As filed with the Securities and Exchange Commission on April 8, 2010
Registration No. ____________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CYIOS CORPORATION
(Exact name of registrant as specified in Charter)
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Nevada
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000-27243
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03-7392107
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(State or other jurisdiction of incorporation or organization)
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(Commission File No.)
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(IRS Employee Identification No.)
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1300 Pennsylvania Avenue, Suite 700
Washington, D.C. 20004
(Address of Principal Executive Offices)
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(202) 204-3006
(Issuer Telephone number)
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Copies of communications to:
Peter J. Gennuso, Esq.
Gersten Savage, LLP
600 Lexington Avenue, 10th Floor
New York, NY 10022
Telephone No.: (212) 752-9700
Facsimile No.: (212) 980-5192
Approximate Date of Proposed Sale to the Public: As soon as practicable after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated Filer o
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Non-accelerated filer o
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Smaller reporting company x
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(Do not check if a smaller reporting company)
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Calculation of Registration Fee
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Title Of Securities To be Registered
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Amount
to be
Registered
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Proposed
Maximum
Offering Price
Per Share
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Proposed
Maximum
Aggregate
Offering Price (4)
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Amount
of
Registration
Fee(1)
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Common Stock, $0.001(1)
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3,500,000 | (2 | ) | $ | 0.06 | (3 | ) | $ | 210,000 | $ | 14.97 | ||||||||||||||
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Per share
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(1)
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Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee.
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(2)
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Representing shares of the Company to be offered through an equity financing arrangement and shares to be sold by the Selling Security Holder.
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(3)
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Based on Rule 457 under the Securities Act.
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(4)
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This amount represents the maximum aggregate value of common stock which may be drawn from the Underwriter by the registrant pursuant to the terms and conditions of a Drawdown Equity Financing Agreement between the Underwriter and the registrant.
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
ITEM 1 – Forepart of the Registration statement and cover page of Prospectus
Preliminary Prospectus Subject to Completion dated April 2, 2010
3,500,000 Shares
Common Stock
This prospectus relates to the resale of up to 3,500,000 shares of the common stock of CYIOS Corporation, a Nevada corporation, by Auctus Private Equity Fund, LLC, a Cayman Island exempted company (“ Auctus ” or “Selling Security Holder”), a selling shareholder pursuant to Drawdown Notice under a Drawdown Equity Financing Agreement (the “ Drawdown Equity Financing Agreement ”), also referred to as an Equity Line of Credit, that we have entered into with Auctus. The Drawdown Equity Financing Agreement permits us to sell shares of our common stock to Auctus enabling us to drawdown up to $7,000,000 million from Auctus. We will not receive any proceeds from the sale of these shares of common stock offered by Auctus. However, we will receive proceeds from the sale of securities pursuant to each Drawdown Notice we send to Auctus. We will bear all costs associated with this registration.
Auctus is an “underwriter” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”) in connection with the resale of our common stock under the Equity Line of Credit. Auctus will pay us 94% of the lowest closing “best bid” price of the common stock during the five consecutive trading days immediately following the date of our notice to Auctus of our election to put shares pursuant to the Drawdown Equity Financing Agreement.
Our shares of common stock are traded on the Over-the-Counter Bulletin Board (the “OTCBB”) under the symbol "CYIO.OB." On March 24, 2010, the closing sale price of our common stock was $0.06 per share.
This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss. See "Risk Factors" beginning on page 3.
The information in this prospectus is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. No one may sell these securities nor may offers to buy be accepted until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer, solicitation or sale is not permitted.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is April __, 2010
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Drawdown Equity Finance Agreement / Registration Rights Agreement
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TRANSFER AGENT
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EXPERTS
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Security Ownership of Certain Beneficial Owners & Management and Related Stockholder Matters
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1-23
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2.
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PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
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3.
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3-5
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ITEM 3 - SUMMARY INFORMATION AND RISK FACTORS
This summary highlights information described more fully elsewhere in this prospectus. You should read the entire prospectus carefully. In this prospectus, "CYIOS," the "Company," "CYIOS Corp," "we," "us" and "our" refer to CYIOS Corporation, a Nevada corporation.
The Company
CYIOS® Corporation (“we”, “us”, “our”, “CYIOS®” or the “Company”) was incorporated under the laws of the state of Nevada on October 13, 1997 as Halo Holdings of Nevada, Inc., for purposes of acquiring Halo Holdings, Inc., a Delaware corporation, operating in the aviation and extreme sports entertainment industries. In March 1999, we sold our extreme sports division. Between February 1999 and April 1999 we acquired three operating entities engaged in the business of providing integrated internet access and professional consulting services, and, on July 9, 1999, we changed our name to A1 Internet.com, Inc. to more accurately reflect our then-current operations. In June 2000, in addition to our other operations, we entered into the business of providing long distance services. In December 2000, we discontinued the operations of several of our subsidiaries which were not focused on our then-core competencies, and on October 15, 2001 we changed our name to WorldTeq Group International, Inc. (“WorldTeq”).
Effective April 7, 2005 we completed a 1-for-30 reverse stock split of our outstanding shares of common stock and changed our name to China Print, Inc., in anticipation of entering into an agreement and plan of merger with Harbin Yinhai Technology Development Company Ltd., a People’s Republic of China company (“HYT”). In June of 2005, the transaction with HYT was terminated.
On September 19, 2005, we entered into an agreement with CYIOS Corporation, a District of Columbia corporation (“CYIOS® DC”), and Timothy Carnahan, whereby we acquired 100% of the issued and outstanding capital stock of CYIOS® DC in exchange for 19,135,000 shares or our common stock. On September 27, 2005 we changed our name to CYIOS® Corporation.
Overview of Principal Products and Services
CYIOS® is a holding company made up of two operating subsidiaries: CYIOS Corporation, a District of Columbia corporation (“CYIOS® DC”), and CKO Inc., a District of Columbia corporation (“CKO”). CYIOS® DC builds knowledge management solutions, supports organizations with business continuity and IT services for the Department of Defense (“DoD”) community. CKO is the product arm of CYIOS® that offers CYIPRO™, a business transformation tool that utilizes the first project-based operating system to build knowledge centric organizations. CYIPRO™ provides a virtual work space for collaboration, project management, and document management to help manage people, processes and information. CYIPRO™ also provides key solutions for compliance with Securities and Exchange Commission (“SEC”) Sarbanes-Oxley regulations and compliance with Defense Contract Audit Agency (“DCAA”) and performance based contracting for government contractors.
CYIOS® DC
We believe CYIOS® DC is recognized as a premier knowledge management solution provider for the DoD. Established in 1994, we have worked closely with the United States military as a small business contractor providing innovative and comprehensive solutions for the Army’s General Officers and high-level military agencies. We pioneered what we believe to be the largest knowledge management portal, U.S. Army Knowledge Online (“AKO”). We win our business through bidding against other companies for government contracts. These bids may be done independently or through teaming arrangements with other contractors.
Timothy Carnahan, our president and Chief Executive Officer, has over 14 years of executive and technical experience with the highest levels of the U.S. government. When supporting the Army General Officer Management Office, Mr. Carnahan designed and implemented the first Knowledge Management (“KM”) system for the Army, America’s Army Online, which became the core for AKO, the portal that supports over 1.8 million soldiers and civilians worldwide. We believe that AKO has become the KM paradigm for the DoD. The DoD intends to increase its KM spending from $387 million in the fiscal year 2005 to $524 million in the fiscal year 2010, representing a growing potential market for CYIOS®, where KM is our core competency in both product and service support.
With KM as a major focal point for us, the term and market need further explanation. KM is the name of a concept in which an enterprise consciously and comprehensively gathers, organizes, shares, and analyzes its information in terms of resources, documents, and people skills. In early 1998, it was believed that few enterprises actually had a comprehensive knowledge management practice (by any name) in operation. Advances in technology and the way we access and share information have changed that; it has been proven that successful organizations have some kind of knowledge management framework in place. KM involves data mining and a method or operation to share information among users.
We use our expertise in KM, performance-based contracting, enterprise management, and web-based application development to bid on U.S. government contracts. Historically the company has focused on supporting the U.S. Army, but under its new growth strategy, it is beginning to look at bids from other DoD agencies as well as all U.S. government agencies.
CKO
CKO Inc. markets and sells the software product CYIPRO™. CYIPRO™ is a secure, web-based virtual office that uses an array of tools to give any organization the ability to manage and retain knowledge, collaborate data and ideas, and securely store and share information, all for the purpose of making an organization more efficient and therefore more successful. Using the features of CYIPRO™, users can access and manage their entire organization online from any computer with an Internet connection and web browser or from a mobile device with Internet capability. The result: connected, organized and effective business practices.
The tools of our full online office suite include e-mail, document and file management, calendar, tasks, meetings, contacts, project management, reporting, and timesheet management. The power of managing knowledge and collaboration is unleashed when all of these individual components are shared and used within an entire organization, a division, or a project team. We believe CYIPRO™ will remove the dependency of working from an organization’s office, which will free employees to access their e-mail, documents, projects, contacts, and reports from any geographic location at anytime. We believe operational costs are also reduced as CYIPRO™ helps small businesses eliminate the burdensome expenses of owning and maintaining servers, associated software, and an internal or outsourced IT staff.
Recent Developments
In our last three announcements, January 28, 2010 February 8, 2010 and February 9, 2010 we describe what the Company has been doing in the last sixty days. CYIPRO will be a dominant factor moving forward in revenue growth and its target is the government telework initiative. CYIOS signed a term sheet for line of equity for 7 million dollars and we will be filing our S1 for SEC approval in the very short near term. We have made a few strides in our advisory board but nothing has fully come to fruition.
Our principal executive offices are located at 1300 Pennsylvania Avenue, Suite 700, Washington, D.C. 20004, and our telephone number is (202) 204-3006. The address of our website is www.cyios.com. Information on our website is not part of this prospectus.
Competition
As a small business, we have eliminated discussions of the mid to large size companies. In the small business space, there are generally about 300 IT contractors that bid against us. We further separate ourselves with our security clearance to an estimated 150 IT contractors. As we get into our specific field of KM, we estimate our competition is narrowed to under 50 companies.
Dependence on Few Major Customers
We are either a prime or sub contractor on contracts with Titan Corporation, Information Management Support Center and GOMO/SLD. Loss of these contracts could have a material adverse effect upon our financial condition and results of operations. We believe that federal governmental agencies will continue to be the source of all or substantially all of our revenues for the foreseeable future.
Government Regulations
All work performed in our space is governed by the federal acquisition regulation. There are small deviations from this named defense federal acquisition regulation.
Intellectual Property
Overview
We rely on a combination of trademarks, trade secrets and contract law rights in order to protect our brand, intellectual property assets and confidential or proprietary information (our “Proprietary Rights”). Our Proprietary Rights are among the most important assets we possess and we depend significantly on these Proprietary Rights in being able to effectively compete in our industry. We cannot be certain that the precautions we have taken to safeguard our Proprietary Rights will provide meaningful protection from the unauthorized use by others. If we must pursue litigation in the future to enforce or otherwise protect our Proprietary Rights, or to determine the validity and scope of the rights of others, we may not prevail and will likely have to make substantial expenditures and divert valuable resources in the process. Moreover, we may not have adequate remedies if our Proprietary Rights are appropriated or disclosed.
Trademarks
As of the fiscal year ended December 31, 2009, CYIOS DC has registered the CYIOS®, and CKO has applied for registration of the CYIPRO™ logo with the United States Patent and Trademark Office in order to establish and protect our brand name and logo as part of our Proprietary Rights.
Copyrights
We claim copyright protection and rights to our CYIPRO™ software and operating system.
Trade Secrets
Whenever we deem it important for purposes of maintaining competitive advantages, we will require parties with whom we share, or who otherwise are likely to become privy to, our trade secrets or other confidential information to execute and deliver to us confidentiality and/or non-disclosure agreements. Among others, this may include employees, consultants and other advisors, each of whom we would require execute such an agreement upon commencement of their employment, consulting or advisory relationships. These agreements will generally provide that all confidential information developed or made known to the individual by us during the course of the individual’s relationship with us is to be kept confidential and not to be disclosed to third parties except under specific circumstances.
As of the fiscal year ended December 31, 2009, we have entered into no confidentiality and/or non-disclosure agreements with our employees, consultants or advisors.
The Offering
This prospectus relates to the resale of up to 3,500,000 shares of our common stock by Auctus. Auctus will obtain our common stock pursuant to a Drawdown Equity Financing Agreement, effective March 24, 2010, entered into by Auctus and us.
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Common stock offered:
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Up to 3,500,000 shares of common stock, no par value, to be offered for resale by Auctus.
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Common stock to be outstanding after this offering:
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38,648,877shares to be outstanding after this offering
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Use of proceeds:
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We will not receive any proceeds from the sale of the shares of common stock offered by Auctus. However, we will receive proceeds from the Equity Line of Credit. See “Use of Proceeds”.
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Risk factors:
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An investment in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 3 of this prospectus.
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OTC Bulletin Board symbol:
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“CYIO.OB”
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ITEM 3 - RISK FACTORS
Investing in our shares is very risky. Before making an investment decision, you should carefully consider all of the risks described in this prospectus. If any of the risks discussed in this prospectus actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the price of our shares could decline significantly and you might lose all or a part of your investment. The risk factors described below are not the only ones that may affect us. Our forward-looking statements in this prospectus are also subject to the following risks and uncertainties. In deciding whether to purchase our shares, you should carefully consider the following factors, among others, as well as information contained in this prospectus, and our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q:
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, 2009, and as a result of historical operating losses from prior years, our accumulated deficit was $23,890,616. 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.
ITEM 3 - 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 fiscal year ended December 31, 2009, 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:
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terminate current contracts at any time for the convenience of the government, provided such termination is made in good faith;
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cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;
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curtail or modify current contracts if requirements or budgetary constraints change; and
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adjust contract costs and fees on the basis of audits done by its agencies.
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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:
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the Federal Acquisition Regulations and their supplements, which regulate the formation, administration and performance of federal government contracts;
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the Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with contract negotiations; and
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the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under certain cost-based government contracts.
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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 presently do not maintain key person life insurance on, and 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.
ITEM 3 - Risk Factors Related to Our Securities, the Equity Line of Credit and This Offering
We are registering an aggregate of 3,500,000 shares of common stock to be issued under the Equity Line of Credit. The sale of such shares could depress the market price of our common stock.
We are registering an aggregate of 3,500,000 shares of common stock under the registration statement of which this prospectus forms a part for issuance pursuant to the Equity Line of Credit. The sale of these shares into the public market by Auctus could depress the market price of our common stock. As of March 24, 2010, there were 35,148,877 shares of our common stock issued and outstanding.
We May Not Have Access to the Full Amount under the Equity Line.
During the period ended March 24, 2010, the closing price of our common stock was $0.06. There is no assurance that the market price of our common stock will increase substantially in the near future. The entire commitment under the Equity Line of Credit is $7,000,000. Presumably we will maintain the market price of our common stock at or around $0.06 per share, we need to issue 116,666,667 shares of common stock to Auctus in order to have access to the full remaining amount under the Equity Line of Credit. We are authorized to issue 100,000,000 shares of common stock and have 35,148,877 shares issued and outstanding as of March 24, 2010. The number of common shares that remains issuable is lower than the number of common shares we need to issue in order to have access to the full amount under the Equity Line of Credit. Therefore, we may not have access to the remaining commitment under the equity line unless we amend our Articles of Incorporation to increase the number of authorized common shares and/or the market price of our common stock increase substantially.
Auctus will pay less than the then-prevailing market price for our common stock.
The common stock to be issued to Auctus pursuant to the Drawdown Equity Financing Agreement will be purchased at a six percent (6%) discount to the lowest closing “best bid” price of the common stock during the five consecutive trading days immediately following the date of our notice to Auctus of our Drawdown Notice. Auctus has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Auctus sells the shares, the price of our common stock could decrease. If our stock price decreases, Auctus may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price.
However, Auctus shall immediately cease selling any shares if the stock price falls below seventy-five (75%) of the average closing bid price of the stock over the preceding ten (10) trading days prior to any Drawdown Notice.
There may not be sufficient trading volume in our common stock to permit us to generate adequate funds.
The Drawdown Equity Financing Agreement provides that the dollar value that we will be permitted to draw from Auctus will be either: (A) 200% of the average daily volume in the US market of the common stock for the twenty trading days prior to the Drawdown Notice, or (B) $200,000. If the average daily trading volume in our common stock is too low, it is possible that we would only be permitted to draw $200,000, which may not provide adequate funding for our planned operations.
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:
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the trading volume of our shares;
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the number of securities analysts, market-makers and brokers following our common stock;
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changes in, or failure to achieve, financial estimates by securities analysts;
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new products or services introduced or announced by us or our competitors;
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actual or anticipated variations in quarterly operating results;
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conditions or trends in our business industries;
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announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
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additions or departures of key personnel;
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sales of our common stock; and
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general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies.
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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:
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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;
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provide the prospective investor with current bid and ask quotations for the penny stock;
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explain to the prospective investor the compensation of the broker-dealer and its salesperson in the transaction;
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provide investors monthly account statements showing the market value of each penny stock held in the their account; and
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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.
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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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements, other than statements of historical fact, contained in this prospectus constitute forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “project,” “potential,” or the negative of these terms and similar expressions intended to identify forward-looking statements.
Forward-looking statements are based on assumptions and estimates and are subject to risks and uncertainties. We have identified in this prospectus some of the factors that may cause actual results to differ materially from those expressed or assumed in any of our forward-looking statements. There may be other factors not so identified. You should not place undue reliance on our forward-looking statements. As you read this prospectus, you should understand that these statements are not guarantees of performance or results. Further, any forward-looking statement speaks only as of the date on which it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect and it is not possible for us to predict all of them. Factors that may cause actual results to differ materially from those expressed or implied by our forward-looking statements include, but are not limited to, those described under the heading “Risk Factors” beginning on page 3, as well as the following:
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Our limited operating history and business development associated with being a growth stage company;
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General economic and capital market conditions;
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Our history of operating losses, which we expect to continue;
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Our exposure to unanticipated and uncontrollable business interruptions;
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Our ability to generate enough positive cash flow to pay our creditors and continue our operations;
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Pricing and product actions taken by our competitors in either our organ and tissue preservation or alternative energy markets;
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Our dependence on key personnel;
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Financial condition of our prospective customers;
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Our need to attract and retain technical and managerial personnel;
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Customers’ perception of our financial condition relative to that of our competitors;
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Our ability to execute our business strategy;
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Changes in United States or foreign tax laws or regulations;
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Our ability to protect our intellectual property and proprietary technologies;
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Unforeseen liabilities resulting from litigation;
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Costs associated with potential infringement claims asserted by a third party;
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Our ability to successfully complete the integration of any future acquisitions; and ability to protect, and build recognition of, our trademarks and trade names;
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Our ability to project the markets for our products and services based upon estimates and assumptions.
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Reliance on Management.
The investors will have no rights to participate in the management decisions of the Company; the shareholder will only have such rights as other shareholders.
ITEM 4 - USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock offered by Auctus. However, we will receive proceeds from the sale of our common stock to Auctus pursuant to the Drawdown Equity Financing Agreement. These proceeds will be used for working capital, general corporate expenses, and payments to any acquisitions, as discussed below.
We propose to expend these proceeds as follows:
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Proceeds if 100% shares sold
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Proceeds if 50%
sold
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Gross proceeds
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250,000 | 125,000 | ||||||
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Offering expenses:
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Legal fees
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5,000 | 5,000 | ||||||
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Printing of prospectus
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1,000 | 1,000 | ||||||
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Accounting and auditing fees
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1,000 | 1,000 | ||||||
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State securities fees
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0 | 0 | ||||||
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Transfer agent fees
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500 | 500 | ||||||
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Miscellaneous expenses
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200 | 200 | ||||||
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Total offering expenses
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7,700 | 7,700 | ||||||
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Net proceeds
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242,300 | 117,300 | ||||||
ITEM 5 - DETERMINATION OF OFFERING PRICE
The offering price, the market price, of the common stock bears no relationship to any objective criterion of value. The price does not bear any relationship to the Company’s assets, book value, historical earnings, or net worth. In determining the offering price, management considered such factors as the prospects, if any, for similar companies, anticipated results of operations, present financial resources and the likelihood of acceptance of this offering. Accordingly, the offering price should not be considered an indication of the actual value of our securities.
ITEM 6 – Dilution
Existing stockholders may experience significant dilution from the sale of our common stock pursuant to the Drawdown Agreement.
The sale of our common stock to Auctus in accordance with the Drawdown Equity Facility Agreement may have a dilutive impact on our shareholders. As a result, our net income per share could decrease in future periods and the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our put option, the more shares of our common stock we will have to issue to Auctus. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering.
The perceived risk of dilution may cause our stockholders to sell their shares, which would contribute to a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.
Although the amount of shares that we may issue pursuant to the equity line will vary based on our stock price (the higher our stock price, the less shares we have to issue) the information set out below indicates the potential dilution of our shareholders if the full amount of the equity line is exercised.
FOR EXAMPLE
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Stock Price
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Shares Issued*
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Percentage of
Outstanding Shares*
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$0.06 (Current Price)
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116,666,667 | 332 | % | |||||
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$0.10 (above)
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70,000,000 | 199 | % | |||||
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$0.045 (25% below)
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155,555,555 | 443 | % | |||||
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*
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Based on total $7,000,000 equity drawdown being accessed by the Company.
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**
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Based on 35,148,877 shares outstanding as of March 24, 2010.
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ITEM 7 - SELLING SECURITY HOLDERS
We agreed to register for resale shares of common stock of the selling security holder. The selling security holder may from time to time offer and sell any or all of their shares that are registered under this prospectus. The selling security holder and any participating broker-dealers are “underwriters” within the meaning of the Securities Act of 1933, as amended. All expenses incurred with respect to the registration of the common stock will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commissions or other expenses incurred by the selling security holder in connection with the sale of such shares.
The following table sets forth information with respect to the maximum number of shares of common stock beneficially owned by the selling security holder named below and as adjusted to give effect to the sale of the shares offered hereby. The shares beneficially owned have been determined in accordance with rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. The information in the table below is current as of the date of this prospectus. All information contained in the table below is based upon information provided to us by the selling security holder and we have not independently verified this information. The selling security holder is not making any representation that any shares covered by the prospectus will be offered for sale. The selling security holder may from time to time offer and sell pursuant to this prospectus any or all of the common stock being registered.
Except as indicated below, the selling security holder has not held any position or office with us, nor are any of the selling security holder associates or affiliates of any of our officers or directors. Except as indicated below, the selling stock holder is not the beneficial owner of any additional shares of common stock or other equity securities issued by us or any securities convertible into, or exercisable or exchangeable for, our equity securities. The selling security holder is not a registered broker-dealer or an affiliate of a broker-dealer.
For purposes of this table, beneficial ownership is determined in accordance with SEC rules, and includes voting power and investment power with respect to shares and shares owned pursuant to warrants exercisable within 60 days. The "Number of Shares Beneficially Owned After the Offering” column assumes the sale of all shares offered.
As explained below under “Plan of Distribution,” we have agreed with the selling security holder to bear certain expenses (other than broker discounts and commissions, if any) in connection with the registration statement, which includes this prospectus.
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Name
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Number of Shares
Beneficially Owned Prior to Offering (1)
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Number of
Shares Offered
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Number of Shares
Beneficially Owned
after the Offering
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Auctus Private Equity Fund, LLC (2)
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100,000 | 3,500,000 | 0 | |||||||||
(1) The actual number of shares of common stock offered in this prospectus, and included in the registration statement of which this prospectus is a part, includes such additional number of shares of common stock as may be issued or issuable upon draw downs under the Auctus credit facility.
(2) Al Sollami is a managing member of Auctus Private Equity Fund, LLC.
ITEM 8 - PLAN OF DISTRIBUTION
Drawdown Equity Finance Agreement / Registration Rights Agreement
On March 24, 2010, we entered into Drawdown Equity Finance Agreement and Registration Rights Agreement with Auctus Private Equity Fund, LLC in order to establish a possible source of funding for us. The equity line of credit agreement establishes what is sometimes also referred to as an equity drawdown facility.
Under the equity line of credit agreement, Auctus has agreed to provide us with up to $7,000,000 of funding over a thirty-six (36) month period from the effective date of this prospectus; 3,500,000 shares of our common stock are being registered pursuant to this prospectus. During this period, we may request a drawdown under the equity line of credit by selling shares of our common stock to Auctus and Auctus will be obligated to purchase the shares. We may request a drawdown once every five trading days, although we are under no obligation to request any drawdowns under the equity line of credit. There must be a minimum of five trading days between each drawdown request.
We may request a drawdown by sending a drawdown notice to Auctus, stating the amount of the draw down and the price per share, which shall be the lowest closing bid price of our common stock during the preceding five trading days. During the five trading days following a drawdown request, we will calculate the amount of shares we will sell to Auctus and the purchase price per share. The number of shares of Common Stock that Auctus shall purchase pursuant to each advance shall be determined by dividing the amount of the advance by the purchase price.
The purchase price per share of common stock will be set at ninety-four percent (94%) of the lowest closing bid of the common stock during the pricing period. Further, Auctus shall immediately cease selling any shares of our common stock within a drawdown notice if the price of the Company’s common stock falls below 75% of the average closing bid price of the common stock over the preceding ten (10) trading days prior to the drawdown notice date; such floor can be waived only in the sole discretion of the Company.
There is no minimum amount we can draw down at any one time. The maximum amount we can draw down at any one time is the larger of $200,000; or 200% of the average daily volume based on the trailing ten days preceding the drawdown notice date.
Upon effectiveness of the Registration Statement, the Company shall deliver Instructions to its transfer agent to issue shares of Common Stock to the Investor free of restrictive legends on or before each advance date.
Pursuant to the Drawdown Agreement, Auctus shall not be issued shares of the Company’s common stock that would result in its beneficial ownership equaling more than 4.99% of the outstanding common stock of the Company.
The obligation of Auctus to make an advance to the Company pursuant to the Drawdown Agreement shall terminate permanently in the event that (i) there shall occur any stop order or suspension of the effectiveness of this registration statement for an aggregate of fifty (50) trading days, other than due to the acts of Auctus, during the commitment period, or (ii) the Company shall at any time fail materially to comply with the requirements contained in the Drawdown Agreement and such failure is not cured within thirty (30) days after receipt of written notice from the Investor, provided, however, that the termination provision shall not apply to any period commencing upon the filing of a post-effective amendment to this registration statement and ending upon the date on which such post-effective amendment is declared effective by the SEC.
On March 24, 2010 the Company signed a Registration Rights Agreement with Auctus requiring, among other things, that the Company prepare and file with the SEC Form S-1, or on such other form as is available no later than one hundred and twenty (120) days after signing. In addition, the Company shall use all commercially reasonable efforts to have the Registration Statement(s) declared effective by the SEC within one hundred and twenty (120) calendar days from the date that the Registration Statement is filed with the SEC.
As per the Drawdown Agreement, none of Auctus’s obligation thereunder are transferrable and may not be assigned to a third party.
ITEM 9 - DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 100,000,000 shares of common stock at a par value of $0.0001 per share and 5,000,000 shares of convertible preferred shares. There are no provisions in our charter or by-laws that would delay, defer or prevent a change in our control.
Common Stock
As of December 31, 2009, 35,148,877 shares of common stock are issued and outstanding and held by 102 stockholders. Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder vote.
Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation.
Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Dividends
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Warrants
There are no outstanding warrants to purchase our securities.
Options
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.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of $.001 par value, non-voting, convertible preferred shares. The preferred shares are convertible to common shares at a 1 to 1 ratio. As of December 31, 2009, the Company had 29,713 preferred shares outstanding. During 2009 and 2008, the Company did not issue any preferred shares of stock.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock is listed on the OTCBB under the symbol "CYIO.OB". The following table sets forth, for the periods indicated, the high and low bid prices for our common stock on the OTCBB as reported by various Bulletin Board market makers. The quotations do not reflect adjustments for retail mark-ups, mark-downs, or commissions and may not necessarily reflect actual transactions.
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Year Ended December 31, 2009
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Year Ended December 31, 2008
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High
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Low
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High
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Low
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First Quarter
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$ | 0.11 | $ | 0.09 | $ | 0.13 | $ | 0.10 | ||||||||
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Second Quarter
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$ | 0.13 | $ | 0.12 | $ | 0.10 | $ | 0.09 | ||||||||
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Third Quarter
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$ | 0.08 | $ | 0.07 | $ | 0.06 | $ | 0.05 | ||||||||
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Fourth Quarter
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$ | 0.06 | $ | 0.05 | $ | 0.04 | $ | 0.03 | ||||||||
As of the fiscal year ended December 31, 2009 we had approximately 102 shareholders of record (excluding the number of persons or entities holding shares of our common stock in nominee or street name through one or more brokerage firms).
Dividends
We have neither declared nor paid any cash dividends on our shares of common stock and do not anticipate declaring or paying any dividends in the foreseeable future. The decision to declare future dividends, if any, will depend upon our results of operations, financial condition, current and future anticipated capital requirements, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors may deem relevant. Although it is our intention to retain future earnings, if any, for use in our business operations, there are currently no restrictions in place that would limit our ability to pay dividends.
Reverse Stock Split
Effective April 7, 2005 we completed a 1-for-30 reverse stock split of our outstanding shares of common and preferred stock, unless otherwise indicated all references to our outstanding shares of common stock in this annual report on Form 10-K reflect the reverse stock split.
Equity Incentive Plans
On April 21, 2006, the sole member of our board of directors approved the adoption of our 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 there under, 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 our board of directors prior to such anniversary date. The 2006 Plan has a term of 10 years and may be administered by our board of directors or by a committee made up of not less than 2 members of appointed by our 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 our board of directors.
On November 12, 2007, the sole member of our board of directors approved the adoption of our 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 there under, 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 our board of directors or by a committee appointed by our 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 our 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.
The following table sets forth information as of the fiscal year ended December 31, 2009 with respect to the shares of our common stock that may be issue under each of our 2006 Plan and 2007 Plan.
|
Equity Compensation Plan Information
|
|||||||||||
|
Number of securities to be issued upon exercise of outstanding options, warrants
|
Weighted-average exercise price of outstanding options, warrants and rights
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|||||||||
|
Plan Category
|
(a)
|
(b)
|
(c)
|
||||||||
|
Equity compensation plans approved by security holders
|
— | — | — | ||||||||
|
Equity compensation plans not approved by security holders
|
— | — | 35,700 | ||||||||
|
Total
|
— | — | 35,700 | ||||||||
Recent Sales of Unregistered Securities
There were no previously unreported sales of unregistered securities during the fiscal year ended December 31, 2009.
Purchases of Equity Securities
There were no repurchases of equity securities during the fourth quarter of the fiscal year ended December 31, 2009.
PENNY STOCK RULES
The Securities and Exchange Commission has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
A purchaser is purchasing penny stock, which limits the ability to sell the stock. The shares offered by this prospectus constitute penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document, which:
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|
·
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Contains a description of the nature and level of risk in the market for penny stock in both Public offerings and secondary trading;
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·
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Contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the Securities Act of 1934, as amended;
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·
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Contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” price for the penny stock and the significance of the spread between the bid and ask price;
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·
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Contains a toll-free number for inquiries on disciplinary actions;
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·
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Defines significant terms in the disclosure document or in the conduct of trading penny stocks; and
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·
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Contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation.
|
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:
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·
|
The bid and offer quotations for the penny stock;
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·
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The compensation of the broker-dealer and its salesperson in the transaction;
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·
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The number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
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|
·
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Monthly account statements showing the market value of each penny stock held in the customer’s account.
|
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.
ITEM 10 - INTEREST OF NAMED EXPERTS AND COUNSEL
None of the experts named herein was or is a promoter, underwriter, voting trustee, director, officer or employee of CYIOS Corp. Furthermore, none of the experts was hired on a contingent basis and none of the other experts named herein will receive a direct or indirect interest in CYIOS.
ITEM 11 – Information with Respect to the Registrant.
TRANSFER AGENT
The Transfer Agent and Registrar for the common stock is
Corporate Stock Transfer
3200 Cherry Creek Drive South
Suite 430
Denver, CO 80209
303-282-4800 (phone)
303-777-3094 (fax).
EXPERTS
Our financial statements as of December 31, 2009 and for the periods then ended, have been included in this prospectus and in the registration statement filed with the Securities and Exchange Commission in reliance upon the reports of our independent registered public accounting firm, dated February 23, 2010 and April 9, 2010 upon authority as experts in accounting and auditing. Jewitt Schwartz Wolfe and Associates and Baum & Co., PA and report on the financial statements can be found at the end of this prospectus and in the registration statement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements, related notes, and other detailed information included elsewhere in this registration statement. Our financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”), 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. Certain information contained below and elsewhere in this registration statement, including information regarding our plans and strategy for our business, constitute forward-looking statements. See "Note Regarding Forward-Looking Statements.”
Overview
We believe that we are a leading systems integrator and knowledge management solutions provider supporting the United States Army. All of our revenue is derived from the services provided pursuant to single and multiple year awards to different U.S. Army and federal government agencies. CKO, Inc., one of our operating subsidiaries, provides a designed online office management product which is known as CYIPRO™. For the years ended December 31, 2009 and 2008, we received no revenue from CYIPRO™.
Results of Operations
Sales/Net Profit
The total sales for our active subsidiary, CYIOS Corporation, a District of Columbia corporation, for the fiscal year ended December 31, 2009, were $1,881,897 compared to $1,494,872 for the fiscal year ended December 31, 2008; an increase in sales of $387,025 or 26%. Our other active subsidiary, CKO, Inc., a District of Columbia corporation, produced no revenue for the fiscal years ended December 31, 2009 and 2008. Operating net loss for the year ended December 31, 2009 was $21,044, or net operating loss per share $.00, compared to a net operating income for the fiscal year ended December 31, 2008 of $202,729, or a net operating income per share of $.01. Net income from discontinued operations was $17,068 for the year ended December 31, 2009 and $256,497 for the year ended December 31, 2008. This income from discontinued operations was the result of a write-off of old Accounts Payable debts that have been carried on the financial statements of WorldTeq Corporation which is a subsidiary of the company with discontinued operations. Management has determined that the amount that has been written off is reasonable based on the fact that they exceed the statute of limitations for collection of debts. Total net loss for the year ended December 31, 2009 was $3,976 or a net loss per share of $.00 as compared to total net income for the year ended December 31, 2008 in the amount of $53,768 or a net income per share of $.00. In 2006, management made the decision to expand our operations by attempting to increase our business with the Department of Defense and the rest of the federal government. In order to achieve this goal, we have actively bid on request for proposals by different departments and their agencies. We have, and will continue to invest all of our earnings into additional personnel to help achieve this goal. We believe that our efforts in working to achieve the aforementioned goals will help turn our operating losses into a net profit in the fiscal year ended December 31, 2010 and beyond.
Cost of Sales
Cost of sales for the fiscal year ended December 31, 2009 was $1,094,786 compared to cost of sales for the fiscal year ended December 31, 2008 in the amount of $781,909; an increase of $312,877 or approximately 40%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal years ended December 31, 2009 and 2008 were $68,883 and $179,371, respectively; a decrease of $110,488 or 62%.
Other Expenses
Total other expenses for the fiscal year ended December 31, 2009 and 2008 were $739,079 and $732,257, respectively; an increase of $6,822 or .93%. The total other expenses of $738,079 in the fiscal year ended December 31, 2009 consisted primarily of $598,225 in indirect labor and $140,854 in professional service and consulting fees and depreciation. The total other expenses of $732,257 for the fiscal year ended December 31, 2008 consisted primarily of $521,681 in indirect labor and $210,576 in professional services fees and depreciation.
Liquidity and Capital Resources
At December 31, 2009, we had cash and cash equivalents of $76,448, compared to $27,070 at December 31, 2008, an increase of $49,378.
During the fiscal year ended December 31, 2009, cash provided by operating activities was $18,442, consisting primarily of the Net Loss of $3,976 offset by:
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|
·
|
Non-cash charges related to Depreciation charges of $784, Valuation of Shares issued for consulting services of $167,667, Reduction in Liabilities from Discontinued Operations of $17,068; and
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|
|
·
|
Working capital changes of $128,965, consisting primarily of a net increase in Accounts Receivable, Other Assets in the amount of $176,994 offset by a net increase in Payroll Taxes Payable, Accounts Payable, and Accruals in the amount of $48,029.
|
Cash provided by investing activities for the fiscal year ended December 31, 2009 was $28,228 for the payments received on the Related Party Loan.
Cash provided by financing activities for the fiscal year ended December 31, 2009 was $2,708; consisting primarily of:
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|
·
|
Proceeds from the sale of Common Stock in the amount of $20,000; and
|
|
|
·
|
Payments made on the Line of Credit in the amount of $17,292.
|
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
As of the fiscal year ended December 31, 2009, we did not have any off-balance sheet arrangements as defined in Item 303(c)(2) of Regulation S-B.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. We have identified the following accounting policies, described below, as the most critical to an understanding of our current financial condition and results of operations.
Revenue Recognition
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. We follow Statement of Position (“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 us 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.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162”. SFAS No. 168 made the FASB Accounting Standards Codification (the Codification) the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASU). The FASB will not consider ASUs as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification.
In August 2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures—Overall”. The update provides clarification that in circumstances, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update. The amendments in this ASU clarify that a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability and also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in this ASU is effective for the first reporting period, including interim periods, beginning after issuance. The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
In September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740), ”Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for nonpublic entities. For entities that are currently applying the standards for accounting for uncertainty in income taxes, this update shall be effective for interim and annual periods ending after September 15, 2009. For those entities that have deferred the application of accounting for uncertainty in income taxes in accordance with paragraph 740-10-65-1(e), this update shall be effective upon adoption of those standards. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.
In September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted. The adoption of this standard did not have an impact on the Company’s consolidated financial position and results of operations.
In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
DESCRIPTION OF PROPERTY
All of our property is leased and we do not own any real property.
Our headquarters are located at The Ronald Reagan Building, 1300 Pennsylvania Ave, Suite 700 Washington D.C. 20004. We lease this 150 square foot space for a term of 12 months, with 8 months remaining on the lease as of the fiscal year ended December 31, 2009, at a rate of $1,476 per month. There are two employees based in our headquarters, the remaining employees work on-site at our customers’ locations, and, as such we do not maintain separate office or other space for these employees.
LEGAL PROCEEDINGS
None.
ITEM 11 - SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the detailed financial statements appearing elsewhere in this prospectus. This information should be read in conjunction with those financial statements and related notes, and the “use of Proceeds” and “Plan of Operation” sections included in the prospectus.
|
As of December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Balance Sheet Data:
|
||||||||
|
Cash and cash equivalents
|
$ | 76,448 | $ | 27,070 | ||||
|
Property and equipment net of depreciation
|
2,220 | 3,004 | ||||||
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Total assets
|
529,245 | 331,884 | ||||||
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Total liabilities
|
170,621 | 159,952 | ||||||
|
Stockholders’ Equity
|
358,624 | 174,932 | ||||||
STATEMENT OF OPERATIONS DATA
|
For the years ending
December 31, 2009 &2008
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenues
|
$ | 1,881,897 | $ | 1,494,872 | ||||
|
Total cost and expenses
|
1,889,796 | 1,693,537 | ||||||
|
Other Income (Expense)
|
(3,144 | ) | (4,064 | ) | ||||
|
Net Loss from Continuing Operations
|
(21,044 | ) | (202,729 | ) | ||||
|
Net Income from Discontinued Operations
|
17,068 | 256,497 | ||||||
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Net Income (Loss)
|
(3,976 | ) | 53,768 | |||||
|
Net Income/(Loss) per share—basic and fully diluted
|
$ | 0.00 | $ | 0.00 | ||||
MANAGEMENT
The following table sets forth information regarding our executive officers and directors as of December 31, 2009.
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Name
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Age
|
Position
|
||
|
Timothy W. Carnahan
|
42
|
Director, Chief Executive Officer and Treasurer
|
Timothy Carnahan has served as our Chief Executive Officer, Treasurer and Chairman of our board of directors since September 2005. Previously, from July 2004 through September 2005 Mr. Carnahan served as the President and founder of CKO, Inc., a District of Columbia corporation (“CKO”), and from April 1995 through September 2005 as the President and founder of CYIOS Corporation, a District of Columbia corporation (“CYIOS DC”). CKO and CYIOS DC presently make up our two operating subsidiaries. Mr. Carnahan has some level of security clearance at the Department of Defense. Mr. Carnahan holds a Bachelor of Science degree in Computer Science from Old Dominion University.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Legal Proceedings
During the past five years, none of our directors, executive officers or control persons have been involved in any of the following events:
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·
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any bankruptcy petition filed by or against any business of which such person was an executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
|
·
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any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
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·
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being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and
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|
|
·
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being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Current Issues and Future Management Expectations
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, paid to or earned by our Chief Executive Officer, who was our only executive officer during the fiscal year ended December 31, 2009.
|
Summary Compensation Table
|
|||||||||||||||||||||||||||||||||
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Name and principal position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity Incentive Plan Compensation
($)
|
Non-qualified Deferred Compensation Earnings
($)
|
All Other Compensation
($)
|
Total Compensation ($)
|
||||||||||||||||||||||||
|
Timothy Carnahan, Chief Executive Officer
|
2009
|
$ | 151,534 | -- | -- | -- | -- | -- | -- | $ | 151,534 | ||||||||||||||||||||||
The following table sets forth certain information concerning unexercised options, stock that has not vested, and equity incentive plan awards for each of our named executive officers outstanding as of December 31, 2009.
|
Outstanding Equity Awards at Fiscal Year-End
|
||||||||||||||||||||||||||||||||||||
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Option Awards
|
Stock Awards
|
|||||||||||||||||||||||||||||||||||
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Name
|
Number of securities underlying unexercised options (#) Exercisable
|
Number of securities underlying unexercised options (#)
Unexercisable
|
Equity Incentive Plan Awards: Number of Securities underlying unexercised unearned options (#)
|
Option exercise price ($)
|
Option expiration date
|
Number of shares or units of stock that have not vested (#)
|
Market value of shares or units of stock that have not vested ($)
|
Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)
|
Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
|
|||||||||||||||||||||||||||
|
Timothy Carnahan, Chief Executive Officer
|
-- | -- | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||||||||
Director Compensation
No salary or regular compensation is paid to our directors. Pursuant to our bylaws, our directors are eligible to be reimbursed for their actual out-of-pocket expenses incurred in attending board meetings and other director functions, as well as fixed fees and other compensation to be determined by our board of directors. No such compensation or expense reimbursements have been requested by our directors or paid to date.
Security Ownership of Certain Beneficial Owners & Management and Related
Stockholder Matters
The following table sets forth certain information regarding the beneficial ownership of our common stock as of February 25, 2010. The information in this table provides the ownership information for:
|
|
·
|
each person known by us to be the beneficial owner of more than 5% of our common stock;
|
|
|
·
|
each of our directors and executive officers; and
|
|
|
·
|
all of our directors and executive officers as a group.
|
Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock and those rights to acquire additional shares within sixty days. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares of common stock indicated as beneficially owned by them, except to the extent such power may be shared with a spouse. Common stock beneficially owned and percentage ownership is based on 35,148,877 shares of common stock currently outstanding and no additional shares potentially acquired within sixty days.
|
Name and address of beneficial owner (1)
|
Amount and nature of beneficial ownership
|
Percent of Class
|
||||||
|
Timothy Carnahan
|
20,976,294 | 59.68 | % | |||||
|
All officers and directors as a group
|
20,976,294 | 59.68 | % | |||||
|
|
(1)
|
The address of each person listed is care of CYIOS Corporation, 1300 Pennsylvania Avenue, Suite 700, Washington D.C. 20004.
|
EMPLOYEES
As of December 31, 2009, we had 17 full-time employees, with 2.5 in executive management and administration, 1.5 in product development and technical operations, and 13 on service contracts on either prime or subcontracted contracts with the United States federal government.
We are not subject to any collective bargaining agreements and believe our relationships with our employees to be excellent.
EMPLOYMENT AGREEMENTS
None.
ITEM 11a – Material Changes
None.
ITEM 12 – Incorporation by Reference
None.
ITEM 12a – Disclosure of Commission Position on Indemnification for Securities Act Liabilities.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS REGARDING INDEMIFICATION OF DIRECTORS AND OFFICERS REGARDING INDEMNIFICATION
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1, Quarterly Report on 10-Qs and Annual Report on 10-Ks. This prospectus, which is a part of the registration statement, does not contain all of the information included in the registration statement. Some information is omitted, and you should refer to the registration statement and its exhibits. With respect to references made in this prospectus to any contract, agreement or other document of ours, such references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. You may review a copy of the registration statement, including exhibits, at the Securities and Exchange Commission's public reference room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The public may obtain information on the operation of the public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330.
We will also file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements or other information on file at the public reference rooms. You can also request copies of these documents, for a copying fee, by writing to the Securities and Exchange Commission.
Our Securities and Exchange Commission filings and the registration statement can also be reviewed by accessing the Securities and Exchange Commission's Internet site at http://www.sec.gov, which contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission.
You should rely only on the information provided in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. We are not making an offer to sell, nor soliciting an offer to buy, these securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or our affairs have not changed since the date hereof.
CYIOS Corporation and Subsidiaries
|
Index to Consolidated Financial Statements
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
F-18
|
|
Consolidated Balance Sheet as of December 31, 2009 and 2008
|
F-21
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008
|
F-22
|
|
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009 and 2008
|
F-23
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008
|
F-24
|
|
Notes to the Consolidated Financial Statements
|
F-26
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the board of directors and stockholders of
Cyios Corporation
We have audited the accompanying consolidated balance sheet of Cyios Corporation as of December 31, 2009 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cyios Corporation as of December 31, 2009 and the results of its operations and its cash flows for the year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
/s/ Jewett, Schwartz, Wolfe and Associates
Hollywood, Florida
February 23, 2010
CYIOS Corporation and Subsidiaries
Consolidated Balance Sheets
|
As of December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and Cash Equivalents
|
$ | 76,448 | $ | 27,070 | ||||
|
Accounts Receivable
|
114,596 | 23,181 | ||||||
|
Prepaid and Other Current Assets
|
101,697 | 16,117 | ||||||
|
TOTAL CURRENT ASSETS
|
292,741 | 66,368 | ||||||
|
FIXED ASSETS, NET
|
2,220 | 3,004 | ||||||
|
OTHER ASSETS
|
||||||||
|
Related Party Loan
|
234,284 | 262,512 | ||||||
|
TOTAL OTHER ASSETS
|
234,284 | 262,512 | ||||||
|
TOTAL ASSETS
|
$ | 529,245 | $ | 331,884 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
LIABILITIES
|
||||||||
|
Current Liabilities:
|
||||||||
|
Line of Credit
|
$ | 71,100 | $ | 88,392 | ||||
|
Accounts Payable
|
4,045 | 46,113 | ||||||
|
Accruals and Other Payables
|
95,476 | 22,447 | ||||||
|
TOTAL LIABILITIES
|
170,621 | 156,952 | ||||||
|
STOCKHOLDERS' EQUITY
|
||||||||
|
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:30,148,877 and 26,857,210 shares issued and outstanding)
|
30,149 | 26,857 | ||||||
|
Additional Paid-in-Capital
|
24,199,038 | 24,014,663 | ||||||
|
Accumulated Deficit
|
(23,870,593 | ) | (23,866,618 | ) | ||||
|
TOTAL STOCKHOLDERS' EQUITY
|
358,624 | 174,932 | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 529,245 | $ | 331,884 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
CYIOS Corporation and Subsidiaries
Consolidated Statement of Operations
|
For the years ended
|
||||||||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
SALES AND COST OF SALES
|
||||||||
|
Sales
|
$ | 1,881,897 | $ | 1,494,872 | ||||
|
Cost of Sales
|
1,094,786 | 781,909 | ||||||
|
Gross Profit
|
787,111 | 712,963 | ||||||
|
EXPENSES
|
||||||||
|
Selling, general and administrative
|
68,884 | 179,371 | ||||||
|
Payroll Expense--Indirect Labor
|
598,225 | 521,681 | ||||||
|
Consulting and Professional Fees Expense
|
55,909 | 209,792 | ||||||
|
Consulting Expense--Stock Compensation
|
81,208 | |||||||
|
Depreciation
|
784 | 784 | ||||||
|
TOTAL EXPENSES
|
805,010 | 911,628 | ||||||
|
Net Income/(Loss) from Operations
|
(17,899 | ) | (198,665 | ) | ||||
|
OTHER INCOME/(EXPENSE)
|
||||||||
|
Interest Income
|
5,121 | 3,042 | ||||||
|
Interest Expense
|
(8,264 | ) | (7,106 | ) | ||||
|
NET OTHER INCOME/(EXPENSE)
|
(3,144 | ) | (4,064 | ) | ||||
|
PROVISION FOR INCOME TAXES
|
- | - | ||||||
|
NET INCOME/(LOSS) FROM CONTINUING OPERATIONS
|
(21,044 | ) | (202,729 | ) | ||||
|
NET INCOME/(LOSS) FROM DISCONTINUED OPERATIONS
|
17,068 | 256,497 | ||||||
|
Net Income/(Loss)
|
$ | (3,976 | ) | $ | 53,768 | |||
|
Net income/(loss) per share--basic and fully diluted
|
||||||||
|
Continuing Operations
|
$ | (0.00 | ) | $ | (0.01 | ) | ||
|
Discontinued Operations
|
$ | 0.00 | $ | 0.01 | ||||
|
Net income/(loss) per share
|
$ | (0.00 | ) | $ | 0.00 | |||
|
Weighted average shares outstanding--basic and fully diluted
|
27,828,635 | 25,802,841 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
|
CYIOS Corporation and Subsidiaries
|
||||||||||||||||||||||||||||
|
Consolidated Statements of Stockholders' Deficit
|
||||||||||||||||||||||||||||
|
Preferred
Shares
(000's)
|
Preferred
Stock
$
|
Common
Shares
(000's)
|
Common
Stock
$
|
Stock
Subscription
Receivable
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
||||||||||||||||||||||
|
Balances, December 31, 2007
|
29,713 | $ | 30 | 25,354,210 | $ | 25,354 | $ | 136,000 | $ | 23,886,536 | $ | (23,920,386 | ) | |||||||||||||||
|
Shares returned
|
- | - | (500,000 | ) | (500 | ) | (82,500 | ) | (74,500 | ) | - | |||||||||||||||||
|
Payments received for Stock Subscriptions
|
- | - | - | - | (48,500 | ) | - | - | ||||||||||||||||||||
|
Reduction for Uncollectible Stock Receivable
|
- | - | - | - | (5,000 | ) | (5,000 | ) | - | |||||||||||||||||||
|
Shares issued for consulting services
|
- | - | 2,003,000 | 2,003 | - | 207,627 | - | |||||||||||||||||||||
|
Net Income (loss)
|
- | - | - | - | - | 53,768 | ||||||||||||||||||||||
|
Balances, December 31, 2008
|
29,713 | $ | 30 | 26,857,210 | $ | 26,857 | $ | - | $ | 24,014,663 | $ | (23,866,618 | ) | |||||||||||||||
|
Shares issued for consulting services
|
- | - | 2,366,667 | 2,367 | - | 159,300 | - | |||||||||||||||||||||
|
Shares issued to employees
|
- | - | 125,000 | 125 | 5,875 | - | ||||||||||||||||||||||
|
Shares sold
|
- | - | 800,000 | 800 | - | 19,200 | - | |||||||||||||||||||||
|
Net Income (loss)
|
- | - | - | - | - | - | (3,976 | ) | ||||||||||||||||||||
|
Balances, December 31, 2009
|
29,713 | $ | 30 | 30,148,877 | $ | 30,149 | $ | - | $ | 24,199,038 | $ | (23,870,593 | ) | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CYIOS Corporation and Subsidiaries
Consolidated Statements of Cash Flows
|
For the years ended
|
||||||||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net Income/(loss)
|
||||||||
|
From Continuing Operations
|
$ | (21,044 | ) | $ | (202,729 | ) | ||
|
From Discontinued Operations
|
17,068 | 256,497 | ||||||
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
|
Depreciation
|
784 | 784 | ||||||
|
Value of Shares Issued for consulting/employee services
|
167,667 | 209,630 | ||||||
|
Reduction in Stock Receivable
|
- | 7,500 | ||||||
|
Reduction in Liabilities from Discontinued Operations
|
(17,068 | ) | (256,497 | ) | ||||
|
Changes in Assets and Liabilities:
|
||||||||
|
(Increase)/Decrease in Accounts Receivable
|
(91,415 | ) | 23,216 | |||||
|
(Increase)/Decrease in Prepaid and Other Current Assets
|
(85,579 | ) | (11,217 | ) | ||||
|
Increase/(Decrease) in Accruals and Other Payables
|
73,029 | (15,073 | ) | |||||
|
Increase/(Decrease) in Accounts Payable
|
(25,000 | ) | 21,492 | |||||
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
18,442 | 33,603 | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
(Increase)/Decrease in Related Party Loan
|
28,228 | (90,106 | ) | |||||
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
28,228 | (90,106 | ) | |||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Proceeds from Issuance of Common Stock
|
20,000 | - | ||||||
|
Proceeds Received from Payments made on Stock Subscription Receivable
|
- | 48,500 | ||||||
|
Payments on Line of Credit
|
(17,292 | ) | (10,425 | ) | ||||
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
2,708 | 38,075 | ||||||
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
49,378 | (18,428 | ) | |||||
|
CASH AND CASH EQUIVALENTS:
|
||||||||
|
Beginning of Period
|
27,070 | 45,498 | ||||||
|
End of Period
|
$ | 76,448 | $ | 27,070 | ||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
|
CASH PAID DURING THE PERIOD FOR:
|
||||||||
|
Interest
|
$ | 8,264 | $ | 7,106 | ||||
|
Taxes
|
$ | - | $ | - | ||||
|
NON CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
|
Stock Issued for Prepaid Consulting Services
|
$ | 89,833 | $ | - | ||||
|
Stock Issued for Consulting Services/Employee Bonus
|
$ | 77,834 | $ | 209,630 | ||||
|
The accompanying notes are an integral part of these consolidated financial statements.
Return of 500,000 shares and reduction in related Stock Receivable
|
$ | - | $ | 75,000 | ||||
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity— China Print, Inc. formerly known as WorldTeq Group International, Inc. merged on September 19, 2005 with CYIOS Corporation of Washington DC. During the merger the company’s former CEO notified the public of his resignation and the assignment of a new CEO and president, Mr. Timothy Carnahan. After the merger, China Print, Inc. changed its name to CYIOS. The consolidated financial statements of CYIOS Corporation (The Company), formerly China Print, Inc. includes its subsidiary by the same name CYIOS Corporation, in addition to CKO, Inc. and WorldTeq Corporation. The Company, through its subsidiary CYIOS Corporation does business as a leading systems integrator and Knowledge Management Solutions provider supporting the United States Army. The company contracts its services for single and multiple year awards to different US Army and US Government agencies. CKO Inc. owns a custom designed online office management product. The company launched this product in November of 2005 to the general public and commercial businesses. WorldTeq Corporation in the past engaged primarily in the long distance service business and during 2009 and 2008 it had no operating activity. In December 2008, the Company filed to dissolve the WorldTeq Corporation.
Consolidation—The consolidated financial statements include the accounts of the Company and its Subsidiaries, after all eliminations of all intercompany accounts and transactions.
Cash and Cash Equivalents—For purposes of the Consolidated Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents.
Management’s Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition—The Company derives revenue primarily from the sale and service of information technology services to the government. In accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”), revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable, collectability is reasonably assured, contractual obligations have been satisfied and title and risk of loss have been transferred to the customer.
Revenues are recognized based on completion of a project and acceptance by the customer.
Selecting the appropriate revenue recognition method involves judgment based on the contract and can be complex depending upon the structure and terms and conditions of the contract.
Contract claims are unanticipated additional costs incurred but not provided for in the executed contract price that we seek to recover from the customer. Such costs are expensed as incurred. Additional revenue related to contract claims is recognized when the amounts are awarded by the customer.
Comprehensive Income (Loss)—The Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income”, which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. There were no items of comprehensive income (loss) applicable to the Company during the periods covered in the consolidated financial statements.
Advertising Costs—Advertising costs are expensed as incurred. For the years ended December 31, 2009 and 2008, the company incurred $9,784 and $11,983 respectively.
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.
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.
Fair Value of Financial Instruments—The carrying amounts reported in the consolidated balance sheet for cash, accounts receivable and payables approximate fair value based on the short-term maturity of these instruments.
Accounts Receivable—Accounts deemed uncollectible are written off in the year they become uncollectible. For the years ended December 31, 2009 and 2008, the following amounts by subsidiary were deemed uncollectible and written off as bad debts. Outstanding Accounts Receivable as of December 31, 2009 was $114,596 and as of December 31, 2008 was $23,181 (CYIOS Subsidiary).
Impairment of Long-Lived Assets—Using the guidance of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors.
Property and Equipment—Property and equipment is stated at cost. Depreciation is provided by the straight-line method over the estimated economic life of the property and equipment remaining from five to seven years. New computer equipment assets in the amount of $3,917 were purchased in 2007. These assets will be depreciated of their estimated useful life which the Company has determined to be 5 years. Total depreciation expense for the year ended December 31, 2009 was $784 and for the year ended December 31, 2008 was $784.
Recent Accounting Pronouncements—In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162”. SFAS No. 168 made the FASB Accounting Standards Codification (the Codification) the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASU). The FASB will not consider ASUs as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification.
In August 2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures—Overall”. The update provides clarification that in circumstances, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update. The amendments in this ASU clarify that a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability and also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in this ASU is effective for the first reporting period, including interim periods, beginning after issuance. The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Recent Accounting Pronouncements (cont’d)
In September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740), ”Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for nonpublic entities. For entities that are currently applying the standards for accounting for uncertainty in income taxes, this update shall be effective for interim and annual periods ending after September 15, 2009. For those entities that have deferred the application of accounting for uncertainty in income taxes in accordance with paragraph 740-10-65-1(e), this update shall be effective upon adoption of those standards. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.
In September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted. The adoption of this standard did not have an impact on the Company’s consolidated financial position and results of operations.
In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.
NOTE B—FINANCING FACILITY
During the year ended December 31, 2003 the Company entered into an accounts receivable financing facility for a maximum of $500,000 with an unrelated third party. Collateral for the facility is a first security interest in all corporate assets and a personal guarantee of the Company’s shareholder. The Company pays a 2% fee for each advance and interest accrues on all advances at a floating rate, at the prime rate published in the Wall Street Journal plus 2% (7.25% at December 31, 2009). The Company is advanced 90% of all government contract invoices. The advances are used for general corporate working capital. Residual, or holdback amounts, less fees and interest, are remitted to the Company when payments are received from the government. Substantially all of the Company’s revenue stream and accounts receivables are factored through this facility.
NOTE C—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, 2009.
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, 2009 is as follows:
|
Total Deferred Tax Asset
|
$ | 2,264,327 | ||
|
Valuation Allowance
|
(2,264,327 | ) | ||
|
Net Deferred Tax Asset
|
- |
The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the years ended December 31, 2009 and 2008 is as follows:
|
2009
|
2008
|
|||||||
|
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 $8,160 and $(18,281) in 2009 and 2008, respectively. No tax benefits have been recorded for the nondeductible (tax) expenses (including stock for services) totaling $17,210,808.
As of December 31, 2009, the Company had federal and state net operating loss carryforwards as follows of $6,659,786 which will expire at various times through the year 2029.
NOTE D—CONCENTRATION
The Company is either a prime or sub contractor on contracts with the Information Management Support Center U.S. Army and GOMO/SLD. Loss of these contracts could have a material effect upon the Company’s financial condition and results of operations.
NOTE E—SEGMENT REPORTING
The Company has four reportable segments—CYIOS, CYIOS Group, CKO, and WorldTeq:
|
Net Sales by Segment
|
For the Year Ended December 31, 2009
|
|||||||||||||||
|
CYIOS
|
CYIOS Group
|
CKO
|
Totals
|
|||||||||||||
|
Sales, net
|
$ | 1,881,897 | $ | - | $ | - | $ | 1,881,897 | ||||||||
|
Cost of Sales
|
1,094,786 | - | - | 1,094,786 | ||||||||||||
|
Gross Profit
|
$ | 787,111 | $ | - | $ | - | $ | 787,111 | ||||||||
|
Profit/(Loss) by Segment
|
For the Year Ended December 31, 2009
|
|||||||||||||||
|
CYIOS
|
CYIOS Group
|
CKO
|
Totals
|
|||||||||||||
|
Net Operating Profit/(Loss)
|
$ | (13,119 | ) | $ | 2,331 | $ | (10,256 | ) | $ | (21,044 | ) | |||||
|
Net (Loss)
|
$ | (13,119 | ) | $ | 19,399 | $ | (10,256 | ) | $ | (3,976 | ) | |||||
|
Net Sales by Segment
|
For the Year Ended December 31, 2009
|
|||||||||||||||||||
|
CYIOS
|
CYIOS Group
|
CKO
|
WorldTeq
|
Totals
|
||||||||||||||||
|
Sales, net
|
$ | 1,494,872 | $ | - | $ | - | $ | - | $ | 1,494,872 | ||||||||||
|
Cost of Sales
|
781,909 | - | - | - | 781,909 | |||||||||||||||
|
Gross Profit
|
$ | 712,963 | $ | - | $ | - | $ | - | $ | 712,963 | ||||||||||
|
Profit/(Loss) by Segment
|
For the Year Ended December 31, 2009
|
|||||||||||||||||||
|
CYIOS
|
CYIOS Group
|
CKO
|
WorldTeq
|
Totals
|
||||||||||||||||
|
Net Operating Profit/(Loss)
|
$ | (198,072 | ) | $ | (20 | ) | $ | (4,637 | ) | $ | - | $ | (202,729 | ) | ||||||
|
Net (Loss)
|
$ | (198,072 | ) | $ | (20 | ) | $ | (4,637 | ) | $ | 256,497 | $ | 53,768 | |||||||
The accounting policies used for segment reporting are the same as those described in Note A “Summary of Significant Accounting Policies”;
NOTE F—EQUITY
Common Shares
The Company is authorized to issue 100,000,000 shares of $.001 par value stock and as of December 31, 2009 the Company had 30,148,877 shares outstanding. During 2009 and 2008, the Company issued the following shares of common stock:
During 2009, the Company issued 3,291,667 common shares to investors, employees, and consultants. The shares issued to the employees and consultants were issued from the Company’s 2007 Equity Incentive Plan (see Note H). The shares issued as stock compensation were valued at the fair market value price at date of issuance. The issuance of the shares and the value is detailed in the following table:
|
Month/Description of transaction
|
Number of shares
|
Price per share
|
Total Value
|
|||||||||
|
January 29, 2009
|
100,000 | $ | 0.05 | $ | 4,500 | |||||||
|
January 29, 2009
|
550,000 | $ | 0.05 | $ | 27,500 | |||||||
|
February 9, 2009
|
25,000 | $ | 0.06 | $ | 1,500 | |||||||
|
May 1, 2009*
|
100,000 | $ | 0.14 | $ | 14,000 | |||||||
|
May 13, 2009
|
400,000 | $ | 0.05 | $ | 20,000 | |||||||
|
October 5, 2009
|
1,400,000 | $ | 0.07 | $ | 98,000 | |||||||
|
October 28, 2009
|
316,667 | $ | 0.07 | $ | 22,167 | |||||||
|
December 17, 2009*
|
400,000 | $ | - | $ | - | |||||||
|
Total
|
3,291,667 | $ | 187,667 | |||||||||
*These shares were sold in May 2009.
During 2008, the Company issued 2,003,000 free trading common shares to employees and consultants. These shares were issued from the Company’s 2007 Equity Incentive Plan (see Note H). The shares were valued at the fair market value price at date of issuance. The issuance of the shares and the value is detailed in the following table:
|
Month
|
Number of shares
|
Price per share
|
Total Value
|
|||||||||
|
January 3, 2008
|
400,000 | $ | 0.23 | $ | 92,000 | |||||||
|
January 4, 2008
|
53,000 | $ | 0.21 | $ | 11,130 | |||||||
|
March 12, 2008
|
250,000 | $ | 0.10 | $ | 25,000 | |||||||
|
May 30, 2008
|
250,000 | $ | 0.10 | $ | 25,000 | |||||||
|
June 18, 2008
|
50,000 | $ | 0.08 | $ | 4,000 | |||||||
|
August 25, 2008
|
250,000 | $ | 0.06 | $ | 15,000 | |||||||
|
October 8, 2008
|
750,000 | $ | 0.05 | $ | 37,500 | |||||||
|
Total
|
2,003,000 | $ | 209,630 | |||||||||
Preferred Shares
The Company is authorized to issue 5,000,000 shares of $.001 par value, non-voting, convertible preferred shares. The preferred shares are convertible to common shares at a 1 to 1 ratio. As of December 31, 2009, the Company had 29,713 preferred shares outstanding. During 2009 and 2008, the Company did not issue any preferred shares of stock.
NOTE G—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, 2009, 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.
On November 29, 2007 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, 2009, options to acquire 2,054,000 shares of common stock were granted and exercised and there are 1,210,700 shares available for issuance under the 2007 Plan.
Outstanding stock options granted as of December 31, 2009 are as follows:
|
Stock/Options
|
Weighted average price per share
|
Aggregate intrinsic value
|
||||||||||
|
Outstanding at December 31, 2007
|
2,750,000 | 0.18 | 495,000 | |||||||||
|
For the year ended December 31, 2008
|
||||||||||||
|
Granted
|
2,003,000 | 0.18 | 360,540 | |||||||||
|
Options forfeited or expired
|
(335,716 | ) | 0.13 | (43,643 | ) | |||||||
|
Options forfeited or expired
|
(400,000 | ) | 0.29 | (116,000 | ) | |||||||
|
Exercised in 2008
|
(2,003,000 | ) | 0.18 | (360,540 | ) | |||||||
|
Outstanding at December 31, 2008
|
2,014,284 | 0.13 | 261,857 | |||||||||
|
For the period ended December 31, 2009
|
||||||||||||
|
Granted
|
3,291,667 | 0.06 | 197,500 | |||||||||
|
Options forfeited or expired
|
(2,014,284 | ) | 0.13 | (261,857 | ) | |||||||
|
Exercised in 2009
|
(3,291,667 | ) | 0.06 | (197,500 | ) | |||||||
|
Outstanding at December 31, 2009
|
— | 0.13 | — | |||||||||
Securities available for future issuance under the 2007 and 2006 plan are as follows:
|
Plan Category
|
Number of shares available for issuance
|
|||
|
Equity compensation approved by security holders
|
— | |||
|
3
|
35,700 | |||
NOTE G—STOCK OPTIONS AND WARRANTS (CONT’D)
Under the fair value recognition provisions of SFAS No. 123(R), stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. The Company has awarded stock-based compensation as restricted stock.
All of the options granted in each of the two years ended December 31, 2009 and 2008 were immediately vested upon grant and were immediately exercised upon grant too.
The weighted-average exercise prices for options outstanding at the beginning and end of the two years ended December 31, 2009 did not change. The method used to estimate the fair value of the awards granted under the share-based payment arrangements was the value of the stock at the date the stock option was granted because on this same date the options were exercised. The stock options granted and exercised were immediately vested.
Compensation expense for restricted stock is recognized on the date of the grant at the closing price of the stock on the date of the grant because the options are immediately exercised on that same date
Our statement of operations for the years ended December 31, 2009 and 2008 included stock-based compensation of $167,667 and $209,630, respectively. In 2009, $77,834 of the total $167,667 was expensed and the remaining amount is prepaid expenses in the amount of $89,833 which will be amortized over the next 33 months. In 2008, $193,455 was expensed and the remaining amount was a prepaid amount of $9,375 that was expensed in 2009.
The Company does not have any unrecognized stock-based compensation expense at December 31, 2009.
NOTE H—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 years ended December 31, 2009 and 2008 were $13,294 and $28,371 respectively.
NOTE I—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 2009 to August 2010, and at that time is up for renewal. Monthly fees are approximately $1,476. The Company’s estimated future yearly minimum lease obligations are as follows:
|
2010
|
$ | 17,700 |
Total rent expense for 2009 and 2008 was $17,715 and $18,189 respectively.
NOTE J—RELATED PARTIES
The Company has a Note Receivable with one of its officers and major shareholders. The note is payable on demand and bears 8% interest per annum. The outstanding balance as of December 31, 2009 is $234,284.
Annual payments including principal and interest are as follows:
|
Year ended
|
Interest and principal payments
|
|||
|
2010
|
$ | 38,220 | ||
|
2011
|
38,220 | |||
|
2012
|
38,220 | |||
|
2013
|
38,220 | |||
|
2014
|
38,220 | |||
|
2015 and thereafter
|
130,564 | |||
|
Total principal and interest payments
|
$ | 321,664 | ||
NOTE K—LINE OF CREDIT
Two of the Company’s subsidiaries have lines of credit with Bank of America. The line of credit for CKO is 10.75% interest and the line of credit for China Print, Inc. is 14.75%. The outstanding balances of the line of credit by Subsidiary as of December 31, 2009 are as follows:
|
CKO
|
$ | 44,729 | ||
|
CYIOS Group
|
26,371 | |||
| $ | 71,100 |
NOTE L—LIABILITIES OF DISCONTINUED OPERATIONS
The original amount of the accounts payables and other payables from discontinued operations was $441,670. The amount written off in 2007 was $185,173 and the amount written off in 2008 was the $256,497.
Our basis for writing off the payables balance into income in 2008 and 2007 was based upon management’s estimation and determination that these particular amounts had fallen into one of three categories:
|
|
1.
|
Some of the outstanding accounts payable had already been paid off by one of the other subsidiaries, but were never actually written off the books of the subsidiary (Worldteq) until now. The officers and managers of the company prior to the merger in 2005 provided the new officers and management with records that were incomplete. After careful review, management has concluded that some accounts outstanding had actually been paid, but not cleared off the books of the subsidiary (Worldteq).
|
|
|
2.
|
Using reasonable estimates, management determined that amounts under $1,000 were immaterial and exceeded the statute of limitations for the State of Delaware could be written-off as of December 31, 2008 and 2007.
|
|
|
3.
|
The officers and management of the company prior to the merger in 2005 calculated accruals based on estimates for expenses for services that were never rendered to the company.
|
In 2009, Management wrote off an additional $17,068 in accounts payable that also pertained to amounts owed by WorldTeq Corporation to various vendors. These amounts have been sitting on the books since 2003 and 2004 and no attempt has been made by the vendors to collect these amounts. Management believes that like the other outstanding payables, these amounts were already paid and not written off the books prior to the merger in 2005.
The Income from Discontinued Operations was $17,068 and $202,729 for the years ended December 31, 2009 and 2008, respectively.
NOTE L—LIABILITIES OF DISCONTINUED OPERATIONS (CONT’D)
The Company absorbed WorldTeq Corporation (a Delaware corporation) as a result of the merger in 2005. Since that time the Company has carried the debts of WorldTeq Corporation. Since the merger, management has determined that many of the debts outstanding had been satisfied by other subsidiaries and many other debts exceeded the State of Delaware’s rules regarding the statute of limitations for collection of outstanding debts. According to Delaware code, title 6, section 2437A, the statute of limitations for debts classified as general written contracts is 3 years. The Company has carried the debts for over 3 years. Moreover, the Company plans to dissolve Worldteq since it has had no operations since 2005, the Company does not intend to continue operations in this subsidiary or business segment, and the CEO of Worldteq passed away. Since the merger in 2005, no attempt on the part of the creditors have been made to collect these debts, so based on management’s estimate we have determined it reasonable to write them off over 2008 and 2007 as we have abandoned operations in this business segment and the Company has closed out and dissolved WorldTeq as of December 31, 2009.
NOTE M—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 years ended December 31, 2009 and 2008 are as follows:
|
For the 12 months ended December 31, 2009
|
For the 12 Months Ended December 31, 2008
|
|||||||||||||||||||||||
|
Income
(Numerator) |
Shares
(Denominator) |
Per-Share
Amount |
Income
(Numerator) |
Shares
(Denominator) |
Per-Share
Amount |
|||||||||||||||||||
|
Net Income/(Loss)
|
$ | (3,976 | ) | $ | 53,768 | |||||||||||||||||||
|
Basic EPS
|
||||||||||||||||||||||||
|
Income available to common stockholders
|
(3,976 | ) | 27,798,922 | $ | (0.00 | ) | 53,768 | 25,744,896 | $ | 0.00 | ||||||||||||||
|
Effect of Dilutive Securities
|
||||||||||||||||||||||||
|
Warrants
|
||||||||||||||||||||||||
|
Convertible preferred stock
|
29,713 | 29,713 | ||||||||||||||||||||||
|
Diluted EPS
|
||||||||||||||||||||||||
|
Net Income/(Loss)
|
(3,976 | ) | 27,828,635 | $ | (0.00 | ) | 53,768 | 25,774,609 | $ | 0.00 | ||||||||||||||
ITEM 2: Outside back Cover page - Prospectus
___________________________________________________
CYIOS CORPORATION
3,500,000 Shares
Common Stock
PROSPECTUS
You should rely only on the information contained in this document or that we have referred you to. We have not authorized anyone to provide you with information that is different. This prospectus is not an offer to sell common stock and is not soliciting an offer to buy common stock in any state where the offer or sale is not permitted.
Until ___________, 2010 all dealers that effect transactions in these securities, whether or not participating in the offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
________, 2010
__________________________________________________
2PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES LIABILITIES
The Nevada General Corporation Law requires us to indemnify officers and directors for any expenses incurred by any officer or director in connection with any actions or proceedings, whether civil, criminal, administrative, or investigative, brought against such officer or director because of his or her status as an officer or director, to the extent that the director or officer has been successful on the merits or otherwise in defense of the action or proceeding. The Nevada General Corporation Law permits a corporation to indemnify an officer or director, even in the absence of an agreement to do so, for expenses incurred in connection with any action or proceeding if such officer or director acted in good faith and in a manner in which he or she reasonably believed to be in or not opposed to the best interests of the corporation and such indemnification is authorized by the stockholders, by a quorum of disinterested directors, by independent legal counsel in a written opinion authorized by a majority vote of a quorum of directors consisting of disinterested directors, or by independent legal counsel in a written opinion if a quorum of disinterested directors cannot be obtained.
The Nevada General Corporation Law prohibits indemnification of a director or officer if a final adjudication establishes that the officer's or director's acts or omissions involved intentional misconduct, fraud, or a knowing violation of the law and were material to the cause of action. Despite the foregoing limitations on indemnification, the Nevada General Corporation Law may permit an officer or director to apply to the court for approval of indemnification even if the officer or director is adjudged to have committed intentional misconduct, fraud, or a knowing violation of the law.
The Nevada General Corporation Law also provides that indemnification of directors is not permitted for the unlawful payment of distributions, except for those directors registering their dissent to the payment of the distribution.
Insofar as indemnification for liabilities arising under the Securities Act may be provided to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 13 - Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the issuance and distribution of the securities being registered hereby. All such expenses will be borne by the registrant.
|
Securities and Exchange Commission registration fee
|
$ | 14.97 | ||
|
Legal fees and expenses (1)
|
$ | 10,000 | ||
|
Accounting fees and expenses
|
$ | -- | ||
|
Miscellaneous (1)
|
$ | -- | ||
|
Total (1)
|
$ | 10,014.97 | ||
|
(1) Estimated
|
ITEM 14 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our officers and directors are indemnified as provided by the Nevada Revised Statutes.
Under the Nevada Revised Statutes, director immunity from liability to a company or its stockholders for monetary liabilities applies automatically unless it is specifically limited by a company's Articles of Incorporation. Our Articles of Incorporation do not specifically limit the directors’ immunity. Excepted from that immunity are: (a) a willful failure to deal fairly with us or our stockholders in connection with a matter in which the director has a material conflict of interest; (b) a violation of criminal law, unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal profit; and (d) willful misconduct.
Our Bylaws provide that we will indemnify our directors to the fullest extent not prohibited by Nevada law; provided, however, that we may modify the extent of such indemnification by individual contracts with our directors and officers; and, provided, further, that we shall not be required to indemnify any director or officer in connection with any proceeding, or part thereof, initiated by such person unless such indemnification: (a) is expressly required to be made by law, (b) the proceeding was authorized by the board of directors, (c) is provided by us, in our sole discretion, pursuant to the powers vested us under Nevada law, or (d) is required to be made pursuant to our Bylaws.
Our Bylaws provide that we will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was our director or officer, or is or was serving at the request of us as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefore, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under our Bylaws or otherwise.
ITEM 15 - Recent Sales of Unregistered Securities.
None.
ITEM 16 - Exhibits and Financial Statement Schedules.
(a) Exhibits:
The following exhibits are filed or referenced as part of this registration statement:
|
Exhibit
|
Description of Exhibit
|
|
|
3.1
|
Certificate of Incorporation
|
|
|
By-laws
|
||
|
Opinion of Counsel
|
||
|
Drawdown Equity Financing Agreement
|
||
|
Registration Rights Agreement
|
||
|
Consent of Counsel (included in Exhibit 5.1)
|
||
|
Consent of Independent Registered Certified Public Accountants
|
ITEM 17 - Undertakings.
The undersigned registrant hereby undertakes to:
|
a.
|
The undersigned registrant hereby undertakes:
|
|
|
1.
|
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
|
i.
|
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
|
|
|
ii.
|
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
|
|
|
iii.
|
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
|
Provided however, That:
|
|
A.
|
Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement; and
|
|
|
B.
|
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
|
|
|
2.
|
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
3.
|
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
|
|
|
4.
|
If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.
|
|
|
5.
|
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
|
|
|
i.
|
If the registrant is relying on Rule 430B:
|
|
|
a.
|
Each prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
|
|
|
b.
|
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
|
|
|
ii.
|
If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
|
|
|
6.
|
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
|
i.
|
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
|
|
|
ii.
|
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
|
|
|
iii.
|
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
|
iv.
|
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
|
|
b.
|
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
c.
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Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned; thereunto duly authorized, in Washington, D.C., on April 8, 2010.
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CYIOS CORPORATION
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By:
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/s/ Timothy Carnahan
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Timothy Carnahan
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President, Chief Executive Officer &
Principal Financial Officer
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