UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 
 
 FORM
10-KSB
 
 x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended
              
              December
      31, 2007
 
  ̈
              TRANSITION
      REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from
              
              to
 
 Commission
file number 000-27243
 
 
 
 CYIOS
CORPORATION
 (Name of
small business issuer in its charter)
 
 
 Nevada
              
              03-7392107(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)
 
 1300
      Pennsylvania Ave, Suite 700, Washington D.C.
              
              20004(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 Issuer’s
      telephone number
              
              (703)
      294-9933
 
 Securities
registered under Section 12(b) of the Exchange Act:
 
 None
 
 Securities
registered under Section 12(g) of the Exchange Act
 
 Common
Stock, $0.001 par value
  
 Check
whether issuer is not required to file reports pursuant to Section 13 or 15(d)
of the Exchange Act. ̈
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.   Yes x No  ̈
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.  o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes  ̈ No x
 
 CYIOS
Corporation’s revenues for the fiscal year ended December 31, 2007 were:
$2,185,464
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of CYIOS Corporation (consisting solely of 9,575,916 shares of
common stock, $0.001 par value) was approximately $861,832 based on the average
bid and asked price of such common stock ($0.09) as of March 27,
2008.
 
 At March
27, 2008, CYIOS Corporation had 25,552,210 shares of common stock CYIOS
Corporation.
 
 DOCUMENTS
INCORPORATED BY REFERENCE.
 
 None.
 
 Transitional
Small Business Disclosure Format (Check One):  Yes  ̈; No x
  
  TABLE OF CONTENTS
  PART I
              
              1Item 1.
              Description of Business
              1Item 2.
              Description of Property
              11Item 3.
              Legal Proceedings
              11Item 4.
              Submission of Matters to a Vote of Security
      Holders
              11PART II
              
              12Item 5.
              Market for Common Equity and Related Stockholder Matters and
      Small Business Issuer Purchases of Equity Securities
              12Item 6.
              Management’s Discussion and Analysis or Plan of
      Operation
              13Item 7.
              Index to Consolidated Financial
    Statements
              F-1Item 8.
              Changes In and Disagreements with Accountants on Accounting
      and Financial Disclosure
              17Item 8A(T).
              Controls and Procedures
              17Item 8B.
              Other Information
              18PART III
              
              19Item 9.
              Directors, Executive Officers, Promoters, Control Persons
      ans Corporate Governance; Compliance With Section 16(A) of the Exchange
      Act
              19Item 10.
              Executive Compensation
              20Item 11.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              21Item 12.
              Certain Relationships and Related Transactions, and
      Director Independence
              21Item 13.
              Exhibits
              21Item 14.
              Principal Accountant Fees and Services
              22Signatures
              24
  Table of Contents
  PART I
 
 FORWARD-LOOKING STATEMENTS
 
 This
annual report on Form 10-KSB, press releases and certain information provided
periodically in writing or verbally by our officers or our agents contain
statements which constitute forward-looking statements. The words “may”,
“would”, “could”, “will”, “expect”, “estimate”, “anticipate”, “believe”,
“intend”, “plan”, “goal”, and similar expressions and variations thereof are
intended to specifically identify forward-looking statements. These statements
appear in a number of places in this Form 10-KSB and include all statements that
are not statements of historical fact regarding the intent, belief or current
expectations of us, our directors or our officers, with respect to, among other
things: (i) our liquidity and capital resources; (ii) our financing
opportunities and plans; (iii) our ability to generate revenues; (iv) market and
other trends affecting our future financial condition or plan of operation; and
(v) our growth and operating strategy.
 
 Investors
and prospective investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors. The factors that
might cause such differences include, among others, those set forth in Part II,
Item 6 of this annual report on Form 10-KSB, entitled “Management’s Discussion
and Analysis or Plan of Operation”, and including, without limitation, the “Risk
Factors” beginning on page 5 of this annual report. Except as required by law,
we undertake no obligation to update any of the forward-looking statements in
this Form 10-KSB after the date of this report.
 
 Item1. Description of Business.
 
 Corporate
History
 
 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 CYIPROTM, a
business transformation tool that utilizes the first project-based operating
system to build knowledge centric organizations. CYIPROTM provides
a virtual work space for collaboration, project management, and document
management to help manage people, processes and
information.  CYIPROTM 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.
  1
 Table of Contents
  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 CYIPROTM.
CYIPROTM 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 CYIPROTM, 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
CYIPROTM 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 CYIPROTM helps
small businesses eliminate the burdensome expenses of owning and maintaining
servers, associated software, and an internal or outsourced IT
staff.
  2
 Table of Contents
  Recent
Developments
 
 In
February of 2007, we used the services of InterPlan Systems to co-write a
proposal for a U.S. Navy agency. This is large multi-award contract which was
awarded to us in May of 2007; it is for a term of 5 years. As part of the
process, we had to undergo a DCAA audit in order to start work. The DCAA audit
was completed in late September 2007. With the assistance of our CYIPROTM system’s
cost accounting function we were able to show complete accountability for our
job costing and passed the DCAA audit.  The Navy spends $5 billion a
year on this contract vehicle. We are capable of bidding in all seven zones that
cover the United States. We are looking to partner with sub contractors to
support all the bids that are being released.
 
 In
December 2007, we won an Army contract to build and sustain a knowledge
management solution for the Senior Leadership of the Army. This contract is for
a period of 5 years with a value of $4.6 million. We will begin to recognize
revenue in January 2008.
 
 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, 2007, CYIOS DC has registered the CYIOS®, and CKO
has applied for registration of the CYIPROTM 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.
  3
 Table of Contents
  Copyrights
 
 We claim
copyright protection and rights to our CYIPROTM 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, 2007, we have entered into no confidentiality
and/or non-disclosure agreements with our employees, consultants or
advisors.
 
 Employees
 
 As of
December 31, 2007, 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.
  4
 Table of Contents
  RISK
FACTORS
 
 Our
business entails a significant degree of risk and uncertainty, and an investment
in our securities should be considered highly speculative. What follows is a
general description of the material risks and uncertainties, which may adversely
affect our business, our financial condition, including liquidity and
profitability, and our results of operations, ultimately affecting the value of
an investment in shares of our common stock. In addition to other information
contained in this annual report on Form 10-KSB, you should carefully consider
the following cautionary statements and risk factors:
 
 General
Business Risks
 
 Our
limited operating history may not serve as an adequate basis upon which to judge
our future prospects and results of operations.
 
 We were
incorporated in October 1997, but only began our present operation in September
2005, and, as such, we have a limited operating history, and our historical
operating activities may not provide a meaningful basis upon which to evaluate
our business, financial performance or future prospects.  We may not
be able to achieve similar operating results in future periods, and,
accordingly, you should not rely on our results of operation for prior periods
as indications of our future performance.
 
 Our
historical operating losses and negative cash flows from operating activities
raise an uncertainty as to our ability to continue as a going
concern.
 
 We have a
history of operating losses and negative cash flows from operating activities.
In the event that we are unable to sustain our current profitability or are
otherwise unable to secure external financing, we may not be able to meet our
obligations as they come due, raising substantial doubts as to our ability to
continue as a going concern. Any such inability to continue as a going concern
may result in our security holders losing their entire investment. Our
consolidated financial statements, which have been prepared in accordance with
generally accepted accounting principles, contemplate that we will continue as a
going concern and do not contain any adjustments that might result if we were
unable to continue as a going concern. Changes in our operating plans, our
existing and anticipated working capital needs, the acceleration or modification
of our expansion plans, lower than anticipated revenues, increased expenses,
potential acquisitions or other events will all affect our ability to continue
as a going concern.
 
 Our
liquidity and capital resources are very limited.
 
 Our
ability to fund working capital and anticipated capital expenditures will depend
on our future performance, which is subject to general economic conditions, our
ability to win government contracts, our private customers, actions of our
competitors and other factors that are beyond our control. Our ability to fund
operating activities is also dependent upon (i) the extent and availability of
bank and other credit facilities, (ii) our ability to access external sources of
financing, and (iii) our ability to effectively manage our expenses in relation
to revenues. There can be no assurance that our operations and access to
external sources of financing will continue to provide resources sufficient to
satisfy liabilities arising in the ordinary course of our business.
 
 Our
accumulated deficit makes it more difficult for us to borrow funds.
 
 As of the
fiscal year ended December 31, 2007, and as a result of historical operating
losses from prior years, our accumulated deficit was $23,816,970. Lenders
generally regard an accumulated deficit as a negative factor in assessing
creditworthiness, and for this reason, the extent of our accumulated deficit
coupled with our historical operating losses will negatively impact our ability
to borrow funds if and when required. Any inability to borrow funds, or a
reduction in favorability of terms upon which we are able to borrow funds,
including the amount available to us, the applicable interest rate and the
collateralization required, may affect our ability to meet our obligations as
they come due, and adversely affect on our business, financial condition, and
results of operations, raising substantial doubts as to our ability to continue
as a going concern.
  5
 Table of Contents
  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, 2007, and we believe that
federal government agencies will continue to be the source of all or
substantially all of our revenues for the foreseeable future. For this reason,
any issues that compromise our relationship with agencies of the federal
government in general, or with the Department of Defense in particular, would
have a substantial adverse effect on our business. Key among the factors in
maintaining our relationships with federal government agencies are our
performance on individual contracts, the strength of our professional reputation
and the relationships of our key executives with government personnel. To the
extent that our performance does not meet expectations, or our reputation or
relationships with one or more key personnel are impaired, our business,
financial condition and results of operations will be negatively affected and we
may not be able to meet our obligations as they come due, raising substantial
doubts as to our ability to continue as a going concern.
 
 The
federal government may modify, curtail or terminate our contracts at any time
prior to their completion, which would have a material adverse affect on our
business.
 
 Federal
government contracts are highly regulated and federal laws and regulations
require that our contracts contain certain provisions which allow the federal
government to, among other things:
 
 ·
                terminate
      current contracts at any time for the convenience of the government,
      provided such termination is made in good
faith;
 
 ·
                cancel
      multi-year contracts and related orders if funds for contract performance
      for any subsequent year become
unavailable;
 
 ·
                curtail
      or modify current contracts if requirements or budgetary constraints
      change; and
 
 ·
                adjust
      contract costs and fees on the basis of audits done by its
      agencies.
 
 Should
the federal government modify, curtail or terminate our contracts for any
reason, we may only recover our costs incurred and profit on work completed
prior to such modification, curtailment or termination. The federal government
regularly reviews our costs and performance on its contracts, as well as our
accounting and general business practices. The federal government may reduce the
reimbursement for our fees and contract-related costs as a result of such an
audit.  There can be no assurance that one or more of our federal
government contracts will not be modified, curtailed or terminated under these
circumstances, or that we would be able to procure new federal government
contracts to offset the revenue lost as a result of any modification,
curtailment or termination. As our revenue is dependent on our procurement,
performance and receipt of payment under our contracts with the federal
government, the loss of one or more critical contracts could have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.
 
 The
federal government has increasingly relied upon contracts that are subject to a
competitive bidding process. If we are unable to consistently win new awards
under these contracts our business may be adversely affected.
 
 We obtain
many of our contracts with the federal government through a process of
competitive bidding and, as the federal government has increasingly relied upon
contracts that are subject to competitive bidding, we expect that much of the
business we are awarded in the foreseeable future will be through such a
process.  There are substantial costs and a number of risks inherent
in the competitive bidding process, including the costs associated with
management time necessary to prepare bids and proposals that we may not be
awarded, our failure to accurately estimate the resources and costs required to
service contracts that we are awarded, and the risk that we may encounter
unanticipated expenses, delays or modifications to contracts previously
awarded.  Our failure to effectively compete and win contracts
through, or manage the costs and risks inherent in the competitive bidding
process could have a material adverse effect on our business, financial
condition and results of operations.
  6
 Table of Contents
  Our revenues and
growth prospects may be adversely affected if we or our employees are unable to
obtain the requisite security clearances or other qualifications needed to
perform services for our customers.
 
 Many
federal government programs require contractors to have security clearances.
Depending on the level of required clearance, security clearances can be
difficult and time-consuming to obtain. If we or our employees are unable to
obtain or retain necessary security clearances, we may not be able to win new
business, and our existing customers could terminate their contracts with us or
decide not to renew them. To the extent we cannot obtain or maintain the
required security clearances for our employees working on a particular contract,
we may not derive the revenue anticipated from the contract. Employee
misconduct, including security breaches, or our failure to comply with laws or
regulations applicable to our business could cause us to lose customers or our
ability to contract with the federal government, which would have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.
 
 Because
we are a federal government contractor, misconduct, fraud or other improper
activities by our employees or our failure to comply with applicable laws or
regulations could have a material adverse effect on our business and
reputation.
 
 Because
we are a federal government contractor, misconduct, fraud or other improper
activities by our employees or our failure to comply with applicable laws or
regulations could have a material adverse effect on our business and reputation.
Such misconduct could include the failure to comply with federal government
procurement regulations, regulations regarding the protection of classified
information, legislation regarding the pricing of labor and other costs in
federal government contracts and any other applicable laws or regulations. Many
of the systems we develop involve managing and protecting information relating
to national security and other sensitive government functions. A security breach
in one of these systems could prevent us from having access to such critically
sensitive systems. Other examples of potential employee misconduct include time
card fraud and violations of the Anti-Kickback Act. The precautions we take to
prevent and detect these activities may not be effective, and we could face
unknown risks or losses. Our failure to comply with applicable laws or
regulations or misconduct by any of our employees could subject us to fines and
penalties, loss of security clearance and suspension or debarment from
contracting with the federal government, any of which would have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.
 
 We must comply with laws and
regulations relating to the formation, administration and performance of federal
government contracts.
 
 We must
comply with laws and regulations relating to the formation, administration and
performance of federal government contracts, which affect how we do business
with our customers. Such laws and regulations may potentially impose added costs
on our business and our failure to comply with applicable laws and regulations
may lead to penalties and the termination of our federal government contracts.
Some significant regulations that affect us include:
 
 ·
                the
      Federal Acquisition Regulations and their supplements, which regulate the
      formation, administration and performance of federal government
      contracts;
 
 ·
                the
      Truth in Negotiations Act, which requires certification and disclosure of
      cost and pricing data in connection with contract negotiations;
      and
 
 ·
              the
      Cost Accounting Standards, which impose accounting requirements that
      govern our right to reimbursement under certain cost-based government
      contracts.
 
 Additionally,
our contracts with the federal government are subject to periodic review and
investigation. Should such a review or investigation identify improper or
illegal activities, we may be subject to civil or criminal penalties or
administrative sanctions, including the termination of our contracts, forfeiture
of profits, the triggering of price reduction clauses, suspension of payments,
fines and suspension or debarment from doing business with federal government
agencies. We could also suffer harm to our reputation, which would impair our
ability to win awards of contracts in the future or receive renewals of existing
contracts. Although we have never had any material civil or criminal penalties
or administrative sanctions imposed upon us, it is not uncommon for companies in
our industry to have such penalties and sanctions imposed on them. If we incur a
material penalty or administrative sanction in the future, our business,
financial condition and results of operations could be adversely
affected.
  7
 Table of Contents
  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.
  8
 Table of Contents
  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.
 
 Risks
Associated with an Investment in our Common Stock
 
 Unless
an active trading market develops for our securities, you may not be able to
sell your shares.
 
 Although,
we are a reporting company and our common shares are quoted on the OTC Bulletin
Board (owned and operated by the Nasdaq Stock Market, Inc.) under they 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 affect 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 affect of lowering the market price and therefore your investment could
be a partial or complete loss.
 
 Since
our common stock is thinly traded it is more susceptible to extreme rises or
declines in price, and you may not be able to sell your shares at or above the
price paid.
 
 Since our
common stock is thinly traded its trading price is likely to be highly volatile
and could be subject to extreme fluctuations in response to various factors,
many of which are beyond our control, including:
 
 ·
              the
      trading volume of our shares;
 
 ·
              the
      number of securities analysts, market-makers and brokers following our
      common stock;
 
 ·
              changes
      in, or failure to achieve, financial estimates by securities
      analysts;
 
 ·
              new
      products or services introduced or announced by us or our
      competitors;
 
 ·
              actual
      or anticipated variations in quarterly operating
  results;
 
 ·
              conditions
      or trends in our business
industries;
 
 ·
              announcements
      by us of significant contracts, acquisitions, strategic partnerships,
      joint ventures or capital
commitments;
 
 ·
              additions
      or departures of key personnel;
 
 ·
              sales
      of our common stock; and
 
 ·
              general
      stock market price and volume fluctuations of publicly-traded, and
      particularly microcap, companies.
 
 You may
have difficulty reselling shares of our common stock, either at or above the
price you paid, or even at fair market value. The stock markets often experience
significant price and volume changes that are not related to the operating
performance of individual companies, and because our common stock is thinly
traded it is particularly susceptible to such changes. These broad market
changes may cause the market price of our common stock to decline regardless of
how well we perform as a company. In addition, securities class action
litigation has often been initiated following periods of volatility in the
market price of a company’s securities. A securities class action suit against
us could result in substantial legal fees, potential liabilities and the
diversion of management’s attention and resources from our business. Moreover,
and as noted below, our shares are currently traded on the OTC Bulletin Board
and, further, are subject to the penny stock regulations. Price fluctuations in
such shares are particularly volatile and subject to manipulation by
market-makers, short-sellers and option traders.
  9
 Table of Contents
  Trading
in our common stock on the OTC Bulletin Board may be limited thereby making it
more difficult for you to resell any shares you may own.
 
 Our
common stock is quoted on the OTC Bulletin Board (owned and operated by the
Nasdaq Stock Market, Inc.). The OTC Bulletin Board is not an exchange and,
because trading of securities on the OTC Bulletin Board is often more sporadic
than the trading of securities listed on a national exchange or on the Nasdaq
National Market, you may have difficulty reselling any of the shares of our
common stock that you may own.
 
 Our
common stock is subject to the “penny stock” regulations, which are likely to
make it more difficult to sell.
 
 Our
common stock is considered a “penny stock,” which generally is a stock trading
under $5.00 and not registered on a national securities exchange or quoted on
the Nasdaq National Market. The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. These
rules generally have the result of reducing trading in such stocks, restricting
the pool of potential investors for such stocks, and making it more difficult
for investors to sell their shares once acquired. Prior to a transaction in a
penny stock, a broker-dealer is required to:
 
 ·
              deliver
      to a prospective investor a standardized risk disclosure document that
      provides information about penny stocks and the nature and level of risks
      in the penny stock market;
 
 ·
              provide
      the prospective investor with current bid and ask quotations for the penny
      stock;
 
 ·
              explain
      to the prospective investor the compensation of the broker-dealer and its
      salesperson in the transaction;
 
 ·
              provide
      investors monthly account statements showing the market value of each
      penny stock held in the their account;
and
 
 ·
              make
      a special written determination that the penny stock is a suitable
      investment for the purchaser and receive the purchaser’s written agreement
      to the transaction.
 
 These
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that is subject to the penny stock rules. Since
our common stock is subject to the penny stock rules, investors in our common
stock may find it more difficult to sell their shares.
 
 Future
issuances by us or sales of our common stock by our officers or directors may
dilute your interest or depress our stock price.
 
 We may
issue additional shares of our common stock in future financings or may grant
stock options to our employees, officers, directors and consultants under our
2006 Employee Stock Option Plan and 2007 Equity Incentive Plan. Any such
issuances could have the effect of depressing the market price of our common
stock and, in any case, would dilute the interests of our common stockholders.
Such a depression in the value of our common stock could reduce or eliminate
amounts that would otherwise have been available to pay dividends on our common
stock (which are unlikely in any case) or to make distributions on liquidation.
Furthermore, shares owned by our officers or directors which are registered in a
registration statement, or which otherwise may be transferred without
registration pursuant to an applicable exemptions under the Securities Act of
1933, as amended, may be sold. Because of the perception by the investing public
that a sale by such insiders may be reflective of their own lack of confidence
in our prospects, the market price of our common stock could decline as a result
of a sell-off following sales of substantial amounts of common stock by our
officers and directors into the public market, or the mere perception that these
sales could occur.
  10
 Table of Contents
  We
do not intend to pay any common stock dividends in the foreseeable
future.
 
 We have
never declared or paid a dividend on our common stock and, because we have very
limited resources and a substantial accumulated deficit, we do not anticipate
declaring or paying any dividends on our common stock in the foreseeable future.
Rather, we intend to retain earnings, if any, for the continued operation and
expansion of our business. It is unlikely, therefore, that the holders of our
common stock will have an opportunity to profit from anything other than
potential appreciation in the value of our common shares held by them. If you
require dividend income, you should not rely on an investment in our common
stock.
 
 Item 2. 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, 2007, at a rate of $1,040 per month. There are three employees
based in our headquarters, the remainder of our employees work on-site at our
customers’ locations, and, as such we do not maintain separate office or other
space for these employees.
 
 Item 3. Legal Proceedings.
 
 As of the
date of this annual report on Form 10-KSB for the fiscal year ended December 31,
2007, there were no pending material legal proceedings to which we were a party
and we are not aware that any were contemplated.
 
 Item 4. Submission of Matters to a Vote of Security
Holders.
 
 No
matters were submitted during the fourth quarter of the fiscal year covered by
this annual report on Form 10-KSB to a vote of our security holders, through the
solicitation of proxies or otherwise.
  11
 Table of Contents
  PART II
 
 Item 5.Market for Common Equity and Related Stockholder Matters
and Small Business Issuer Purchases of Equity Securities.
 
 Our
shares of common stock trade on the OTC Bulletin Board under the symbol “CYIO”.
The following is a summary of the high and low bid prices of our common stock on
the OTC Bulletin board during the periods presented, as reported by the NASDAQ
Stock Market, Inc.  Such prices represent inter-dealer prices, without
retail mark-up, mark-down or commissions, and may not necessarily accurately
represent actual transactions.
 
 Year
      Ended December 31,
              
              Year
      Ended December 31,2007
              
              2006High
              
              Low
              
              High
              
              LowFirst
      Quarter
              
              $
              0.50
              
              
              $
              0.08
              
              
              $
              1.70
              
              
              $
              0.30Second
      Quarter
              
              $
              0.40
              
              
              $
              0.11
              
              
              $
              1.04
              
              
              $
              0.44Third
      Quarter
              
              $
              0.23
              
              
              $
              0.13
              
              
              $
              0.85
              
              
              $
              0.44Fourth
      Quarter
              
              $
              0.30
              
              
              $
              0.10
              
              
              $
              0.45
              
              
              $
              0.08
 
 As of the
fiscal year ended December 31, 2007 we had approximately 114 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 stock, unless otherwise indicated all references to our
outstanding shares of common stock in this annual report on Form 10-KSB 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.
  12
 Table of Contents
  The
following table sets forth information as of the fiscal year ended December 31,
2007 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
 Plan
      Category
              
              Number
      of securities to be issued upon exercise of outstanding options, warrants,
      rights
                
                (a)
              
              
              Weighted-average
      exercise price of outstanding options, warrants and rights
                
                (b)
              
              
              Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))
                
                (c)Equity
      compensation plans approved by security holders
              
              
              --
              
              
              
              --
              
              
              
              --Equity
      compensation plans not approved by security holders
              
              
              --
              
              
              
              --
              
              
              
              2,633,700Total
              
              
              
              
              
              
              
              
              
              
              2,633,700
 
 Recent
Sales of Unregistered Securities
 
 There
were no previously unreported sales of unregistered securities during the fiscal
year ended December 31, 2007.
 
 Purchases
of Equity Securities
 
 There
were no repurchases of equity securities during the fourth quarter of the fiscal
year ended December 31, 2007.
 
 Item 6. 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 annual report on Form 10-KSB. 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, however, our independent registered public accounting firm has
added explanatory paragraphs in Note E of each of our audited consolidated
financial statements for the fiscal years ended December 31, 2007 and 2006,
respectively, raising substantial doubt as to our ability to continue as a going
concern. Certain information contained below and elsewhere in this annual report
on Form 10-KSB, 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 CYIPROTM.  For
the years ended December 31, 2007 and 2006, we received no revenue from
CYIPROTM.
  13
 Table of Contents
  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, 2007, were $2,185,464
compared to $1,705,416 for the fiscal year ended December 31, 2006; an increase
in sales of $480,048 or 28%.  Our other active subsidiary, CKO, Inc.,
a District of Columbia corporation, produced no revenue for the fiscal years
ended December 31, 2007 and 2006. Operating net income for the year ended
December 31, 2007 was $52,627, or net income per share $.002, compared to a net
operating loss for the fiscal year ended December 31, 2006 of $959,481, or a net
loss per share of $.044.  Net income from discontinued operations was
$185,173 for the year ended December 31, 2007 and $0 for the year ended December
31, 2006.  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
income for the year ended December 31, 2007 was $259,800 or a net income per
share of $.011 as compared to total net loss for the year ended December 31,
2006 in the amount of $877,895 or a net loss per share of $.040.  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 have helped turn our loss from the fiscal year ended
December 31, 2006 of $877,895 into a net profit in the fiscal year ended
December 31, 2007 of $259,800.
 
 Cost
of Sales
 
 Cost of
sales for the fiscal year ended December 31, 2007 was $1,377,856 compared to
cost of sales for the fiscal year ended December 31, 2006 in the amount of
$1,280,856; an increase of $97,000 or approximately 7.5%.
 
 Selling,
General and Administrative Expenses
 
 Selling,
general and administrative expenses for the fiscal years ended December 31, 2007
and 2006 were $140,614 and $305,879, respectively; a decrease of $165,265 or
54%.  This decrease is due to a reduction in unnecessary
cost.
 
 Other
Expenses
 
 Total
other expenses for the fiscal year ended December 31, 2007 and 2006 were
$614,367 and $1,078,591, respectively; a decrease of $464,224 or
43%.  The total other expenses of $614,367 in the fiscal year ended
December 31, 2007 consisted primarily of $532,261 in indirect labor and $82,106
in professional services fees, interest expense, and
depreciation.  The total other expenses of $1,078,591 consisted
primarily of $618,756 in bad debt expense, $273,179 in indirect labor, and
$186,656 in professional services fees, loss on worthless stock, interest
expense, and depreciation.
 
 Liquidity
and Capital Resources
 
 At
December 31, 2007, we had cash and cash equivalents of $45,498, compared to
$25,405 at December 31, 2006, an increase of $20,093.
 
 During
the fiscal year ended December 31, 2007, cash provided by operating activities
was $71,337, consisting primarily of the Net Income of $259,800 offset by
non-cash charges related to:
 
 ·
              Depreciation
      charges of $130; and
  14
 Table of Contents
  ·
              Working
      capital changes of $188,593, consisting primarily of a decrease in
      Accounts Receivable, Other Assets in the amount of $10,984 offset by a net
      decrease in Payroll Taxes Payable, Accounts Payable, Liabilities of
      Discontinued Operations and Accrued Payroll Tax Expense in the amount of
      $199,577.
 
 Cash used
in investing activities for the fiscal year ended December 31, 2007 was $3,917
for the purchase of computer equipment.
 
 Cash used
in financing activities for the fiscal year ended December 31, 2007 was $47,327;
consisting primarily of $148,200 proceeds from the issuance of common stock
offset the following:
 
 ·
              An
      increase in Stockholder Receivable (Equity) of
  $130,000;
 
 ·
              An
      increase in Shareholder’s Loan Receivable of $63,365;
  and
 
 ·
              A
      decrease in borrowings on the Line of Credit in the amount of
      $2,162.
 
 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, 2007, 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
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statements of Financial Accounting Standards (“SFAS”) Statement No. 155, Accounting for Certain Hybrid
Financial Instruments—an amendment of FASB Statements No. 133 and 140.
This Statement amends FASB Statements No. 133, Accounting for Derivative
Instruments and Hedging Activities, and No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement resolves issues addressed in Statement No. 133, Implementation Issue No. D1,
Application of Statement 133 to Beneficial Interests in Securitized Financial
Assets.  This Statement permits fair value re-measurement for
any hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation, clarifies which interest-only strips and
principal-only strips are not subject to the requirements of Statement No. 133,
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives and amends Statement No. 140 to eliminate the
prohibition on a qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. SFAS No. 155 is effective for all financial
instruments acquired or issued for the fiscal year beginning after September 15,
2006. The adoption of this standard is not expected to have a material effect on
our results of operations or financial condition.
  15
 Table of Contents
  In March
2006, the FASB issued SFAS Statement No. 156, Accounting for Servicing of
Financial Assets—an amendment of FASB Statement No. 140.  This
Statement amends FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, with
respect to the accounting for separately recognized servicing assets and
servicing liabilities.  This Statement requires that an entity
recognize a servicing asset or servicing liability each time it undertakes an
obligation to service a financial asset by entering into a servicing
contract.  This Statement requires all separately recognized servicing
assets and servicing liabilities to be initially measured at fair value, if
practicable and it permits an entity to choose either the Amortization Method or
the Fair Value Method for each class of separately recognized servicing assets
and servicing liabilities.  At its initial adoption, the Statement
permits a one-time reclassification of available-for-sale securities to trading
securities by entities with recognized servicing rights, without calling into
question the treatment of other available-for-sale securities under SFAS No.
115.  This Statement is effective as of the beginning of an entity’s
first fiscal year that begins after September 15, 2006. Earlier application is
permitted if the entity has not yet issued interim or annual financial
statements for that fiscal year.  The adoption of this standard is not
expected to have a material effect our results of operations or financial
condition.
 
 In June
2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB No. 109.  This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB No. 109, Accounting for Income
Taxes.  This interpretation prescribes recognition of threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return.  This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition.  This interpretation is effective for
fiscal years beginning after December 15, 2006. Earlier application is permitted
if the entity has not yet issued interim or annual financial statements for that
fiscal year.  The adoption of this standard is not expected to have a
material effect on our results of operations or financial
condition.
 
 In
September 2006, the FASB issued Statement No. 157, Fair Value
Measurements.  This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements.  This statement
applies under other accounting pronouncements that require or permit fair value
measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement
attribute.  Accordingly, SFAS No. 157 does not require any new fair
value measurements.  However, for some entities, the application of
SFAS No. 157 will change current practice.  This Statement is
effective for fiscal years beginning after November 15, 2007, and all interim
periods within those fiscal years. Earlier application is permitted if the
entity has not yet issued interim or annual financial statements for that fiscal
year.  Early adoption of this standard is not expected to have a
material effect on our results of operations or its financial condition, but we
are evaluating the Statement to determine what impact, if any, it will have on
us.
 
 In
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106 and 132(R) (“SFAS 158”). This statement requires balance
sheet recognition of the funded status, which is the difference between the fair
value of plan assets and the benefit obligation, of pension and postretirement
benefit plans as a net asset or liability, with an offsetting adjustment to
accumulate other comprehensive income in shareholders’ deficit. In addition, the
measurement date, the date at which plan assets and the benefit obligation are
measured, is required to be the company’s fiscal year end. The Company is
currently evaluating the Statement to determine what impact, if any, it will
have on the Company.
  16
 Table of Contents
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value for Financial Assets
and Financial Liabilities—including an amendment of FASB Statement No.
115.  This statement permits entities to choose to measure many
financial instruments and certain other items at value.  The objective
is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.  This Statement is expected to expand the use of fair
value measurement, which is consistent with the FASB’s long-term measurement
objectives for accounting for financial instruments.  Effective as of
the beginning of an entity’s first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of FASB Statement No. 157, Fair Value Measurements. No
entity is permitted to apply the Statement retrospectively to fiscal years
preceding the effective date unless the entity chooses early adoption. Early
adoption of this standard is not expected to have a material effect on our
results of operations or its financial condition, but we are evaluating the
Statement to determine what impact, if any, it will have on us.
 
 In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations (“SFAS
141R”). SFAS No. 141R will significantly change the accounting for business
combinations in a number of areas including the treatment of contingent
consideration, contingencies, acquisition costs, IPR&D and restructuring
costs. In addition, under SFAS No. 141R, changes in deferred tax asset valuation
allowances and acquired income tax uncertainties in a business combination after
the measurement period will impact income tax expense. SFAS No. 141R is
effective for fiscal years beginning after December 15, 2008.  We have
not yet determined the impact, if any, of SFAS No. 141R on our consolidated
financial statements.
 
 In
December 2007, the FASB issued SFAS No.160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51. SFAS No.
160 will change the accounting and reporting for minority interests, which will
be recharacterized as noncontrolling interests (NCI) and classified as a
component of equity. This new consolidation method will significantly change the
account with minority interest holders. SFAS No. 160 is effective for fiscal
years beginning after December 15, 2008. We have not yet determined the impact,
if any, of SFAS No. 160 on our consolidated financial
statements.
  17
 Table of Contents
  Item 7.Financial Statements.
 
 CYIOS
Corporation and Subsidiaries
 
 Index
to Consolidated Financial Statements
 
 PageReport
      of Independent Registered Public Accounting Firm
              
              F-2Consolidated
      Condensed Balance Sheet as of December 31, 2007
              
              F-4Consolidated
      Statements of Operations for the Years Ended December 31, 2007 and
      2006
              
              F-5Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2007 and
      2006
              
              F-6Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31, 2007
      and 2006
              
              F-7Notes
      to the Consolidated Financial Statements
              
              F-8
  F-1
 Table of Contents
  INDEPENDENT AUDITOR’S
REPORT
 
 
 To the
Board of Directors and Stockholders
 CYIOS
Corporation and Subsidiaries
 
 We have
audited the accompanying consolidated balance sheets of CYIOS Corporation and
Subsidiaries as of December 31, 2007, and the related consolidated statements of
operations, stockholders’ deficit, and cash flows for the year ended December
31, 2007.  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 my audits 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 audits provide 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 and Subsidiaries
as of December 31, 2007, and the results of its operations and its cash flows
for the year ended December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.  The Company’s recurring losses and
inability to generate an internal cash flow raises substantial doubt about its
ability to continue as a going concern.  Management’s plans in regard
to these matters are described in Note R.  The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
 
 
 /s/
Baum & Company, PA
 Baum
& Company, PA
 Coral
Springs, Florida
 March 24,
2008
  F-2
 Table of Contents
  INDEPENDENT AUDITOR’S
REPORT
 
 
 To the
Board of Directors and Stockholders
 CYIOS
Corporation and Subsidiaries
 
 I have
audited the accompanying consolidated balance sheets of CYIOS Corporation and
Subsidiaries as of December 31, 2006, and the related consolidated statements of
operations, stockholders’ deficit, and cash flows for the year ended December
31, 2006.  These financial statements are the responsibility of the
company’s management. My responsibility is to express an opinion on these
financial statements based on my audits.
 
 I
conducted my audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I 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. I believe that my audits provide a reasonable
basis for my opinion.
 
 In my
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of CYIOS Corporation and Subsidiaries
as of December 31, 2006, and the results of its operations and its cash flows
for the year ended December 31, 2006 in conformity with accounting principles
generally accepted in the United States of America.
 
 The
financial statements were prepared assuming the Company will continue as a going
concern.  The Company has recurring losses and has yet to generate an
internal cash flow that raises substantial doubt about its ability to continue
as a going concern.  Management’s plans in regard to these matters are
described in Note E of the “Notes to the audited consolidated financial
statements” for the year ended December 31, 2006.  Theses financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
 
 
 /s/
Traci J. Anderson, CPA
 Traci J.
Anderson, CPA
 Huntersville,
NC
 April 13,
2007
  F-3
 Table of Contents
 
 CYIOS
Corporation and Subsidiaries
 Consolidated
Balance Sheet
 As
of December 31, 2007
 
  ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
              
              $
              45,498Accounts
      Receivable
              
              
              46,398Stock
      Receivable
              
              
              15,000Other
      Current Assets
              
              
              4,900Loan
      to Shareholder
              
              
              172,406TOTAL
      CURRENT ASSETS
              
              
              284,202FIXED
      ASSETSComputer
      Equipment
              
              
              3,918Accumulated
      Depreciation
              
              
              (130
              )TOTAL
      FIXED ASSETS
              
              
              3,788TOTAL
      ASSETS
              
              $
              287,990LIABILITIES
      AND STOCKHOLDERS' DEFICITLIABILITIESCurrent
      Liabilities:Line
      of Credit
              
              $
              98,817Payroll
      Taxes Payable
              
              
              9,703Accrued
      Vacation Expense
              
              
              27,817Accounts
      Payable
              
              
              24,622Liabilities
      of Discontinued Operations
              
              
              256,497TOTAL
      LIABILITIES
              
              
              417,456STOCKHOLDERS’
      DEFICITConvertible
      Preferred Stock ($.001 par value, 5,000,000
      authorized:   29,713 issued and
outstanding)
              
              
              30Common
      Stock ($.001 par value, 100,000,000 shares authorized: 25,354,210 shares
      issued and outstanding)
              
              
              25,354Additional
      Paid-in-Capital
              
              
              23,886,536Stock
      Receivable (Equity)
              
              
              (121,000
              )Accumulated
      Deficit
              
              
              (23,920,386
              )TOTAL
      STOCKHOLDERS’ DEFICIT
              
              
              (129,466
              )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              287,990
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-4
 Table of Contents
  CYIOS
Corporation and Subsidiaries
 Consolidated
Statement of Operations
 For
the years ended December 31, 2007 and 2006
 
 
 2007
              
              
              2006SALES AND COST OF
      SALESSales
              
              $
              2,185,464
              
              
              $
              1,705,416Cost
      of Sales
              
              
              1,377,856
              
              
              
              1,280,427Gross
      Profit
              
              
              807,608
              
              
              
              424,989EXPENSESSelling,
      general and administrative
              
              
              140,614
              
              
              
              305,879Payroll
      Expense--Indirect Labor
              
              
              532,261
              
              
              
              273,179Professional
      Fees
              
              
              61,644
              
              
              
              124,629Bad
      Debt Expense (Note A)
              
              
              -
              
              
              
              618,756Loss
      on Worthless Stock
              
              
              -
              
              
              
              5,400Interest
              
              
              20,332
              
              
              
              7,723Depreciation
      and amortization
              
              
              130
              
              
              
              48,904TOTAL
      EXPENSES
              
              
              754,981
              
              
              
              1,384,470Net
      Income/(Loss) from Operations
              
              
              52,627
              
              
              
              (959,481
              )Net
      Income/(Loss) from Discontinued Operations
              
              
              185,173
              
              
              
              -OTHER
      INCOME/(EXPENSE)Other
      Income
              
              
              22,000
              
              
              
              -Forgiveness
      of Debt
              
              
              -
              
              
              
              81,586TOTAL
      OTHER INCOME/(EXPENSE)
              
              
              22,000
              
              
              
              81,586Net
      Income/(Loss)
              
              $
              259,800
              
              
              $
              (877,895
              )Net
      income/(loss) per share--basic and fully dilutedContinuing
      Operations
              
              $
              0.002
              
              
              $
              (0.044
              )Discontinued
      Operations
              
              $
              0.008
              
              
              $
              -Net
      income/(loss) per share
              
              $
              0.011
              
              
              $
              (0.040
              )Weighted
      average shares outstanding--basic and fully diluted
              
              
              24,047,761
              
              
              
              21,822,534
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-5
 Table of Contents
  CYIOS
Corporation and Subsidiaries
 Consolidated
Statements of Cash Flows
 For
the years ended December 31, 2007 and 2006
 
  2007
              
              
              2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income/(loss)
              
              $
              259,800
              
              
              $
              (877,896
              )Adjustments
      to reconcile net loss to net cash provided by (used in)operating
      activities:Depreciation
              
              
              130
              
              
              
              48,904Accounts
      Receivable written off to Bad Debt Expense
              
              
              -
              
              
              
              618,756Changes
      in Assets and Liabilities:(Increase)/Decrease
      in Accounts Receivable
              
              
              8,249
              
              
              
              (44,935
              )(Increase)/Decrease
      in Other Assets
              
              
              2,735
              
              
              
              21,441Increase/(Decrease)
      In Interest Payable
              
              
              -
              
              
              
              (13,669
              )Increase/(Decrease)
      In Payroll Taxes Payable
              
              
              (7,499
              )
              
              
              (141,458
              )Increase/(Decrease)
      in Accrued Payroll Expenses
              
              
              6,016
              
              
              
              (5,962
              )Increase/(Decrease)
      In Liabilities of Discontinued Operations
              
              
              (185,173
              )
              
              
              -Increase/(Decrease)
      in Accounts Payable
              
              
              (12,921
              )
              
              
              17,474NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
              
              
              71,337
              
              
              
              (377,345
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Equipment
      Purchases
              
              
              (3,917
              )
              
              
              -NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
              
              
              (3,917
              )
              
              
              -CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of common stock
              
              
              148,200
              
              
              
              567,711(Increase)/Decrease
      in Stockholder Receivable (Equity)
              
              
              (130,000
              )
              
              
              (6,000
              )(Increase)/Decrease
      Shareholder's Loan Receivable
              
              
              (63,365
              )
              
              
              (133,397
              )Increase/(Decrease)
      in Note Payable
              
              
              -
              
              
              
              (136,692
              )Increase/(Decrease)
      in borrowings on Line of Credit
              
              
              (2,162
              )
              
              
              61,271NET
      CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES
              
              
              (47,327
              )
              
              
              352,893NET
      INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              20,093
              
              
              
              (24,452
              )CASH
      AND CASH EQUIVALENTS:Beginning
      of Year
              
              
              25,405
              
              
              
              49,857End
      of Year
              
              $
              45,498
              
              
              $
              25,405SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:CASH
      PAID DURING THE YEAR FOR:Interest
              
              $
              13,344
              
              
              $
              7,723NON-CASH
      OPERATING ACTIVITIES:Value
      of Common Stock Options issued in exchange for services
              
              $
              12,200
              
              
              $
              58,975
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-6
 Table of Contents
  CYIOS
Corporation and Subsidiaries
 Consolidated
Statement of Stockholders’ Deficit
 For
the years ended December 31, 2007 and 2006
 
  Common
                
                
                Common
                
                
                Preferred
                
                
                Preferred
                
                
                AdditionalShares
                
                
                Stock
                
                
                Shares
                
                
                Stock
                
                
                Paid-in
                
                
                Accumulated(000's)
                
                
                $
                
                
                (000's)
                
                
                $
                
                
                Capital
                
                
                DeficitBalances,
      December 31, 2005
                
                
                21,567,910
                
                
                $
                21,568
                
                
                
                27,913
                
                
                
                30
                
                
                $
                23,174,411
                
                
                $
                (23,302,290
                )Issuance
      of shares
                
                
                1,812,300
                
                
                
                1,812
                
                
                
                -
                
                
                
                -
                
                
                
                565,899
                
                
                
                -Net
      Income (loss) for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (877,896
                )Balances,
      December 31, 2006
                
                
                23,380,210
                
                
                $
                23,380
                
                
                
                27,913
                
                
                $
                30
                
                
                $
                23,740,310
                
                
                $
                (24,180,186
                )Issuance
      of shares
                
                
                2,074,000
                
                
                
                2,074
                
                
                
                -
                
                
                
                -
                
                
                
                146,326
                
                
                
                -Shares
      cancelled/returned
                
                
                (100,000
                )
                
                
                (100
                )
                
                
                -
                
                
                
                -
                
                
                
                (100
                )
                
                
                -Net
      Income (loss) for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                259,800Balances,
      December 31, 2007
                
                
                25,354,210
                
                
                $
                25,354
                
                
                
                27,913
                
                
                $
                30
                
                
                $
                23,886,536
                
                
                $
                (23,920,386
                )
  
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-7
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 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 2007 and 2006
it had no operating activity and is considered a discontinued
operation.
 
 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 recognizes revenue when persuasive evidence of an arrangement exists,
services have been rendered or goods delivered, the contract price is fixed or
determinable, and it is reasonably assured to be collectible. The Company
follows SOP 81-1 Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, as it applies to time-and-material contracts. Revenue
on time-and-materials contracts is recognized based on the hours actually
incurred at the negotiated contract billing rates, plus the cost of any
allowable material costs and out-of-pocket expenses. Revenue on fixed-price
contracts pursuant to which a client pays the Company a specified amount to
provide only a particular service for a stated time period, or so-called
fee-for-service arrangement, is recognized as amounts become billable, assuming
all other criteria for revenue recognition are met.  The Company
recognizes revenue from government contracts.
  F-8
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 
 NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
 
 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, 2007 and 2006, the company incurred $8,101 and $15,029
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 payable approximate fair value based on
the short-term maturity of these instruments.
  F-9
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
 
 Accounts
Receivable—Accounts deemed uncollectible are written off in the year they
become uncollectible.  For the years ended December 31, 2007 and 2006,
the following amounts by subsidiary were deemed uncollectible and written off as
bad debts:
 
 2007
              
              
              2006CKO
              
              $
              -
              
              
              $
              525,000WTC
              
              
              -
              
              
              
              93,756$
              -
              
              
              $
              618,756
 
 Outstanding
Accounts Receivable as of December 31, 2007 was $46,398 (CYIOS
Subsidiary).
 
 Impairment
of Long-Lived Assets—The Company evaluated the recoverability of its
property and equipment, and other assets in accordance with Statements of
Financial Accounting Standards (SFAS) No. 121, “Accounting for the Impairment of
Long-Lived Assets to be Disposed of” which requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the estimated future undiscounted cash flows attributable to such assets
or the business to which such intangible assets relate.
 
 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 $3,918
were purchased in 2007.  These assets will be depreciated of their
estimated useful life which the Company has determined to be 5
years.  The estimated annual depreciation expense is $782 per
year.  Total depreciation expense for the year ended December 31, 2007
was $130.00.
  F-10
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
 
 Recent
Accounting Pronouncements— In February
2006, the FASB issued SFAS Statement No. 155, “Accounting for Certain Hybrid
Financial Instruments—an amendment of FASB Statements No. 133 and 140” ("SFAS
155"). This Statement amends FASB Statements No. 133, Accounting for Derivative
Instruments and Hedging Activities, and No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This Statement
resolves issues addressed in Statement 133 Implementation Issue No. D1,
“Application of Statement 133 to Beneficial Interests in Securitized Financial
Assets.” This Statement permits fair value re-measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of Statement 133, establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives and amends Statement 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for all financial instruments acquired or
issued for the Company for fiscal year begins after September 15, 2006. The
adoption of this standard is not expected to have a material effect on the
Company’s results of operations or financial position.
 
 In March
2006, the FASB issued SFAS Statement No. 156, “Accounting for Servicing of
Financial Assets—an amendment of FASB Statement No. 140”.  This
Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities” with respect to the
accounting for separately recognized servicing assets and servicing
liabilities.  This Statement requires that an entity recognize a
servicing asset or servicing liability each time it undertakes an obligation to
service a financial asset by entering into a servicing contract.  This
Statement requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable and it
permits an entity to choose either the Amortization Method or the Fair Value
Method for each class of separately recognized servicing assets and servicing
liabilities.  At its initial adoption, the Statement permits a
one-time reclassification of available-for-sale securities to trading securities
by entities with recognized servicing rights, without calling into question the
treatment of other available-for-sale securities under SFAS No.
115.  This Statement is effective as of the beginning of an entity's
first fiscal year that begins after September 15, 2006. Earlier application is
permitted if the entity has not yet issued interim or annual financial
statements for that fiscal year.  The adoption of this standard is not
expected to have a material effect on the Company’s results of operations or
financial position.
  F-11
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
 
 Recent Accounting
Pronouncements (cont’d)
 In June
2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an
interpretation of FASB No. 109.  This Interpretation clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB No. 109, “Accounting for Income
Taxes”.  This interpretation prescribes recognition of threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return.  This
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and
transition.  This interpretation is effective for fiscal years
beginning after December 15, 2006. Earlier application is permitted if the
entity has not yet issued interim or annual financial statements for that fiscal
year.  The adoption of this standard is not expected to have a
material effect on the Company’s results of operations or financial
position.
 
 In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements”.  This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements.  This
statement applies under other accounting pronouncements that require or permit
fair value measurements, the Board having previously concluded in those
accounting pronouncements that fair value is the relevant measurement
attribute.  Accordingly, SFAS No. 157 does not require any new fair
value measurements.  However, for some entities, the application of
SFAS No. 157 will change current practice.  This Statement is
effective for fiscal years beginning after November 15, 2007, and all interim
periods within those fiscal years. Earlier application is permitted if the
entity has not yet issued interim or annual financial statements for that fiscal
year.  Early adoption of this standard is not expected to have a
material effect on the Company’s results of operations or its financial
position, but the Company is evaluating the Statement to determine what impact,
if any, it will have on the Company.
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”).
This statement requires balance sheet recognition of the funded status, which is
the difference between the fair value of plan assets and the benefit obligation,
of pension and postretirement benefit plans as a net asset or liability, with an
offsetting adjustment to accumulate other comprehensive income in shareholders’
deficit. In addition, the measurement date, the date at which plan assets and
the benefit obligation are measured, is required to be the company’s fiscal year
end. The Company is currently evaluating the Statement to determine what impact,
if any, it will have on the Company.
  F-12
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 
 NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
 
 Recent Accounting
Pronouncements (cont’d)
 In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value for Financial Assets and Financial Liabilities—including an
amendment of FASB Statement No. 115”.  This statement permits entities
to choose to measure many financial instruments and certain other items at
value.  The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions.  This Statement is expected to
expand the use of fair value measurement, which is consistent with the Board’s
long-term measurement objectives for accounting for financial
instruments.  Effective as of the beginning of an entity’s first
fiscal year that begins after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of FASB Statement No.
157, Fair Value
Measurements. No entity is permitted to apply the Statement
retrospectively to fiscal years preceding the effective date unless the entity
chooses early adoption. Early adoption of this standard is not expected to have
a material effect on the Company’s results of operations or its financial
position, but the Company is evaluating the Statement to determine what impact,
if any, it will have on the Company.
 
 In
December 2007, the FASB issued SFAS 141(revised 2007), Business
Combinations (“SFAS 141R”). SFAS 141R will significantly change the
accounting for business combinations in a number of areas including the
treatment of contingent consideration, contingencies, acquisition costs,
IPR&D and restructuring costs. In addition, under SFAS 141R, changes in
deferred tax asset valuation allowances and acquired income tax uncertainties in
a business combination after the measurement period will impact income tax
expense. SFAS 141R is effective for fiscal years beginning after
December 15, 2008.  The Company has not yet determined the
impact, if any, of SFAS 141R on its consolidated financial
statements.
  In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51
(“SFAS 160”). SFAS 160 will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
(NCI) and classified as a component of equity. This new consolidation method
will significantly change the account with minority interest holders.
SFAS 160 is effective for fiscal years beginning after December 15,
2008. The Company has not yet determined the impact, if any, of SFAS 160 on
its consolidated financial statements.
  F-13
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 NOTE B—SUPPLEMENTAL CASH
FLOW INFORMATION
 
 Supplemental
disclosures of cash flow information for the years ended December 31, 2007 and
2006 is summarized as follows:
 Cash
paid during the years for interest and income taxes:
 
 2007
              
              
              2006Income
      Tax
              
              $
              -
              
              
              $
              -Interest
              
              $
              20,332
              
              
              $
              7,7232007
              
              
              2006Common
      stock issued for services
              
              $
              12,200
              
              
              $
              58,975
 
 NOTE C—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, 2007).  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 D—INCOME
TAXES
 
 Due to
the prior years’ operating losses and the inability to recognize an income tax
benefit therefrom, there is no provision for current or deferred federal or
state income taxes for the year ended December 31, 2007.
 
 Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.
 
 The
Company’s total deferred tax asset, calculated using federal and state effective
tax rates, as of December 31, 2007 is as follows:
 
 Total
      Deferred Tax Asset
              
              $
              2,281,257Valuation
      Allowance
              
              
              (2,281,257
              )Net
      Deferred Tax Asset
              
              $
              -
  F-14
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 
 NOTE D—INCOME TAXES
(CONT’D)
 The
reconciliation of income taxes computed at the federal statutory income tax rate
to total income taxes for the year ended December 31, 2007 is as
follows:
 
 2007
              
              
              2006Income
      tax computed at the federal statutory rate
              
              
              34
              %
              
              
              34
              %State
      income tax, net of federal tax benefit
              
              
              0
              %
              
              
              0
              %Total
              
              
              34
              %
              
              
              34
              %Valuation
      allowance
              
              
              -34
              %
              
              
              -34
              %Total
      deferred tax asset
              
              
              0
              %
              
              
              0
              %
 
 Because
of the Company’s lack of earnings history, the deferred tax asset has been fully
offset by a valuation allowance.  The valuation allowance increased
(decreased) by $(88,332) and $298,484 in 2007 and 2006,
respectively.  No tax benefits have been recorded for the
nondeductible (tax) expenses (including stock for services) totaling
$17,281,983.
 
 As of
December 31, 2007, the Company had federal and state net operating loss
carryforwards as follows of $6,709,578 which will expire at various times
through the year 2027.
 
 NOTE
E—CONCENTRATION
 
 The
Company is either a prime or sub contractor on contracts with the Titan
Corporation, Information Management Support Center (IMCEN) and
GOMO/SLD.  Loss of these contracts could have a material effect upon
the Company’s financial condition and results of operations.
 
 NOTE F—SEGMENT
REPORTING
 
 The
Company has six reportable segments—CYIOS, CYIOS Group, CKI, CLNS Alliant,
DigitalTeq, and WorldTeq:
 
 Net Sales by SegmentDecember 31,
      2007CYIOS
              
              
              CYIOS Group
              
              
              CKO
              
              
              CLNS Alliant
              
              
              DigitTeq
              
              
              WorldTeq
              
              
              TotalsSales,
      net
              
              $
              2,185,464
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              2,185,464Cost
      of Sales
              
              
              1,377,856
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,377,856Gross
      Profit
              
              $
              807,608
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              807,608Profit/(Loss) by
      SegmentDecember 31,
      2007CYIOS
              
              
              CYIOS Group
              
              
              CKO
              
              
              CLNS Alliant
              
              
              DigitTeq
              
              
              WorldTeq
              
              
              TotalsNet
      Operating Profit/(Loss)
              
              $
              68,937
              
              
              $
              (11,100
              )
              
              $
              (5,210
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              52,627Net
      Profit/(Loss)
              
              $
              90,937
              
              
              $
              (11,100
              )
              
              $
              (5,210
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              185,173
              
              
              $
              259,800
 
 The
accounting policies used for segment reporting are the same as those described
in Note A “Summary of Significant Accounting Policies”;
  F-15
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 NOTE
G—EQUITY
 
 Common
Shares
 
 The
Company is authorized to issue 100,000,000 shares of $.001 par value stock and
as of December 31, 2007 the Company had 25,354,210 shares
outstanding.  During 2007 and 2006, the Company issued the following
shares of common stock:
 
 During
2007, the Company issued 2,074,000 free trading common shares for cash and
employee option bonuses.  Of these shares, 304,000 shares were issued
for services valued at $12,200.  Also, during 2007, 100,000 shares
were cancelled that had been previously issued.
 
 During
2006, the Company issued 1,812,300 free trading common shares.  Of
these shares issued, 92,300 options for shares were issued for services valued
at $58,975.
 
 Preferred
Shares
 
 The
Company is authorized to issue 5,000,000 shares of $.001 par value, convertible
preferred shares.  The preferred shares are convertible to common
shares at a 1 to 1 ratio.  As of December 31, 2007, the Company had
29,713 preferred shares outstanding.  During 2007 and 2006, the
Company did not issue any preferred shares of stock.
 
 
 NOTE H—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.
  F-16
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
  NOTE H—STOCK OPTIONS AND
WARRANTS (CONT”D)
 
 On April
21, 2006 the Company filed a registration statement on Form S-8 with the SEC
registering 3,000,000 shares of common stock for issuance upon exercise of
options granted pursuant to the 2006 Plan.  As of December 31, 2007,
options to acquire 1,812,300 shares of common stock were granted and exercised
and there are 1,187,700 shares available for issuance under the 2006
Plan.
 
 On
November 12, 2007, the Company’s board of directors approved the 2007 Equity
Incentive Plan (the “2007 Plan”). The 2007 Plan provides for the issuance of a
maximum of 3,500,000 shares of common stock in connection with awards granted
thereunder, which may include stock options, restricted stock awards and stock
appreciation rights. The 2007 Plan has a term of 10 years and may be
administered by the Company’s board of directors or by a committee appointed by
the Company’s board of directors (the “Committee”). Participation in the 2007
Plan is limited to employees, officer, directors and consultants of the Company
and its subsidiaries. Incentive stock options granted pursuant to the 2007 Plan
must have an exercise price per share not less than 100%, and non-qualified
stock options not less than 85%, of the fair market value of the Company’s
common stock on the date of grant. Awards granted pursuant to the 2007 Plan may
not have a term exceeding 10 years and will vest upon conditions established by
the Committee.
 
 On
November 29, 2006 the Company filed a registration statement on Form S-8 with
the SEC registering 3,500,000 shares of common stock for issuance upon exercise
of options granted and exercised pursuant to the 2007 Plan.  As of
December 31, 2007, options to acquire 2,054,000 shares of common stock were
granted and exercised and there are 1,446,000 shares available for issuance
under the 2007 Plan.
 
 Options
outstanding and exercisable as of December 31, 2007
 
 OutstandingNumber
      of shares
              
              
              Remaining Life
              
              Exercisable
      Number of SharesExercise
      Price$
              0.29
              
              
              
              600,000
              
              
              expired
              
              
              600,0000.29
              
              
              
              400,000
              
              
              1
      year
              
              
              400,0000.13
              
              
              
              2,350,000
              
              
              7
      years
              
              
              2,350,0003,350,000
              
              
              
              
              
              3,350,000
  F-17
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 NOTE H—STOCK OPTIONS AND
WARRANTS (CONT”D)
 
 Outstanding
stock options granted as of December 31, 2007 are as follows:
 Options
              
              
              Weighted
      average price per shareOutstanding
      at December 31, 2005
              
              
              3,495,000Year
      endedDecember
      31, 2006Granted
              
              
              1,816,300
              
              
              
              0.26Exercised
              
              
              (1,812,300
              )
              
              
              0.26Expired
      in 2006
              
              
              (145,000
              )
              
              
              0.19Outstanding
      at December 31, 2006
              
              
              3,354,000For
      the year endedDecember
      31, 2007Granted
              
              
              2,054,000
              
              
              
              0.13Exercised
      from 2006
              
              
              (4,000
              )
              
              
              0.26Expired
      in 2007
              
              
              (600,000
              )
              
              
              0.29Exercised
      in 2007
              
              
              (2,054,000
              )
              
              
              0.07Outstanding
      at December 31, 2007
              
              
              2,750,000
 
 Securities
available for future issuance under the 2007 and 2006 plan are as
follows:
 Plan
      Category
              
              Number
      of shares available for issuanceEquity
      compensation approved by security holders
              
              
              -Equity
      compensation not approved by security holders
              
              
              2,633,700
 
 
 NOTE I—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, 2007  and 2006 were
$34,314 and 17,203 respectively.
  F-18
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
  NOTE
J—COMMITMENTS/LEASES
 
 The
Company entered into a lease agreement on July 8, 2005 for office
space.  The current lease agreement is in effect from August 2007 to
August 2008, and at that time is up for renewal.  Monthly fees are
$1,040.   The Company’s estimated future yearly minimum lease
obligations are as follows:
 
 2008                      $17,628
 
 Total
rent expense for 2007 and 2006 was $18,111 and $26,771
respectively.  The decrease in rent expense from 2006 to 2007 was due
to a reduction in office space.
 
 NOTE K—RELATED
PARTIES
 
 The
Company has a Note Receivable with one of its officers and major
shareholders.  The note is payable on demand and bears no
interest.  The outstanding balance as of December 31, 2007 is
$172,406.
 
 NOTE L—ACCOUNTS
PAYABLE
 
 The
breakdown of Accounts Payable is as follows categorized by
subsidiary:
  WTEQ
              
              
              17,068CYIOS
              
              
              7,554$
              24,622
 
 NOTE M—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, 2007 are as
follows:
 
 CKO
              
              $
              44,767China
      Print
              
              
              54,050$
              98,817
  F-19
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 
 NOTE N—PAYROLL TAXES
PAYABLE
 
 As of
December 31, 2007, the Company’s subsidiaries owed the following in payroll
taxes:
  WTEQ
              
              
              9,368CYIOS
              
              
              334$
              9,702
 
 
 *The
Company is in negotiations with the IRS to satisfy these debts which were
incurred prior to the merger in 2005.
 
 NOTE O—LIABILITIES OF
DISCONTINUED OPERATIONS
 
 The
liabilities associated with WorldTeq (WTC) which has discontinued operations are
broken down as follows:
  Accounts
      Payable *
              
              $
              185,174Other
      Payables
              
              
              30,321Income
      Taxes Payable
              
              
              13,629Payroll
      Taxes Payable
              
              
              27,373$
              256,497
 
 *The
original amount of the Accounts Payable from discontinued operations was
$370,347.  The Company has determined that these debts have exceeded
the statute of limitations per the State of Delaware’s rules regarding the
statute of limitations for collection of outstanding debts.  The
Company has carried the debts since the year 2005.  No attempt on the
part of the creditor has been made to collect these debts, so management has
determined it reasonable to write them off over 2007 and 2008.  The
amount written off in 2007 was $185,173 and the amount to be written off in 2008
is $185,174.
 
 As a
result of the write-off of these debts, the Company has recognized income for
the year ended December 31, 2007 from discontinued operations in the amount of
$185,173 as shown in the “Other Income” section on the Consolidated Statement of
Operations.
 
 NOTE P—STOCK
RECEIVABLE
 
 The
Company had $136,000 in Stock Receivable which represents stock that was
purchased.  The Stock Receivable has been classified in to two
separate categories:  Stock Receivable in the amount of $15,000 which
represents amounts that have been collected in the 1st quarter
of 2008 and Stock Receivable (Equity) in the amount of $121,000 which represents
the amount still outstanding in the 1st quarter
of 2008.
  F-20
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 
 NOTE Q—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,
2007 and 2006 are as follows:
 
 
 For the Year Ended December 31,
      2007Income
              
              
              Weighted
      Average Shares
              
              
              Per-Share(Numerator)
              
              
              (Denominator)
              
              
              AmountNet
      Income/(Loss)
              
              $
              259,800Basic
      EPSIncome
      available to common stockholders
              
              
              259,800
              
              
              
              23,970,133
              
              
              $
              0.011Effect
      of Dilutive SecuritiesWarrantsConvertible
      preferred stock
              
              
              
              
              
              
              29,704Diluted
      EPSNet
      Income/(Loss)
              
              
              259,800
              
              
              
              23,999,837
              
              
              $
              0.011
 
 
 For the Year Ended December 31,
      2006Income
              
              
              Shares
              
              
              Per-Share(Numerator)
              
              
              (Denominator)
              
              
              AmountNet
      Income/(Loss)
              
              $
              (877,895
              )Basic
      EPSIncome
      available to common stockholders
              
              
              (877,895
              )
              
              
              21,792,830
              
              
              $
              (0.040
              )Effect
      of Dilutive SecuritiesWarrantsConvertible
      preferred stock
              
              
              
              
              
              
              29,704Diluted
      EPSNet
      Income/(Loss)
              
              
              (877,895
              )
              
              
              21,822,534
              
              
              $
              (0.040
              )
 F-21
 Table of Contents
 CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2007
 
 
 NOTE R—GOING
CONCERN
 
 As shown
in the accompanying financial statements, the Company has had recurring
losses.  During 2007 and 2006, the Company had net income of $259,800
and a net loss of $877,895 respectively.  The Company has a net
deficiency of $23,920,386 and a net working capital deficit of
$133,254.
 
 Management
believes that actions presently being taken to win more contracts, raise equity
capital, seek strategic relationships and alliances, and build its marketing
efforts to generate positive cash flow provide the means for the Company to
continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
  F-22
 Table of Contents
  Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
 
 There
were no events or disagreements requiring disclosure under Item 304(b) of
Regulation S-B during the fiscal year ended December 31, 2007.  For
additional information regarding the change in our certifying accountants,
reference is made to our Current Report on Form 8-K filed on July 16,
2007.
 
 Item 8A(T). Controls and Procedures.
 
 Evaluation
of Disclosure Controls and Procedures
 
 Our
management, under the supervision and with the participation of our chief
executive officer and principal financial officer, has evaluated the
effectiveness of our disclosure controls and procedures, as defined in Rule
13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as of the end of the period covered by this annual report on Form
10-KSB.
 
 Based on
the evaluation, our chief executive officer and principal financial officer,
Timothy Carnahan, who is our sole executive officer, has concluded that, at
December 31, 2007, our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in SEC’s rules and forms, and (ii)
accumulated and communicated to management, including our chief executive
officer and principal financial officer, to allow timely decisions regarding
required disclosure.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate control over
our financial reporting, as defined in Rule 13a-15(f) of the Exchange Act.
Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America.
 
 Our
internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect transactions and dispositions of our assets, (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that our
receipts and expenditures are being made only in accordance with authorizations
of our management and directors, and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial
statements.
 
 Due to
its inherent limitations, internal control over financial reporting may not
prevent or detect all misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.
 
 This
annual report on form 10-KSB for the fiscal year ended December 31, 2007 does
not include an attestation report of our registered public accounting firm
regarding internal control over financial reporting. Management’s report was not
subject to attestation by our registered public accounting firm pursuant to
temporary rules of the SEC that permit us to provide only management’s repot in
this annual report.
 
 Changes
in Internal Control over Financial Reporting
 
 There
were no changes in our internal controls over financial reporting that occurred
during the fiscal quarter covered by this annual report on Form 10-KSB that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
  17
 Table of Contents
  Item8B. Other Information.
 
 In
December 2007, through a competitive biding process, we were awarded a United
States Army contract to build and sustain a knowledge management solution for
the senior leadership of the Army. This contract is for a period of 5 years with
a value of $4.6 million. We will begin to recognize revenue in January
2008.
  18
 Table of Contents
  PART III
 
 Item 9. Directors, Executive Officers, Promoters, Control Persons
and Corporate Governance; Compliance with Section 16(a) of the Exchange
Act.
 
 Executive
Officers and Directors
 
 The
following table sets forth information regarding our executive officers and
directors as of December 31, 2007.
 
 Name
              
              Age
              
              PositionTimothy
      W. Carnahan
              
              40
              
              Director,
      Chief Executive Officer and
Treasurer
 
 Timothy Carnahanhas 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:
 
 ·
              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;
 
 ·
              any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor
      offenses);
 
 ·
              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
 
 ·
              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.
 
 Section
16(a) Beneficial Ownership Reporting Compliance
 
 Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and persons who beneficially own more than 10% of our common
stock to file reports of ownership and changes in ownership with the Securities
Exchange Commission.  These persons are required to provide us with
copies of all Section 16(a) forms that they file. Based solely on our review of
these forms and written representations of our executive officers and directors,
we believe that all Section 16(a) filing requirements were met during the fiscal
year ended December 31, 2007.
  19
 Table of Contents
  Code
of Ethics
 
 We have
adopted a written code of ethics that applies to all of our officers, directors
and employees, including our principal executive officer and principal financial
officer, or persons performing similar functions.
 
 Audit
Committee
 
 As of the
date of this annual report for the fiscal year ended December 31, 2007, we have
no standing committees and our entire board of directors serves as our audit and
compensation committees. Our board of directors has determined that
 
 
 Item10. Executive Compensation.
 
 The
following table sects 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, 2007.
  Summary
      Compensation TableName
      and principal position
              Year
              Salary
      ($)
              
              
              Bonus
      ($)
              
              
              Stock
      Awards
                ($)
              
              
              Option
      Awards
                ($)
              
              
              Non-Equity
      Incentive Plan Compen-sation
                ($)
              
              
              Non-qualified
      Deferred Compen-sation Earnings
                ($)
              
              
              All
      Other Compen-sation
                ($)
              
              Total
      Compensation ($)Timothy
      Carnahan, Chief Executive Officer
              2007
              
              $
              150,000
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              $
              150,000
 
 
 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, 2007.
 
 Outstanding
      Equity Awards at Fiscal Year-EndOption
      Awards
              Stock
      AwardsName
              Number
      of securities underlying unexercised options (#)
    Exercisable
              Number
      of securities underlying unexercised options (#)
                Unexercis-able
              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.
  20
 Table of Contents
  Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
 
 The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 27, 2008. 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 are
based on 25,552,210 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 ClassTimothy
      Carnahan
              
              
              15,976,294
              
              
              
              62.5
              %All
      officers and directors as a group
              
              
              15,976,294
              
              
              
              62.5
              %
 
 (1)
              The
      address of each person listed is care of CYIOS Corporation, 1300
      Pennsylvania Avenue, Suite 700, Washington D.C.
  20004.
 
 
 Item
12.Certain Relationships and Related Transactions, and
Director Independence.
 
 We have
determined that our sole director, Timothy Carnahan, is not independent based on
an analysis of the standards for independence set forth in Section 121A of the
American Stock Exchange Company Guide.
 
 Item 13. Exhibits.
 
 No.
              Description
      of Exhibit2.1
              Stock
      Acquisition Agreement by and between CYIOS Corporation (formerly China
      Printing, Inc.) and Timothy Carnahan, dated September 19, 2005,
      incorporated by reference to Exhibit 1.01 on Form 8-K filed September 16,
      2005.3(i)(1)
              Articles
      of Incorporation of CYIOS Corporation, dated October 11, 1997,
      incorporated by reference to Exhibit 2.A on Form 10-SB filed September 3,
      1999.3(i)(2)
              Certificate
      of Amendment to the Articles of Incorporation of CYIOS Corporation, dated
      April 26, 1999, incorporated by reference to Exhibit 2.B on Form 10-SB
      filed September 3, 1999.3(i)(3)
              Certificate
      of Amendment to the Articles of Incorporation of CYIOS Corporation, dated
      November 8, 2001, incorporated by reference to Exhibit 4.3 on Form S-8
      filed November 29, 2007.3(i)(4)
              Certificate
      of Amendment to the Articles of Incorporation of CYIOS Corporation, dated
      April 7, 2005, incorporated by reference to Exhibit 4.4 on Form S-8 filed
      November 29, 2007.3(i)(5)
              Certificate
      of Amendment to the Articles of Incorporation of CYIOS Corporation, dated
      October 21, 2005, incorporated by reference to Exhibit 4.5 on Form S-8
      filed November 29, 2007.3(i)(6)
              Certificate
      of Designation, dated June 1, 1999.*3(ii)(1)
              Bylaws
      of CYIOS Corporation, dated October 15, 1999, incorporated by reference to
      Exhibit 2.D on Form 10-SB filed September 3, 1999.4.1
              2006
      Employee Stock Option Plan, incorporated by reference to Exhibit 99.1 on
      Form S-8 filed April 21, 2006.4.2
              2007
      Equity Incentive Plan, incorporated by reference to Exhibit 4.7 on Form
      S-8 filed November 29, 2007.10.1
              Navy
      Contract by and between CYIOS Corporation and United States Navy, dated
      May 2008.14.1
              Code
      of Business Conduct and Ethics, incorporated by reference to Exhibit 14 on
      Form 10-KSB file April 20, 2004.21.1
              Subsidiaries
      of CYIOS Corporation.*31.1
              Certification
      of CYIOS Corporation Chief Executive Officer and Principal Financial
      Officer, Timothy Carnahan, required by Rule 13a-14(a) or Rule 15d-14(a),
      dated March 31, 2008.*32.1
              Certification
      of CYIOS Corporation Chief Executive Officer and Principal Financial
      Officer, Timothy Carnahan, required by Rule 13a-14(b) or Rule 15d-14(b),
      dated March 31, 2008.*
    *
Filed herewith.
  21
 Table of Contents
  Item14. Principal Accountant Fees and Services.
 
 The
following table sets forth the aggregate amount of various professional fees
billed by our principal accountants with respect to our last two fiscal
years:
 
 2007
              
              
              2006Audit
      fees (1)
              
              $
              21,850
              
              
              $
              19,500Audit-related
      fees
              
              
              --
              
              
              
              --Tax
      fees
              
              
              750
              
              
              
              16,400All
      other fees
              
              
              7,825
              
              
              
              11,500Total
              
              $
              30,425
              
              
              $
              35,900
 
 (1)
              All
      audit fees are approved by our board of directors. For the fiscal year
      ended December 31, 2006 Traci J. Anderson, CPA, served as our independent
      accountant. As previously disclosed in a Current Report on Form 8-K filed
      with the SEC on July 20, 2007, Ms. Anderson resigned on July 16, 2007, and
      we appointed Baum & Company, P.A. as our independent accountant for
      the fiscal year ended December 31,
2007.
  22
 Table of Contents
  Audit
Fees
 
 Audit
fees billed for professional services rendered by our principal accountants,
during the fiscal years ended December 31, 2007 and 2006 for the audit of our
annual consolidated financial statements, review of the consolidated financial
statements included in our quarterly reports on Form 10-QSB, and any services
provided in connection with statutory and regulatory filings or engagements for
those years ended, totaled approximately $21,850 and $19,500,
respectively.
 
 Audit-Related
Fees
 
 There
were no audit-related fees billed by our principal accountants during the fiscal
years ended December 31, 2007 and 2006.
 
 Tax
Fees
 
 Tax fees
billed by our principal accountants during the years ended December 31, 2007 and
2006, for tax compliance, tax advice and tax planning services, specifically
including preparation of our consolidated tax returns and guidance on tax
accruals, totaled approximately $750 and $4,900 respectively.
 
 All
Other Fees
 
 Fees
billed by our principal accountants during the years ended December 31, 2007 and
2006, respectively, for services rendered other than the amounts set forth
above, including the preparation of our annual consolidated financial statements
and the consolidated financial statements included in our quarterly reports on
Form 10-QSB, totaled approximately $7,825 and $11,500,
respectively.
  23
 Table of Contents
  SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 Date:
      March 31, 2008CYIOS
      CorporationBy:
                
                /s/Timothy
      W. CarnahanPresident,
      Chief ExecutiveOfficer
      &Principal
      Financial Officer
   24