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
September
30, 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
|
03-7392107
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
1300
PENNSYLVANIA AVE, SUITE 700 WASHINGTON DC
|
20004
|
(Address
of principal executive offices)
|
(Zip/Postal
Code)
|
(703)
294-9933
|
(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 24,104,210 common stock
shares and 29,713.000 preferred shared convertible to common at a 1:1 ratio,
par
value $0.001, as of September 30th, 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 Part Item
2 of
this Report, the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN
OF OPERATION and Part II Item 1a Risk Factors." 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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1
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2
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3
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5
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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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11
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11
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12
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12
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13
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13
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13
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16
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16
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16
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16
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16
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17
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18
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19
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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.
|
|
Consolidated
Condensed Balance Sheet (Unaudited)
|
|
As
of September 30, 2007
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
58,987
|
|
Accounts
Receivable
|
|
|
38,144
|
|
Other
Current Assets
|
|
|
4,900
|
|
Loan
to Shareholder
|
|
|
33,596
|
|
TOTAL
CURRENT ASSETS
|
|
|
135,627
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
135,627
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Line
of Credit
|
|
$ |
99,808
|
|
Interest
Payable
|
|
|
18,640
|
|
Taxes
Payable
|
|
|
13,629
|
|
Payroll
Taxes Payable
|
|
|
38,757
|
|
Accounts
Payable
|
|
|
387,413
|
|
TOTAL
LIABILITIES
|
|
|
558,247
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
Convertible
Preferred Stock ($.001 par value, 5,000,000 authorized:
29,713
issued and outstanding)
|
|
|
30
|
|
Common
Stock ($.001 par value, 100,000,000 shares
authorized:
24,104,210 shares issued and outstanding)
|
|
|
24,104
|
|
Additional
Paid-in-Capital
|
|
|
23,652,621
|
|
Accumulated
Deficit
|
|
|
(24,099,375 |
) |
TOTAL
STOCKHOLDERS' DEFICIT
|
|
|
(422,620 |
) |
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
135,627
|
|
|
|
Consolidated
Statement of Operations (Unaudited)
|
|
For
the period ended September 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
SALES
AND COST OF SALES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
518,943
|
|
|
$ |
468,450
|
|
|
$ |
1,661,365
|
|
|
$ |
1,260,777
|
|
Cost
of sales--stock for direct labor
|
|
|
4,500
|
|
|
|
-
|
|
|
|
28,746
|
|
|
|
-
|
|
Cost
of sales--direct labor
|
|
|
371,421
|
|
|
|
340,467
|
|
|
|
1,050,514
|
|
|
|
839,365
|
|
Gross
Profit
|
|
|
143,022
|
|
|
|
127,983
|
|
|
|
582,105
|
|
|
|
421,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
17,545
|
|
|
|
8,979
|
|
|
|
89,770
|
|
|
|
129,326
|
|
Payroll
Expense--indirect labor
|
|
|
74,737
|
|
|
|
62,466
|
|
|
|
229,094
|
|
|
|
175,309
|
|
Employee
and Fringe Benefit Expense
|
|
|
41,175
|
|
|
|
43,986
|
|
|
|
133,747
|
|
|
|
97,188
|
|
Consulting
Expense
|
|
|
131
|
|
|
|
12,544
|
|
|
|
11,335
|
|
|
|
47,329
|
|
Bad
Debt Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
525,000
|
|
Depreciation
Expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,111
|
|
Professional
Fees
|
|
|
9,538
|
|
|
|
11,772
|
|
|
|
54,100
|
|
|
|
77,445
|
|
Interest
Expense
|
|
|
12,924
|
|
|
|
6,228
|
|
|
|
19,335
|
|
|
|
15,219
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|
|
|
|
156,050
|
|
|
|
145,975
|
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|
537,381
|
|
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|
1,115,927
|
|
OTHER
INCOME/EXPENSE
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
Other
Income
|
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|
22,000
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|
|
|
-
|
|
|
|
22,000
|
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|
-
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NET
INCOME/(LOSS)
|
|
$ |
8,972
|
|
|
$ |
(17,992 |
) |
|
$ |
66,724
|
|
|
$ |
(694,515 |
) |
|
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|
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|
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|
Basic
and diluted income (loss) per share
|
|
$ |
0.000
|
|
|
|
(0.001 |
) |
|
$ |
0.003
|
|
|
|
(0.032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
24,083,797
|
|
|
|
22,202,923
|
|
|
|
23,730,774
|
|
|
|
21,951,705
|
|
|
|
Consolidated
Statements of Cash Flows (Unaudited)
|
|
For
the nine months ended September 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(loss)
|
|
$ |
66,724
|
|
|
$ |
(694,515 |
) |
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-
|
|
|
|
48,904
|
|
Common
Shares issued for direct labor
|
|
|
28,746
|
|
|
|
-
|
|
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
(Increase)/Decrease
in Accounts Receivable
|
|
|
22,503
|
|
|
|
446,952
|
|
(Increase)/Decrease
in Other Assets
|
|
|
15,013
|
|
|
|
5,395
|
|
Increase/(Decrease)
In Interest Payable
|
|
|
13,669
|
|
|
|
-
|
|
Increase/(Decrease)
In Payroll Taxes Payable
|
|
|
(8,022 |
) |
|
|
46,588
|
|
Increase/(Decrease)
In Taxes Payable
|
|
|
1
|
|
|
|
(188,237 |
) |
Increase/(Decrease)
in Accounts Payable
|
|
|
(20,478 |
) |
|
|
73
|
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
118,156
|
|
|
|
(334,840 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
-
|
|
|
|
420,304
|
|
(Increase)/Decrease
Shareholder's Loan Receivable
|
|
|
(83,303 |
) |
|
|
(140,734 |
) |
Increase/(Decrease)
in borrowings on Line of Credit
|
|
|
(1,171 |
) |
|
|
56,659
|
|
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
(84,474 |
) |
|
|
336,229
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND
|
|
|
|
|
|
|
|
|
CASH
EQUIVALENTS
|
|
|
33,682
|
|
|
|
1,389
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning
of Period
|
|
|
25,305
|
|
|
|
49,857
|
|
|
|
|
|
|
|
|
|
|
End
of Period
|
|
$ |
58,987
|
|
|
$ |
51,246
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
CASH
PAID DURING THE YEAR FOR:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
13,344
|
|
|
$ |
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Value
of Common Stock and Warrants issued in exchange for
services
|
|
$ |
28,746
|
|
|
$ |
-
|
|
CYIOS
CORPORATION. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2007
(Unaudited)
NOTE
1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES
BASIS
OF PRESENTATION
The
interim financial statements and summarized notes included herein were prepared
in accordance with accounting principles 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 principles 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
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. Depreciation expense was $0 and $48,904 respectively for the
nine months ended September 30, 2007 and 2006.
REVENUE
RECOGNITION/CONTRACTS
We
recognize revenue when persuasive evidence of an arrangement exists, services
have been rendered or goods delivered, the contract price is fixed or
determinable, and it is reasonably assured to be collectible. The Company
follows SOP 81-1 Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, as it applies to time-and-material contracts.
Revenue
on time-and-materials contracts is recognized based on the hours actually
incurred at the negotiated contract billing rates, plus the cost of any
allowable material costs and out-of-pocket expenses. Revenue on fixed-price
contracts pursuant to which a client pays the Company a specified amount
to
provide only a particular service for a stated time period, or so-called
fee-for-service arrangement, is recognized as amounts become billable, assuming
all other criteria for revenue recognition are met. We recognize
revenue from government contracts and sales from our product CYIPRO. 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.
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.
As
of
September 30, 2007, the outstanding preferred stock is 29,713.
The
following table recaps the capital account transactions occurring during
the
1st and 2nd
and 3rd
quarters
of
2007:
Month/Description
of transaction
|
|
Number
of shares
|
|
|
Price
per share
|
|
|
Total
Value
|
|
January--stock
issued for consultant services
|
|
|
50,000
|
|
|
$ |
0.005
|
|
|
$ |
250
|
|
February--stock
issued for consultant services
|
|
|
50,000
|
|
|
|
0.0100
|
|
|
|
500
|
|
February--stock
issued for employee services
|
|
|
75,000
|
|
|
|
0.0100
|
|
|
|
750
|
|
March--stock
issued for employee services
|
|
|
54,000
|
|
|
|
0.0500
|
|
|
|
2,700
|
|
April--stock
issued for consultant services
|
|
|
50,000
|
|
|
|
0.0100
|
|
|
|
500
|
|
April--stock
issued for employee services
|
|
|
26,000
|
|
|
|
0.0500
|
|
|
|
1,300
|
|
April--stock
issued for employee services
|
|
|
75,000
|
|
|
|
0.0100
|
|
|
|
750
|
|
May--stock
issued for employee services
|
|
|
4,000
|
|
|
|
0.3000
|
|
|
|
1,200
|
|
May--stock
issued for employee services
|
|
|
25,000
|
|
|
|
0.0100
|
|
|
|
250
|
|
May--stock
issued for consultant services
|
|
|
50,000
|
|
|
|
0.0100
|
|
|
|
500
|
|
June--stock
issued for consultant services
|
|
|
50,000
|
|
|
|
0.0100
|
|
|
|
500
|
|
June--stock
issued for employee services
|
|
|
15,000
|
|
|
|
0.0500
|
|
|
|
750
|
|
August—stock
issued for consultant services
|
|
|
50,000
|
|
|
|
0.0100
|
|
|
|
500
|
|
Sept—stock
issued for consultant services
|
|
|
200,000
|
|
|
|
0.0100
|
|
|
2000
|
|
Sept—stock
issued for employee services
|
|
|
30,000
|
|
|
|
0.1500
|
|
|
|
4500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804,000
|
|
|
|
|
|
|
$ |
16,950
|
|
STOCK
OPTIONS
AND WARRANTS
On
April
21, 2006, the company instituted a New Employee Stock Option Plan (New Plan)
which voids the Old Employee Stock Option Plan instituted in
2004. Briefly, the purpose of the New Plan is to be carried out by
issuing incentive stock options and nonqualified options pursuant to the
New
Plan (hereinafter referred to as "Options") to one or more key employees
of the
Company, as determined by the Administrator at the time of the grant. It
is
intended that to the maximum extent permissible under the Plan, Options shall
constitute incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the internal Revenue Code (the "Code") and that
to the
extent not so permissible, such Options shall not constitute Incentive Stock
Options ("Nonqualified Stock Options"). For purposes of the Plan, all references
to a subsidiary or subsidiaries shall include only wholly-owned subsidiaries
of
the Company.
Outstanding
stock options and warrants as of December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted
average
price
per
share
|
|
|
Warrants
|
|
|
Weighted
average
price
per
share
|
|
Outstanding
at December 31, 2003
|
|
|
1,232,000
|
|
|
$ |
0.29
|
|
|
|
4,036,650
|
|
|
$ |
0.66
|
|
Year
ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,350,000
|
|
|
|
0.13
|
|
|
|
9,000,000
|
|
|
|
0.05
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,000,000 |
) |
|
|
0.05
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(886,650 |
) |
|
|
2.45
|
|
Outstanding
at December 31, 2004
|
|
|
3,582,000
|
|
|
|
0.19
|
|
|
|
3,150,000
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(87,000 |
) |
|
|
0.19
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2005
|
|
|
3,495,000
|
|
|
|
0.19
|
|
|
|
3,150,000
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,876,300
|
|
|
|
0.30
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
(1,872,300 |
) |
|
|
0.30
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(145,000 |
) |
|
|
0.29
|
|
|
|
(3,150,000 |
) |
|
|
0.16
|
|
Options
cancelled and replaced by new option plan
|
|
|
(3,350,000 |
)* |
|
|
0.18
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2006
|
|
|
4,000
|
|
|
|
0.30
|
|
|
|
-
|
|
|
|
-
|
|
|
*
|
These
options were issued under the plan from 2004, the options have
been
cancelled and superseded by
the 2006 plan.
|
Outstanding
stock options and warrants as of September 30, 2007 are as follows:
|
|
Options
|
|
|
Weighted
average
price
per
share
|
|
|
Warrants
|
|
|
Weighted
average
price
per
share
|
|
Outstanding
at December 31, 2005
|
|
|
3,495,000
|
|
|
|
0.19
|
|
|
|
|
|
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,876,300
|
|
|
|
0.30
|
|
|
|
-
|
|
|
|
|
Exercised
|
|
|
(1,872,300 |
) |
|
|
0.30
|
|
|
|
-
|
|
|
|
|
Options
cancelled and replaced by new option plan
|
|
|
(3,495,000 |
)* |
|
|
0.19
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at December 31, 2006
|
|
|
4,000
|
|
|
|
0.19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
800,000
|
|
|
|
0.02
|
|
|
|
-
|
|
|
|
|
|
Exercised
from 2006
|
|
|
(4,000 |
) |
|
|
0.30
|
|
|
|
|
|
|
|
|
|
Exercised
from 2007
|
|
|
(800,000 |
) |
|
|
0.02
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
0.19
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at June 30, 2007
|
|
|
-
|
|
|
|
0.19
|
|
|
|
-
|
|
|
|
-
|
|
|
*
|
These
options were issued under the plan from 2004, the options have
been
cancelled and superseded by the 2006
plan.
|
GOING
CONCERN
During
2006, we had a net loss of $893,526, a net deficiency of $24,170,258 and
a net
working capital deficit of $522,260. This debt is attributed to the
merger and an inactive subsidiary Worldteq that is in the process of being
closed. CYIOS is cash positive and is noted in the financials. For
the
nine months ended September 30, 2007, we showed a net profit of $66,724 as
compared to a net loss of ($694.515) for the same period in
2006. During the third quarter 2007 we showed a net profit of $8,973
as compared to a net loss ($17,992) for the same period in 2006.
Management
believes that actions presently being taken to raise equity capital, seek
strategic relationships and alliances, and build its marketing efforts to
generate positive cash flow provide the means for us to continue as a going
concern. The unaudited financial statements included with this 10-QSB
do not include any adjustments that might result from the outcome of this
uncertainty.
SHAREHOLDER
LOANS/RELATED PARTY
We
have a
Loan Outstanding with one of our officers and major shareholders. The
note is payable on demand and bears no interest. The total amount of
the Loan Receivable Outstanding is $33,596.
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
|
518210
|
DATA
PROCESSING, HOSTING AND RELATED SERVICES
|
519100
|
OTHER
INFORMATION SERVICES
|
519190
|
ALL
OTHER INFORMATION SERVICES
|
541510
|
COMPUTER
SYSTEMS DESIGN AND RELATED SERVICES
|
541511
|
CUSTOM
COMPUTER PROGRAMMING SERVICES
|
541512
|
COMPUTER
SYSTEMS DESIGN SERVICES
|
541513
|
COMPUTER
FACILITIES MANAGEMENT SERVICES
|
541519
|
OTHER
COMPUTER RELATED SERVICES
|
541611
|
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.
This
section has two parts, contracts and ongoing strategy for partnerships and
our
product CYIPRO.
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. This
is
an ongoing effort to work on this contract. We have not to date started any
work. We did anticipate starting and recognizing revenue in September, delays
have set this opportunity back some and we recently met with the contractor
to
reorganize our approach to doing business. We believe some corrective action
was
taken and could start to see revenue from this in the first part of
2008.
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. This is ongoing an in good standing. Contract has
a
period until 2010.
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. We
have
conducted our pre-audit and are in the final stages to complete the audit.
It is
standard for DCAA to perform audits of contractors before work can commence.
Although due to issues out of our control, this has been a lengthy process.
We
hope to begin biding on task orders and could recognize revenue by the end
of
October. We do plan on expanding our team with another large partner in order
to
further our capabilities. This would be subject to review and approval. Nothing
has changed here only in that we have completed our pre audit in September
and
are implementing our strategy to recognize revenue in early 2008.
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 companies’ combined offered a very solid proposal. Awards are expected
August or September 2007. We are patiently waiting an award decision in the
next
30 to 60 days. We have contacted the government; they did state that an award
is
anticipated before end of 2007. Award value is 100M.
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. We are in the
process of expanding this contract with a modification for the training and
development section of the Colonel branch. We are also expecting to recomplete
this contract for an award of five years. If successful, this contract would
extend out until 2012. We are in the process of the recomplete that
would extend this contract until 2012 with an award date anticipated mid
to end
of November.
About
our
product CYIPRO, 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). The prototype is 90% complete and we will be presenting to the
Army
and to Large integrators for the possibility of licensing our product. We
also
have engaged with Microsoft to become an ISV in Microsoft SQL product line
and
Mobile 6.0 operating system. This is a unique opportunity in that there are
only
250 companies that have applications in this area. Our product is an enterprise
project management system that provides solutions to meet the needs of a
consultant or a program manager of multiple teams. See www.cyipro.com for
more information. We are reviewing whether to become an ISV or possible spin
out
CKO Inc and merge with an established ISV. Discussions are ongoing and are
expected to come to decisions within next 45days.
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 financial resources but to support its 25+ member staff in
addition to its investment in operations (bids and proposals team) and our
product, CYIPRO. The bids and proposals team and management infrastructure
of
current contracts has been successful in generating more revenue necessary
for
growth and profit. We are profitable and have outstanding bids waiting to
be
awarded. Over the last quarter, we have sustained profit for three quarters
of
2007 and anticipate the four being profitable as well.
Total
sales for the 3rd quarter 2007 were $518,943 as compared to $468,450 for
the 3rd
quarter 2006, an increase of approximately 10%. This is a
result in winning a contract in 1st QTR and
sustaining
it.
Our
net
income for the 3rd quarter 2007 was $8,972 as compared to ($17,992) for the
same
period in 2006. Our investment in the bids and proposals team has paid off
and
will continue to pay off in upcoming quarters. Profits are continued
to be realized and the company has continued to invest in CYIPRO, the company’s
virtual office project management tool. Cost of Sales and General Expenses
can
best be described as contracted services being rendered. We have to pay higher
than average salaries to employ the best trained staff and we further have
to
offer the best benefits for these staff. We are continuing to be
successful with our strategy and remain profitable.
NOTE:
A –
from Consolidated Condensed Balance Sheet – page 1
WorldTeq
Corporation has the Liabilities in Accounts Payable of $370,347.78 and Taxes
Payable & Payroll Liabilities of $43,206.32. WorldTeq Corporation is an
inactive company.
LIQUIDITY
AND CAPITAL RESOURCES
Net
cash
provided by or (used in) operating activities for the 3rd quarter, 2007 was
$118,156 as compared to $(334,840) for the same period in 2006. This improvement
is based upon lowering our overhead and generating more business on our service
contracts.
The
Company, as of 3rd quarter, 2007 has $135,627 in assets as compared to $105,865
for the Year End 2006.
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, September 30, 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, 2006.
CHANGES
IN INTERNAL CONTROLS. There were no significant changes in our internal controls
over financial reporting during the period ended September 30, 2007 that
have
materially affected or are reasonably likely to materially affect, our internal
controls over financial reporting.
Not
applicable
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks described below together with all of the other information
contained in this 10Qsb before deciding whether to purchase our common stock.
If
any of the following risks occurs, the trading price of our common stock
could
decline and you may lose all or part of your investment. We
depend
on our contracts with Department of Defense and U.S. Government agencies
for an
all of our revenues and, if our reputation or relationships with these agencies
were harmed, our future revenues and growth prospects would be adversely
affected. The
U.S.
Government may modify, curtail or terminate our contracts at any time prior
to
their completion and, if we do not replace them, we may be unable to sustain
our
revenue growth and may suffer a decline in revenues.
Many
of
the U.S. Government programs in which we participate as a contractor or
subcontractor may extend for several years. These programs are normally funded
on an annual basis. Under our contracts, the U.S. Government generally has
the
right not to exercise options to extend or expand our contracts and may modify,
curtail or terminate the contracts and subcontracts at its convenience. Any
decision by the U.S. Government not to exercise contract options or to modify,
curtail or terminate our major programs or contracts would adversely affect
our
revenues and revenue growth.
The
U.S.
Government has increasingly relied on IDIQ and other contracts that are subject
to a competitive bidding process. If we are unable to consistently win new
awards under these contracts, we may be unable to sustain our revenue growth
and
may suffer a decline in revenues. The
U.S.
Government has increasingly been using IDIQ contract vehicles to obtain
commitments from contractors to provide various products or services on
pre-established terms and conditions. Under these contracts, the U.S. Government
issues task orders for specific services or products it needs and the contractor
supplies these products or services in accordance with the previously agreed
terms. These contracts often have multi-year terms and unfunded ceiling amounts,
therefore enabling but not committing the U.S. Government to purchase
substantial amounts of services from one or more contractors. The use of
these
contracts makes it difficult for us to estimate the actual value services
that
we may ultimately perform under a given contract, and a failure to estimate
these amounts accurately could have an adverse effect on our results of
operations and financial condition. The competitive bidding process also
presents a number of more general risks, including the risk of unforeseen
technological difficulties and cost overruns that may result from our bidding
on
programs before completion of their design and the risk that we may encounter
expense, delay or modifications to previously awarded contracts as a result
of
our competitors protesting or challenging contracts awarded to us in competitive
bidding.
Our
failure to attract, train and retain skilled employees, including our management
team, would adversely affect our ability to execute our strategy. The
availability of highly trained and skilled technical, professional and
management personnel is critical to our future growth and profitability.
Competition for scientists, engineers, technicians and professional and
management personnel is intense and competitors aggressively recruit key
employees. Because of our growth and increased competition for experienced
personnel, particularly in highly specialized areas, it has become more
difficult to meet all of our needs for these employees in a timely manner.
Although we intend to continue to devote significant resources to recruit,
train
and retain qualified employees, we may not be able to attract and retain
these
employees. Any failure to do so would have an adverse effect on our ability
to
execute our strategy.
Our
revenues and growth prospects may be adversely affected if we or our employees
are unable to obtain the security clearances or other qualifications we and
they
need to perform services for our customers. Many U.S. Government programs
require contractors to have security clearances. Depending on the level of
required clearance, security clearances can be difficult and time-consuming
to
obtain. If we or our employees are unable to obtain or retain necessary security
clearances, we may not be able to win new business, and our existing customers
could terminate their contracts with us or decide not to renew them. To the
extent we cannot obtain or maintain the required security clearances for
our
employees working on a particular contract, we may not derive the revenue
anticipated from the contract. Employee misconduct, including security breaches,
or our failure to comply with laws or regulations applicable to our business
could cause us to lose customers or our ability to contract with the U.S.
Government.
Because
we are a U.S. Government contractor, misconduct, fraud or other improper
activities by our employees or our failure to comply with laws or regulations
could have a significant negative impact on our business and reputation.
Such
misconduct could include the failure to comply with U.S. Government procurement
regulations, regulations regarding the protection of classified information,
legislation regarding the pricing of labor and other costs in U.S. Government
contracts, environmental laws and any other applicable laws or regulations.
Many
of the systems we develop involve managing and protecting information relating
to national security and other sensitive government functions. A security
breach
in one of these systems could prevent us from having access to such critically
sensitive systems. Other examples of potential employee misconduct include
time
card fraud and violations of the Anti-Kickback Act. The precautions we take
to
prevent and detect these activities may not be effective, and we could face
unknown risks or losses. Our failure to comply with applicable laws or
regulations or misconduct by any of our employees could subject us to fines
and
penalties, loss of security clearance and suspension or debarment from
contracting with the U.S. Government, any of which would adversely affect
our
business.
We
must
comply with laws and regulations relating to the formation, administration
and
performance of U.S. Government contracts, which affect how we do business
with
our customers. Such laws and regulations may potentially impose added costs
on
our business and our failure to comply with them may lead to penalties and
the
termination of our U.S. Government contracts. Some significant regulations
that
affect us include:
† the
Federal Acquisition Regulations and their supplements, which regulate the
formation, administration and performance of U.S. Government
contracts;
† the
Truth in Negotiations Act, which requires certification and disclosure of
cost
and pricing data in connection with contract negotiations; and
† the
Cost Accounting Standards, which impose accounting requirements that govern
our
right to reimbursement under certain cost-based government
contracts.
Additionally,
our contracts with the U.S. Government are subject to periodic review and
investigation. If such a review or investigation identifies improper or illegal
activities, we may be subject to civil or criminal penalties or administrative
sanctions, including the termination of contracts, forfeiture of profits,
the
triggering of price reduction clauses, suspension of payments, fines and
suspension or debarment from doing business with U.S. Government agencies.
We
could also suffer harm to our reputation, which would impair our ability
to win
awards of contracts in the future or receive renewals of existing contracts.
Although we have never had any material civil or criminal penalties or
administrative sanctions imposed upon us, it is not uncommon for companies
in
our industry to have such penalties and sanctions imposed on them. If we
incur a
material penalty or administrative sanction in the future, our profitability,
cash position, growth prospects and reputation could be adversely
affected.
Our
business is subject to routine audits and cost adjustments by the U.S.
Government, which, if resolved unfavorably to us, could adversely affect
our
profitability. U.S. Government agencies routinely audit and review their
contractors' performance on contracts, cost structure and compliance with
applicable laws, regulations and standards. They also review the adequacy
of,
and a contractor's compliance with, its internal control systems and policies,
including the contractor's purchasing, property, estimating, compensation
and
management information systems. Such audits may result in adjustments to
our
contract costs, and any costs found to be improperly allocated will not be
reimbursed.
We
incur
significant pre-contract costs that if not reimbursed would deplete our cash
balances and adversely affect our profitability. We often incur costs on
projects outside of a formal contract when customers ask us to begin work
under
a new contract that has yet to be executed, or when they ask us to extend
work
we are currently doing beyond the scope of the initial contract. We incur
such
costs at our risk, and it is possible that the customers will not reimburse
us
for these costs if we are ultimately unable to agree on a formal
contract.
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.
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|
|
|
|
|
|
|
/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
|
|
|
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Timothy
Carnahan
|
|
|
|
Chief
Executive Officer, President, Treasurer, and Chairman of the
Board
|
|
Date:
November 14, 2007
17