form10-qsb.htm
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
March
31, 2007
OR
¨
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)
|
(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)
|
(Zip/Postal
Code)
|
(703)
294-9933
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(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 ¨ 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).
¨ 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 23,680,210.00 common stock shares,
par value $0.001, as of March 31, 2007.
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.
In addition, readers should carefully review the factors described in other
documents the Company files from time to time with the Securities and Exchange
Commission.
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1
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1
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3
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4
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6
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6
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9
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9
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10
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10
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11
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11
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11
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11
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11
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11
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11
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11
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12
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Exhibit
31.1 - Certifications
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13
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Exhibit
32.1- Certification Pursuant to 18 U.S.C. Section 1350
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14
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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.
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Consolidated
Condensed Balance Sheet (Unaudited)
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As
of March 31, 2007
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ASSETS
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|
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|
|
|
|
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CURRENT
ASSETS
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|
|
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Cash
and Cash Equivalents
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|
$ |
60,778
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Accounts
Receivable
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|
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39,441
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Other
Current Assets
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|
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5,850
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Loan
to Shareholder
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16,213
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TOTAL
CURRENT ASSETS
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122,282
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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 |
) |
Net
Property and Equipment
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-
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TOTAL
ASSETS
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$ |
122,282
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
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LIABILITIES
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Current
Liabilities:
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Line
of Credit
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$ |
100,979
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Shareholder
Loan Payable
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35,916
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Interest
Payable
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4,971
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Taxes
Payable (NOTE A)
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13,629
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Payroll
Taxes Payable (NOTE A)
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46,588
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Accounts
Payable (NOTE A)
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395,649
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TOTAL
LIABILITIES
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597,732
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STOCKHOLDERS'
DEFICIT
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|
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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: 27,101,741
shares
issued and outstanding)
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27,101
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Additional
Paid-in-Capital
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23,628,232
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Retained
Deficit
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(24,131,694 |
) |
TOTAL
STOCKHOLDERS' DEFICIT
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(475,450 |
) |
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
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$ |
122,282
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Consolidated
Statement of Operations (Unaudited)
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For
the three months ended March 31, 2007 and
2006
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2007
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2006
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SALES
AND COST OF SALES:
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Sales
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$ |
566,018
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$ |
416,332
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Cost
of sales
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125,301
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95,306
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Gross
Profit
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440,717
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321,026
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EXPENSES:
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Selling,
general and administrative
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381,638
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316,095
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Professional
Fees
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22,574
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19,442
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Bad
Debt
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-
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525,000
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Interest
Expense
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2,100
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5,444
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406,312
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865,981
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NET
INCOME/(LOSS)
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$ |
34,405
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$ |
(544,955 |
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Basic
and diluted income (loss) per share
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$ |
0.002
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$ |
(0.025 |
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Weighted
Average Shares Outstanding
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21,686,732
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21,567,910
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Consolidated
Statements of Cash Flows (Unaudited)
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For
the three months ended March 31, 2007 and
2006
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2007
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2006
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
income/(loss)
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$ |
34,405
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$ |
(544,955 |
) |
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
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Depreciation
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-
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41,849
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(Increase)/Decrease
in Accounts Receivable
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21,206
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526,303
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(Increase)/Decrease
in Other Assets
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14,063
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7,970
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Increase/(Decrease)
In Taxes Payable
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(191 |
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(138,284 |
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Increase/(Decrease)
in Accounts Payable
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(12,242 |
) |
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(9,294 |
) |
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
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57,241
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(116,411 |
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Proceeds
from sale of common stock/capital contributions
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8,236
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94,581
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Shareholder's
Loan Receivable
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(16,213 |
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-
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Increase/(Decrease)
in Shareholder Loan Payable
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(13,791 |
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(13,265 |
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Increase/(Decrease)
in borrowings on Notes Payable
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-
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(60,903 |
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Increase/(Decrease)
in borrowings on Line of Credit
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-
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65,342
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NET
CASH PROVIDED BY (USED IN)
INVESTMENT ACTIVITIES
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(21,768 |
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85,755
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NET
INCREASE IN CASH AND
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CASH
EQUIVALENTS
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35,473
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(30,656 |
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CASH
AND CASH EQUIVALENTS:
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Beginning
of Period
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25,305
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49,857
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End
of Period
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$ |
60,778
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$ |
19,201
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CYIOS
CORPORATION. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31,
2007
(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 CYIPRO
“C Your Integrated Projects”
(www.CYIPRO.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
CYIPRO.
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 17th, 2007 .
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."
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. The company,
through its services subsidiary, CYIOS Corporation, provides innovative Business
Transformation and Information Technology solutions to the United States Army,
Department of Defense (DoD), and other prospective U.S. Government agencies.
CYIOS supports its customers through a variety of current contract vehicles
including prime contracts, subcontracts, sole source, blanket purchase
agreements, and multiple award task orders extending as far out as 2010. CYIOS
has received many commendations for its outstanding customer service and support
in systems integration and application development, knowledge management and
business transformation, and program and project management. As a certified
Small Business, CYIOS provides its services within the following North American
Industry Classification System (NAICS) codes:
518112
|
WEB
SEARCH PORTALS
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518210
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DATA
PROCESSING, HOSTING AND RELATED SERVICES
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519100
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OTHER
INFORMATION SERVICES
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519190
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ALL
OTHER INFORMATION SERVICES
|
541510
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COMPUTER
SYSTEMS DESIGN AND RELATED SERVICES
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541511
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CUSTOM
COMPUTER PROGRAMMING SERVICES
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541512
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COMPUTER
SYSTEMS DESIGN SERVICES
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541513
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COMPUTER
FACILITIES MANAGEMENT SERVICES
|
541519
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OTHER
COMPUTER RELATED SERVICES
|
541611
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ADMIN.
MANAGEMENT AND GENERAL MGMT CONSULTING
SERVICES
|
541618
|
OTHER
MANAGEMENT CONSULTING SERVICES
|
541690
|
OTHER
SCIENTIFIC AND TECHNICAL CONSULTING
SERVICES
|
CKO
Incorporated is CYIOS’ product subsidiary, which offers CYIPRO, an
internally-developed online office management platform that has been modeled
after Army Knowledge Online (AKO). CYIOS built the prototype for AKO, which
now
servers over 1.8 million Army users worldwide. CYIPRO was developed
as an agency-level business transformation solution in response to Government
initiatives in teleworking led by OPM and GSA; the President’s Management Agenda
and its focus on retaining human capital; FISMA, HSPD-12 and PKI for secure
communications through common access cards; Lean Six Sigma to improve workflow
and reduce redundancies; and the Clinger-Cohen Act to improve efficiencies
in
technology. CYIPRO has been positioned to work in conjunction with the AKO
model
to sell as a customized product to Federal, State and Local Governments. This,
in turn, can lead to growth in service contracts for business transformation
and
modernization solutions.
In
May of
2007, after a month of discussions, CYIOS began working, in a type of
sub-contracting environment, with a large Federal Government contractor, to
place CYIOS personnel on already existing Government
contracts. As of May 10th, CYIOS
has been
asked to fill over a dozen different Top Secret positions, ranging from system
administrators and application developers to UNIX and CISCO
engineers.
During
the first quarter of 2007, CYIOS began converting its virtual office project
management product into a .net environment with the main goal of allowing the
product to work on Microsoft Mobile 5.0 and upcoming versions. This
enables the product to work on any PDA (Personnel Digital Assistant) and cell
phone device that has Internet access utilizing the MS Mobile browser. CYIOS
has
renamed the product CYIPRO (C-Your Integrated Projects).
To
take
advantage of the very low cost of Mobile Internet access in the United Kingdom,
in early May of 2007, CYIOS completed negotiations, with an initial sale, with
a
partner in the United Kingdom to resell and distribute CYIPRO through a network
of VAR’s (Value Added Resellers).
In
March
of 2007 CYIOS was awarded a new one-year task order by the Department of
Defense, U.S. Army for $330,000. This task order was awarded on Tuesday, March
28, 2007. The company has the opportunity to get this task order renewed two
more times, which would ultimately put the total value at approximately $1
million over three years.
In
February of 2007 CYIOS once again used the services of InterPlan Systems to
co-write a proposal for a U.S. Navy agency. This is a large multi-award contract
with award decisions expected by the end of the second quarter of
2007.
In
January of 2007 CYIOS started off the New Year with signing a subcontract
providing Change Management services worth $225,000 a year. The work is being
performed for DHS and is part of a subcontract with one of the top 10 government
contractors.
In
September of 2006 CYIOS Corporation entered into an agreement to set up and
own
25% of a joint venture called CLNS LLC. The company retained InterPlan Systems
to co-write a proposal for a multi-billion dollar, multi- award contract with
a
large Federal Agency for this new entity. This joint-venture includes three
other small business DoD contractors. This unique arrangement was created to
allow a better chance of winning the contract as the past performance from
all
four company’s combined offered a very solid proposal. Awards are expected
August or September 2007.
In
July
of 2006, CYIOS received a score of 94/100 from the Dun & Bradstreet Open
Ratings Past Performance Evaluation. CYIOS scored over 90% in every performance
category, including reliability, cost, order accuracy, delivery/timeliness,
quality, business relations, personnel, customer support and
responsiveness.
In
June
of 2006, CYIOS was awarded a contract to perform work for the U.S. Army's Senior
Leadership Development (SLD) under operational control of the Chief of Staff,
Army (CSA). The contract is valued at up to $1 million with over $300,000
invoiced by the date of this filing. CYIOS designed and now supports the General
Officer Management Office (GOMO) Knowledge Management system. The CSA approved,
and the Secretary of the Army endorsed, the realignment of GOMO to include
Colonels Division, Officer Personnel Management Directorate, U.S. Army Human
Resources Command (HRC) to form the Army Senior Leader Development Office (SLD).
CYIOS has been recognized for delivering quality work, outstanding customer
service, and ingenuity; and this initiative is to expand its efforts to build
a
knowledge management system for the Colonel's Branch of SLD.
In
May of
2006, CYIOS was awarded a $400k, 1 year follow-on contract at the Headquarters
Department of the Army Information Management Support Center (IMCEN). The
program, End-User Workstation Survey and Post Installation Quality Assurance,
makes CYIOS responsible for the inventory assets of over 10,000 Headquarters,
Department of the Army customer desktop devices in the preparation for upgrade
or replacement; conduct post-installation quality assurance surveys to gauge
customer satisfaction; and provide technical support and training to end users
for desktop-related issues after an upgrade or replacement.
In
April
of 2006, CYIOS received certification as a Microsoft Small Business Specialist.
Not only does this help the company become more valuable as it reaffirms the
company as an expert in its areas of specialty, but also it will help increase
business, especially in the commercial sector as Microsoft offers very
aggressive sales assistance programs to its small business specialist partners.
Recently this has become more significant as the company works with Microsoft
on
its recent efforts to convert its product, CKO, to work on MS Mobile 5.0/6.0
software for mobile phone PDA’s.
We
currently have limited financial resources but the company is able to support
its 25+ member staff in addition to its investment in operations (bids and
proposals team) and products, like the development of CYIPRO. The bids and
proposals team and management infrastructure of current contracts has been
successful in generating more revenue necessary for growth and
profit.
NOTE:
A –
from Consolidated Condensed Balance Sheet
Subsidiary
company WorldTeq Corporation has the Liabilities in Accounts Payable of
$370,347.78 and Taxes Payable & Payroll Liabilities 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.
Total
sales for the first quarter 2007 were $566,018 as compared to $416,332 for
the
quarter ended March 31, 2006, an increase of over 35%. CYIOS
Corporation revenues have increased due to expansion of current contracts and
newly awarded contracts.
Our
net
income for the quarter ending March 31, 2007 was $34,405 as compared to
($544,955) for the same period in 2006. Our net income has increased
significantly. Our investment in the bids and proposals team has paid off and
will continue to pay off in upcoming quarters. This is the company’s
first profitable quarter since the 2005 merger with WorldTeq with a net income
per share of .002 compared to a net loss per share of (.025) during the same
period in 2006. Profits were realized for this first time even while
the company has continued to invest in CYIPRO, the company’s virtual office
project management tool. With this upward trend, we should continue to see
increased revenues and profitability, with positive cash flow, in upcoming
quarters.
Cost
of
sales for the first quarter of 2007 was $125,301 as compared to $95,306 for
the
same quarter in 2006. The product, CYIPRO, is an expense that has not
recouped its costs and our profits from services are maintaining the development
and sales of the product. While using its own product is a major
benefit to the company’s management, CYIPRO also serves as a showcase for our
performance and capabilities when working toward selling services.
General
expenses for the first quarter of 2007 were $406,312 as compared to $865,981
for
the same quarter in 2006. This is a significant decrease and is due
in part to the benefits the company receives from using CYIPRO, which now
positions us to take on new contracts without any major increase in COGS, mainly
being additional overhead staff to support contracts. We expect this
trend to continue and to have a consistent decrease in general
expenses.
LIQUIDITY
AND CAPITAL RESOURCES
Net
cash
used in operating activities for the period ended March 31, 2007 and 2006 was
$57,241 and ($116,411) respectively. This improvement is based upon lowering
our
overhead and generating more business on our service contracts.
The
Company, at March 31, 2007 and Year End 2006, had total assets of approximately
$122,282 and $105,865 respectively.
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
10Ksb for the fiscal year ended December 31, 2006
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, March 31, 2007, 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 March 31, 2007 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
All
contracts are performance based and if performance metrics are not met, the
contract could be negatively affected.
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
Attached
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: May
15th,
2007
12