade receivables are presented net of an allowance for doubtful accounts of $17,000 as of March 31, 2010 and December 31, 2009.
 
 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.
  -6-
  
 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 the Company that has satisfied a one-year 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.
 
 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 Debentures.
 
 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.
  -7-
  
 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 March 31, 2010 and 2009, the Company’s 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 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.
 
 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 is 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. The Company adopted FASB ASC 860 on January 1, 2010.
 
 The Company does  not believe that the adoption of these new standards have a material impact on its financial position and results of operations.
 
 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 March 31, 2010 and December 31, 2009 were $2,604,098 and $2,481,143, respectively. The amortization of deferred finance costs was $-0- and $101,073 for the three months ended March 31, 2010 and 2009, respectively. The deferred finance cost balance at March 31, 2010 and December 31, 2009 was $-0- as of each date.
  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, 2009 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 March 31, 2010 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 on the exercise of any of the Warrants. To date, no Warrants have been exercised.
   -8-
 
 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 March 31, 2010.
 
 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.
 
 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 stockholders when the value of their shares declines in exchange for increasing the cost to the common stockholders 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 three months ended March 31, 2010, the Company issued no shares of Common Stock for services.  During the three months ended March 31, 2009, the Company issued 60,000 shares of Common Stock for services rendered as a director and for investor relations services, valued at $0.75 per share for total compensation of $45,000.
 
 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.
   -9-
  
 Total stock options outstanding at March 31, 2010 were 100,000, all of which were vested.
 
 Stock option transactions to the employees, directors, and consultants are summarized as follows:
  Stock Options OutstandingOutstanding at January 1, 2009


100,000Granted


0Exercised


0Outstanding at December 31, 2009


100,000Options exercisable at December 31, 2009


100,000Options outstanding at January 1, 2010


100,000Granted


0Exercised


0Outstanding at March 31, 2010


100,000Options exercisable at March 31, 2010


100,000
 
 The 100,000 options outstanding at March 31, 2010 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 YearsOutstanding at December 31, 2009


10,571,003



3,523,669



7,047,334



1.42



3.25Total Outstanding Warrants – March 31, 2009


10,571,003



3,523,669



7,047,334



1.42



3.25Exercisable at December 31, 2009


10,571,003



3,523,669



7,047,334



1.42



3.25Granted


-



-



-Exercised


-



-



-Forfeited


-



-



-Outstanding at March 31, 2010


10,571,003



3,523,669



7,047,334



1.42



2.25Total Outstanding Warrants – March 31, 2010


10,571,003



3,523,669



7,047,334



1.42



2.25Exercisable at March 31, 2010


10,571,003



3,523,669



7,047,334



1.42



2.25
 
 5. PROPERTY AND EQUIPMENT
 
 At March 31, 2010 and December 31, 2009, property and equipment consisted of the following:
  March 31,


December 31,


Estimated Useful Life in2009


2009


YearsFurniture and office equipment

$
186,869


$
186,869



5Computer software


112,183



109,244



3Leasehold Improvements


21,294



21,294


Life of Lease320,346



317,407Less: Accumulated Depreciation


268,818



263,425$
51,528


$
53,982
 
 -10-
 
 Depreciation and amortization of property and equipment amounted to $5,393 and $6,557 for the three months ended March 31, 2010 and 2009, respectively
  March 31,

December 31,

Estimated Useful Life in2010

2009

YearsSoftware Development Costs

$
677,200


$
677,200



3Less: Accumulated Amortization


406,297



349,862$
270,903


$
327,338
 
 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 $56,435 and $56,433 for the three months ended March 31, 2010 and 2009, respectively, and is included within Selling, General and Administrative Expenses.
 
 6. INCOME TAXES
 
 The Company has the following deferred tax assets and liabilities at March 31, 2010 and December 31, 2009:
 
 March 31, December 31,2010


2009Current assets and liabilities:Accounts receivable

$
(94,000
)

$
(71,000
)Accounts payable and accrued expenses


85,000



86,000Deferred revenues


160,000



149,000151,000



164,000Valuation allowance


(151,000
)


(164,000
)Net current deferred tax asset

$
-


$
-Noncurrent assets and liabilities:Net operating loss carryforwards

$
2,406,000


$
2,370,000Depreciation


(44,000
)


(68,000
)2,362,000



2,302,000Valuation allowance


(2,362,000
)


(2,302,000
)Net deferred tax asset

$
-


$
-
 
 The valuation allowance for the deferred tax asset increased by $47,000 for the three months ended March 31, 2010.
   -11-
 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% stockholders (stockholders 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% stockholders 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.
 
 The Company has no uncertain income tax positions.
 
 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.
 
 8. COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS
 
 a. Operating lease
 The Company occupies office space in Yonkers, New York under a lease agreement that was amended effective December 30, 2009 and expires on January 31, 2014. The Company also rents space in West Seneca, New York, near Buffalo. This lease expires on May 31, 2012 as extended on April 5, 2010.
 
 The minimum rental commitment for both properties is as follows:
 
 2010

$
71,9152011


73,5002012


73,5002013


73,5002014


6,125$
298,540
 
 Rent expense amounted to $16,368 and $23,312 for the three months ended March 31, 2010 and 2009, 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 2010. 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 stockholder 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.
   -12-
 
 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.
 
 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.
 
 f. Loans from stockholders
 
 During the three months ended March 31, 2010, the Chief Executive Officer of the Company provided the Company with $35,000, and another stockholder provided the Company with $12,500 (for a total of $47,500) as advance payment toward the issuance of common stock and other securities in a planned private placement. The Company is currently legally obligated to return such funds on demand of the investors, and in the event that the contemplated private placement is not completed.
 
 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 period ended March 31, 2010 or 2009.
   -13-
 
 
 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 three months ended March 31, 2010 and 2009, the Company incurred approximately $7,500 and $7,500, respectively, in commissions to Profit Horizon, Inc.
  11. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
 The Company’s financial instruments consisted of the following:
 
 March 31, 2010


December 31, 20098% Convertible Debentures

$
2,609,030


$
2,604,098
 
 12. LOSS PER SHARE
 
 Loss per share for the period ended March 31, 2010 and 2009 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 the Company’s 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.
 
 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 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 the authorization by the Company’s stockholders 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.
   -14-
 
 14. SUBSEQUENT EVENTS
 
 The Company evaluated events occurring between the end of the first quarter, March 31, 2010, and May 17, 2010 when the financial statements were issued.
 
 The Company entered into an extended lease agreement for its West Seneca office space on April 5, 2010. The lease is extended until May 31, 2012 with an option to extend for an additional two-year period.
 
 In connection with the Fagey Steinberg litigation (as discussed in Note 8(c) above), the Company has been informed that the plaintiff transferred $25,000 of the principal amount of its Debenture to the purchaser.  As a result, the purchaser currently owns $75,000 of the principal amount of the plaintiff’s Debenture.  The purchaser is scheduled to purchase the remaining $25,000 in September 2010.
    -15-
 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
 FORWARD-LOOKING STATEMENTS
 
 This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “project,” “target,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. These statements are based on the beliefs of our management as well as assumptions made by and information currently available to us and reflect our current view concerning future events. As such, they are subject to risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, among many others: our significant operating losses; uncertainty of capital resources; the speculative nature of our business; our ability to successfully implement new strategies; present and possible future governmental regulations; operating hazards; competition; the loss of key personnel; any of the factors in the “Risk Factors” section of our Annual Report on Form 10-K; other risks identified in this Report; and any statements of assumptions underlying any of the foregoing. You should also carefully review other reports that we file with the Securities and Exchange Commission. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.
 
 OVERVIEW
 
 The following discussion should be read in conjunction with our financial statements, together with the notes to those statements, included elsewhere in this report. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.
 
 We are a software developer, publisher and systems integrator specializing in Auto Identification technology solutions. Our flagship product, MarkMagicTM, is a bar code, RFID and forms middleware solution relied upon daily by thousands of customers worldwide. It helps customers easily integrate bar code labels, radio frequency identification (“RFID”) technology and electronic forms into their business systems.
 
 EdgeMagic®, first released in February 2008, is an integrated RFID control solution that 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.
 
 Our software solutions run on all major computing platforms including IBM Power Systems (System i, iSeries, AS/400, AIX) as well as Linux, Unix, and Microsoft Windows.
 
  -16-
  
 Comparison of the three months ended March 31, 2010 to the three Months Ended March 31, 2009
 
 The following table summarizes certain aspects of our results of operations for the three months ended March 31, 2010 to the three months ended March 31, 2009.
 
 Three months endedMarch 31,2010


2009


Change $


Change %RevenuesProducts

$
203,568


$
256,098


$
(52,530
)


-21
%Services


169,232



162,575



6,657



4
%Total Revenues


372,800



418,673



(45,873
)


-11
%Direct CostsEquipment Purchases

$
51,796


$
135,775


$
(83,979
)


-62
%Royalties & Consulting


13,619



16,036



(2,417
)


-15
%Total Direct Costs

$
65,415


$
151,811


$
(86,396
)


-57
%% of total revenues


18
%


36
%Gross margin

$
307,385


$
266,862


$
40,523



15
%% of total revenues


82
%


64
%Research and development costs

$
46,435


$
52,333


$
(5,898
)


-11
%% of total revenues


12
%


12
%Sales and marketing expenses

$
23,143


$
44,080


$
(20,937
)


-47
%% of total revenues


6
%


11
%General and administrative expenses

$
318,222


$
370,567


$
(52,345
)


-14
%% of total revenues


86
%


89
%Interest expense

$
52,586


$
229,426


$
(176,840
)


-77
%% of total revenues


14
%


55
%Other Income (Expenses)

$
(3,735
)

$
11


$
(3,746
)


-34055
%% of total revenues


-1
%


0
%Net loss

$
(137,925
)

$
(429,533
)

$
291,608



-68
%% of total revenues


-37
%


-103
%
 
 Revenues
 
 The decrease in total revenues in absolute dollars for the three months ended March 31, 2010, as compared to the same period in 2009, is primarily due to an improved mix of products.  The more profitable software products were up 21% for the period this year over the last year, while the high cost hardware and supplies products were down 58% for the period this year over last year. Demand for services has showed a small increase for the three months ended March 31, 2010.  New MarkMagic features that we released in the third quarter of 2009 met with positive reception from new and existing customers, which we believe will contribute to positive growth in revenues over the course of the year.
 
 
 -17-
 
 Direct Costs
 
 The costs for equipment purchases for the three months ended March 31, 2010, were lower, as compared to 2009, due to a 58% decrease in high cost hardware sales for this period.
 
 Gross Margin
 
 Gross Margin as a percentage of sales increased in the three months ended March 31, 2010 as compared to the same period in 2009. This was due to an increase of 21% in sales of profitable software products for the period this year over last year, and a decrease of 58% in sales of high cost hardware and supplies products for the period this year over last year.  We expect that our margins will continue to improve into the second quarter of 2010 due to lower reliance on equipment sales.
 
 Software Development Costs
 
 Software development costs consist 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, Research and Development Costs of Computer Software, 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, 2009, and all costs after that date have been expensed in accordance with Accounting Standards Codification 985-20-25.  During the three months ended March 31, 2010 and 2009, the software development costs that were expensed were $46,435 and $52,333, respectively. Software development costs decreased this year 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 consist primarily of commissions and advertising and promotional expenses. The decrease in absolute dollars for the three months ended March 31, 2010, as compared to the three months ended March 31, 2009, is due to cutbacks in advertising and trade show activity.
 
 General and Administrative Expenses
 
 General and administrative expenses consist primarily of costs associated with our executive, financial, human resources and information services functions. General and administrative expenses decreased in absolute dollars for the three months ended March 31, 2010, as compared to the three months ended March 31, 2009, primarily due to fewer employees and the attendant reduction in related expenses.
 
 Interest Expense
 
 Interest expense represents interest accrued on, and amortization of deferred financing cost related to, the 8% convertible debentures.  Amortization of these deferred financing costs ceased in April 2009 and standard interest continued to accrue on them.
 
 Other Income (Expenses)
 
 Other expenses increased for the three months ended March 31, 2010, compared to the three months ended March 31, 2009, due to the default on the 8% convertible 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 or benefit for the three months ended March 31, 2010 and 2009.  The effective tax rate of 0% differs from the statutory U.S. federal income tax rate of 35% primarily due to increases in valuation allowance for deferred tax asset that we believe we are unlikely to be able to realize.
   -18-
 
 Liquidity and Capital Resources
 
 The following table summarizes the our cash and cash equivalents, working capital, long-term debt and cash flows for the three months ended March 31, 2010 and 2009.
  Three monthsended March 31,2010


2009


Change $


Change %Cash and cash equivalents

$
59,258


$
80,558



(21,300
)


-26
%Working capital deficit


(4,090,884
)


(3,654,000
)


(436,884
)


-12
%Net cash (used in) provided by operations


(43,342
)


11,357



(54,699
)


-482
%Net cash used in investing activities


(2,939
)


(1,390
)


(1,549
)


-111
%Net cash provided by financing activities


47,500



-



47,500



100
%
 
 As of March 31, 2010, our principal source of liquidity was cash of approximately $59,000. Our operations used $43,342 in cash during the three months ended March 31, 2010 as compared to funds provided by operations of $11,357 for the three months ended March 31, 2009.
 
 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 $4,091,000 at March 31, 2010. The deficiency in working capital included approximately $3,261,000 in liabilities related to the convertible debentures, which is expected to be renegotiated and not require cash settlement, as well as $394,000 in deferred revenues that require settlement in future services rather than cash.
 
 During the three months ended March 31, 2010, we issued no shares of common stock for services.
 
 As of the second 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 throughout the second quarter of 2010. We believe we can sustain a positive cash flow throughout 2010.  We have seen a recent positive trend in customer interest in RFID in general and in our EdgeMagic product in particular.  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 (including our Chief Executive Officer) 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.
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not applicable to smaller reporting companies.
 
  ITEM 4T. 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-Q. 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 Securities and Exchange Commission.
  -19-
  Changes in Internal Control Over Financial Reporting
 
 During the last fiscal quarter, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 1.  LEGAL PROCEEDINGS.
 
 In December, 2006, Raz-Lee Security Ltd. (“Raz-Lee”), a former distributor of our products, filed a lawsuit in Herzliya, Israel (Case No. 8443/06) against us and our chief executive officer (the “CEO”) for moneys allegedly owed in connection with the distribution of our products in Israel. The action sought $50,000 in damages, plus interest, court costs and attorneys' fees. We filed a counterclaim against Raz-Lee for failure to report sales and royalties, and for a full accounting. The suit against our 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 us with the Herzliya court. The balance has not been paid. Our counterclaim against Raz-Lee was dismissed. We believe that Raz-Lee will file an appeal of the dismissal of parts of its claim. We are 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, our CEO, is personally liable for our obligations. This claim was dismissed, but was returned to the Magistrate's Court on appeal. We have a reserve of $28,000 to provide for payment of this claim.
 
 On July 20, 2009, Fagey Steinberg, a holder of our 8% Convertible Debenture (the “Debenture”) in the principal amount of $100,000, filed a Motion for Summary Judgment in Lieu of Complaint (the “Motion”) against us 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.   We 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.  We have been informed that as a part of that agreement, the plaintiff has agreed not to enter judgment against us pursuant to the Order.  In addition, we have 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. We have been informed that the first installment has been paid by the purchaser as scheduled.  As a result, the purchaser currently owns $75,000 of the principal amount of the plaintiff’s Debenture.
 
 ITEM 6.EXHIBITS.
 
 (a)   Exhibits.
 
 31.1
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).31.2
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).32.1
Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.32.2
Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.






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SIGNATURES
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 Date: May 14,  2010

CYBRA CorporationBy:
/s/ Harold BrandHarold BrandChief Executive Officer andInterim Chief Financial Officer
 
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