UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




(Mark
One)


ý
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
fiscal year ended: December
31, 2008






            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from ________ to ________





Commission
File No. 000-53098





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 Avenue, Suite 700, Washington,
      DC
              
              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, par value
$0.001 per share


(Title
of Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  ̈ Yes x No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. ̈  Yes   x  No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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. x  Yes    ̈  No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
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-K
or any amendment to this Form 10-K. x  Yes    ̈  No









Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer    ̈
            Accelerated
      filer      ̈Non-accelerated
      filer      ̈
            Smaller
      reporting company     x(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  ̈ Yes x
No


The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of CYIOS Corporation (consisting solely of 11,555,916 shares of
common stock, $0.001 par value) was approximately $1,502,269 based on the
average bid and asked price of such common stock ($.13) as of April 9,
2009.




APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.   ̈  Yes   x No





(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.At April 9, 2009 there were 27,532,210
shares of common stock outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE


None











TABLE
OF CONTENTS




PART I
                          1Item
      1.
                          Description of Business
                          1Item
      2.
                          Description of Property
                          10Item
      3.
                          Legal Proceedings
                          11Item
      4.
                          Submission of Matters to a Vote of Security
      Holders
                          11PART II
                          11Item
      5.
                          Market for Common Equity and Related Stockholder Matters and
      Small Business Issuer Purchases of Equity Securities
                          11Item
      6.
                          Selected Financial Data
                          12Item
      7.
                          Management Discussion and Analysis of Financial Condition and
      Results of Operations
                          13Item
      8.
                          Financial Statements and Supplementary Data
                          F-17Item
      9.
                          Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
                          17Item
      9A (T)
                          Controls and Procedures
                          17Item
      9B.
                          Other Information
                          18PART III
                          19Item
      10.
                          Directors, Executive Officers, Promoters, Control Persons ans
      Corporate Governance; Compliance With Section 16(A) of the Exchange
      Act
                          19Item
      11.
                          Executive Compensation
                          20Item
      12.
                          Security
      Ownership of Certain Beneficial Owners and Management and Related
      StockholderMatters
                          21Item
      13.
                          Certain Relationships and Related Transactions, and Director
      Independence
                          21Item
      14.
                          Principal Accountant Fees and Services
                          21PART IVItem
      15.
                          Exhibits
                          22Signatures
                          23




Table of Contents





PART I





FORWARD-LOOKING
STATEMENTS





This
annual report on Form 10-K, 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-K 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-K, 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-K after the date of this report.





Item
1. 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
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Recent
Developments





April 9,
2009 - CYIOS Announces
Conference Call Recap and Information Regarding CKO Inc.


April 1,
2009 - CYIOS 2009
First Quarter Worksheet - Conference Call


March 30,
2009 - CYIOS - Report
on the Government Stimulus & Conference Call Update


February
12, 2009 - CYIOS
Awarded FBI Contract Valued at $175M


January
15, 2009 - CYIOS
Kicking Off 2009, DHS First of Many New Contract Awards





The above
are the press releases that best describe recent events with CYIOS Corporation.
The FBI contract is an ID/IQ meaning indefinite delivery and/or indefinite
quantity of services with a ceiling of spending up to $175M over five years. We
are working on many projects and some that might come to fruition very quickly
providing substantial growth to CYIOS.





We plan
on further developing our product CYIPRO with profits from our 2QTR2009. CYIPRO
provides solutions for government initiatives such as telework and knowledge
management. Our strategy is to sell it to the government to provide a path for
securely working remotely and becoming a knowledge centric organization as both
are part of the presidential agenda. Moreover, with the stimulus bill that has
passed, agencies are pressed to figure a way to do more with less and save money
– CYIPRO will position agencies to do just this. If all goes as planned, we
might decide in 4QTR2009 to spin CKO Incorporated out as its own public entity.
CKO Inc is a subsidiary of CYIOS and only develops and sells the product
CYIPRO.





Lastly,
we’ve finally accomplished changing our industry on the Internet. What this
means is when reviewing our competitors or industry, we now show up as a Defense
Contractor. This will help investors understand our business as they relate
CYIOS to other well known businesses.








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.





3
 Table of Contents





Trademarks





As of the
fiscal year ended December 31, 2008, 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.





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, 2008, we have entered into no confidentiality
and/or non-disclosure agreements with our employees, consultants or
advisors.





Employees





As of
December 31, 2008, we had 12 full-time employees, with 2.5 in executive
management and administration, .5 in product development and technical
operations, and 9 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.





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-K, 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.





4
 Table of Contents





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, 2008, and as a result of historical operating
losses from prior years, our accumulated deficit was $23,871,617. Lenders
generally regard an accumulated deficit as a negative factor in assessing
creditworthiness, and for this reason, the extent of our accumulated deficit
coupled with our historical operating losses will negatively impact our ability
to borrow funds if and when required. Any inability to borrow funds, or a
reduction in favorability of terms upon which we are able to borrow funds,
including the amount available to us, the applicable interest rate and the
collateralization required, may affect our ability to meet our obligations as
they come due, and adversely affect on our business, financial condition, and
results of operations, raising substantial doubts as to our ability to continue
as a going concern.





Risks
Associated with our Business and Industry





We
depend on contracts with federal government agencies for all of our revenue, and
if our relationships with these agencies were harmed our future revenues and
growth prospects would be adversely affected.





Revenues
derived from contracts with federal government agencies accounted for all of our
revenues for the fiscal year ended December 31, 2008, and we believe that
federal government agencies will continue to be the source of all or
substantially all of our revenues for the foreseeable future. For this reason,
any issues that compromise our relationship with agencies of the federal
government in general, or with the Department of Defense in particular, would
have a substantial adverse effect on our business. Key among the factors in
maintaining our relationships with federal government agencies are our
performance on individual contracts, the strength of our professional reputation
and the relationships of our key executives with government personnel. To the
extent that our performance does not meet expectations, or our reputation or
relationships with one or more key personnel are impaired, our business,
financial condition and results of operations will be negatively affected and we
may not be able to meet our obligations as they come due, raising substantial
doubts as to our ability to continue as a going concern.





The
federal government may modify, curtail or terminate our contracts at any time
prior to their completion, which would have a material adverse affect on our
business.





Federal
government contracts are highly regulated and federal laws and regulations
require that our contracts contain certain provisions which allow the federal
government to, among other things:





5
 Table of Contents





·
            terminate
      current contracts at any time for the convenience of the government,
      provided such termination is made in good
faith;





·
            cancel
      multi-year contracts and related orders if funds for contract performance
      for any subsequent year become
unavailable;





·
            curtail
      or modify current contracts if requirements or budgetary constraints
      change; and





·
            adjust
      contract costs and fees on the basis of audits done by its
      agencies.





Should
the federal government modify, curtail or terminate our contracts for any
reason, we may only recover our costs incurred and profit on work completed
prior to such modification, curtailment or termination. The federal government
regularly reviews our costs and performance on its contracts, as well as our
accounting and general business practices. The federal government may reduce the
reimbursement for our fees and contract-related costs as a result of such an
audit.  There can be no assurance that one or more of our federal
government contracts will not be modified, curtailed or terminated under these
circumstances, or that we would be able to procure new federal government
contracts to offset the revenue lost as a result of any modification,
curtailment or termination. As our revenue is dependent on our procurement,
performance and receipt of payment under our contracts with the federal
government, the loss of one or more critical contracts could have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.





The
federal government has increasingly relied upon contracts that are subject to a
competitive bidding process. If we are unable to consistently win new awards
under these contracts our business may be adversely affected.





We obtain
many of our contracts with the federal government through a process of
competitive bidding and, as the federal government has increasingly relied upon
contracts that are subject to competitive bidding, we expect that much of the
business we are awarded in the foreseeable future will be through such a
process.  There are substantial costs and a number of risks inherent
in the competitive bidding process, including the costs associated with
management time necessary to prepare bids and proposals that we may not be
awarded, our failure to accurately estimate the resources and costs required to
service contracts that we are awarded, and the risk that we may encounter
unanticipated expenses, delays or modifications to contracts previously
awarded.  Our failure to effectively compete and win contracts
through, or manage the costs and risks inherent in the competitive bidding
process could have a material adverse effect on our business, financial
condition and results of operations.





Our revenues and
growth prospects may be adversely affected if we or our employees are unable to
obtain the requisite security clearances or other qualifications needed to
perform services for our customers.





Many
federal government programs require contractors to have security clearances.
Depending on the level of required clearance, security clearances can be
difficult and time-consuming to obtain. If we or our employees are unable to
obtain or retain necessary security clearances, we may not be able to win new
business, and our existing customers could terminate their contracts with us or
decide not to renew them. To the extent we cannot obtain or maintain the
required security clearances for our employees working on a particular contract,
we may not derive the revenue anticipated from the contract. Employee
misconduct, including security breaches, or our failure to comply with laws or
regulations applicable to our business could cause us to lose customers or our
ability to contract with the federal government, which would have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.





Because
we are a federal government contractor, misconduct, fraud or other improper
activities by our employees or our failure to comply with applicable laws or
regulations could have a material adverse effect on our business and
reputation.





Because
we are a federal government contractor, misconduct, fraud or other improper
activities by our employees or our failure to comply with applicable laws or
regulations could have a material adverse effect on our business and reputation.
Such misconduct could include the failure to comply with federal government
procurement regulations, regulations regarding the protection of classified
information, legislation regarding the pricing of labor and other costs in
federal government contracts and any other applicable laws or regulations. Many
of the systems we develop involve managing and protecting information relating
to national security and other sensitive government functions. A security breach
in one of these systems could prevent us from having access to such critically
sensitive systems. Other examples of potential employee misconduct include time
card fraud and violations of the Anti-Kickback Act. The precautions we take to
prevent and detect these activities may not be effective, and we could face
unknown risks or losses. Our failure to comply with applicable laws or
regulations or misconduct by any of our employees could subject us to fines and
penalties, loss of security clearance and suspension or debarment from
contracting with the federal government, any of which would have a material
adverse effect on our business, financial condition and results of operations
and we may not be able to meet our obligations as they come due, raising
substantial doubts as to our ability to continue as a going
concern.





6
 Table of Contents





We must comply with laws and
regulations relating to the formation, administration and performance of federal
government contracts.





We must
comply with laws and regulations relating to the formation, administration and
performance of federal government contracts, which affect how we do business
with our customers. Such laws and regulations may potentially impose added costs
on our business and our failure to comply with applicable laws and regulations
may lead to penalties and the termination of our federal government contracts.
Some significant regulations that affect us include:





·
            the
      Federal Acquisition Regulations and their supplements, which regulate the
      formation, administration and performance of federal government
      contracts;





·
            the
      Truth in Negotiations Act, which requires certification and disclosure of
      cost and pricing data in connection with contract negotiations;
      and





·
            the
      Cost Accounting Standards, which impose accounting requirements that
      govern our right to reimbursement under certain cost-based government
      contracts.





Additionally,
our contracts with the federal government are subject to periodic review and
investigation. Should such a review or investigation identify improper or
illegal activities, we may be subject to civil or criminal penalties or
administrative sanctions, including the termination of our contracts, forfeiture
of profits, the triggering of price reduction clauses, suspension of payments,
fines and suspension or debarment from doing business with federal government
agencies. We could also suffer harm to our reputation, which would impair our
ability to win awards of contracts in the future or receive renewals of existing
contracts. Although we have never had any material civil or criminal penalties
or administrative sanctions imposed upon us, it is not uncommon for companies in
our industry to have such penalties and sanctions imposed on them. If we incur a
material penalty or administrative sanction in the future, our business,
financial condition and results of operations could be adversely
affected.





Our business is
subject to routine audits and cost adjustments by the federal government, which,
if resolved unfavorably to us, could adversely affect our financial
condition.





Federal
government agencies routinely audit and review their contractors’ performance,
cost structure and compliance with applicable laws, regulations and standards.
They also review the adequacy of, and a contractor’s compliance with, its
internal control systems and policies, including the contractor’s purchasing,
property, estimating, compensation and management information systems. Such
audits may result in adjustments to our contract costs, and any costs found to
be improperly allocated will not be reimbursed.





We incur
significant pre-contract costs that if not reimbursed would deplete our cash
balances and adversely affect our financial condition.





We often
incur costs on projects outside of a formal contract when customers ask us to
begin work under a new contract that has yet to be executed, or when they ask us
to extend work we are currently doing beyond the scope of the initial contract.
We incur such costs at our risk, and it is possible that the customers will not
reimburse us for these costs if we are ultimately unable to agree on a formal
contract which could have an adverse effect on our business, financial condition
and results of operations.





7
 Table of Contents





Our
intellectual property may not be adequately protected from unauthorized use by
others, which could increase our litigation costs and adversely affect our
business.





Our
intellectual properties, including our brands, are some of the most important
assets that we possess in our ability to generate revenues and profits and we
rely significantly on these intellectual property assets in being able to
effectively compete in our markets. However, our intellectual property rights
may not provide meaningful protection from unauthorized use by others, which
could result in an increase in competing products and services and a reduction
in our own ability to generate revenue. Moreover, if we must pursue litigation
in the future to enforce or otherwise protect our intellectual property rights,
or to determine the validity and scope of the proprietary rights of others, we
may not prevail and will likely have to make substantial expenditures and divert
valuable resources in any case.





We
face substantial competition in attracting and retaining qualified senior
management and key personnel and may be unable to develop and grow our business
if we cannot attract and retain as necessary, or if we were to lose our
existing, senior management and key personnel.





Our
success, to a large extent, depends upon our ability to attract, hire and retain
highly qualified and knowledgeable senior management and key personnel who
possess the skills and experience necessary to execute our business strategy.
Our ability to attract and retain such senior management and key personnel will
depend on numerous factors, including our ability to offer salaries, benefits
and professional growth opportunities that are comparable with and competitive
to those offered by more established companies operating in our industries and
market segments. We may be required to invest significant time and resources in
attracting and retaining, as necessary, additional senior management and key
personnel, and many of the companies with which we will compete for any such
individuals have greater financial and other resources, affording them the
ability to undertake more extensive and aggressive hiring campaigns, than we
can. Furthermore, an important component to overall compensation offered to
senior management and key personnel may be equity. If our stock prices do not
appreciate over time, it may be difficult for us to attract and retain senior
management and key personnel. Moreover, should we lose our key personnel, we may
be unable to prevent the unauthorized disclosure or use of our trade secrets,
including our practices, procedures or client lists. The normal running of our
operations may be interrupted, and our financial condition and results of
operations negatively affected, as a result of any inability on our part to
attract or retain the services of qualified and experienced senior management
and key personnel, our existing key personnel leaving and a suitable replacement
not being found, or should any former member of senior management or key
personnel disclose our trade secrets.





The
loss of our Chief Executive Officer could have a material adverse effect on our
business.





Our
success depends to a large degree upon the skills, network and professional
business contacts of our Chief Executive Officer, Timothy Carnahan. We presently
do not maintain key person life insurance on, and have no employment
agreement with, Timothy Carnahan, and there can be no assurance that we
will be able to retain him or, should he choose to leave us for any reason, to
attract and retain a replacement or additional key executives. The loss of our
Chief Executive Officer would have a material adverse effect on our business,
our financial condition, including liquidity and profitability, and our results
of operations, raising substantial doubts as to our ability to continue as a
going concern.





Risks
Associated with an Investment in our Common Stock





Unless
an active trading market develops for our securities, you may not be able to
sell your shares.





Although,
we are a reporting company and our common shares are quoted on the OTC Bulletin
Board (owned and operated by the Nasdaq Stock Market, Inc.) under the symbol
“CYIO”, there is not currently an active trading market for our common stock and
an active trading market may never develop or, if it does develop, may not be
maintained. Failure to develop or maintain an active trading market will have a
generally negative effect on the price of our common stock, and you may be
unable to sell your common stock or any attempted sale of such common stock may
have the effect of lowering the market price and therefore your investment could
be a partial or complete loss.





8
 Table of Contents





Since
our common stock is thinly traded it is more susceptible to extreme rises or
declines in price, and you may not be able to sell your shares at or above the
price paid.





Since our
common stock is thinly traded its trading price is likely to be highly volatile
and could be subject to extreme fluctuations in response to various factors,
many of which are beyond our control, including:





·
            the
      trading volume of our shares;





·
            the
      number of securities analysts, market-makers and brokers following our
      common stock;





·
            changes
      in, or failure to achieve, financial estimates by securities
      analysts;





·
            new
      products or services introduced or announced by us or our
      competitors;





·
            actual
      or anticipated variations in quarterly operating
  results;





·
            conditions
      or trends in our business
industries;





·
            announcements
      by us of significant contracts, acquisitions, strategic partnerships,
      joint ventures or capital
commitments;





·
            additions
      or departures of key personnel;





·
            sales
      of our common stock; and





·
            general
      stock market price and volume fluctuations of publicly-traded, and
      particularly microcap, companies.





You may
have difficulty reselling shares of our common stock, either at or above the
price you paid, or even at fair market value. The stock markets often experience
significant price and volume changes that are not related to the operating
performance of individual companies, and because our common stock is thinly
traded it is particularly susceptible to such changes. These broad market
changes may cause the market price of our common stock to decline regardless of
how well we perform as a company. In addition, securities class action
litigation has often been initiated following periods of volatility in the
market price of a company’s securities. A securities class action suit against
us could result in substantial legal fees, potential liabilities and the
diversion of management’s attention and resources from our business. Moreover,
and as noted below, our shares are currently traded on the OTC Bulletin Board
and, further, are subject to the penny stock regulations. Price fluctuations in
such shares are particularly volatile and subject to manipulation by
market-makers, short-sellers and option traders.





Trading
in our common stock on the OTC Bulletin Board may be limited thereby making it
more difficult for you to resell any shares you may own.





Our
common stock is quoted on the OTC Bulletin Board (owned and operated by the
Nasdaq Stock Market, Inc.). The OTC Bulletin Board is not an exchange and,
because trading of securities on the OTC Bulletin Board is often more sporadic
than the trading of securities listed on a national exchange or on the Nasdaq
National Market, you may have difficulty reselling any of the shares of our
common stock that you may own.





Our
common stock is subject to the “penny stock” regulations, which are likely to
make it more difficult to sell.





Our
common stock is considered a “penny stock,” which generally is a stock trading
under $5.00 and not registered on a national securities exchange or quoted on
the Nasdaq National Market. The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. These
rules generally have the result of reducing trading in such stocks, restricting
the pool of potential investors for such stocks, and making it more difficult
for investors to sell their shares once acquired. Prior to a transaction in a
penny stock, a broker-dealer is required to:





9
 Table of Contents





·
            deliver
      to a prospective investor a standardized risk disclosure document that
      provides information about penny stocks and the nature and level of risks
      in the penny stock market;





·
            provide
      the prospective investor with current bid and ask quotations for the penny
      stock;





·
            explain
      to the prospective investor the compensation of the broker-dealer and its
      salesperson in the transaction;





·
            provide
      investors monthly account statements showing the market value of each
      penny stock held in the their account;
and





·
            make
      a special written determination that the penny stock is a suitable
      investment for the purchaser and receive the purchaser’s written agreement
      to the transaction.





These
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that is subject to the penny stock rules. Since
our common stock is subject to the penny stock rules, investors in our common
stock may find it more difficult to sell their shares.





Future
issuances by us or sales of our common stock by our officers or directors may
dilute your interest or depress our stock price.





We may
issue additional shares of our common stock in future financings or may grant
stock options to our employees, officers, directors and consultants under our
2006 Employee Stock Option Plan and 2007 Equity Incentive Plan. Any such
issuances could have the effect of depressing the market price of our common
stock and, in any case, would dilute the interests of our common stockholders.
Such a depression in the value of our common stock could reduce or eliminate
amounts that would otherwise have been available to pay dividends on our common
stock (which are unlikely in any case) or to make distributions on liquidation.
Furthermore, shares owned by our officers or directors which are registered in a
registration statement, or which otherwise may be transferred without
registration pursuant to an applicable exemptions under the Securities Act of
1933, as amended, may be sold. Because of the perception by the investing public
that a sale by such insiders may be reflective of their own lack of confidence
in our prospects, the market price of our common stock could decline as a result
of a sell-off following sales of substantial amounts of common stock by our
officers and directors into the public market, or the mere perception that these
sales could occur.





We
do not intend to pay any common stock dividends in the foreseeable
future.





We have
never declared or paid a dividend on our common stock and, because we have very
limited resources and a substantial accumulated deficit, we do not anticipate
declaring or paying any dividends on our common stock in the foreseeable future.
Rather, we intend to retain earnings, if any, for the continued operation and
expansion of our business. It is unlikely, therefore, that the holders of our
common stock will have an opportunity to profit from anything other than
potential appreciation in the value of our common shares held by them. If you
require dividend income, you should not rely on an investment in our common
stock.





Item
2. 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, 2008, at a rate of $1,040 per month. There are t 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.





10
 Table of Contents





Item
3. Legal Proceedings.





As of the
date of this annual report on Form 10-K for the fiscal year ended December 31,
2008, 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-K to a vote of our security holders, through the
solicitation of proxies or otherwise.





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 31,2008
                    
                    
                    2007High
                    
                    
                    Low
                    
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    0.13
                    
                    
                    $
                    0.10
                    
                    
                    $
                    0.70
                    
                    
                    $
                    0.30Second
      Quarter
                    
                    $
                    0.10
                    
                    
                    $
                    0.09
                    
                    
                    $
                    1.04
                    
                    
                    $
                    0.44Third
      Quarter
                    
                    $
                    0.06
                    
                    
                    $
                    0.05
                    
                    
                    $
                    0.85
                    
                    
                    $
                    0.44Fourth
      Quarter
                    
                    $
                    0.04
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.45
                    
                    
                    $
                    0.08





As of the
fiscal year ended December 31, 2008 we had approximately 102 shareholders of
record (excluding the number of persons or entities holding shares of our common
stock in nominee or street name through one or more brokerage
firms).





Dividends





We have
neither declared nor paid any cash dividends on our shares of common stock and
do not anticipate declaring or paying any dividends in the foreseeable future.
The decision to declare future dividends, if any, will depend upon our results
of operations, financial condition, current and future anticipated capital
requirements, contractual restrictions, restrictions imposed by applicable law
and other factors that our board of directors may deem relevant. Although it is
our intention to retain future earnings, if any, for use in our business
operations, there are currently no restrictions in place that would limit our
ability to pay dividends.





Reverse
Stock Split





Effective
April 7, 2005 we completed a 1-for-30 reverse stock split of our outstanding
shares of common and preferred stock, unless otherwise indicated all references
to our outstanding shares of common stock in this annual report on Form 10-K
reflect the reverse stock split.





Equity
Incentive Plans





On April
21, 2006, the sole member of our board of directors approved the adoption of our
2006 Employee Stock Option Plan (the “2006 Plan”). The 2006 Plan provides for
the issuance of a maximum of 3,000,000 shares of common stock in connection with
stock options granted there under, plus an annual increase to be added on the
first nine anniversaries of the effective date of the 2006 Plan, equal to at
least (i) 1% of the total number of shares of common stock then outstanding,
(ii) 350,000 shares, or (iii) a number of shares determined by our board of
directors prior to such anniversary date.  The 2006 Plan has a term of
10 years and may be administered by our board of directors or by a committee
made up of not less than 2 members of appointed by our board of directors.
Participation in the 2006 Plan is limited to employees, officer, directors and
consultants of the Company and its subsidiaries. Incentive stock options granted
pursuant to the 2006 Plan must have an exercise price per share not less than
100%, and non-qualified stock options not less than 85%, of the fair market
value of our common stock on the date of grant. Awards granted pursuant to the
2006 Plan may not have a term exceeding 10 years and will vest upon conditions
established by our board of directors.





11
 Table of Contents





On
November 12, 2007, the sole member of our board of directors approved the
adoption of our 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan
provides for the issuance of a maximum of 3,500,000 shares of common stock in
connection with awards granted there under, which may include stock options,
restricted stock awards and stock appreciation rights. The 2007 Plan has a term
of 10 years and may be administered by our board of directors or by a committee
appointed by our board of directors (the “Committee”). Participation in the 2007
Plan is limited to employees, officer, directors and consultants of the Company
and its subsidiaries. Incentive stock options granted pursuant to the 2007 Plan
must have an exercise price per share not less than 100%, and non-qualified
stock options not less than 85%, of the fair market value of our common stock on
the date of grant. Awards granted pursuant to the 2007 Plan may not have a term
exceeding 10 years and will vest upon conditions established by the
Committee.





The
following table sets forth information as of the fiscal year ended December 31,
2008 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 InformationNumber
      of securities to be issued upon exercise of outstanding
      options, warrants
                                    
                                    
                                    Weighted-average exercise
      price of outstanding options, warrants and
rights
                                    
                                    
                                    Number
      of securities  remaining available for future issuance
      under equity compensation plans (excluding securities
      reflected in column (a))Plan
      Category
                                    
                                    (a)
                                    
                                    
                                    (b)
                                    
                                    
                                    (c)Equity
      compensation plans  approved by security holders
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Equity
      compensation plans not  approved by security
    holders
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,210,700Total
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,210,700




Recent
Sales of Unregistered Securities





There
were no previously unreported sales of unregistered securities during the fiscal
year ended December 31, 2008.





Purchases
of Equity Securities





There
were no repurchases of equity securities during the fourth quarter of the fiscal
year ended December 31, 2008.





Item
6. Selected Financial Data





If the
registrant qualifies as a smaller reporting company as defined byRule 229.10(f)(1),
it is not required to provide the information required by this
Item.





12
 Table of Contents





Item
7. Management’s Discussion and Analysis of Financial Conditions
and Results of Operations





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-K. 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, 2008 and 2007, 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-K,
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, 2008 and 2006, we received no revenue from
CYIPROTM.





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, 2008, were $1,494,872
compared to $2,185,464 for the fiscal year ended December 31, 2007; an decrease
in sales of $690,592 or 32%.  Our other active subsidiary, CKO, Inc.,
a District of Columbia corporation, produced no revenue for the fiscal years
ended December 31, 2008 and 2007. Operating net loss for the year ended December
31, 2008 was $203,665, or net operating loss per share $.01, compared to a net
operating income for the fiscal year ended December 31, 2007 of $72,959, or a
net operating income per share of $.00.  Net income from discontinued
operations was $256,497 for the year ended December 31, 2008 and $185,173 for
the year ended December 31, 2007.  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, 2008 was
$48,768 or a net income per share of $.00 as compared to total net income for
the year ended December 31, 2007 in the amount of $259,800 or a net income per
share of $.01.  In 2006, management made the decision to expand our
operations by attempting to increase our business with the Department of Defense
and the rest of the federal government.  In order to achieve this
goal, we have actively bid on request for proposals by different departments and
their agencies.  We have, and will continue to invest all of our
earnings into additional personnel to help achieve this goal. We believe that
our efforts in working to achieve the aforementioned goals will help turn our
operating losses into a net profit in the fiscal year ended December 31, 2009
and beyond.





Cost
of Sales





Cost of
sales for the fiscal year ended December 31, 2008 was $781,909 compared to cost
of sales for the fiscal year ended December 31, 2007 in the amount of
$1,377,856; a decrease of $595,947 or approximately 43%.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses for the fiscal years ended December 31, 2008
and 2007 were $179,371 and $140,614, respectively; an increase of $38,757 or
28%.





13
 Table of Contents




Other
Expenses
 
 Total
other expenses for the fiscal year ended December 31, 2008 and 2007 were
$737,257 and $594,035, respectively; an increase of $143,222 or
24%.  The total other expenses of $732,257 in the fiscal year ended
December 31, 2008 consisted primarily of $521,681 in indirect labor and $210,576
in professional service and consulting fees and depreciation.  The
total other expenses of $594,035 for the fiscal year ended December 31, 2007
consisted primarily of $532,261 in indirect labor and $61,774 in professional
services fees and depreciation.
 
 Liquidity
and Capital Resources
 
 At
December 31, 2008, we had cash and cash equivalents of $27,070, compared to
$45,498 at December 31, 2007, a decrease of $18,428.
 
 During
the fiscal year ended December 31, 2008, cash provided by operating activities
was $33,603, consisting primarily of the Net Income of $53,768 offset
by:
 
 ·
              Non-cash
      charges related to Depreciation charges of $784, Valuation of Shares
      issued for consulting services of $209,630, a Reduction in Stock
      Receivable of $7,500 and a Reduction in the Liabilities from Discontinued
      Operations of $256,497; and
 
 ·
              Working
      capital changes of $18,418, consisting primarily of a net decrease in
      Accounts Receivable, Other Assets in the amount of $11,999 offset by a net
      increase in Payroll Taxes Payable, Accounts Payable, and
      Accruals  in the amount of
$6,419.
 
 Cash used
in investing activities for the fiscal year ended December 31, 2008 was $90,106
for the advances made  to the Related Party Loan.




Cash
provided by financing activities for the fiscal year ended December 31, 2008 was
$38,075; consisting primarily of:





·
            Payments
      received for the Stock Receivable in the amount of $48,500;
      and





·
            A
      Payments made on the Line of Credit in the amount of
    $10,425.





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, 2008, 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.





14
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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 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. Adoption
of this standard is not expected to have a material effect on our results of
operations or its financial condition.





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.  Adoption of this standard is not expected to have a material
effect on our results of operations or its financial condition.




In
December 2007, the FASB issued SFAS No.160, Noncontrolling Interests in
Consolidated Financial Statements, and 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. Adoption of this standard is not
expected to have a material effect on our results of operations or its financial
condition.




In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities — an amendment to FASB Statement
No. 133.” SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. Entities are required to
provide enhanced disclosures about: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and related hedged
items are accounted for under Statement 133 and its related interpretations; and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. It is effective for
financial statements issued for fiscal years beginning after November 15,
2008, with early adoption encouraged. The adoption of this statement, which is
expected to occur in the first quarter of 2009, is not expected to have a
material effect on the Company’s financial statements.





15
 Table of Contents





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. It is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The adoption of this statement is not expected to have a material
effect on the Company’s financial statements.





In
May 2008, the FASB issued SFAS No. 163, “Accounting for Financial
Guarantee Insurance Contracts — An interpretation of FASB Statement
No. 60.” SFAS No. 163 requires that an insurance enterprise recognize
a claim liability prior to an event of default when there is evidence that
credit deterioration has occurred in an insured financial obligation. It also
clarifies how Statement No. 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities, and requires expanded disclosures about
financial guarantee insurance contracts. It is effective for financial
statements issued for fiscal years beginning after December 15, 2008,
except for some disclosures about the insurance enterprise’s risk-management
activities. SFAS No. 163 requires that disclosures about the
risk-management activities of the insurance enterprise be effective for the
first period beginning after issuance. Except for those disclosures, earlier
application is not permitted. The adoption of this statement is not expected to
have a material effect on the Company’s financial statements.





16
 Table of Contents





Item
8. Financial Statements.





CYIOS
Corporation and Subsidiaries





Index
to Consolidated Financial Statements





PageReport
      of Independent Registered Public Accounting Firm
                
                F-18Consolidated
      Condensed Balance Sheet as of December 31, 2008 and 2007
                
                F-21Consolidated
      Statements of Operations for the Years Ended December 31, 2008 and
      2007
                
                F-22Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31, 2008
      and 2007
                
                F-23Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                
                F-24Notes
      to the Consolidated Financial Statements
                
                F-26




F-17
 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, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ deficit, and cash flows for the years
ended December 31, 2008 and 2007.  These consolidated financial
statements are the responsibility of the company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting.  Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated 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 consolidated financial position of CYIOS Corporation and
Subsidiaries as of December 31, 2008 and 2007, and the results of its
consolidated operations and its cash flows for the years ended December 31, 2008
and 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 O.  The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
  
 /s/
Baum & Company, PA
 Baum
& Company, PA
 Miami
Beach, FL
 April 9,
2009


F-18
 Table of Contents




CYIOS
      Corporation and SubsidiariesConsolidated
      Balance SheetAs
      of
                          
                          
                          As
      ofDecember 31, 2008
                          
                          
                          December 31, 2007ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
                          
                          $
                          27,070
                          
                          
                          $
                          45,498Accounts
      Receivable
                          
                          
                          23,181
                          
                          
                          
                          46,398Prepaid
      and Other Current Assets
                          
                          
                          16,117
                          
                          
                          
                          4,900TOTAL
      CURRENT ASSETS
                          
                          
                          66,368
                          
                          
                          
                          96,796FIXED
      ASSETS, NET
                          
                          
                          3,004
                          
                          
                          
                          3,788OTHER
      ASSETSRelated
      Party Loan
                          
                          
                          262,512
                          
                          
                          
                          172,406TOTAL
      OTHER ASSETS
                          
                          
                          262,512
                          
                          
                          
                          172,406TOTAL
      ASSETS
                          
                          $
                          331,884
                          
                          
                          $
                          272,990LIABILITIES
      AND STOCKHOLDERS' DEFICITLIABILITIESCurrent
      Liabilities:Line
      of Credit
                          
                          $
                          88,391
                          
                          
                          $
                          98,817Accounts
      Payable
                          
                          
                          46,113
                          
                          
                          
                          24,622Accruals
      and Other Payables
                          
                          
                          22,447
                          
                          
                          
                          37,520Liabilities
      of Discontinued Operations
                          
                          
                          -
                          
                          
                          
                          256,497TOTAL
      LIABILITIES
                          
                          
                          156,951
                          
                          
                          
                          417,456STOCKHOLDERS'
      DEFICITConvertible
      Preferred Stock ($.001 par value, 5,000,000
      authorized:   29,713 and 29,713 issued and outstanding at
      December 31, 2008 and 2007)
                          
                          
                          30
                          
                          
                          
                          30Common
      Stock ($.001 par value, 100,000,000 shares authorized: 26,857,210 and
      25,354,210 shares issued and outstanding at December 31, 2008 and
      2007)
                          
                          
                          26,857
                          
                          
                          
                          25,354Additional
      Paid-in-Capital
                          
                          
                          24,014,663
                          
                          
                          
                          23,886,536Stock
      Subscription Receivable
                          
                          
                          -
                          
                          
                          
                          -136,000Accumulated
      Deficit
                          
                          
                          -23,866,617
                          
                          
                          
                          -23,920,386TOTAL
      STOCKHOLDERS' DEFICIT
                          
                          
                          174,933
                          
                          
                          
                          -144,466TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                          
                          $
                          331,884
                          
                          
                          $
                          272,990
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-19
 Table of Contents
  CYIOS Corporation and SubsidiariesConsolidated
      Statement of OperationsYear Ended December 31,2008
                              
                              
                              2007SALES AND COST OF SALESSales
                              
                              $
                              1,494,872
                              
                              
                              $
                              2,185,464Cost
      of Sales
                              
                              
                              781,909
                              
                              
                              
                              1,377,856Gross
      Profit
                              
                              
                              712,963
                              
                              
                              
                              807,608EXPENSESSelling,
      General and Administrative
                              
                              
                              179,371
                              
                              
                              
                              140,614Payroll
      Expense--Indirect Labor
                              
                              
                              521,681
                              
                              
                              
                              532,261Consulting
      Expense
                              
                              
                              131,365
                              
                              
                              
                              -Professional
      Fees
                              
                              
                              78,427
                              
                              
                              
                              61,644Depreciation
                              
                              
                              784
                              
                              
                              
                              130TOTAL
      EXPENSES
                              
                              
                              911,628
                              
                              
                              
                              734,649Net
      Income/(Loss) from Operations
                              
                              
                              (198,665
                              )
                              
                              
                              72,959OTHER INCOME/(EXPENSE)Interest
      Expense
                              
                              
                              (7,106
                              )
                              
                              
                              (20,332
                              )Interest/Other
      Income
                              
                              
                              3,042
                              
                              
                              
                              22,000NET
      OTHER INCOME/(EXPENSE)
                              
                              
                              (4,064
                              )
                              
                              
                              1,668PROVISION
      FOR INCOME TAXES
                              
                              
                              -
                              
                              
                              
                              -NET
      INCOME/(LOSS) FROM CONTINUING OPERATIONS
                              
                              
                              (202,729
                              )
                              
                              
                              74,627NET
      INCOME/(LOSS) FROM DISCONTINUED OPERATIONS
                              
                              
                              256,497
                              
                              
                              
                              185,173Net
      Income/(Loss)
                              
                              $
                              53,768
                              
                              
                              $
                              259,800Net
      income/(loss) per share--basic and fully dilutedContinuing
      Operations
                              
                              $
                              (0.01
                              )
                              
                              $
                              0.00Discontinued
      Operations
                              
                              $
                              0.01
                              
                              
                              $
                              0.01Net
      income/(loss) per share
                              
                              $
                              0.00
                              
                              
                              $
                              0.01Weighted
      average shares outstanding--basic and fully diluted
                              
                              
                              25,802,841
                              
                              
                              
                              23,999,846
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-20
 Table of Contents
 
 CYIOS Corporation and SubsidiariesConsolidated
      Statement of Stockholders' Deficit (Unaudited)Preferred Shares
      (000's)
                    
                    
                    Preferred
      Stock $
                    
                    
                    Common
      Shares (000's)
                    
                    
                    Common
      Stock $
                    
                    
                    Stock
      Subscription Receivable
                    
                    
                    Additional
      Paid-in Capital
                    
                    
                    Accumulated
      DeficitBalances,
      December 31, 2006
                    
                    
                    29,713
                    
                    
                    $
                    30
                    
                    
                    
                    23,380,210
                    
                    
                    $
                    23,380
                    
                    
                    $
                    -
                    
                    
                    $
                    23,740,310
                    
                    
                    $
                    (24,180,186
                    )Sale
      of Shares and Shares issued for Services
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,074,000
                    
                    
                    
                    2,074
                    
                    
                    
                    -
                    
                    
                    
                    146,326
                    
                    
                    
                    -Shares
      cancelled
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (100,000
                    )
                    
                    
                    (100
                    )
                    
                    
                    -
                    
                    
                    
                    (100
                    )
                    
                    
                    -Stock
      Subscription Receivable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    136,000
                    
                    
                    
                    -
                    
                    
                    
                    -Net
      Income (loss) for the year
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    259,800Balances,
      December 31, 2007
                    
                    
                    29,713
                    
                    
                    $
                    30
                    
                    
                    
                    25,354,210
                    
                    
                    $
                    25,354
                    
                    
                    $
                    136,000
                    
                    
                    $
                    23,886,536
                    
                    
                    $
                    (23,920,386
                    )Shares
      returned
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (500,000
                    )
                    
                    
                    (500
                    )
                    
                    
                    (82,500
                    )
                    
                    
                    (74,500
                    )
                    
                    
                    -Payments
      received for Stock Subscriptions
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (48,500
                    )
                    
                    
                    -
                    
                    
                    
                    -Reduction
      for Uncollectible Stock Receivable
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (5,000
                    )
                    
                    
                    (5,000
                    )
                    
                    
                    -Shares
      issued for consulting services
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,003,000
                    
                    
                    
                    2,003
                    
                    
                    
                    -
                    
                    
                    
                    207,627
                    
                    
                    
                    -Net
      Income (loss)
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    53,768Balances,
      December 31, 2008
                    
                    
                    29,713
                    
                    
                    $
                    30
                    
                    
                    
                    26,857,210
                    
                    
                    $
                    26,857
                    
                    
                    $
                    -
                    
                    
                    $
                    24,014,663
                    
                    
                    $
                    (23,866,618
                    )
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-21
 Table of Contents
  CYIOS Corporation and SubsidiariesConsolidated
      Statements of Cash FlowsFor
      the years ended December 31,2008
                    
                    
                    2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income/(loss)From
      Continuing Operations
                    
                    $
                    (202,729
                    )
                    
                    $
                    74,627From
      Discontinued Operations
                    
                    
                    256,497
                    
                    
                    
                    185,173Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
                    
                    
                    784
                    
                    
                    
                    130Value
      of Shares Issued for consulting services
                    
                    
                    209,630
                    
                    
                    
                    12,200Reduction
      in Stock Receivable
                    
                    
                    7,500
                    
                    
                    
                    -Reduction
      in Liabilities from Discontinued Operations
                    
                    
                    (256,497
                    )
                    
                    
                    (185,173
                    )Changes
      in Assets and Liabilities:(Increase)/Decrease
      in Accounts Receivable
                    
                    
                    23,216
                    
                    
                    
                    8,249(Increase)/Decrease
      in Prepaid and Other Current Assets
                    
                    
                    (11,217
                    )
                    
                    
                    (9,465
                    )Increase/(Decrease)
      in Accruals and Other Payables
                    
                    
                    (15,073
                    )
                    
                    
                    (1,483
                    )Increase/(Decrease)
      in Accounts Payable
                    
                    
                    21,492
                    
                    
                    
                    (12,921
                    )NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                    
                    
                    33,603
                    
                    
                    
                    71,337CASH
      FLOWS FROM INVESTING ACTIVITIES:Additional
      Advances to Related Party Loan
                    
                    
                    (90,106
                    )
                    
                    
                    (63,365
                    )Purchase
      of computer equipment
                    
                    
                    -
                    
                    
                    
                    (3,917
                    )NET
      CASH PROVIDED BY  (USED IN) OPERATING ACTIVITIES
                    
                    
                    (90,106
                    )
                    
                    
                    (67,282
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from Issuance of Common Stock
                    
                    
                    -
                    
                    
                    
                    18,200Proceeds
      Received from Payments made on Stock Subscription
    Receivable
                    
                    
                    48,500
                    
                    
                    
                    -Payments
      made on Line of Credit
                    
                    
                    (10,425
                    )
                    
                    
                    (2,162
                    )NET
      CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES
                    
                    
                    38,075
                    
                    
                    
                    16,038NET
      INCREASE (DECREASE) IN CASH ANDCASH
      EQUIVALENTS
                    
                    
                    (18,428
                    )
                    
                    
                    20,093CASH
      AND CASH EQUIVALENTS:Beginning
      of Period
                    
                    
                    45,498
                    
                    
                    
                    25,405End
      of Period
                    
                    $
                    27,070
                    
                    
                    $
                    45,498SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:CASH
      PAID DURING THE PERIOD FOR:Interest
                    
                    $
                    7,106
                    
                    
                    $
                    19,335Taxes
                    
                    $
                    -
                    
                    
                    $
                    -NON
      CASH INVESTING AND FINANCING ACTIVITIES:Stock
      Issued for Services
                    
                    $
                    209,630
                    
                    
                    $
                    12,200Return
      of 500,000 shares and reduction in related Stock
Receivable
                    
                    $
                    75,000
                    
                    
                    $
                    -Uncollectible
      Stock Receivable
                    
                    $
                    5,000
                    
                    
                    $
                    -
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-22
 Table of Contents
 CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 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 2008 and 2007
it had no operating activity.  In December 2008, the Company filed to
dissolve the WorldTeq Corporation.
 
 Cash and Cash
Equivalents—For purposes of the Consolidated Statement of Cash Flows, the
Company considers liquid investments with an original maturity of three months
or less to be cash equivalents.
 
 Management’s Use of
Estimates—The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Revenue
Recognition—The Company derives revenue primarily from the sale and
service of information technology services to the government. In accordance with
SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”),
revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed and determinable, collectability is
reasonably assured, contractual obligations have been satisfied and title and
risk of loss have been transferred to the customer.
 
 Revenues
are recognized based on completion of a project and acceptance by the
customer.
 
 Selecting
the appropriate revenue recognition method involves judgment based on the
contract and can be complex depending upon the structure and terms and
conditions of the contract.
 
 Contract
claims are unanticipated additional costs incurred but not provided for in the
executed contract price that we seek to recover from the customer. Such costs
are expensed as incurred. Additional revenue related to contract claims is
recognized when the amounts are awarded by the customer.
 
 Comprehensive Income
(Loss)—The Company adopted Financial Accounting Standards Board Statement
of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive
Income”, which establishes standards for the reporting and display of
comprehensive income and its components in the consolidated financial
statements.  There were no items of comprehensive income (loss)
applicable to the Company during the periods covered in the consolidated
financial statements.
 
 Advertising
Costs—Advertising costs are expensed as incurred.  For the
years ended December 31, 2008 and 2007, the company incurred $11,983 and $8,101
respectively.
  F-23
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
 
 Net Loss per Common
Share—Statement of Financial Accounting Standard (SFAS) No. 128 requires
dual presentation of basic and diluted earnings per share (EPS) with a
reconciliation of the numerator and denominator of the EPS
computations.  Basic earnings per share amounts are based on the
weighted average shares of common stock outstanding.  If applicable,
diluted earnings per share would assume the conversion, exercise or issuance of
all potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share.  Accordingly, this presentation has been adopted for the period
presented.  There were no adjustments required to net loss for the
period presented in the computation of diluted earnings per share.
 
 Income Taxes—Income
taxes are provided in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, “Accounting for Income
Taxes.”A deferred tax asset or liability is recorded for all
temporary differences between financial and tax reporting and net operating
loss-carryforwards.
 
 Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that, and some portion or the entire
deferred tax asset will not be realized.  Deferred tax assets and
liabilities are adjusted for the effect of changes in tax laws and rates on the
date of enactment.
 
 Fair Value of Financial
Instruments—The carrying amounts reported in the consolidated balance
sheet for cash, accounts receivable and payables approximate fair value based on
the short-term maturity of these instruments.
 
 Accounts
Receivable—Accounts deemed uncollectible are written off in the year they
become uncollectible.  For the years ended December 31, 2008 and 2007,
the following amounts by subsidiary were deemed uncollectible and written off as
bad debts:
 
 Outstanding
Accounts Receivable as of December 31, 2008 was $23,181 and as of December 31,
2008 was $46,398 (CYIOS Subsidiary).
 
 Impairment
of Long-Lived Assets—. Using the guidance of Statement of Financial
Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, the Company reviews the carrying value of
property, plant, and equipment for impairment whenever events and circumstances
indicate that the carrying value of an asset may not be recoverable from the
estimated future cash flows expected to result from its use and eventual
disposition. In cases where undiscounted expected future cash flows are less
than the carrying value, an impairment loss is recognized equal to an amount by
which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current operating
results, trends and prospects, the manner in which the property is used, and the
effects of obsolescence, demand, competition, and other economic
factors.
 
 Property
and Equipment—Property and equipment is stated at
cost.  Depreciation is provided by the straight-line method over the
estimated economic life of the property and equipment remaining from five to
seven years.  New computer equipment assets in the amount of $3,917
were purchased in 2007.  These assets will be depreciated of their
estimated useful life which the Company has determined to be 5
years.  Total depreciation expense for the year ended December 31,
2008 was $784 and for the year ended December 31, 2007 was
$130.
  F-24
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
 
 Recent
Accounting Pronouncements—In February 2007, the FASB issued Statement of
Financial Accounting Standards No. 159, “The Fair Value for Financial Assets and
Financial Liabilities—including an amendment of FASB Statement No.
115”.  This statement permits entities to choose to measure many
financial instruments and certain other items at value.  The objective
is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.  This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments.  Effective as of
the beginning of an entity’s first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of FASB Statement No. 157, Fair Value Measurements. No
entity is permitted to apply the Statement retrospectively to fiscal years
preceding the effective date unless the entity chooses early adoption. Adoption
of this standard is not expected to have a material effect on the Company’s
results of operations or its financial position.
 
 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.   Adoption of this standard is not
expected to have a material effect on the Company’s results of operations or its
financial position.
 
 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. Adoption of this standard is not expected to have a material effect on the
Company’s results of operations or its financial position.
 
 In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities — an amendment to FASB Statement
No. 133.” SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. Entities are required to
provide enhanced disclosures about: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and related hedged
items are accounted for under Statement 133 and its related interpretations; and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. It is effective for
financial statements issued for fiscal years beginning after November 15,
2008, with early adoption encouraged. The adoption of this statement, which is
expected to occur in the first quarter of 2009, is not expected to have a
material effect on the Company’s financial statements.
  F-25
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
 
 Recent Accounting
Pronouncements (cont’d)
 
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. It is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The adoption of this statement is not expected to have a material
effect on the Company’s financial statements.
 
 In
May 2008, the FASB issued SFAS No. 163, “Accounting for Financial
Guarantee Insurance Contracts — An interpretation of FASB Statement
No. 60.” SFAS No. 163 requires that an insurance enterprise recognize
a claim liability prior to an event of default when there is evidence that
credit deterioration has occurred in an insured financial obligation. It also
clarifies how Statement No. 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities, and requires expanded disclosures about
financial guarantee insurance contracts. It is effective for financial
statements issued for fiscal years beginning after December 15, 2008,
except for some disclosures about the insurance enterprise’s risk-management
activities. SFAS No. 163 requires that disclosures about the
risk-management activities of the insurance enterprise be effective for the
first period beginning after issuance. Except for those disclosures, earlier
application is not permitted. The adoption of this statement is not expected to
have a material effect on the Company’s financial statements.
 
 NOTE B—FINANCING
FACILITY
 
 During
the year ended December 31, 2003 the Company entered into an accounts receivable
financing facility for a maximum of $500,000 with an unrelated third party.
Collateral for the facility is a first security interest in all corporate assets
and a personal guarantee of the Company’s shareholder.  The Company
pays a 2% fee for each advance and interest accrues on all advances at a
floating rate, at the prime rate published in the Wall Street Journal plus 2%
(7.25% at December 31, 2008).  The Company is advanced 90% of all
government contract invoices. The advances are used for general corporate
working capital. Residual, or holdback amounts, less fees and interest, are
remitted to the Company when payments are received from the government.
Substantially all of the Company’s revenue stream and accounts receivables are
factored through this facility.
 
 NOTE C—INCOME
TAXES
 
 Due to
the prior years’ operating losses and the inability to recognize an income tax
benefit therefrom, there is no provision for current or deferred federal or
state income taxes for the year ended December 31, 2008.
 
 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, 2008 is as follows:
 
 Total
      Deferred Tax Asset
                        
                        $
                        2,281,257Valuation
      Allowance
                        
                        
                        (2,281,257
                        )Net
      Deferred Tax Asset
                        
                        
                        -
  F-26
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE C—INCOME TAXES
(CONT’D)
 The
reconciliation of income taxes computed at the federal statutory income tax rate
to total income taxes for the years ended December 31, 2008 and 2007 is as
follows:
 
 2008
                          
                          
                          2007Income
      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 $(16,581) and $(88,332) in 2008 and 2007,
respectively.  No tax benefits have been recorded for the
nondeductible (tax) expenses (including stock for services) totaling
$17,210,808.
 
 As of
December 31, 2008, 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 2028.
 
 NOTE
D—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 E—SEGMENT
REPORTING
 
 The
Company has four reportable segments—CYIOS, CYIOS Group, CKO, and
WorldTeq:
 
 Net Sales by Segment
                                
                                For the Year Ended December 31,
      2008CYIOS
                                
                                
                                CYIOS Group
                                
                                
                                CKO
                                
                                
                                WorldTeq
                                
                                
                                TotalsSales,
      net
                                
                                $
                                1,494,872
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                1,494,872Cost
      of Sales
                                
                                
                                781,909
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                781,909Gross
      Profit
                                
                                $
                                712,963
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                712,963Profit/(Loss) by Segment
                                
                                For the Year Ended December 31,
      2008CYIOS
                                
                                
                                CYIOS Group
                                
                                
                                CKO
                                
                                
                                WorldTeq
                                
                                
                                TotalsNet
      Operating Profit/(Loss)
                                
                                $
                                (208,072
                                )
                                
                                $
                                (20
                                )
                                
                                $
                                (4,637
                                )
                                
                                $
                                -
                                
                                
                                $
                                (212,729
                                )Net
      (Loss)
                                
                                $
                                (208,072
                                )
                                
                                $
                                (20
                                )
                                
                                $
                                (4,637
                                )
                                
                                $
                                256,497
                                
                                
                                $
                                48,768
  F-27
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE E—SEGMENT REPORTING
(CONT’D)
 
 Net Sales by Segment
                                  
                                  For
      the Year Ended December 31, 2007CYIOS
                                  
                                  
                                  CYIOS Group
                                  
                                  
                                  CKO
                                  
                                  
                                  WorldTeq
                                  
                                  
                                  TotalsSales,
      net
                                  
                                  $
                                  2,185,464
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  2,185,464Cost
      of Sales
                                  
                                  
                                  1,377,856
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,377,856Gross
      Profit
                                  
                                  $
                                  807,608
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  807,608Profit/(Loss) by Segment
                                  
                                  For
      the Year Ended December 31, 2007CYIOS
                                  
                                  
                                  CYIOS Group
                                  
                                  
                                  CKO
                                  
                                  
                                  WorldTeq
                                  
                                  
                                  TotalsNet
      Operating Profit/(Loss)
                                  
                                  $
                                  68,937
                                  
                                  
                                  $
                                  (11,100
                                  )
                                  
                                  $
                                  (5,210
                                  )
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  52,627Net
      (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”;
 
 NOTE
F—EQUITY
 
 Common
Shares
 
 The
Company is authorized to issue 100,000,000 shares of $.001 par value stock and
as of December 31, 2008 the Company had 26,857,210 shares
outstanding.  During 2008 and 2007, the Company issued the following
shares of common stock:
 
 During
2008, the Company issued 2,003,000 free trading common shares to employees
and  consultants.  These shares were issued from the
Company’s 2007 Equity Incentive Plan (see Note  H).  The
shares were valued at the fair market value price at date of
issuance.  The issuance  of the shares and the value is
detailed in the following table:
 
 
 Month
                                  
                                  Number of shares
                                  
                                  
                                  Price per share
                                  
                                  
                                  Total ValueJanuary
      3, 2008
                                  
                                  
                                  400,000
                                  
                                  
                                  $
                                  0.23
                                  
                                  
                                  $
                                  92,000January
      4, 2008
                                  
                                  
                                  53,000
                                  
                                  
                                  $
                                  0.21
                                  
                                  
                                  $
                                  11,130March
      12, 2008
                                  
                                  
                                  250,000
                                  
                                  
                                  $
                                  0.10
                                  
                                  
                                  $
                                  25,000May
      30, 2008
                                  
                                  
                                  250,000
                                  
                                  
                                  $
                                  0.10
                                  
                                  
                                  $
                                  25,000June
      18, 2008
                                  
                                  
                                  50,000
                                  
                                  
                                  $
                                  0.08
                                  
                                  
                                  $
                                  4,000August
      25, 2008
                                  
                                  
                                  250,000
                                  
                                  
                                  $
                                  0.06
                                  
                                  
                                  $
                                  15,000October
      8, 2008
                                  
                                  
                                  750,000
                                  
                                  
                                  $
                                  0.05
                                  
                                  
                                  $
                                  37,500Total
                                  
                                  
                                  2,003,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  209,630
  During
2007, the Company issued 2,074,000 free trading common shares for cash and
employee 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.
  F-28
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE F—EQUITY
(CONT’D)
 
 Preferred
Shares
 
 The
Company is authorized to issue 5,000,000 shares of $.001 par value, non-voting,
convertible preferred shares.  The preferred shares are convertible to
common shares at a 1 to 1 ratio.  As of December 31, 2008, the Company
had 29,713 preferred shares outstanding.  During 2008 and 2007, the
Company did not issue any preferred shares of stock.
 
 NOTE G—STOCK OPTIONS AND
WARRANTS
 
 On April
21, 2006, the Company’s board of directors approved the 2006 Employee Stock
Option Plan (the “2006 Plan”).  The 2006 Plan provides for the
issuance of a maximum of 3,000,000 shares of common stock in connection with
stock options granted thereunder, plus an annual increase to be added on the
first nine anniversaries of the effective date of the 2006 Plan, equal to at
least (i) 1% of the total number of shares of common stock then outstanding,
(ii) 350,000 shares, or (iii) a number of shares determined by the Company’s
board of directors prior to such anniversary date.  The 2006 Plan has
a term of 10 years and may be administered by the Company’s board of directors
or by a committee made up of not less than 2 members of appointed by the
Company’s board of directors. Participation in the 2006 Plan is limited to
employees, officer, directors and consultants of the Company and its
subsidiaries. Incentive stock options granted pursuant to the 2006 Plan must
have an exercise price per share not less than 100%, and non-qualified stock
options not less than 85%, of the fair market value of our common stock on the
date of grant. Awards granted pursuant to the 2006 Plan may not have a term
exceeding 10 years and will vest upon conditions established by the Company’s
board of directors.
 
 On April
21, 2006 the Company filed a registration statement on Form S-8 with the SEC
registering 3,000,000 shares of common stock for issuance upon exercise of
options granted pursuant to the 2006 Plan.  As of December 31, 2008,
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.
  F-29
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE G—STOCK OPTIONS AND
WARRANTS (CONT’D)
 
 On
November 29, 2007 the Company filed a registration statement on Form S-8 with
the SEC registering 3,500,000 shares of common stock for issuance upon exercise
of options granted and exercised pursuant to the 2007 Plan.  As of
December 31, 2008, options to acquire 2,054,000 shares of common stock were
granted and exercised and there are 1,210,700 shares available for issuance
under the 2007 Plan.
 
 Options
outstanding and exercisable as of December 31, 2008
 
  OutstandingNumber
      of shares
                        
                        Remaining Life
                        
                        Exercisable
      Number of SharesExercise
      Price0.13
                        
                        
                        
                        2,350,000
                        
                        6
      years
                        
                        
                        2,350,0002,350,000
                        
                        
                        
                        
                        2,350,000
 
 Outstanding
stock options granted as of December 31, 2008 are as follows:
 
 Options
                          
                          
                          Weighted
      average price per share
                          
                          
                          Warrants
                          
                          
                          Weighted
      average price per shareOutstanding
      at December 31, 2006
                          
                          
                          3,354,000
                          
                          
                          
                          0.26For the year ended December 31,
      2007Granted
                          
                          
                          1,974,000
                          
                          
                          
                          0.26
                          
                          
                          
                          -Exercised
      from 2006
                          
                          
                          (4,000
                          )
                          
                          
                          0.26Options
      forfeited or expired
                          
                          
                          (600,000
                          )
                          
                          
                          0.29
                          
                          
                          
                          -Exercised
      in 2007
                          
                          
                          (1,974,000
                          )
                          
                          
                          0.26
                          
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at December 31, 2007
                          
                          
                          2,750,000
                          
                          
                          
                          0.29
                          
                          
                          
                          -
                          
                          
                          
                          -For the period ended December 31,
      2008Granted
                          
                          
                          2,003,000
                          
                          
                          
                          0.10
                          
                          
                          
                          -Options
      forfeited or expired
                          
                          
                          (335,716
                          )
                          
                          
                          0.13Options
      forfeited or expired
                          
                          
                          (400,000
                          )
                          
                          
                          0.29Exercised
      in 2008
                          
                          
                          (2,003,000
                          )
                          
                          
                          0.10
                          
                          
                          
                          -Outstanding
      at December 31, 2008
                          
                          
                          2,014,284
                          
                          
                          
                          0.13
                          
                          
                          
                          -
                          
                          
                          
                          -
  F-30
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE G—STOCK OPTIONS AND
WARRANTS (CONT’D)
  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
                    
                    
                    1,210,700
 
 Under the
fair value recognition provisions of SFAS No. 123(R), stock-based
compensation cost is estimated at the grant date based on the fair value of the
award and is recognized as expense over the requisite service period of the
award. The Company has awarded stock-based compensation as restricted
stock.
 
 Compensation
expense for restricted stock is recognized on the date of the grant at the
closing price of the stock on the date of the grant. The Company granted
2,003,000 and 304,000 shares of unrestricted stock during the years ended
December 31, 2008 and 2007 respectively.  Our statement of operations
for the years ended December 31, 2008 and 2007 included $209,630 and $12,200
respectively for unrestricted stock compensation expense
 
 The
Company does not have any unrecognized stock-based compensation expense at
December 31, 2008.
 
 Vesting
      stock award activity for the year endedDecember
      31, 2008 is as follows:Shares
      of stock under stock awards
                            
                            
                            Weighted
      average grant-date fair valueUnvested
      at December 31, 2006
                            
                            
                            4,000
                            
                            
                            
                            0.18Awards
      granted
                            
                            
                            1,974,000
                            
                            
                            
                            0.26Awards
      forfeited
                            
                            
                            -Awards
      vested
                            
                            
                            (1,978,000
                            )
                            
                            
                            0.26Unvested
      at December 31, 2007
                            
                            
                            -Awards
      granted
                            
                            
                            2,003,000
                            
                            
                            
                            0.08Awards
      forfeited
                            
                            
                            -
                            
                            
                            
                            -Awards
      vested
                            
                            
                            (2,003,000
                            )
                            
                            
                            0.08Unvested
      at December 31, 2008
                            
                            
                            -
  F-31
 Table of Contents
 CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 NOTE H—PENSION
PLAN
 
 The
Company has a 401(k) plan which is administered by a third-party
administrator.  Individuals who have been employed for one month and
reached the age of 21 years are eligible to participate.  Employees
may contribute up to the legal amount allowed by law.  The Company
matches one-half of the employee’s contribution up to a maximum of 4% of the
employee’s wages.  Employees are vested in the Company’s contribution
25% a year and are fully vested after four years.  The Company’s
contributions for the years ended December 31, 2008 and 2007 were $28,371 and
$34,314 respectively.
 
 NOTE
I—COMMITMENTS/LEASES
 
 The
Company entered into a lease agreement on July 8, 2005 for office
space.  The current lease agreement is in effect from August 2008 to
August 2009, 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:
 
 2009                      $18,000
 
 Total
rent expense for 2008 and 2007 was $18,190 and $18,111
respectively.
 
 NOTE J—RELATED
PARTIES
 
 The
Company has a Note Receivable with one of its officers and major
shareholders.  The note is payable on demand and bears 8% interest per
annum.  The outstanding balance as of December 31, 2008 is
$262,512.
 
 Annual
payments including principal and interest are as follows:
 
 
 Year-ended
                              
                              Interest and principal
    payments2009
                              
                              $
                              22,2952010
                              
                              
                              38,2202011
                              
                              
                              38,2202012
                              
                              
                              38,2202013
                              
                              
                              38,2202014
      and thereafter
                              
                              
                              207,025Total
      principal and interest payments
                              
                              $
                              382,200
  
 NOTE K—ACCOUNTS
PAYABLE
 
 The
breakdown of Accounts Payable is as follows categorized by
subsidiary:
 
 
 CYIOS
      Group
                        
                        
                        17,068CYIOS
                        
                        
                        29,045$
                        46,113
  F-32
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE L—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, 2008 are as
follows:
 
 CKO
                        
                        $
                        46,342CYIOS
      Group
                        
                        
                        42,050$
                        88,392
 
 NOTE M—LIABILITIES OF
DISCONTINUED OPERATIONS
 
 The
original amount of the accounts payables and other payables from discontinued
operations was $441,670.  The amount written off in 2007 was $185,173
and the amount written off in 2008 was the remaining balance of
$256,497.
 
 Our basis
for writing off the payables balance into income in 2007 and 2008 was based upon
management’s estimation and determination that these particular amounts had
fallen into one of three categories:
 
 1.
              Some
      of the outstanding  accounts payable had already been paid off
      by one of the other subsidiaries, but were never actually written off the
      books of the subsidiary (Worldteq) until now.   The
      officers and managers of the company prior to the merger in 2005 provided
      the new officers and management with records that were
      incomplete.  After careful review, management has concluded that
      some accounts outstanding had actually been paid, but not cleared off the
      books of the subsidiary (Worldteq).
 
 2.
              Using
      reasonable estimates, management determined that amounts under $1,000 were
      immaterial and exceeded the statute of limitations for the State of
      Delaware could be written-off as of December 31, 2008 and
      2007.
 
 3.
              The
      officers and management of the company prior to the merger in 2005
      calculated accruals based on estimates for expenses for services that were
      never rendered to the company.
 
 The
Company absorbed WorldTeq Corporation (a Delaware corporation) as a result of
the merger in 2005.  Since that time the Company has carried the debts
of WorldTeq Corporation.  Since the merger, management has determined
that many of the debts outstanding had been satisfied by other subsidiaries and
many other debts exceeded the State of Delaware’s rules regarding the statute of
limitations for collection of outstanding debts.  According to
Delaware code, title 6, section 2437A, the statute of limitations for debts
classified as general written contracts is 3 years.  The Company has
carried the debts for over 3 years.  Moreover, the Company plans to
dissolve Worldteq since it has had no operations since 2005, the Company does
not intend to continue operations in this subsidiary or business segment, and
the CEO of Worldteq passed away.  Since the merger in 2005, no attempt
on the part of the creditors have been made to collect these debts, so based on
management’s estimate we have determined it reasonable to write them off over
2007 and 2008 as we have abandoned operations in this business segment and the
Company has closed out and dissolved WorldTeq as of December 31,
2008.
  F-33
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE N—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,
2008 and 2007 are as follows:
 
 
 For the Year Ended December 31,
      2008Income
                                    
                                    
                                    Shares
                                    
                                    
                                    Per-Share(Numerator)
                                    
                                    
                                    (Denominator)
                                    
                                    
                                    AmountNet
      Income/(Loss)
                                    
                                    $
                                    48,768Basic
      EPSIncome
      available to common stockholders
                                    
                                    
                                    48,768
                                    
                                    
                                    
                                    25,773,128
                                    
                                    
                                    $
                                    0.00Effect
      of Dilutive SecuritiesWarrantsConvertible
      preferred stock
                                    
                                    
                                    
                                    
                                    
                                    
                                    29,713Diluted
      EPSNet
      Income/(Loss)
                                    
                                    
                                    48,768
                                    
                                    
                                    
                                    25,802,841
                                    
                                    
                                    $
                                    0.00
 
 
 For the Year Ended December 31,
      2007Income
                                    
                                    
                                    Shares
                                    
                                    
                                    Per-Share(Numerator)
                                    
                                    
                                    (Denominator)
                                    
                                    
                                    AmountNet
      Income/(Loss)
                                    
                                    $
                                    259,800Basic
      EPSIncome
      available to common stockholders
                                    
                                    
                                    259,800
                                    
                                    
                                    
                                    23,970,133
                                    
                                    
                                    $
                                    0.01Effect
      of Dilutive SecuritiesWarrantsConvertible
      preferred stock
                                    
                                    
                                    
                                    
                                    
                                    
                                    29,713Diluted
      EPSNet
      Income/(Loss)
                                    
                                    
                                    259,800
                                    
                                    
                                    
                                    23,999,846
                                    
                                    
                                    $
                                    0.01
  F-34
 Table of Contents
  CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2008
 
  NOTE O—GOING
CONCERN
 
 The
accompanying financial statements have been prepared on a going concern basis,
which assumes the Company will realize its assets and discharge its liabilities
in the normal course of business.  As reflected in the accompanying
financial statements, the Company has a deficit accumulated $23,871,617 and has
a negative working capital of $90,582 at December 31, 2008.
 
 The
Company’s ability to continue as a going concern is dependent upon its ability
to generate future profitable operations and/or to obtain the necessary
financing to meet its obligations and repay its liabilities arising from normal
business operations when they come due.  The Company’s ability to
continue as a going concern is also dependent on its ability to find a suitable
target company and enter into a possible reverse merger with such
company.  Management’s plan includes obtaining additional funds by
equity financing through a reverse merger transaction and/or related party
advances; however there is no assurance of additional funding being
available.  These circumstances raise substantial doubt about the
Company’s ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might arise as a result of this
uncertainty.




F-35
 Table of Contents





Item
9. 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, 2008.  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
9A(T). Controls and Procedures.





We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 (“Exchange Act”) is recorded, processed, summarized and reported within the
specified time periods. Our Chief Executive Officer and Principal Financial
Officer, Timothy Carnahan is responsible for establishing and maintaining our
disclosure controls and procedures. The controls and procedures established by
us are designed to provide reasonable assurance that information required to be
disclosed by the issuer in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms.





Under
the supervision and with the participation of our management, including the
Chief Executive Officer and Principal Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as required by Exchange
Act Rule 13a-15(b) as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are
effective.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company. Internal control over
financial reporting is a process to provide reasonable assurance regarding the
reliability of our financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary for preparation
of our financial statements; providing reasonable assurance that receipts and
expenditures of company assets are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition,
use, or disposition of company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.   Our annual report
does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting pursuant to
the temporary rules set forth by the Securities and Exchange Commission that
permit the Company to provide only management’s report on the annual
report.





As of the
end of the period covered by this report, the Chief Executive Officer and
Principal Financial Officer evaluated the effectiveness of our disclosure
controls and procedures. We evaluated and assessed the effectiveness of our
internal control over financial reporting as of December 31, 2008, using
criteria set forth in the Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  Based on the evaluation, the Certifying
Officer concluded that our disclosure controls and procedures were effective to
provide reasonable assurance that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
applicable rules and forms, and that it is accumulated and communicated to our
management, including the Certifying Officer, as appropriate to allow timely
decisions regarding required disclosure.




The Chief
Executive Officer and Principal Financial Officer has also concluded, based on
his evaluation of our controls and procedures that as of December 31, 2008, our
internal controls over financial reporting are effective and provide a
reasonable assurance of achieving their objective.





17
 Table of Contents





The Chief
Executive Officer and Principal Financial Officer has also concluded that there
was no change in our internal controls over financial reporting identified in
connection with the evaluation that occurred during our fourth fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.





During
the year 2008, we became aware of the fact that the Shareholder Loan outstanding
to our CEO and major shareholder is considered to be a prohibited transaction
according to Section 402 of the Sarbanes-Oxley Act of 2002.  However,
Section 402 does contain a grandfather clause exempting from the prohibition any
loans maintained by the issuer on July 30, 2002; provided, however, that there
are no material modifications to, or renewal of the terms of, such loans
following that date.  A portion of the Shareholder Loan does meet the
exemption rules of the grandfather clause; however, after that date additional
amounts were added to the Shareholder Loan.  The Company has addressed
this issue and is disclosing the matter here and has executed a new promissory
note for the full amount owed to the Company of $262,512.  The terms
of the promissory note state that the payoff of the note must be made within a
reasonable amount of time and bears an interest rate of 8% per
annum.  The Company will no longer make payments to the CEO or any
other executive officer or director that would be classified as a
loan.





Item
9B. Other Information.







18
 Table of Contents





PART III





Item
10. 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, 2008.





Name
                  
                  Age
                  
                  PositionTimothy
      W. Carnahan
                  
                  41
                  
                  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, 2008.





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, 2008, 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





Item
11. Executive Compensation.





The
following table sets forth all compensation awarded, paid to or earned by our
Chief Executive Officer, who was our only executive officer during the fiscal
year ended December 31, 2008.\





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
                  2008
                  
                  $
                  142,000
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  $
                  142,000





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, 2008.




Outstanding
      Equity Awards at Fiscal
Year-End




Option
      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
12. 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 April 9, 2009. 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 27,532,210 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
                    
                    
                    
                    58.03
                    %All
      officers and directors as a group
                    
                    
                    15,976,294
                    
                    
                    
                    58.03
                    %





(1)
            The
      address of each person listed is care of CYIOS Corporation, 1300
      Pennsylvania Avenue, Suite 700, Washington D.C.
  20004.





Item
13. 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
14. 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:





Year
      Ended December 31,
                                              
                                              2008
                                              
                                              
                                              2007(Baum)
                                              
                                              
                                              (Anderson)(5)
                                              
                                              
                                              (Baum)
                                              
                                              
                                              (Anderson)(5)
                                              
                                              
                                              (Beeks)Audit
      Fees (1)
                                              
                                              $
                                              27,500
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              12,850
                                              
                                              
                                              $
                                              1,500
                                              
                                              
                                              $
                                              -Audit
      Related Fees (2)
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Tax
      Fees (3)
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,500
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,475
                                              
                                              
                                              
                                              -All
      Other Fees (4)
                                              
                                              
                                              -
                                              
                                              
                                              
                                              10,237
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,150
                                              
                                              
                                              
                                              4,000Total
      Accounting Fees and Services
                                              
                                              $
                                              27,500
                                              
                                              
                                              $
                                              11,737
                                              
                                              
                                              $
                                              12,850
                                              
                                              
                                              $
                                              4,125
                                              
                                              
                                              $
                                              4,000




21
 Table of Contents




(1)
            Audit
      Fees:  These are fees for professional services for the audit of
      our annual financial statements, and for the review of the financial
      statements included in our filings on Forms 10-QSB (now 10-Q), and for
      services that are normally provided in connection with statutory and
      regulatory filings or engagements.


(2)
            Audit-related
      Fees:  These are fees for the assurances and related services
      reasonably related to the performance of the audit or the review of our
      financial statements.


(3)
            Tax
      Fees:  These are fees for professional services with respect to
      tax compliance, tax advice, and tax
planning.


(4)
            All
      Other Fees:  These are fees for permissible work that does not
      fall within any of the other fee categories, i.e., Audit Fees,
      Audit-related Fees or Tax Fees.


(5)
            All
      Audit Fees are approved by our board of directors.  For the
      fiscal year ended December 31, 2006, Traci J. Anderson, CPA (Anderson)
      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,
      PA (Baum) as our new independent accountant for the fiscal year ended
      December 31, 2008.  For the fiscal year ended December 31, 2006,
      Paul Beeks, CPA (Beeks) served as our internal accountant and Mr. Beeks
      was replaced by Traci J. Anderson, CPA on July 16,
  2007.





Pre-Approval
Policy For Audit and Non-Audit Services





We do not
have a standing audit committee, and the full Board performs all functions of an
audit committee, including the pre-approval of all audit and non-audit services
before we engage an accountant.





PART IV





Item
15. Exhibits.





No.
                  Description
      of Exhibit21.1
                  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 APRIL 9, 2009.*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 APRIL 9, 2009.**
      Filed herewith.




22
 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:
      April 9, 2009CYIOS
      CorporationBy:
              /s/Timothy
      W. CarnahanPresident,
      Chief Executive Officer &
                Principal
      Financial Officer






23