form10qsb.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, 2008
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
(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)
|
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). 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 25,557,210 common stock shares and 29,713 preferred
shared convertible to common at a 1:1 ratio, par value $0.001, as of March 31, 2008.[Missing Graphic
Reference]
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.
|
1
|
|
1
|
|
14
|
|
14
|
|
14
|
|
15
|
|
16
|
|
16
|
|
18
|
|
18
|
|
19
|
|
19
|
|
27
|
|
27
|
|
27
|
|
27
|
|
27
|
|
28
|
Exhibit
31.1 - Certifications
|
29
|
Exhibit
32.1- Certification Pursuant to 18 U.S.C. Section 1350
|
30
|
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.
CYIOS
Corporation and Subsidiaries
Consolidated
Balance Sheet (Unaudited)
|
|
|
|
As
of
March 31, 2008
|
|
|
As
of
December 31, 2007
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$ |
82,858 |
|
|
$ |
45,498 |
|
Accounts
Receivable
|
|
|
10,800 |
|
|
|
46,398 |
|
Prepaid
Consulting
|
|
|
31,916 |
|
|
|
- |
|
Other
Current Assets
|
|
|
9,800 |
|
|
|
4,900 |
|
TOTAL
CURRENT ASSETS
|
|
|
135,374 |
|
|
|
96,796 |
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Loan
to Shareholder
|
|
|
211,133 |
|
|
|
172,406 |
|
TOTAL
OTHER ASSETS
|
|
|
211,133 |
|
|
|
172,406 |
|
FIXED
ASSETS
|
|
|
|
|
|
|
|
|
Computer
Equipment
|
|
|
3,918 |
|
|
|
3,918 |
|
Accumulated
Depreciation
|
|
|
(326 |
) |
|
|
(130 |
) |
TOTAL
FIXED ASSETS
|
|
|
3,592 |
|
|
|
3,788 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
350,099 |
|
|
$ |
272,990 |
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Line
of Credit
|
|
$ |
99,906 |
|
|
$ |
98,817 |
|
Payroll
Taxes Payable
|
|
|
12,674 |
|
|
|
9,703 |
|
Accrued
Vacation Expense
|
|
|
27,817 |
|
|
|
27,817 |
|
Accounts
Payable
|
|
|
17,068 |
|
|
|
24,622 |
|
Liabilities
of Discontinued Operations
|
|
|
187,192 |
|
|
|
256,497 |
|
TOTAL
LIABILITIES
|
|
|
344,657 |
|
|
|
417,456 |
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock ($.001 par value, 5,000,000 authorized: 29,713 and 29,713
issued and outstanding)
|
|
|
30 |
|
|
|
30 |
|
Common
Stock ($.001 par value, 100,000,000 shares authorized: 25,557,210 and
25,354,210 shares issued and outstanding)
|
|
|
25,557 |
|
|
|
25,354 |
|
Additional
Paid-in-Capital
|
|
|
23,859,633 |
|
|
|
23,886,536 |
|
Stock
Subscription Receivable
|
|
|
(38,500 |
) |
|
|
(136,000 |
) |
Accumulated
Deficit
|
|
|
(23,841,278 |
) |
|
|
(23,920,386 |
) |
TOTAL
STOCKHOLDERS' DEFICIT
|
|
|
5,442 |
|
|
|
(144,466 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
350,099 |
|
|
$ |
272,990 |
|
The
accompanying notes are an integral part of these unaudited financial
statements
CYIOS
Corporation and Subsidiaries
Consolidated
Statement of Operations (Unaudited)
For
the 3 months ended March 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
SALES AND COST OF
SALES
|
|
|
|
|
|
|
Sales
|
|
$ |
428,508 |
|
|
$ |
551,565 |
|
Cost
of Sales
|
|
|
187,961 |
|
|
|
276,173 |
|
Gross
Profit
|
|
|
240,547 |
|
|
|
275,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
33,575 |
|
|
|
47,287 |
|
Payroll
Expense--Indirect Labor
|
|
|
147,035 |
|
|
|
163,873 |
|
Consulting
Expense
|
|
|
26,801 |
|
|
|
5,153 |
|
Professional
Fees
|
|
|
18,112 |
|
|
|
22,574 |
|
Interest
|
|
|
5,024 |
|
|
|
2,100 |
|
Depreciation
and amortization
|
|
|
196 |
|
|
|
- |
|
TOTAL
EXPENSES
|
|
|
230,743 |
|
|
|
240,987 |
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss) from Operations
|
|
|
9,804 |
|
|
|
34,405 |
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss) from Discontinued Operations
|
|
|
69,305 |
|
|
|
- |
|
Net
Income/(Loss)
|
|
$ |
79,109 |
|
|
$ |
34,405 |
|
Net
income/(loss) per share--basic and fully diluted
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$ |
0.000 |
|
|
$ |
0.002 |
|
Discontinued
Operations
|
|
$ |
0.003 |
|
|
$ |
- |
|
Net
income/(loss) per share
|
|
$ |
0.003 |
|
|
$ |
0.002 |
|
Weighted
average shares outstanding--basic and fully diluted
|
|
|
25,329,516 |
|
|
|
21,716,445 |
|
The
accompanying notes are an integral part of these unaudited financial
statements
CYIOS
Corporation and Subsidiaries
Consolidated
Statement of Stockholders' Deficit (Unaudited)
|
|
|
|
|
|
Common
Shares (000's)
|
|
|
Common
Stock $
|
|
|
Preferred
Shares (000's)
|
|
|
Preferred
Stock $
|
|
|
Additional
Paid-in Capital
|
|
|
Retained
Deficit
|
|
Balances,
December 31, 2006
|
|
|
23,380,210 |
|
|
$ |
23,380 |
|
|
|
27,913 |
|
|
$ |
30 |
|
|
$ |
23,740,310 |
|
|
$ |
(24,180,186 |
) |
Issuance
of shares
|
|
|
2,074,000 |
|
|
|
2,074 |
|
|
|
- |
|
|
|
- |
|
|
|
146,326 |
|
|
|
- |
|
Shares
cancelled
|
|
|
(100,000 |
) |
|
|
(100 |
) |
|
|
- |
|
|
|
- |
|
|
|
(100 |
) |
|
|
- |
|
Net
Income (loss) for the year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
259,800 |
|
Balances,
December 31, 2007
|
|
|
25,354,210 |
|
|
$ |
25,354 |
|
|
|
27,913 |
|
|
$ |
30 |
|
|
$ |
23,886,536 |
|
|
$ |
(23,920,386 |
) |
Shares
returned
|
|
|
(500,000 |
) |
|
|
(500 |
) |
|
|
- |
|
|
|
- |
|
|
|
(74,500 |
) |
|
|
- |
|
Shares
issued
|
|
|
53,000 |
|
|
|
53 |
|
|
|
- |
|
|
|
- |
|
|
|
5,247 |
|
|
|
- |
|
Shares
issued for consulting services
|
|
|
650,000 |
|
|
|
650 |
|
|
|
- |
|
|
|
- |
|
|
|
42,350 |
|
|
|
- |
|
Net
Income (loss) for the 1st quarter
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
79,108 |
|
Balances,
March 31, 2008
|
|
|
25,557,210 |
|
|
|
25,557 |
|
|
|
27,913 |
|
|
|
30 |
|
|
|
23,859,633 |
|
|
|
(23,841,278 |
) |
The
accompanying notes are an integral part of these unaudited financial
statements
CYIOS
Corporation and Subsidiaries
Consolidated
Statements of Cash Flows (Unaudited)
For
the three months ended March 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
Income/(loss)
|
|
$ |
79,108 |
|
|
$ |
34,405 |
|
Adjustments
to reconcile net loss to net cash provided by (used in)operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
196 |
|
|
|
- |
|
Value
of Shares Issued for consulting services
|
|
|
11,084 |
|
|
|
- |
|
Reduction
in Liabilities from Discontinued Operations
|
|
|
(69,305 |
) |
|
|
- |
|
Changes
in Assets and Liabilities:
|
|
|
|
|
|
|
|
|
(Increase)/Decrease
in Accounts Receivable
|
|
|
35,598 |
|
|
|
21,206 |
|
(Increase)/Decrease
in Other Assets
|
|
|
(4,900 |
) |
|
|
14,063 |
|
Increase/(Decrease)
In Taxes Payable
|
|
|
- |
|
|
|
(191 |
) |
Increase/(Decrease)
In Payroll Taxes Payable
|
|
|
2,971 |
|
|
|
- |
|
Increase/(Decrease)
in Accounts Payable
|
|
|
(7,554 |
) |
|
|
(12,242 |
) |
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
47,198 |
|
|
|
57,241 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
(Increase)/Decrease
in Shareholder's Loan Receivable
|
|
|
(38,727 |
) |
|
|
(30,004 |
) |
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
(38,727 |
) |
|
|
(30,004 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock
|
|
|
5,300 |
|
|
|
8,236 |
|
(Increase)/Decrease
in Stock Subscription Receivable
|
|
|
22,500 |
|
|
|
- |
|
Increase/(Decrease)
in borrowings on Line of Credit
|
|
|
1,089 |
|
|
|
- |
|
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
28,889 |
|
|
|
8,236 |
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
37,360 |
|
|
|
35,473 |
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning
of Period
|
|
|
45,498 |
|
|
|
25,305 |
|
|
|
|
|
|
|
|
|
|
End
of Period
|
|
$ |
82,858 |
|
|
$ |
60,778 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
CASH
PAID DURING THE PERIOD FOR:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
5,024 |
|
|
$ |
2,100 |
|
Taxes
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
NON
CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Stock
Issued for Prepaid Consulting Services
|
|
$ |
43,000 |
|
|
$ |
- |
|
Return
of 500,000 shares and reduction in related Stock
Receivable
|
|
$ |
75,000 |
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited financial
statements
CYIOS
CORPORATION. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
(Unaudited)
NOTE A - 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 March 31, 2008. 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 to seven
years. Depreciation expense was $196 and $0 respectively for the
three months ended March 31, 2008 and 2007.
REVENUE
RECOGNITION/CONTRACTS
The
Company recognizes 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. The Company
recognizes revenue from government contracts.
NET LOSS PER COMMON
SHARE
Statement
of Financial Accounting Standard (SFAS) No. 128 requires dual presentation of
basic and diluted earnings per share (EPS) with a reconciliation of the
numerator and denominator of the EPS computations. Basic earnings per
share amounts are based on the weighted average shares of common stock
outstanding. If applicable, diluted earnings per share would assume
the conversion, exercise or issuance of all potential common stock instruments
such as options, warrants and convertible securities, unless the effect is to
reduce a loss or increase earnings per share. Accordingly, this
presentation has been adopted for the period presented. There were no
adjustments required to net loss for the period presented in the computation of
diluted earnings per share.
ADVERTISING
COSTS
Advertising
costs are expensed as incurred. For the 3 months ended March 31, 2008
and 2007, the company incurred $3,182 and $1,700 respectively.
INCOME
TAXES
Income
taxes are provided in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, “Accounting for Income
Taxes.” A deferred tax asset or liability is recorded for all
temporary differences between financial and tax reporting and net operating
loss-carryforwards.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that, and some portion or the entire
deferred tax asset will not be realized. Deferred tax assets and
liabilities are adjusted for the effect of changes in tax laws and rates on the
date of enactment.
IMPAIRMENT OF LONG-LIVED
ASSETS
The
Company evaluated the recoverability of its property and equipment, and other
assets in accordance with Statements of Financial Accounting Standards (SFAS)
No. 121, “Accounting for the
Impairment of Long-Lived Assets to be Disposed of” which requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the estimated future undiscounted cash flows attributable
to such assets or the business to which such intangible assets
relate.
RECENT ACCOUNTING
PRONOUNCEMENTS
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value for Financial Assets and Financial Liabilities—including an
amendment of FASB Statement No. 115”. This statement permits entities
to choose to measure many financial instruments and certain other items at
value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is expected to
expand the use of fair value measurement, which is consistent with the Board’s
long-term measurement objectives for accounting for financial
instruments. Effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of FASB Statement No.
157, Fair Value
Measurements. No entity is permitted to apply the Statement
retrospectively to fiscal years preceding the effective date unless the entity
chooses early adoption. Early adoption of this standard is not expected to have
a material effect on the Company’s results of operations or its financial
position, but the Company is evaluating the Statement to determine what impact,
if any, it will have on the Company.
In
December 2007, the FASB issued SFAS 141(revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R will significantly change the
accounting for business combinations in a number of areas including the
treatment of contingent consideration, contingencies, acquisition costs,
IPR&D and restructuring costs. In addition, under SFAS 141R, changes in
deferred tax asset valuation allowances and acquired income tax uncertainties in
a business combination after the measurement period will impact income tax
expense. SFAS 141R is effective for fiscal years beginning after
December 15, 2008. The Company has not yet determined the
impact, if any, of SFAS 141R on its consolidated financial
statements.
In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51
(“SFAS 160”). SFAS 160 will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
(NCI) and classified as a component of equity. This new consolidation method
will significantly change the account with minority interest holders.
SFAS 160 is effective for fiscal years beginning after December 15,
2008. The Company has not yet determined the impact, if any, of SFAS 160 on
its consolidated financial statements.
ACCOUNTS
RECEIVABLE
Accounts
deemed uncollectible are written off in the year they become
uncollectible. As of March 31, 2008, the Accounts Receivable balance
was $10,800 and the amount deemed uncollectible was $0.
PREFERRED
STOCK
As of
March 31, 2008, the outstanding preferred stock is 29,713.
COMMON
STOCK
The
following table recaps the capital account transactions occurring during the
1st
quarter of 2008:
Month/Description of
transaction
|
|
Number of shares
|
|
|
Price per share
|
|
|
Total Value
|
|
January--stock
issued for consulting services
|
|
|
400,000 |
|
|
$ |
0.045 |
|
|
$ |
18,000 |
|
January--stock
sold
|
|
|
53,000 |
|
|
|
0.100 |
|
|
|
5,300 |
|
March--stock
issued for consulting services
|
|
|
250,000 |
|
|
|
0.100 |
|
|
|
25,000 |
|
March--shares
returned *
|
|
|
(500,000 |
) |
|
|
0.150 |
|
|
|
(75,000 |
) |
Total
|
|
|
203,000 |
|
|
|
|
|
|
$ |
(26,700 |
) |
*These
shares were returned by the individual in lieu of payment on the amount owed for
the outstanding balance of the Stock Subscription Receivable.
STOCK OPTIONS AND
WARRANTS
On April
21, 2006, the Company’s board of directors approved the 2006 Employee Stock
Option Plan (the “2006 Plan”). The 2006 Plan provides for the
issuance of a maximum of 3,000,000 shares of common stock in connection with
stock options granted thereunder, plus an annual increase to be added on the
first nine anniversaries of the effective date of the 2006 Plan, equal to at
least (i) 1% of the total number of shares of common stock then outstanding,
(ii) 350,000 shares, or (iii) a number of shares determined by the Company’s
board of directors prior to such anniversary date. The 2006 Plan has
a term of 10 years and may be administered by the Company’s board of directors
or by a committee made up of not less than 2 members of appointed by the
Company’s board of directors. Participation in the 2006 Plan is limited to
employees, officer, directors and consultants of the Company and its
subsidiaries. Incentive stock options granted pursuant to the 2006 Plan must
have an exercise price per share not less than 100%, and non-qualified stock
options not less than 85%, of the fair market value of our common stock on the
date of grant. Awards granted pursuant to the 2006 Plan may not have a term
exceeding 10 years and will vest upon conditions established by the Company’s
board of directors.
On April
21, 2006 the Company filed a registration statement on Form S-8 with the SEC
registering 3,000,000 shares of common stock for issuance upon exercise of
options granted pursuant to the 2006 Plan. As of December 31, 2007,
options to acquire 1,812,300 shares of common stock were granted and exercised
and there are 1,187,700 shares available for issuance under the 2006
Plan.
On
November 12, 2007, the Company’s board of directors approved the 2007 Equity
Incentive Plan (the “2007 Plan”). The 2007 Plan provides for the issuance of a
maximum of 3,500,000 shares of common stock in connection with awards granted
thereunder, which may include stock options, restricted stock awards and stock
appreciation rights. The 2007 Plan has a term of 10 years and may be
administered by the Company’s board of directors or by a committee appointed by
the Company’s board of directors (the “Committee”). Participation in the 2007
Plan is limited to employees, officer, directors and consultants of the Company
and its subsidiaries. Incentive stock options granted pursuant to the 2007 Plan
must have an exercise price per share not less than 100%, and non-qualified
stock options not less than 85%, of the fair market value of the Company’s
common stock on the date of grant. Awards granted pursuant to the 2007 Plan may
not have a term exceeding 10 years and will vest upon conditions established by
the Committee.
STOCK OPTIONS AND WARRANTS
(CONT’D)
On
November 29, 2006 the Company filed a registration statement on Form S-8 with
the SEC registering 3,500,000 shares of common stock for issuance upon exercise
of options granted and exercised pursuant to the 2007 Plan. As of
December 31, 2007, options to acquire 2,054,000 shares of common stock were
granted and exercised and there are 1,446,000 shares available for issuance
under the 2007 Plan.
Outstanding stock options
and warrants as of March 31, 2008 are as follows:
Options and Warrants
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted average price per
share
|
|
|
Warrants
|
|
|
Weighted average price per
share
|
|
Outstanding at December 31,
2006
|
|
|
3,354,000 |
|
|
|
|
|
|
|
|
|
|
For
the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,974,000 |
|
|
|
0.26 |
|
|
|
- |
|
|
|
|
Exercised from
2006
|
|
|
(4,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
Expired in
2007
|
|
|
(600,000 |
) |
|
|
0.29 |
|
|
|
- |
|
|
|
|
Exercised in
2007
|
|
|
(1,974,000 |
) |
|
|
0.26 |
|
|
|
- |
|
|
|
- |
|
Outstanding at December 31,
2007
|
|
|
2,750,000 |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the period ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
703,000 |
|
|
|
0.07 |
|
|
|
- |
|
|
|
|
|
Expired as of March 31,
2008
|
|
|
(173,438 |
) |
|
|
0.29 |
|
|
|
|
|
|
|
|
|
Exercised in
2007
|
|
|
(703,000 |
) |
|
|
0.07 |
|
|
|
- |
|
|
|
|
|
Outstanding at March 31,
2008
|
|
|
2,576,562 |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
NOTE B—INCOME
TAXES
Due to
the prior years’ operating losses and the inability to recognize an income tax
benefit therefrom, there is no provision for current or deferred federal or
state income taxes for the year ended December 31, 2007.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.
The
Company’s total deferred tax asset, calculated using federal and state effective
tax rates, as of December 31, 2007 is as follows:
Total
Deferred Tax Asset
|
|
$ |
2,281,257 |
|
Valuation
Allowance
|
|
|
(2,281,257 |
) |
Net
Deferred Tax Asset
|
|
$ |
- |
|
NOTE B—INCOME TAXES
(CONT’D)
The
reconciliation of income taxes computed at the federal statutory income tax rate
to total income taxes for the year ended December 31, 2007 is as
follows:
|
|
2007
|
|
|
2006
|
|
Income
tax computed at the federal statutory rate
|
|
|
34 |
% |
|
|
34 |
% |
State
income tax, net of federal tax benefit
|
|
|
0 |
% |
|
|
0 |
% |
Total
|
|
|
34 |
% |
|
|
34 |
% |
Valuation
allowance
|
|
|
-34 |
% |
|
|
-34 |
% |
Total
deferred tax asset
|
|
|
0 |
% |
|
|
0 |
% |
Because
of the Company’s lack of earnings history, the deferred tax asset has been fully
offset by a valuation allowance. The valuation allowance increased
(decreased) by $(88,332) and $298,484 in 2007 and 2006,
respectively. No tax benefits have been recorded for the
nondeductible (tax) expenses (including stock for services) totaling
$17,281,983.
As of
December 31, 2007, the Company had federal and state net operating loss
carryforwards as follows of $6,709,578 which will expire at various times
through the year 2027.
NOTE
C—CONCENTRATION
The
Company is either a prime or sub contractor on contracts with the Titan
Corporation, Information Management Support Center (IMCEN) and
GOMO/SLD. Loss of these contracts could have a material effect upon
the Company’s financial condition and results of operations.
NOTE D—SEGMENT
REPORTING
The
Company has four reportable segments—CYIOS, CYIOS Group, CKO, and
WorldTeq:
Net Sales by
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CYIOS
|
|
|
CYIOS Group
|
|
|
CKO
|
|
|
WorldTeq
|
|
|
Totals
|
|
Sales,
net
|
|
$ |
428,508 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
428,508 |
|
Cost
of Sales
|
|
|
182,661 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
182,661 |
|
Gross
Profit
|
|
$ |
245,847 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
245,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) by
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CYIOS
|
|
|
CYIOS Group
|
|
|
CKO
|
|
|
WorldTeq
|
|
|
Totals
|
|
Net
Operating Profit/(Loss)
|
|
$ |
13,499 |
|
|
$ |
- |
|
|
$ |
(3,696 |
) |
|
$ |
- |
|
|
$ |
9,803 |
|
Net
(Loss)
|
|
$ |
13,499 |
|
|
$ |
- |
|
|
$ |
(3,696 |
) |
|
$ |
69,305 |
|
|
$ |
79,108 |
|
NOTE C—PENSION
PLAN
The
Company has a 401(k) plan which is administered by a third-party
administrator. Individuals who have been employed for one month and
reached the age of 21 years are eligible to participate. Employees
may contribute up to the legal amount allowed by law. The Company
matches one-half of the employee’s contribution up to a maximum of 4% of the
employee’s wages. Employees are vested in the Company’s contribution
25% a year and are fully vested after four years. The Company’s
contributions for the 3 months ended March 31, 2008 and 2007 were $7,252 and
$6,231 respectively.
NOTE
D—COMMITMENTS/LEASES
The
Company entered into a lease agreement on July 8, 2005 for office
space. The current lease agreement is in effect from August 2007 to
August 2008, and at that time is up for renewal. Monthly fees are
$1,040. The Company’s estimated future yearly minimum lease
obligations are as follows:
2008 $17,628
Total
rent expense for the 3 months ended March 31, 2008 and 2007 was $4,542 and
$4,412 respectively.
NOTE E—RELATED
PARTIES
The
Company has a Note Receivable with one of its officers and major
shareholders. The note is payable on demand and bears no
interest. The outstanding balance as of March 31, 2008 is
$192,920.
NOTE F—ACCOUNTS
PAYABLE
The
breakdown of Accounts Payable as of March 31, 2008 is as follows categorized by
subsidiary:
WTEQ
|
|
|
17,068 |
|
CYIOS
|
|
|
- |
|
|
|
$ |
17,068 |
|
NOTE G—PAYROLL TAXES
PAYABLE
As of
March 31, 2008, the Company’s subsidiaries owed the following in payroll
taxes:
WTEQ
|
|
|
9,368 |
|
CYIOS
|
|
|
3,306 |
|
|
|
$ |
12,674 |
|
NOTE H—LIABILITIES OF
DISCONTINUED OPERATIONS
The
liabilities associated with WorldTeq (WTC) which has discontinued operations are
broken down as follows:
WTC
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
123,449 |
|
Other
Payables
|
|
|
22,741 |
|
Income
Taxes Payable
|
|
|
13,629 |
|
Payroll
Taxes Payable
|
|
|
27,373 |
|
|
|
$ |
187,192 |
|
*The
original amount of the Accounts Payable from discontinued operations was
$370,347. The Company has determined that these debts have exceeded
the statute of limitations per the State of Delaware’s rules regarding the
statute of limitations for collection of outstanding debts. The
Company has carried the debts since the year 2005. No attempt on the
part of the creditor has been made to collect these debts, so management has
determined it reasonable to write them off over 2007 and 2008. The
amount written off in 2007 was $185,173 and the amount written off during the 3
months ended March 31, 2008 was $69,305.
As a
result of the write-off of these debts, the Company has recognized income for
the 3 months ended March 31, 2008 from discontinued operations in the amount of
$69,305 as shown in the “Other Income” section on the Consolidated Statement of
Operations.
NOTE I—STOCK SUBSCRIPTION
RECEIVABLE
The
Company had $38,500 in Stock Subscription Receivable which represents stock that
was purchased. The Stock Subscription Receivable has been classified
as a Stock Subscription Receivable (Contra Equity account) in the amount of
$38,500 which represents the amount still outstanding in the 1st quarter
of 2008.
NOTE J—NET INCOME/ (LOSS)
PER COMMON SHARE
The
Company’s reconciliation of the numerators and denominators of the basic and
fully diluted income per shares is as follows for the 3 months ended March 31,
2008 and 2007 are as follows:
|
|
For the 3 months ended March 31,
2008 |
|
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
$ |
79,109 |
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
|
79,109 |
|
|
|
25,299,803 |
|
|
$ |
0.003 |
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
|
|
|
|
29,713 |
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
|
79,109 |
|
|
|
25,329,516 |
|
|
$ |
0.003 |
|
|
|
For the 3 Months Ended March 31,
2007 |
|
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
$ |
34,405 |
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
|
34,405 |
|
|
|
21,686,732 |
|
|
$ |
0.002 |
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock
|
|
|
|
|
|
|
29,713 |
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(Loss)
|
|
|
34,405 |
|
|
|
21,716,445 |
|
|
$ |
0.002 |
|
NOTE K—GOING
CONCERN
During
2007, we had a net income of $259,800, a net deficiency of $23,920,386 and a net
working capital deficit of $133,254. For the three months ended March
31, 2008, we showed a net profit of $79,108 as compared to a net profit of
$34,405 for the same period in 2007.
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.
Item 2. Management’s Discussion and Analysis
The
following discussion should be read in conjunction with the Financial Statements
and related notes thereto included elsewhere in this report.
CYIOS
Corporation and its subsidiaries are collectively referred to as CYIOS. The
following Management Discussion and Analysis of Financial Condition and Results
of Operations was prepared by management and discusses material changes in the
financial condition and results of operations and cash flows for 1st quarter
ended March 31, 2008 and 2007 for CYIOS. Such discussion and comments on the
liquidity and capital resources should be read in conjunction with the
information contained in the accompanying unaudited consolidated financial
statements prepared in accordance with U.S. GAAP.
The
discussion and comments contained hereunder include both historical information
and forward-looking information. The forward-looking information, which
generally is information stated to be anticipated, expected, or projected by
management, involves known and unknown risks, uncertainties and other factors
that may cause the actual results and performance to be materially different
from any future results and performance expressed or implied by such
forward-looking information. Potential risks and uncertainties include risks and
uncertainties set forth under the heading “Risk Factors” and elsewhere in this
Form 10-QSB.
CYIOS
Corporation operates two subsidiaries. The first two, CYIOS Corporation and CKO
Incorporated, are the two vehicles where the company operates its
business. 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’ subsidiary, which offers the product CYIPRO; a business
transformation tool that utilizes the first project based operating system (OS).
This new project OS is the nucleus of why CYIPRO can transform your people,
processes and information into a productive, effective and rich environment.
CYIPRO securely brings the latest concepts of business transformation and
technology to fruition. CYIOS built the prototype for the U.S. Army named AKO,
which now serves over 1.8 million Army users worldwide and has built CYIPRO to
complement knowledge management and business transformation for agencies and
commercial business. 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 -
Verizon, to place CYIOS personnel on already existing Government
contracts. We currently are in progress with filling some
positions, this will show immediate revenue. , 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.
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
have teamed with SERCO and are reviewing task order to bid.
In
December of 2007, 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 for 1 year w/ four options for
possible 5 years until 2012.
In
January 2008, CYIOS teamed with CACI for work on the U.S. Army ITES2 contract.
We are still in negotiations for the subcontract and expect to have it completed
end of May 2008.
About our
product CYIPRO, during the first quarter of 2007, CKO Inc. began converting its
product into a .net environment with the main goal of allowing the product to
work on Microsoft Mobile 5.0 and upcoming versions. We’ve accomplish
this in January 2008. We are planning to have a beta ready at the end of the
2nd
Quarter of 2008.
We are
currently engaged with investors to raise capital for CYIOS and CKO. We have won
contracts that need more management in order to grow to full potential. This has
been ongoing since January 2008. We have the need for more programmers,
marketing material and advertising in order for CYIPRO to be fully
launched.
The
following discussion should be read in conjunction with the Financial Statements
and related notes thereto included elsewhere in this report.
We
currently have financial resources to support its operational (overhead) staff
and our product, CYIPRO. We are profitable and have outstanding bids waiting to
be awarded. Over the last quarter, we have sustained profit for first quarter of
2008 and anticipate the second through the fourth quarters as being profitable
as well. We are looking and engaged with investors to raise capital for growth
and to establish our advisory board.
OVERVIEW
CYIOS
does business as a leading systems integrator and Knowledge Management Solutions
provider supporting the United States Army. All of CYIOS’ revenue is
derived from the services it provides for single and multiple year awards to
different US Army and US Government agencies. CKO, Inc., one of the
CYIOS subsidiaries provides a designed online office management product which is
known as CYIPRO. For the three months ended March 31, 2008 and 2007,
CYIOS received no revenue from CYIPRO.
Revenue: Total
sales for the 1st quarter
2008 were $428,508 as compared to $551,565 for the 1st quarter
2007, a decrease of approximately 22%. The decrease in sales
was due to loss of contracting staff on subcontracts.
Cost of Sales: Cost
of sales for the 1st quarter
ended March 31, 2008 were $187,961, resulting in a gross profit of $240,547 (56%
gross profit margin) compared to cost of revenues for the 1st quarter
ended March 31, 2007 of $276,173, resulting in a gross profit margin of $275,392
(50% gross profit margin). Cost of sales consists solely of direct
labor expense which 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 must also offer the best benefits for these staff
Indirect
Labor: Indirect labor expense decreased by $16,838 or
approximately 10% to $147,035 for the 1st quarter
ended March 31, 2008 from $163,873 for the 1st quarter
ended March 31, 2007.
Consulting and Professional
Fees: Consulting and professional fees for the 1st quarter
ended March 31, 2008 was $44,913 as compared to $27,727 for the 1st quarter
ended March 31, 2007, resulting in an increase of $17,186 or approximately
62%. Consulting fees for the 1st quarter
ended March 31, 2008 includes stock based compensation in the amount of
$5,083.
Depreciation and Interest
Expense: Interest expense for the 1st quarter
ended March 31, 2008 was $5,024 as compared to $2,100 for the 1st quarter
ended March 31, 2007—an increase of $2,924 or approximately
58%. Depreciation expense for the 1st quarter
ended March 31, 2008 was $196 as compared to $0 for the same quarter ended March
31, 2007. We purchased new computer equipment during
2007.
Selling, General, and
Administrative: Selling, general and administrative expenses
for the 1st quarter
ended March 31, 2008 was $33,575 as compared to $47,287 for the 1st quarter
ended March 31, 2007—a decrease of $13,712 or approximately
29%. Selling, general, and administrative expenses consist primarily
of advertising, conference fees, fees, insurance, office supplies, rent, and
travel and entertainment expenses. The reduction in selling, general,
and administrative expenses is due to the reduction in travel and entertainment
expenses and fees.
Net Income from
Operations: Net income for the 1st quarter
ended March 31, 2008 was $9,804 as compared to $34,305 for the 1st quarter
ended March 31, 2007—a decrease of $24,601 or approximately 71%. The
decrease is primarily due to the fact that sales were down for the 1st quarter
ended March 31, 2008 as compared to the same quarter for 2007. Total
expenses including cost of sales did decrease for the 1st quarter
ended March 31, 2008 as compared to the same quarter ended March 31, 2007, so we
believe we are making progress to keep expenses down as we continue to have
strong, steady sales, thus realizing continued net profits.
We are
continuing to be successful with our strategy and remain
profitable.
Net Income from Discontinued
Operations: Net income from discontinued operations in the
amount of $69,305 for the 1st quarter
ended March 31, 2008 is the results of the write-off of debts for the
liabilities associated with our subsidiary with discontinued operations Worldteq
(WTC). We have determined that these debts have exceeded the statute
of limitations per the State of Delaware’s rules regarding the statute of
limitations for collection of outstanding debts. The amount to be
written of each quarter will be approximately $69,305.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity: At March
31, 2008, CYIOS had cash and cash equivalents of $82,858, compared with $45,498
at December 31, 2007, an increase of $37,360.
During
the quarter ended March 31, 2008, cash provided by operating activities was
$47,198, consisting primarily of the net income for the quarter of $79,108
offset by non-cash charges to:
|
·
|
Depreciation
charges of $196;
|
|
·
|
Stock
based compensation in the amount of
$11,084;
|
|
·
|
Reduction
in Liabilities of Discontinued Operations in the amount of
$69,305;
|
|
·
|
Working
capital changes of $26,115, consisting of a net decrease of $30,698 in
Accounts Receivable and Other Assets and a net decrease of $4,583 in
Payroll Taxes Payable, Liabilities in Discontinued Operations, and
Accounts Payable.
|
Investing
activities for the 1st quarter
ended March 31, 2007 used cash in the amount of $38,727, consisting of an
increase in the Shareholder’s Loan Receivable.
Financing
activities for the 1st quarter
ended March 31, 2008 provided cash in the amount of $28,889, consisting of
proceeds from the sale of stock in the amount of $5,300 offset by:
|
·
|
A
decrease in Stockholder Receivable in the amount of
$22,500;
|
|
·
|
An
increase in the borrowing on the Line of Credit in the amount of
$1,089.
|
Our
long-term working capital and capital requirements will depend upon numerous
factors, including our efforts to continue to improve operational efficiency and
conserve cash.
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, 2007.
OUTSTANDING
SHARE DATA
The
outstanding share data as of March 31, 2008 and 2007 is as follows:
|
|
Number
of shares
|
|
|
|
outstanding
|
|
|
|
2008
|
|
|
2007
|
|
Common
Shares
|
|
|
25,557,210 |
|
|
|
23,529,210 |
|
Preferred
Shares
|
|
|
27,913 |
|
|
|
27,913 |
|
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, 2008, 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 March 31, 2008 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
RISK
FACTORS
Our
business entails a significant degree of risk and uncertainty, and an investment
in our securities should be considered highly speculative. What follows is a
general description of the material risks and uncertainties, which may adversely
affect our business, our financial condition, including liquidity and
profitability, and our results of operations, ultimately affecting the value of
an investment in shares of our common stock. In addition to other information
contained in this Form 10-QSB, you should carefully consider the following
cautionary statements and risk factors:
General
Business Risks
Our
limited operating history may not serve as an adequate basis upon which to judge
our future prospects and results of operations.
We were
incorporated in October 1997, but only began our present operation in September
2005, and, as such, we have a limited operating history, and our historical
operating activities may not provide a meaningful basis upon which to evaluate
our business, financial performance or future prospects. We may not
be able to achieve similar operating results in future periods, and,
accordingly, you should not rely on our results of operation for prior periods
as indications of our future performance.
Our
historical operating losses and negative cash flows from operating activities
raise an uncertainty as to our ability to continue as a going
concern.
We have a
history of operating losses and negative cash flows from operating activities.
In the event that we are unable to sustain our current profitability or are
otherwise unable to secure external financing, we may not be able to meet our
obligations as they come due, raising substantial doubts as to our ability to
continue as a going concern. Any such inability to continue as a going concern
may result in our security holders losing their entire investment. Our
consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles, contemplate that we will continue as a
going concern and do not contain any adjustments that might result if we were
unable to continue as a going concern. Changes in our operating plans, our
existing and anticipated working capital needs, the acceleration or modification
of our expansion plans, lower than anticipated revenues, increased expenses,
potential acquisitions or other events will all affect our ability to continue
as a going concern.
Our
liquidity and capital resources are very limited.
Our
ability to fund working capital and anticipated capital expenditures will depend
on our future performance, which is subject to general economic conditions, our
ability to win government contracts, our private customers, actions of our
competitors and other factors that are beyond our control. Our ability to fund
operating activities is also dependent upon (i) the extent and availability of
bank and other credit facilities, (ii) our ability to access external sources of
financing, and (iii) our ability to effectively manage our expenses in relation
to revenues. There can be no assurance that our operations and access to
external sources of financing will continue to provide resources sufficient to
satisfy liabilities arising in the ordinary course of our business.
Our
accumulated deficit makes it more difficult for us to borrow funds.
As of the
fiscal year ended December 31, 2007, and as a result of historical operating
losses from prior years, our accumulated deficit was $23,816,970. Lenders
generally regard an accumulated deficit as a negative factor in assessing
creditworthiness, and for this reason, the extent of our accumulated deficit
coupled with our historical operating losses will negatively impact our ability
to borrow funds if and when required. Any inability to borrow funds, or a
reduction in favorability of terms upon which we are able to borrow funds,
including the amount available to us, the applicable interest rate and the
collateralization required, may affect our ability to meet our obligations as
they come due, and adversely affect on our business, financial condition, and
results of operations, raising substantial doubts as to our ability to continue
as a going concern.
Risks
Associated with our Business and Industry
We
depend on contracts with federal government agencies for all of our revenue, and
if our relationships with these agencies were harmed our future revenues and
growth prospects would be adversely affected.
Revenues
derived from contracts with federal government agencies accounted for all of our
revenues for the 1st quarter
ended March 31, 2008, and we believe that federal government agencies will
continue to be the source of all or substantially all of our revenues for the
foreseeable future. For this reason, any issues that compromise our relationship
with agencies of the federal government in general, or with the Department of
Defense in particular, would have a substantial adverse effect on our business.
Key among the factors in maintaining our relationships with federal government
agencies are our performance on individual contracts, the strength of our
professional reputation and the relationships of our key executives with
government personnel. To the extent that our performance does not meet
expectations, or our reputation or relationships with one or more key personnel
are impaired, our business, financial condition and results of operations will
be negatively affected and we may not be able to meet our obligations as they
come due, raising substantial doubts as to our ability to continue as a going
concern.
The
federal government may modify, curtail or terminate our contracts at any time
prior to their completion, which would have a material adverse affect on our
business.
Federal
government contracts are highly regulated and federal laws and regulations
require that our contracts contain certain provisions which allow the federal
government to, among other things:
|
·
|
terminate current contracts at
any time for the convenience of the government, provided such termination
is made in good faith;
|
|
·
|
cancel multi-year contracts and
related orders if funds for contract performance for any subsequent year
become unavailable;
|
|
·
|
curtail or modify current
contracts if requirements or budgetary constraints change;
and
|
|
·
|
Adjust contract costs and fees on
the basis of audits done by its
agencies.
|
Should
the federal government modify, curtail or terminate our contracts for any
reason, we may only recover our costs incurred and profit on work completed
prior to such modification, curtailment or termination. The federal government
regularly reviews our costs and performance on its contracts, as well as our
accounting and general business practices. The federal government may reduce the
reimbursement for our fees and contract-related costs as a result of such an
audit. There can be no assurance that one or more of our federal
government contracts will not be modified, curtailed or terminated under these
circumstances, or that we would be able to procure new federal government
contracts to offset the revenue lost as a result of any modification,
curtailment or termination. As our revenue is dependent on our procurement,
performance and receipt of payment under our contracts with the federal
government, the loss of one or more critical contracts could have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.
The
federal government has increasingly relied upon contracts that are subject to a
competitive bidding process. If we are unable to consistently win new awards
under these contracts our business may be adversely affected.
We obtain
many of our contracts with the federal government through a process of
competitive bidding and, as the federal government has increasingly relied upon
contracts that are subject to competitive bidding, we expect that much of the
business we are awarded in the foreseeable future will be through such a
process. There are substantial costs and a number of risks inherent
in the competitive bidding process, including the costs associated with
management time necessary to prepare bids and proposals that we may not be
awarded, our failure to accurately estimate the resources and costs required to
service contracts that we are awarded, and the risk that we may encounter
unanticipated expenses, delays or modifications to contracts previously
awarded. Our failure to effectively compete and win contracts
through, or manage the costs and risks inherent in the competitive bidding
process could have a material adverse effect on our business, financial
condition and results of operations.
Our
revenues and growth prospects may be adversely affected if we or our employees
are unable to obtain the requisite security clearances or other qualifications
needed to perform services for our customers.
Many
federal 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 federal government, which would have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.
Because
we are a federal government contractor, misconduct, fraud or other improper
activities by our employees or our failure to comply with applicable laws or
regulations could have a material adverse effect on our business and
reputation.
Because
we are a federal government contractor, misconduct, fraud or other improper
activities by our employees or our failure to comply with applicable laws or
regulations could have a material adverse effect on our business and reputation.
Such misconduct could include the failure to comply with federal government
procurement regulations, regulations regarding the protection of classified
information, legislation regarding the pricing of labor and other costs in
federal government contracts 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 federal government, any of which would have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.
We must comply with laws and
regulations relating to the formation, administration and performance of federal
government contracts.
We must
comply with laws and regulations relating to the formation, administration and
performance of federal 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 applicable laws and regulations
may lead to penalties and the termination of our federal government contracts.
Some significant regulations that affect us include:
|
·
|
the
Federal Acquisition Regulations and their supplements, which regulate the
formation, administration and performance of federal 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 federal government are subject to periodic review and
investigation. Should such a review or investigation identify improper or
illegal activities, we may be subject to civil or criminal penalties or
administrative sanctions, including the termination of our contracts, forfeiture
of profits, the triggering of price reduction clauses, suspension of payments,
fines and suspension or debarment from doing business with federal 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 business,
financial condition and results of operations could be adversely
affected.
Our
business is subject to routine audits and cost adjustments by the federal
government, which, if resolved unfavorably to us, could adversely affect our
financial condition.
Federal
government agencies routinely audit and review their contractors’ performance,
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 financial condition.
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 which could have an adverse effect on our business, financial condition
and results of operations.
Our
intellectual property may not be adequately protected from unauthorized use by
others, which could increase our litigation costs and adversely affect our
business.
Our
intellectual properties, including our brands, are some of the most important
assets that we possess in our ability to generate revenues and profits and we
rely significantly on these intellectual property assets in being able to
effectively compete in our markets. However, our intellectual property rights
may not provide meaningful protection from unauthorized use by others, which
could result in an increase in competing products and services and a reduction
in our own ability to generate revenue. Moreover, if we must pursue litigation
in the future to enforce or otherwise protect our intellectual property rights,
or to determine the validity and scope of the proprietary rights of others, we
may not prevail and will likely have to make substantial expenditures and divert
valuable resources in any case.
We
face substantial competition in attracting and retaining qualified senior
management and key personnel and may be unable to develop and grow our business
if we cannot attract and retain as necessary, or if we were to lose our
existing, senior management and key personnel.
Our
success, to a large extent, depends upon our ability to attract, hire and retain
highly qualified and knowledgeable senior management and key personnel who
possess the skills and experience necessary to execute our business strategy.
Our ability to attract and retain such senior management and key personnel will
depend on numerous factors, including our ability to offer salaries, benefits
and professional growth opportunities that are comparable with and competitive
to those offered by more established companies operating in our industries and
market segments. We may be required to invest significant time and resources in
attracting and retaining, as necessary, additional senior management and key
personnel, and many of the companies with which we will compete for any such
individuals have greater financial and other resources, affording them the
ability to undertake more extensive and aggressive hiring campaigns, than we
can. Furthermore, an important component to overall compensation offered to
senior management and key personnel may be equity. If our stock prices do not
appreciate over time, it may be difficult for us to attract and retain senior
management and key personnel. Moreover, should we lose our key personnel, we may
be unable to prevent the unauthorized disclosure or use of our trade secrets,
including our practices, procedures or client lists. The normal running of our
operations may be interrupted, and our financial condition and results of
operations negatively affected, as a result of any inability on our part to
attract or retain the services of qualified and experienced senior management
and key personnel, our existing key personnel leaving and a suitable replacement
not being found, or should any former member of senior management or key
personnel disclose our trade secrets.
The
loss of our Chief Executive Officer could have a material adverse effect on our
business.
Our
success depends to a large degree upon the skills, network and professional
business contacts of our Chief Executive Officer, Timothy Carnahan. We have
no employment agreement with, Timothy Carnahan, and there can be no
assurance that we will be able to retain him or, should he choose to leave us
for any reason, to attract and retain a replacement or additional key
executives. The loss of our Chief Executive Officer would have a material
adverse effect on our business, our financial condition, including liquidity and
profitability, and our results of operations, raising substantial doubts as to
our ability to continue as a going concern.
Risks
Associated with an Investment in our Common Stock
Unless
an active trading market develops for our securities, you may not be able to
sell your shares.
Although,
we are a reporting company and our common shares are quoted on the OTC Bulletin
Board (owned and operated by the NASDAQ Stock Market, Inc.) under the symbol
“CYIO”, there is not currently an active trading market for our common stock and
an active trading market may never develop or, if it does develop, may not be
maintained. Failure to develop or maintain an active trading market will have a
generally negative effect on the price of our common stock, and you may be
unable to sell your common stock or any attempted sale of such common stock may
have the effect of lowering the market price and therefore your investment could
be a partial or complete loss.
Since
our common stock is thinly traded it is more susceptible to extreme rises or
declines in price, and you may not be able to sell your shares at or above the
price paid.
Since our
common stock is thinly traded its trading price is likely to be highly volatile
and could be subject to extreme fluctuations in response to various factors,
many of which are beyond our control, including:
|
·
|
the trading volume of our
shares;
|
|
·
|
the number of securities
analysts, market-makers and brokers following our common
stock;
|
|
·
|
changes in, or failure to
achieve, financial estimates by securities
analysts;
|
|
·
|
new products or services
introduced or announced by us or our
competitors;
|
|
·
|
actual or anticipated variations
in quarterly operating
results;
|
|
·
|
conditions or trends in our
business industries;
|
|
·
|
announcements by us of
significant contracts, acquisitions, strategic partnerships, joint
ventures or capital
commitments;
|
|
·
|
additions or departures of key
personnel;
|
|
·
|
sales of our common stock;
and
|
|
·
|
General stock market price and
volume fluctuations of publicly-traded, and particularly microcap,
companies.
|
You may
have difficulty reselling shares of our common stock, either at or above the
price you paid, or even at fair market value. The stock markets often experience
significant price and volume changes that are not related to the operating
performance of individual companies, and because our common stock is thinly
traded it is particularly susceptible to such changes. These broad market
changes may cause the market price of our common stock to decline regardless of
how well we perform as a company. In addition, securities class action
litigation has often been initiated following periods of volatility in the
market price of a company’s securities. A securities class action suit against
us could result in substantial legal fees, potential liabilities and the
diversion of management’s attention and resources from our business. Moreover,
and as noted below, our shares are currently traded on the OTC Bulletin Board
and, further, are subject to the penny stock regulations. Price fluctuations in
such shares are particularly volatile and subject to manipulation by
market-makers, short-sellers and option traders.
Trading
in our common stock on the OTC Bulletin Board may be limited thereby making it
more difficult for you to resell any shares you may own.
Our
common stock is quoted on the OTC Bulletin Board (owned and operated by the
NASDAQ Stock Market, Inc). The OTC Bulletin Board is not an exchange and,
because trading of securities on the OTC Bulletin Board is often more sporadic
than the trading of securities listed on a national exchange or on the NASDAQ
National Market, you may have difficulty reselling any of the shares of our
common stock that you may own.
Our
common stock is subject to the “penny stock” regulations, which are likely to
make it more difficult to sell.
Our
common stock is considered a “penny stock,” which generally is a stock trading
under $5.00 and not registered on a national securities exchange or quoted on
the NASDAQ National Market. The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. These
rules generally have the result of reducing trading in such stocks, restricting
the pool of potential investors for such stocks, and making it more difficult
for investors to sell their shares once acquired. Prior to a transaction in a
penny stock, a broker-dealer is required to:
|
·
|
deliver to a prospective investor
a standardized risk disclosure document that provides information about
penny stocks and the nature and level of risks in the penny stock
market;
|
|
·
|
provide the prospective investor
with current bid and ask quotations for the penny
stock;
|
|
·
|
explain to the prospective
investor the compensation of the broker-dealer and its salesperson in the
transaction;
|
|
·
|
provide investors monthly account
statements showing the market value of each penny stock held in the their
account; and
|
|
·
|
Make a special written
determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the
transaction.
|
These
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that is subject to the penny stock rules. Since
our common stock is subject to the penny stock rules, investors in our common
stock may find it more difficult to sell their shares.
Future
issuances by us or sales of our common stock by our officers or directors may
dilute your interest or depress our stock price.
We may
issue additional shares of our common stock in future financings or may grant
stock options to our employees, officers, directors and consultants under our
2006 Employee Stock Option Plan and 2007 Equity Incentive Plan. Any such
issuances could have the effect of depressing the market price of our common
stock and, in any case, would dilute the interests of our common stockholders.
Such a depression in the value of our common stock could reduce or eliminate
amounts that would otherwise have been available to pay dividends on our common
stock (which are unlikely in any case) or to make distributions on liquidation.
Furthermore, shares owned by our officers or directors which are registered in a
registration statement, or which otherwise may be transferred without
registration pursuant to an applicable exemptions under the Securities Act of
1933, as amended, may be sold. Because of the perception by the investing public
that a sale by such insiders may be reflective of their own lack of confidence
in our prospects, the market price of our common stock could decline as a result
of a sell-off following sales of substantial amounts of common stock by our
officers and directors into the public market, or the mere perception that these
sales could occur.
We
do not intend to pay any common stock dividends in the foreseeable
future.
We have
never declared or paid a dividend on our common stock and, because we have very
limited resources and a substantial accumulated deficit, we do not anticipate
declaring or paying any dividends on our common stock in the foreseeable future.
Rather, we intend to retain earnings, if any, for the continued operation and
expansion of our business. It is unlikely, therefore, that the holders of our
common stock will have an opportunity to profit from anything other than
potential appreciation in the value of our common shares held by them. If you
require dividend income, you should not rely on an investment in our common
stock.
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 5, 2008
28