Cyios Corporation Form 10-QSB 6-30-2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(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, 2006
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 No. 000-27243
CYIOS
CORPORATION, INC.
(Exact
name of Registrant as specified in its charter)
Nevada
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03-7392107
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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1300
PENNSYLVANIA AVE, SUITE 700 WASHINGTON DC
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20004
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(Address
of principal executive offices)
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(Zip/Postal
Code)
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(202)
204-3006
(Telephone
Number)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such 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 o
NO
Indicate
by check mark whether the registrant is a large accelerated filer, and
accelerated filer, or a non-accelerated filer.
x
Non-accelerated filer
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x
No
State
the
number of shares outstanding of each of the Issuer's classes of common equity,
as of the latest practicable date. There were 22,290,210.00 common stock shares,
par value $0.001, as of June 30, 2006.
Note
Regarding FORWARD-LOOKING STATEMENTS
In
addition to historical information, this Report contains forward-looking
statements. Such forward-looking statements are generally accompanied by words
such as "intends," "projects," "strategies," "believes," "anticipates," "plans,"
and similar terms that convey the uncertainty of future events or outcomes.
The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that might cause such
a
difference include, but are not limited to, those discussed in ITEM 2 of this
Report, the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF
OPERATION." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of
the
date hereof and are in all cases subject to the Company's ability to cure its
current liquidity problems. There is no assurance that the Company will be
able
to generate sufficient revenues from its current business activities to meet
day-to-day operation liabilities or to pursue the business objectives discussed
herein.
The
forward-looking statements contained in this Report also may be impacted by
future economic conditions. Any adverse effect on general economic conditions
and consumer confidence may adversely affect the business of the
Company. CYIOS
Corporation undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Factors that could cause actual results or conditions to differ from those
anticipated by these and other forward-looking statements include those more
fully described in the "Risk Factors" section of the Company's Registration
Statement filed with the Securities and Exchange Commission (the "SEC") on
April
12, 2006 on Form 10KSB. In addition, readers should carefully review the risk
factors described in other documents the Company files from time to time with
the Securities and Exchange Commission.
Part
I
FINANCIAL
INFORMATION
Item
1.
Financial Statements and Supplementary Information
In
the
opinion of management, the accompanying unaudited financial statements included
in this Form 10-QSB reflect all adjustments necessary for a fair presentation
of
the results of operations for the periods presented. The results of operations
for the periods presented are not necessarily indicative of the results to
be
expected for the full year.
Consolidated
Condensed Balance Sheet (Unaudited)
As
of June 30, 2006
ASSETS
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CURRENT
ASSETS
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Cash
and Cash Equivalents
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$
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44,060
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Other
Current Assets
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26,957
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Accounts
Receivable
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105,729
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Loan
to Shareholder
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16,213
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TOTAL
CURRENT ASSETS
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192,959
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PROPERTY
AND EQUIPMENT
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Property
and Equipment
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873,529
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Accumulated
Depreciation
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(873,529
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)
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Net
Property and Equipment
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-
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TOTAL
ASSETS
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$
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192,959
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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LIABILITIES
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Current
Liabilities:
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Accounts
Payable and Accrued Expenses (see NOTE: A)
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$
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387,412
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Taxes
Payable (see NOTE: A)
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60,449
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Interest
Payable
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18,640
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Notes
Payable
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76,859
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Bank
Loan
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96,967
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TOTAL
LIABILITIES
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640,327
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STOCKHOLDERS'
EQUITY
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Convertible
Preferred Stock ($.001 par value, 5,000,000 authorized: 911,553
issued and outstanding)
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911
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Common
Stock ($.001 par value, 100,000,000 shares authorized: 22,290,210
shares
issued and outstanding)
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22,290
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Additional
Paid-in-Capital
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23,480,935
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Retained
Deficit
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(23,951,504
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)
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TOTAL
STOCKHOLDERS' EQUITY
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(447,368
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)
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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192,959
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CYIOS
Corporation, Inc. and Subsidiaries
Consolidated
Statement of Operations (Unaudited)
For
the period ended June 30, 2006
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Three
Months Ended June 30,
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Six
Months Ended June 30,
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2006
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2005
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2006
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2005
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SALES
AND COST OF SALES:
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Sales
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$
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375,995
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$
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95,228
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$
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792,327
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$
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147,603
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Cost
of sales (NOTE B)
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112,494
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25,963
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207,800
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37,295
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Gross
Profit
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263,501
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69,265
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584,527
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110,308
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EXPENSES:
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Selling,
general and administrative
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391,522
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63,951
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725,309
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144,361
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Bad
Debt
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-
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-
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525,000
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-
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Interest
Expense
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3,547
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5,800
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8,991
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5,800
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395,069
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69,751
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1,259,300
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150,161
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NET
LOSS
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$
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(131,568
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)
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$
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(486
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)
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$
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(674,773
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)
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$
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(39,853
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)
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Basic
and diluted income (loss) per share
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$
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<(0.01
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)
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$
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<(0.01
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)
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$
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<(0.01
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)
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$
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<(0.01
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)
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Weighted
Average Shares Outstanding
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21,683,851
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32,539,523
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21,799,792
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31,408,042
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CYIOS
Corporation and Subsidiaries
Statements
of Cash Flows (Unaudited)
For
the period ended June 30, 2006
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2006
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2005
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
loss
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$
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(674,773
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)
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$
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(39,853
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)
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Adjustments
to reconcile net loss to net cash (used in) operating
activities:
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Depreiation
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48,904
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5,705
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Other
Assets
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2,120
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(88,173
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)
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Notes
Payable
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(109,540
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)
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-
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Tax
Liabilities
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(141,417
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)
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-
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Accounts
receivable
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522,739
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(33,973
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)
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Loan
to Shareholder
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(16,213
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)
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-
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Accounts
payable and accrued expenses
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(3,004
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)
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35,163
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NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
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(371,184
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)
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(121,232
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)
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Proceeds
from sales of stock and warrants
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308,128
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-
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Exercise
Stock Options
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-
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100,000
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Bank
Loan
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57,259
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(2,644
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)
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NET
CASH PROVIDED BY FINANCING ACTIVITIES
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365,387
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97,356
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NET
INCREASE IN CASH AND
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CASH
EQUIVALENTS
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(5,797
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)
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(23,876
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)
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CASH
AND CASH EQUIVALENTS:
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Beginning
of period
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49,857
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-
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End
of period
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$
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44,060
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$
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-
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CYIOS
CORPORATION. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
June
30,
2006
(Unaudited)
NOTE
1 -
ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AND BUSINESS
The
consolidated financial statements of CYIOS Corporation, includes its subsidiary
by the same name CYIOS Corporation, in addition to CKO, Inc. and WorldTeq
Corporation. The Company, through its subsidiary CYIOS Corporation does business
as a leading systems integrator and Knowledge Management Solutions provider
supporting the United States Army. The company contracts its services for single
and multiple year awards to different US Army and US Government agencies. CKO
Incorporated owns a custom designed online office management tool called
eXecutive Officer’s Office (www.xooffice.com).
USE
OF
ESTIMATES
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH
EQUIVALENTS
All
highly liquid investments purchased with an original maturity of three months
or
less are considered to be cash equivalents.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Financial
instruments, including cash, receivables and other current assets, are carried
at amounts that approximate fair value. Accounts payable, loans and notes
payable and other liabilities are carried at amounts that approximate fair
value.
PROPERTY
AND EQUIPMENT
The
Company provides for depreciation of equipment using accelerated and
straight-line methods based on estimated useful lives of five years.
CONTRACTS
CYIOS
Corporation has contracts extending out until 2010. All contracts are with
the
DoD and are in good standing. CYIOS Corporation certifies that it is not on
the
Debarred/Suspended Contractors List. This has been verified by checking
the GAO, Excluded Parties List system http://epls.arnet.gov
and
www.pogo.org
(Project
on Government Oversight). DoD and government contracts are the primary method
to
bring revenue into the company.
GOODWILL
Goodwill
is amortized over the lesser of the useful life of the related assets or ten
years.
LONG-LIVED
ASSETS
The
Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows estimated
to be generated by the asset.
REVENUE
RECOGNITION
The
Company recognizes revenue from government contracts and sales from our product
eXecutive Officer’s Office.
NET
LOSS
PER SHARE OF COMMON STOCK
Net
loss
per share of common stock is based on the weighted average number of shares
of
common stock outstanding. Common stock equivalents are not included in the
weighted average calculation since their effect would be anti-dilutive.
BASIS
OF
PRESENTATION
The
interim financial statements and summarized notes included herein were prepared
in accordance with accounting principals generally accepted in the United States
of America for interim financial information, pursuant to rules and regulations
of the Securities and Exchange Commission. Because certain information and
notes
normally included in complete financial statements prepared in accordance with
accounting principals generally accepted in the United States of America were
condensed or omitted pursuant to such rules and regulations, it is suggested
that these financial statements be read in conjunction with the Consolidated
Financial Statements and the Notes thereto, included in CYIOS Corporations
10KSB
filed April 12, 2006. These interim financial statements and notes hereto
reflect all adjustments that are, in the opinion of management, necessary for
a
fair statement of results for the interim periods presented. Such financial
results should not be construed as necessarily indicative of future results.
ITEM
2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The
following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the financial statements, related
notes, and other detailed information included elsewhere in this Form 10QSB.
Certain information contained below and elsewhere in this Form 10QSB, including
information regarding our plans and strategy for our business, are
forward-looking statements. See "Note Regarding Forward-Looking Statements."
OVERVIEW
CYIOS
Corporation operates three subsidiaries. The first two, CYIOS Corporation and
CKO Incorporated, are the two vehicles the company will be operating its
business in, going forward after its merger on September 19, 2005. Through
our
subsidiary CYIOS Corporation, we provide systems integration and knowledge
management solutions to the United States Army, Department of Defense (DoD),
and
other prospective U.S. Government agencies. As a leading defense contractor
we
offer service and products that reduce the time frame for achieving
mission-critical goals by delivering the right information, in the right
context, when employees need it. Our subsidiary
CKO Incorporated owns and has developed eXecutive Officer’s Office, an online
office management tool that has been modeled after AKO (Army Knowledge Online),
which CYIOS Corporation originally developed. Our niche and advantage is that
this model is being adopted by other DoD forces and the executive and judicial
branches are looking to use the model as well. We positioned our product
eXecutive Officer’s Office to work in conjunction with the AKO model so we can
expand and grow using our software and in turn get service contracts as
well.
RECENT
DEVELOPMENTS
DHS
has
recently announced that they will award contracts in August 2006 to small
businesses. The large businesses have been awarded. We have developed a bid
and
proposal team to continue to respond to DoD and Government RFPs. Currently,
our
goal has been two proposals a month and we have met this goal since 2QTR
2006.
FINANCIAL
CONDITION
We
currently have limited financial resources but the company is able to support
its 25+ member staff in addition to its investment in operations and products,
like the development of eXecutive Officer’s Office. Most of the cost incurred is
for the bids and proposals team. The bids and proposals team is necessary for
growth and is foreseen to not be a burden after an awarded contract or two
in
the near future.
NOTE:
A -
from Consolidated Condensed Balance Sheet
Subsidiary
company WorldTeq Corporation has the Liabilities in Accounts Payable of
$370,347.78 and Taxes Payable of $53,177.07. WorldTeq Corporation is a
subsidiary that was inherited as part of the merger in September 2005. This
debt
is static not recurring or growing.
RESULTS
OF OPERATIONS
Total
sales for the second quarter 2006 were $375,995 as compared to $95,228 for
the
quarter ended June 30, 2005. This sales increase is due to the merger that
took
place during the third quarter 2005.
Our
net
loss for the quarter ending June 30, 2006 was $131,568 or less then $.01 per
share, as compared to $486.00 for the same period in 2005. This loss is due
to
our investment in bid and proposal development and it is expected to decrease
in
the short term future if we continue to win our bids. Currently, we won a
contract and will start to recognize additional revenue.
Cost
of
sales for the second quarter of 2006 was $112,494 as compared to $25,963 for
the
same quarter in 2005. This increase was primarily attributable to additional
COGS in CYIOS Corporation’s business. In addition, eXecutive Officer’s Office is
an expense that has not recouped its costs and our profits from services are
maintaining the development and sales of the product. eXecutive Officer’s Office
is a show case of our performance and capabilities when working toward selling
services.
NOTE:
B -
from Consolidated Statement of Operations
Starting
July 1, 2006, Cost of sales has been reduced, as we’ve put some of our overhead
on billable contracts.
General
expenses for the second quarter of 2006 were $391,522 as compared to $63,951
for
the same quarter in 2005. Currently we are positioned to take new contracts
without any major increase in COGS mainly being additional overhead staff to
support contracts.
LIQUIDITY
AND CAPITAL RESOURCES
Net
cash
used in operating activities for the period ended June 30, 2006 and Year End
2005 was ($371,184) and ($121,232) respectively. This comparison is different
due to the merger 3QTR 2005.
The
Company at June 30, 2006 and Year End 2005 had total assets of approximately
$192,959 and $756,306 respectively. The reduction was due to a receivable of
$525,000 that was not collected.
Off-Balance
Sheet Arrangements
The
Company does not have any off-balance sheet arrangements with any
party.
Critical
Accounting Estimates
There
have been no material changes in our critical accounting policies or critical
accounting estimates since 2000 nor have we adopted an accounting policy that
has or will have a material impact on our consolidated financial statements.
"Summary
of Significant Accounting Policies" in this Quarterly Report on Form 10-QSB
and
the Notes to Consolidated Financial Statements in our Annual Report on Form
10-KSB for the fiscal year ended December 31, 2005
Item
3.
Quantitative and Qualitative Disclosures about Market Risk.
We
have
interest rate exposure relating to certain long-term obligations. The interest
rates on the Term Loans are NOT affected by changes in market interest rates.
We
do not believe we have significant risks due to changes in interest
rates.
Item
4.
Controls and Procedures.
DISCLOSURE
CONTROLS AND PROCEDURES. The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our Securities Exchange Act of 1934 reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer, as appropriate, to allow
timely decisions regarding required disclosure. As of the end of the period
covered by this report, June 30, 2006, we completed an evaluation, under the
supervision and with the participation of our management, consisting of our
Chief Executive Officer, of the effectiveness of the design and operation of
our
disclosure controls and procedures pursuant to Securities Exchange Act of 1934
Rules 13a-14(C) and 15d-14c). Based upon the foregoing, our Chief Executive
Officer concluded that our disclosure controls and procedures are effective
in
connection with the filing of the annual report on Form 10-KSB for the fiscal
year ended December 31, 2005.
CHANGES
IN INTERNAL CONTROLS. There were no significant changes in our internal controls
over financial reporting during the period ended June 30, 2006 that have
materially affected or are reasonably likely to materially affect, our internal
controls over financial reporting.
Part
II -
OTHER INFORMATION
Item
1.
Legal Proceedings.
Not
applicable
Item
1A.
Risk Factors.
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None
to
report
Item
3.
Defaults Upon Senior Securities.
Not
Applicable
Item
4.
Submission of Matters to a Vote of Security Holders.
Not
Applicable
Item
5.
Other Information.
Not
Applicable
Item
6.
Exhibits.
SIGNATURE
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CYIOS
Corporation.
|
|
|
|
|
|
|
|
/s/
Timothy Carnahan
|
|
|
|
Timothy
Carnahan
|
|
|
|
Chief
Executive Officer, President, Treasurer, and Chairman of the
Board
|
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
|
|
/s/
Timothy Carnahan
|
|
|
|
Timothy
Carnahan
|
|
|
|
Chief
Executive Officer, President, Treasurer, and Chairman of the
Board
|
|
Date:
August 10, 2006