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 June 30, 2011

[ ] 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.
[X] 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 [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

As of August 15, 2011, the registrant had 15,519,667 shares of Common Stock outstanding.

CYBRA Corporation

Table of Contents

		Page

Part I.	Financial Information	1

Item 1.	Financial Statements	1

	Balance Sheets as of June 30, 2011 and December 31, 2010	1

	Statements of Operations for the three and six months ended June 30, 2011 and 2010	2

	Statements of Cash Flows for the six months ended June 30, 2011 and 2010	3

	Notes to Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

Part II.	Other Information	23

Item 1.	Legal Proceedings	23

Item 3.	Defaults Upon Senior Securities	23

Item 6.	Exhibits	23

Signatures		24

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CYBRA CORPORATION

BALANCE SHEETS

		June 30,			December 31,
		2011			2010
		unaudited
ASSETS

CURRENT ASSETS
Cash	$	37,591		$	24,335
Accounts receivable, less allowance for doubtful accounts of $6,000		295,438			221,590

Total Current Assets		333,029			245,925

PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $ 286,238 and $281,017		59,324			51,246
SOFTWARE DEVELOPMENT, at cost, less accumulated amortization of $674,901 and $576,032		3,799			102,668
SECURITY DEPOSITS AND OTHER ASSETS		11,654			11,654

TOTAL ASSETS	$	407,806		$	411,493

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
8% Convertible Debentures	$	1,420,000		$	1,420,000
Accrued interest		369,579			313,246
Accounts payable and accrued expenses		374,965			329,283
Deferred officer/director compensation		116,827			131,827
Loans from shareholders in contemplation of private placement of common stock		47,500			47,500
Note payable under financial institution line of credit		40,000			-
Deferred revenue		424,545			414,737
TOTAL CURRENT LIABILITIES		2,793,416			2,656,593

STOCKHOLDERS' DEFICIT
Preferred Stock, Series A 10% Convertible Preferred Stock, par value $0.001 per share, 10,000,000 shares authorized; 2,090,000 shares issued and outstanding (liquidation preference $1,045,000)		2,090			2,090
Common stock, par value $0.001 per share, 100,000,000 shares authorized; 15,519,667 shares issued and outstanding		15,519			15,519

Additional Paid - in capital		6,754,024			6,754,024

Accumulated deficit		(9,157,243	)		(9,016,733	)

Total Stockholders' Deficit		(2,385,610	)		(2,245,100	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	407,806		$	411,493

The accompanying notes are an integral part of these financial statements

CYBRA CORPORATION

STATEMENTS OF OPERATIONS

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2011			2010			2011			2010

REVENUES
Products	$	222,525		$	246,675		$	553,148		$	450,244
Services		257,195			240,903			465,415			410,134
TOTAL REVENUES		479,720			487,578			1,018,563			860,378


Cost of Goods Sold		95,947			12,517			225,778			64,313
Consulting		19,234			7,500			46,858			21,119
		115,181			20,017			272,636			85,432

GROSS PROFIT		364,539			467,561			745,927			774,946

Research and Development		55,543			59,295			117,086			105,730
Selling, General and Administrative		350,358			380,414			712,701			721,779
TOTAL OPERATING EXPENSES		405,901			439,709			829,787			827,509

(LOSS) INCOME FROM OPERATIONS		(41,362	)		27,852			(83,860	)		(52,563	)

OTHER INCOME (EXPENSE)
Reversal (Loss) on debenture valuation adjustment		-			66,247			-			61,316
Reversal on liquidated damages		-			63,835			-			63,835
Loss on debt restructuring		-			(695,094	)		-			(695,094	)
Beneficial conversion cost in connection with issuance of common stock in exchange for interest payable		-			(44,190	)		-			(44,190	)
Interest expense, includes amortization		(28,481	)		(52,792	)		(56,659	)		(105,378	)
Interest income		4			14			9			20
		(28,477	)		(661,980	)		(56,650	)		(719,491	)

NET LOSS	$	(69,839	)	$	(634,128	)	$	(140,510	)	$	(772,054	)

PER SHARE DATA
Basic and diluted net loss per share	$	(0.00	)	$	(0.05	)	$	(0.01	)	$	(0.06	)

Basic and diluted weighted-average shares outstanding		15,519,668			13,847,596			15,519,668			13,807,353

The accompanying notes are an integral part of these financial statements

CYBRA CORPORATION

STATEMENTS OF CASH FLOWS

		Six Months Ended
		June 30,
		2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(140,510	)	$	(772,054	)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and Amortization		104,088			123,374

Loss on debt restructuring		-			695,094
Beneficial conversion cost in connection with issuance of common stock in exchange for interest payable.		-			44,190
Debenture valuation adjustment		-			(113,305	)
Changes in operating assets and liabilities
Decrease in accrued liquidated damages		-			(63,835	)
(Increase) in accounts receivable		(73,848	)		(27,696	)
Increase (Decrease) in accounts payable and accrued expenses		30,682			(21,054	)
Increase in accrued interest		56,333			157,327
Increase in note payable under financial institution line of credit		40,000			-
Increase in Deferred revenue		9,808			34,782
Net Cash Provided by (Used in) Operating Activities		26,553			56,823

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(13,297	)		(16,357	)
Net Cash Used in Investing Activities		(13,297	)		(16,357	)

CASH FLOWS FROM FINANCING ACTIVITIES
Loans from shareholders in contemplation of private placement of common stock		-			47,500
Net Cash Provided by Financing Activities		-			47,500

INCREASE IN CASH AND CASH EQUIVALENTS		13,256			87,966

CASH AND CASH EQUIVALENTS
Beginning of period		24,335			58,039
End of period	$	37,591		$	146,005

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income Taxes	$	797		$	714
Interest	$	-		$	-

NON-CASH FINANCING ACTIVITIES
Issuance of 490,999 shares of common stock in settlement of accrued interest payable to holders of 8% convertible debentures		-		$	245,499

The accompanying notes are an integral part of these financial statements

CYBRA CORPORATION

NOTES TO FINANCIAL STATEMENTS
June 30, 2011

1. ORGANIZATION, DESCRIPTION OF OPERATIONS, FINANCIAL STATUS OF THE COMPANY AND BASIS OF PRESENTATION

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 Automatic Identification technology solutions. The Company’s flagship product, MarkMagic^TM, 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.

Financial Status of the Company/Going Concern

At June 30, 2011, the Company had cash of $37,591 and a working capital deficit of $2,460,387. Additionally, the Company incurred a net loss of $140,510 for the six months ended June 30, 2011, which includes non-cash charges of $160,747, and had a stockholders’ deficit of $2,385,610 at June 30, 2011. 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 next quarter. 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 amended 8% Convertible Debentures with a principal balance of $1,420,000 became due on April 11, 2011 and the Company is in default on this obligation. Management has continued negotiations with the holders of these debentures. The effects of unsuccessful negotiations or the impact on the Company’s financial position and results of operations have not been determined.

These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is hopeful that they will succeed in settling with the debenture holders in a manner that will provide the Company with sufficient time to repay the debt and not have the risk of further default. No assurances can be given that management will be successful in its negotiations with the debenture holders or that the efforts to improve the sales of EdgeMagic will result in improvements significant enough to provide sufficient cash flows and operating capital. No adjustments have been made to the accompanying financial statements to reflect the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities should the Company be unable to continue in existence.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Software Costs

The Company accounts for software development costs in accordance with 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. 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, 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.

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 six months ended June 30, 2011 and 2010 was $117,086 and $105,730, 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). In connection with the Debenture Amendment and Exchange Agreements (as discussed in Note 3, 8% Convertible Debentures and Derivative Financial Instruments), the registration rights and penalties under the original Securities Purchase Agreements were waived.

Derivative Financial Instruments

The Company accounts for its Warrants, which were Class B Warrants issued in a private placement of the 8% Convertible Debentures (the “Debentures”) with detachable Class A Warrants and Class B Warrants on April 10, 2006, and amended on June 8, 2010 to extend their maturity to April 10, 2013, and reduce the exercise prices to amounts between $1.00 and $1.30 from $1.75 (see Note 3, 8% Convertible Debentures and Derivative Financial Instruments), 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 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 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, Property and Equipment.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with 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 six months ended June 30, 2011 and 2010, 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 $3,098 and $5,034 for the six months ended June 30, 2011 and 2010, 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. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of commercial accounts receivable and temporary cash investments, which could, from time-to-time, exceed the federal deposit insurance coverage. The Company has cash investment policies that restrict placement of these investments to financial institutions evaluated as highly creditworthy. As of June 30, 2011, the Company does not hold cash and cash equivalents with individual banks in excess of federally insured limits.

Concentrations of credit risk that arise from financial instruments exist for groups of customers when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Company operates in one segment, software development and systems integration of bar code and RFID to manufacturers and wholesale distributors in the United States of America. Management believes that the customer base is sufficiently diverse and therefore does not consider the aggregate of customer accounts receivable to be a concentration of credit risk.

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 its 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 collectability 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.

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. Uncollectible receivables are charged off against the allowance for doubtful accounts as management determines that they are clearly uncollectible after taking all reasonable steps to collect the balances.

Trade receivables are presented net of an allowance for doubtful accounts of $6,000 as of June 30, 2011 and December 31, 2010.

Substantially all of the Company’s accounts receivable are due from manufacturing companies and software vendors located throughout the United States.

Stock-Based Compensation

In addition to requiring supplemental disclosures, ASC 718, Compensation – Stock Compensation, and ASC 505-50, Equity-Based Payments to Non-Employees, address 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. 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, as amended (“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 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 fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, Fair Value Measurements and Disclosures, approximates the carrying amounts represented in the balance sheet.

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 ASC 450, Contingencies. In connection with the Debenture Amendment and Exchange Agreements (as discussed in Note 3, 8% Convertible Debentures and Derivative Financial Instruments), the registration rights and penalties under the original Securities Purchase Agreements were waived.

Basic and Diluted Loss per Share

In accordance with 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 June 30, 2011 and 2010, 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

The Company does not believe that the adoption of any recently issued, but not yet effective, accounting standards will have a material effect 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

Original financing:

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. Interest on the Debentures was due semiannually at 8% per annum beginning December 31, 2006. Interest was also due upon conversion, redemption and maturity. The total interest paid in cash to two Debenture holders prior to April 10, 2009 was $16,982. Another Debenture holder converted its accrued interest to shares of common stock in 2009. The original Debentures matured on April 10, 2009, but were not paid on that date. As a result, the Debentures were in default; however, the Company has renegotiated the terms of the Debentures, as described below.

The investors also received 7,500,000 Warrants, 2,500,000 of Class A Warrants and 5,000,000 of Class B Warrants as part of the original sale of the Debentures. Each Class A Warrant gave the holder the right to buy one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), for $0.75. Class A Warrants to purchase 2,123,800 shares of Common Stock remained outstanding and were exercisable at any time through April 10, 2011. The Class A Warrants are no longer exercisable. The Class B Warrants were replaced with new Class B Warrants as described below.

Renegotiation and exchange of Debentures:

The Company had renegotiated the terms of the Debentures, either by extending the maturity date of the Debentures or by exchanging the Debentures for a new series of preferred stock.

On June 8, 2010, the Company entered into Debenture Amendment and Exchange Agreements with two holders of its Debentures having an aggregate principal amount of $640,000 (the “Option A Holders”), and ten holders of its Debentures having an aggregate principal amount of $805,000 (the “Option B Holders”). Pursuant to the Debenture Amendment and Exchange Agreements, the Option A Holders and the Option B Holders exchanged their Debentures for an amended and restated Debenture due April 10, 2011.

In addition, the Option A Holders and the Option B Holders received an aggregate of 499,099 shares of common stock in lieu of approximately $246,000 of accrued interest through April 10, 2009. The Company also issued (a) new Class B Warrants to the Option A Holders to purchase an aggregate of 1,560,000 shares of the Company’s Common Stock at an exercise price of $1.15 per share, in exchange for their outstanding Class B Warrants, and (b) new Class B Warrants to the Option B Holders to purchase an aggregate of 1,803,200 shares of the Company’s Common Stock at an exercise price of $1.30 per share, in exchange for their outstanding Class B Warrants.

On the same date, the Company entered into Securities Exchange Agreements with 16 holders of its Debentures having an aggregate principal amount of $1,045,000 (the “Option C Holders”) to exchange their Debentures for 2,090,000 shares of Series A 10% Convertible Preferred Stock (the “Series A Preferred Stock”). The Securities Exchange Agreements were signed on June 8, 2010, but the transactions contemplated by those agreements were subject to (i) approval by the Company’s shareholders of an amendment to the Company’s Certificate of Incorporation to authorize it to issue up to 10 million shares of preferred stock in one or more series or classes having such designations, relative rights, preferences, and limitations as may be designated by the Company’s Board of Directors (the “Amendment”), and (ii) subsequent authorization of the Series A Preferred Stock by the Company’s Board of Directors.

On August 3, 2010 the Company held a special meeting of shareholders in which its shareholders approved the Amendment. On the same day, the Company filed a Certificate of Designation setting forth the terms of the Series A Preferred Stock with the New York Secretary of State. The Company subsequently issued to the Option C Holders (a) 2,090,000 shares of Series A Preferred Stock in exchange for the Debentures, and (b) 487,704 shares of its Common Stock in payment of accrued and unpaid interest due under the Debentures through April 10, 2009. The Common Stock was issued at $0.50 per share compared to the fair market value on June 8, 2010 of $0.59 per share. As a result, the conversion generated a beneficial conversion cost. The Option C Holders also received new Class B Warrants to purchase an aggregate of 2,466,200 shares of the Company’s Common Stock at an exercise price of $1.00 per share, in exchange for their outstanding Class B Warrants. The new Class B Warrants vest immediately and expire on April 10, 2013.

The Debenture balances were $1,420,000 at June 30, 2011 and December 31, 2010.

Other transactions related to the amendments:

In July 2010, two holders of the Company’s 8% Convertible Debentures due April 10, 2011 (the “Amended Debentures”) converted an aggregate of $15,000 of the principal amount of Amended Debentures into 30,000 shares of Common Stock. Outstanding interest on the converted principal was paid in cash. The Company subsequently provided notice (the “Notice”) to all holders of the Amended Debentures specifying that, unless notified otherwise by the Company, the Company will pay interest due upon the conversion, redemption and maturity of the Amended Debentures with shares of its Common Stock. The Notice also clarified that the aforesaid election includes the accrued and unpaid interest due under the Amended Debentures on June 30, 2009, December 31, 2009, and June 30, 2010.

In October 2010, one holder converted $10,000 of the principal amount of Amended Debentures into 20,000 shares of Common Stock. Outstanding interest on the converted principal was paid in 2,442 shares of common stock.

At June 30, 2011, there were Warrants to purchase 5,453,200 shares of Common Stock outstanding in connection with the sale and amendments of the Debentures.

The new Class B Warrants issued to the Option A Holders and the Option B Holders were determined to have a value of $1,956,000, as compared to the outstanding Class B Warrants, which were valued at $1,261,000. The new Class B Warrants issued to the Option C Holders were determined to have a value of $1,436,000, as compared to the outstanding Class B Warrants, which were valued at $906,000. As a result, the Company incurred a debt extinguishment charge in accordance with ASC 470-50, Debt Modification and Extinguishments, and recorded a loss of $1,225,748.

As part of the original sale of the Debentures, $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 original Debentures and those that underlie the Warrants were subject to a registration rights agreement. The registration rights agreement provided for liquidated damages if certain requirements were met, which they were not. In connection with the Debenture Exchange and Amendment Agreements, the Debenture holders waived their right to receive liquidated damages and interest thereon due under the registration rights agreement.

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. In accordance with the Company’s adoption of ASC 815-40, Contracts in Entity’s Own Stock, and ASC 825-20, Accounting for Registration Payment Arrangements, the classification of the warrant liability was changed to stockholders’ equity (additional paid in capital) as of January 1, 2007. The amended warrants do not carry a registration rights agreement.

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 increases, all of which should tend to reduce the volatility of the value of the Company’s common shares.

Effects of the default prior to the amendment:

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 becomes, 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”, as more fully explained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on April 15, 2010.

During the six months ended June 30, 2010, the Company recorded charges related to the Mandatory Prepayment Amount. These charges were reversed during the quarter ended June 30, 2010 and September 30, 2010 as the relevant Debentures were modified or exchanged for Series A Preferred Stock.

Payment Default on Amended and Restated 8% Convertible Debentures:
On April 10, 2011, the Company did not pay outstanding Amended and Restated 8% Convertible Debentures (the “Debentures”), in the aggregate principal amount of $1,420,000, which became due on that date. These Debentures were issued on June 8, 2010, pursuant to a Debenture Amendment and Exchange Agreement, also dated June 8, 2010 (the “Exchange 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 commenced settlement negotiations with several of the debenture holders. There can be no assurances that an agreement acceptable to the Company will be reached.

4. STOCK BASED COMPENSATION

During the six months ended June 30, 2011 and 2010, the Company issued no shares of common stock in lieu of cash compensation.

The Company has adopted the CYBRA Corporation 2006 Incentive Stock Plan, a stock-based compensation plan to reward services rendered by officers, directors, employees and consultants. The Company has reserved 5,000,000 shares of Common Stock 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.

Total stock options outstanding at June 30, 2011 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, 2010		100,000
Granted		0
Exercised		0
Outstanding at December 31, 2010		100,000

Options exercisable at December 31, 2010		100,000

Options outstanding at January 1, 2011		100,000
Granted		0
Exercised		0
Outstanding at June 30, 2011		100,000
Options exercisable at June 30, 2011		100,000

The 100,000 options outstanding at June 30, 2011 were issued in December 2007, have a remaining outstanding life of six months and have an exercise price of $0.75 per share.

5. PROPERTY AND EQUIPMENT

At June 30, 2011 and December 31, 2010, property and equipment consisted of the following:

					Estimate
		June 30, 2011		December 31, 2010	Useful Life
					In Years
Furniture and office equipment	$	212,086	$	198,787	5
Computer software		112,182		112,182	3
Leasehold Improvements		21,294		21,294	Life of Lease
	$	345,562	$	332,263

Less: Accumulated Depreciation	$	286,238	$	281,017

Net Property and Equipment	$	59,324	$	51,246

Depreciation and amortization of property and equipment amounted to $5,221 and $10,507 for the six months ended June 30, 2011 and 2010, respectively.

Software Development Costs	$	678,700	$	678,700	3

Less: Accumulated Amortization		674,901		576,032

Net Software Development Costs	$	3,799	$	102,668

The Company’s policy is to capitalize software development costs in accordance with ASC 985-730 (See Note 2, Summary of Significant Accounting Policies). Amortization of Software Development Costs amounted to $98,867 and $113,054 for the six months ended June 30, 2011 and 2010, respectively, and is included within Selling, General and Administrative Expenses.

6. INCOME TAXES

The Company has the following deferred tax assets and liabilities at June 30, 2011 and 2010:

		June 30, 2011			December 31, 2010

Current assets and liabilities:
Accounts receivable	$	(120,000	)	$	(92,000	)
Accounts payable and accrued expenses		48,000			57,000
Deferred Revenues		172,000			168,000
		100,000			133,000
Valuation Allowance		(100,000	)		(133,000	)
Net current deferred tax asset		-			-

Noncurrent assets and liabilities
Net operating loss carryforwards	$	2,516,000		$	2,487,000
Depreciation		-			(18,000	)
		2,516,000			2,469,000
Valuation allowance		(2,516,000	)		(2,469,000	)
Net deferred tax asset		-			-

The valuation allowance for the deferred tax asset increased by $14,000 for the six months ended June 30, 2011.

The Company has net operating losses amounting to approximately $6,140,000 that expire in various periods from 2024 through 2030. 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.

The Company has no uncertain income tax positions.

The tax years ended December 31, 2007 through 2010 are open for examination by federal and state taxing authorities.

7. PREFERRED STOCK

The Company is authorized to issue up to 10,000,000 shares of preferred stock in one or more series or classes having such designations, relative rights, preferences, and limitations as may be designated by the Board of Directors. There are 2,090,000 shares of Series A 10% Convertible Preferred shares currently outstanding which are convertible into 2,090,000 shares of common stock, all issued in connection with the renegotiation and exchange of Debentures as described in Note 3.

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:

2011	$	81,628
2012		77,640
2013		44,187

	$	203,455

Rent expense amounted to $49,710 and $30,172 for the six months ended June 30, 2011 and 2010, respectively. This includes additional expense for storage.

b. Note Payable under Financial Institution Line of Credit
The Company has a $115,000 credit line available through its bank. The Company borrowed $128,000 and repaid $88,000 in the six months ended June 30, 2011. There is a balance due of $40,000 at June 30, 2011. The repayment period is 36 months. The interest rate varies at the bank’s prime rate and was 3.25% at June 30, 2011. There is an annual fee of $1,150. Borrowings under the line of credit are personally guaranteed by Harold Brand, Chairman and Chief Executive Officer and majority shareholder of the Company.

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 Chief Executive Officer 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.

On February 15, 2011, Raz-Lee instituted proceedings in the Supreme Court of the State of New York, County of Westchester, Index No. 4763/11, for enforcement of the foreign judgment. In May 2011, the Company entered into a settlement agreement with Raz-Lee. The unpaid balance is included in Accrued Expenses as of June 30, 2011 and payment of the remaining balance was made in July 2011.

d. 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.

e. Loans from shareholders
During the six months ended June 30, 2010, the Company received $35,000 from its Chief Executive Officer and $12,500 from another stockholder (totaling $47,500) as advance payment toward the planned issuance of common stock and other securities in a planned private placement. The Company is currently legally obligated to return the funds received on demand of the investors if the contemplated private placement is not completed. The balances due bear no interest.

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 three-month or six-month period ended June 30, 2011 or 2010.

10. RELATED PARTY TRANSACTIONS

a. Executive Employment Contract
Effective April 30, 2006, the Company entered into a five-year Employment Agreement with Mr. Brand, with a base salary set at $180,000 per annum. In addition to this salary, Mr. Brand is entitled to incentive compensation in 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). Mr. Brand is also 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. Unpaid incentive compensation is included in accrued expenses on the balance sheet.

Starting in 2008, the executive officers of the Company deferred part of their salaries and commissions. The balance of deferred compensation was $116,827 as of June 30, 2011 and $131,827 as of December 31, 2010.

b. Profit Horizon, Inc.
Profit Horizon, Inc., a company controlled by Robert J. Roskow, Executive Vice President and a Director of the Company, provides sales consulting services. During the six months ended June 30, 2011 and 2010, the Company incurred $7,500 in both periods in commissions to Profit Horizon, Inc.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consisted of the following:

				December
		June 30,		31,
		2011		2010
8% Convertible Debentures	$	1,420,000	$	1,420,000

12. LOSS PER SHARE

Loss per share for the six months ended June 30, 2011 and 2010 does not include the effects of 8,900,404 Warrants, 2,090,000 shares of Series A 10% Convertible Preferred Stock, options to acquire 100,000 shares of common stock held by employees, directors and consultants, or the 2,860,000 shares into which the 8% Convertible Debentures are convertible because the effects would be anti-dilutive.

13. SUBSEQUENT EVENTS

The Company evaluated events occurring between the end of the first quarter June 30, 2011, and August 15, 2011 when the financial statements were issued. There are no subsequent events to report.

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, MarkMagic^TM, is a bar code, 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.

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.

Comparison of the three months ended June 30, 2011 and 2010

The following table summarizes certain aspects of our results of operations years ended June 30, 2011 and 2010

		Three months ended										Six months ended
		June 30,										June 30,
		2011			2010			Change $		Change %		2011			2010			Change $		Change %
Revenues
Products	$	222,525		$	246,675		$	(24,150	)	-10%	$	553,148		$	450,244		$	102,904		23%
Services		257,195			240,903			16,292		7%		465,415			410,134			55,281		13%
Total Revenues		479,720			487,578			(7,858	)	-2%		1,018,563			860,378			158,185		18%

Direct Costs
Equipment Purchases	$	95,947		$	12,517		$	83,430		667%	$	225,778		$	64,313		$	161,465		251%
Royalties & Consulting		19,234			7,500			11,734		156%		46,858			21,119			25,739		122%

Total Direct Costs	$	115,181		$	20,017		$	95,164		475%	$	272,636		$	85,432		$	187,204		219%
% of total revenues		24%			4%							27%			10%

Gross margin	$	364,539		$	467,561		$	(103,022	)	-22%	$	745,927		$	774,946		$	(29,019	)	-4%
% of total revenues		76%			96%							73%			90%

Research and development costs	$	55,543		$	59,295		$	(3,752	)	-6%	$	117,086		$	105,730		$	11,356		11%
% of total revenues		12%			12%							11%			12%

Sales and marketing expenses	$	55,828		$	66,964		$	(11,136	)	-17%	$	95,247		$	90,107		$	5,140		6%
% of total revenues		12%			14%							9%			10%

General and administrative expenses	$	294,530		$	313,450		$	(18,920	)	-6%	$	617,454		$	631,672		$	(14,218	)	-2%
% of total revenues		61%			64%							61%			73%

Interest expense	$	28,481		$	52,792		$	(24,311	)	-46%	$	56,659		$	105,378		$	(48,719	)	-46%
% of total revenues		6%			11%							6%			12%

Other Income (Expenses)	$	4		$	(609,188	)	$	609,192		-100%	$	9		$	(614,113	)	$	614,122		-100%
% of total revenues		0%			-125%							0%			-71%

Loss Before Taxes	$	(69,839	)	$	(634,128	)	$	564,289		-89%	$	(140,510	)	$	(772,054	)	$	631,544		-82%
% of total revenues		-15%			-130%							-14%			-90%

Revenues

Revenues were $479,720 and $487,578 for the three months ended June 30, 2011 and 2010, and $1,018,563 and $860,378 for the six months ended June 30, 2011 and 2010. This is a decrease of approximately 2% for the three-month period and an increase of 18% for the six-month period ended June 30, 2011 compared to the prior periods. Lower sales for our MarkMagic product during the three-month period were mostly offset by an increase in EdgeMagic and associated sales. MarkMagic sales decreased due to a slowdown in revenue contribution from our channel partners as they prepare to introduce new MarkMagic versions in the second half of the year. Sales for our most recent RFID product, EdgeMagic, increased during the 2011 six-month period as compared with the same 2010 period, mirroring the general trend of increased market acceptance of RFID technology, particularly in the apparel sector. Demand for services showed an increase as well. We expect these trends to continue contributing to positive growth in revenues over the course of the year.

Direct Costs

The costs for equipment that was resold to customers increased by 667% for the three months ended June 30, 2011 as compared to the June 30, 2010 three-month period. There was an increase of 251% for the six-months ended June 30, 2011 compared to the 2010 six-month period. As EdgeMagic sales tend to be more of an “end-to- end” solution than MarkMagic sales, the increase in EdgeMagic sales resulted in an increase in sales of hardware and supplies.

Gross Margin

Gross Margin as a percentage of sales for the three months ended June 30, 2011 as compared to the same period in 2010 decreased 22%. Gross Margin as a percentage of sales for the six months ended June 30, 2011 as compared to the same period in 2010 decreased 4%. This was due to an increase in relatively lower margin hardware sales, which reflect EdgeMagic projects that are more “end-to-end” in nature than MarkMagic sales.

Research and Development Costs

Research and development costs decreased 6% for the three months ended June 30, 2011 as compared to the same period in 2010. The costs increased 11% for the six months ended June 30, 2011 as compared to the same period in 2010. These 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 ACS 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, 2010, and all costs after that date have been expensed in accordance with ACS 985-20-25. During the three months ended June 30, 2011 and 2010, the software development costs that were expensed were $55,543 and $59,295, respectively. For the six months ended June 30, 2011 and June 30, 2010 the software development costs that were expensed were $117,086 and $105,730, respectively. Software development costs increased slightly in 2011 due to enhancements to our MarkMagic and EdgeMagic products.

Sales and Marketing Expenses

Sales and marketing expenses consisted primarily of commissions, trade shows, advertising and promotional expenses. There was a 17% decrease in absolute dollars for the three months ended June 30, 2011 as compared to the same period in 2010. This is due to lower sales commissions. There was a 6% increase for the six months ended June 30, 2011 compared to the same period in 2010. This is due to higher trade show participation.

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 slightly for the three months and six months ended June 30, 2011 as compared to the same period in 2010.

Interest Expense

Interest expense for the three months ended June 30, 2011 as compared to the same period in 2010 decreased by 46% from $52,792 for the three months ended June 30, 2010 to $28,481 for the three months ended June 30, 2011. Interest expense for the six months ended June 30, 2011 as compared to the same period in 2010 decreased by 46% also from $105,378 for the six months ended June 30, 2010 to $56,659 for the six months ended June 30, 2011. Interest expense in 2010 represented interest accrued on, and amortization of deferred financing cost related to, the 8% Convertible Debentures originally due April 10, 2009 (the “Debentures’). Amortization of these deferred finance costs ceased in April 2009 and standard interest continued to accrue on them. On June 8, 2010, holders of our Debentures having an aggregate principal amount of $1,445,000 converted outstanding interest due through April 2010 into shares of common stock. On the same date, 16 holders of Debentures having an aggregate principal amount of $1,045,000 agreed to exchange their Debentures for a new class of preferred stock of the Company having terms similar to those in the Debentures. This reduction in principal on which interest was calculated resulted in decreased interest expense for the three and six months ended June 30, 2011.

Other Income (Expenses)

Other income and expenses decreased for the three and six months ended June 30, 2011 due to a loss from debt restructuring recorded on the 8% debenture default recorded in the three and six months ended June 30, 2010.

Provision for Income Taxes

The provision for income taxes consists of provisions for state franchise taxes.

We recorded no income tax expense or benefit for the three and six months ended June 30, 2011 and 2010. 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.

Liquidity and Capital Resources

The following table summarizes our cash and cash equivalents, working capital, long-term debt and cash flows for the six months ended June 30, 2011 and 2010.

	Six months ended
	June 30,
	2011		2010		Change $		Change %

Cash and cash equivalents	37,591		146,005		(108,414	)	-288%
Working capital deficit	(2,465,535	)	(3,692,102	)	1,226,567		-50%
Net cash used in operating activities	21,325		56,823		(35,498	)	-166%
Net cash used in investing activities	(8,069	)	(16,357	)	8,288		-103%
Net cash provided by financing activities	-		47,500		(47,500	)	-100%

As of June 30, 2011, our principal source of liquidity was cash of approximately $37,000. Our operations provided $21,325 in cash during the six months ended June 30, 2011 as compared to $56,823 for the same period in 2010.

To sustain operations under our current structure, we need cash of approximately $120,000 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.

Our working capital deficit was approximately $2,464,000 at June 30, 2011. The deficit in working capital included approximately $1,420,000 in liabilities related to the Debentures. It also included $424,000 in deferred revenues that require settlement in future services rather than cash.

During the six months ended June 30, 2011 and 2010, the Company issued no shares of common stock.

As of the second quarter of 2011, we generated positive cash flow of approximately $20,000. 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 see a recent positive trend in customer interest in RFID in general and in our EdgeMagic product in particular. Wal-Mart’s implementation of RFID tracking throughout its stores for selected apparel goods is a positive sign. Apparel suppliers represent a large segment of our customer base. Wal-Mart is often a pioneer in new technology, with other retailers following suit. JC Penney and Dillard’s have already joined Wal-Mart in encouraging their suppliers - among them a number of CYBRA customers - to tag their apparel goods at the item level. We therefore expect increased interest in EdgeMagic to meet anticipated retailer compliance requirements over the course of 2011. Furthermore, the recent hiring of a Vice President Sales and Marketing with extensive industry experience and success, particularly in RFID, we believe will contribute significantly to revenue improvement in the second half of 2011.

Critical Accounting Policies

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the financial statements. Estimates are used for, but not limited to, the selection of the useful lives of property and equipment, provisions necessary for contingent liabilities, fair values, revenue recognition, taxes, budgeted costs and other similar charges. Management believes that the estimates utilized in preparing its financial statements are reasonable and prudent. Actual results could differ from these estimates.

Impact of Derivative Accounting

Property and equipment

Property and equipment are recorded at cost less accumulated depreciation and any impairment losses. The cost of an asset is comprised of its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to the profit and loss account in the year in which they are incurred.

In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performances, the expenditure is capitalized as an additional cost of the asset.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, less any estimated residual value. Estimated useful lives of our assets are as follows:

Office Equipment – 5 years

Software – 3 years

Any gain or loss on disposal or retirement of a fixed asset is recognized in the profit and loss account and is the difference between the net sales proceeds and the carrying amount of the relevant asset. When property and equipment are retired or otherwise disposed of, the assets and accumulated depreciation are removed from the accounts and the resulting profit or loss is reflected in income.

Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.

Long-lived assets

We apply the provisions of Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) No. 360, “Property, Plant and Equipment”. ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

The Company tests long-lived assets, including property, plant and equipment and other assets, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available in making the necessary estimates, judgments and projections. There was no impairment of long-lived assets since our acquisition of the assets from Peak.

Income taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

The Company records a valuation allowance for deferred tax assets, if any, based on its estimates of its future taxable income as well as its tax planning strategies when it is more likely than not that a portion or all of its deferred tax assets will not be realized. If the Company is able to utilize more of its deferred tax assets than the net amount previously recorded when unanticipated events occur, an adjustment to deferred tax assets would increase the Company’s net income when those events occur.

Non-Cash Expense Items

During the three months ended June 30, 2011, there were transactions and events resulting in non-cash expenses that affected our net income.

The following tables summarize the non-cash expense items, total amount and percentage of our net loss for the six months ended June 30, 2011 and 2010:

		Six Months Ended
		March 31,
		2011			2010
Cash and non cash items in net loss
Cash	$	20,237		$	70,831
Non cash		(160,747	)		(842,885	)
Net loss		(140,510	)		(772,054	)

Summary of non cash items
Debenture valuation adjustment		-			61,316
Reversal on debenture valuation adjustment		-			63,835
Reversal on liquidated damages		-			(695,094	)
Beneficial conversion costs		-			(44,190	)
Interest Expense		(56,659	)		(105,378	)
Depreciation		(104,088	)		(123,374	)
Total Non-Cash Items	$	(160,747	)	$	(842,885	)

Percentage of Net Loss		114%			109%

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. 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 we file or submit 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.

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.

The information relating to legal proceedings contained in Note 8(c) to the Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

The amended 8% Convertible Debentures with a principal balance of $1,420,000 became due on April 11, 2011 and, as of the date of this report, the Company is in payment default on this obligation. Management has commenced negotiations with the holders of these debentures. The effects of unsuccessful negotiations or the impact on the Company’s financial position and results of operations have not been determined.

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.

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: August 15, 2011

CYBRA CORPORATION

	By:	/s/ Harold Brand
		Name: Harold Brand
		Title: Chief Executive Officer and
		Interim Chief Financial Officer

CYBRA CORP 10-Q