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, 2009








            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
Registrant 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 ý 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   ý  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.


ý  Yes     No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


ý  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.


ý  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     ý(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 ý 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 $577,796 based on the average
bid and asked price of such common stock ($.05) as of February 25,
2010.





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   ý 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 February 25, 2010 there were 30,148,877
shares of common stock outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE


None





TABLEOF CONTENTS





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


Table of Contents


PARTI





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.





Item1. Description of Business.





Corporate
History





CYIOS®
Corporation (“we”, “us”, “our”, “CYIOS®” or
the “Company”) was incorporated under the laws of the state of Nevada on October
13, 1997 as Halo Holdings of Nevada, Inc., for purposes of acquiring Halo
Holdings, Inc., a Delaware corporation, operating in the aviation and extreme
sports entertainment industries.  In March 1999, we sold our extreme
sports division.  Between February 1999 and April 1999 we acquired
three operating entities engaged in the business of providing integrated
internet access and professional consulting services, and, on July 9, 1999, we
changed our name to A1 Internet.com, Inc. to more accurately reflect our
then-current operations. In June 2000, in addition to our other operations, we
entered into the business of providing long distance services. In December 2000,
we discontinued the operations of several of our subsidiaries which were not
focused on our then-core competencies, and on October 15, 2001 we changed our
name to WorldTeq Group International, Inc. (“WorldTeq”).





Effective
April 7, 2005 we completed a 1-for-30 reverse stock split of our outstanding
shares of common stock and changed our name to China Print, Inc., in
anticipation of entering into an agreement and plan of merger with Harbin Yinhai
Technology Development Company Ltd., a People’s Republic of China company
(“HYT”). In June of 2005, the transaction with HYT was terminated.





On
September 19, 2005, we entered into an agreement with CYIOS Corporation, a
District of Columbia corporation (“CYIOS® DC”),
and Timothy Carnahan, whereby we acquired 100% of the issued and outstanding
capital stock of CYIOS® DC in
exchange for 19,135,000 shares or our common stock. On September 27, 2005 we
changed our name to CYIOS®
Corporation.





Overview
of Principal Products and Services





CYIOS® is a
holding company made up of two operating subsidiaries: CYIOS Corporation, a
District of Columbia corporation (“CYIOS® DC”),
and CKO Inc., a District of Columbia corporation (“CKO”).  CYIOS® DC
builds knowledge management solutions, supports organizations with business
continuity and IT services for the Department of Defense (“DoD”)
community.  CKO is the product arm of CYIOS® that
offers CYIPROTM, a
business transformation tool that utilizes the first project-based operating
system to build knowledge centric organizations. CYIPROTM
provides a virtual work space for collaboration, project management, and
document management to help manage people, processes and
information.  CYIPROTM also
provides key solutions for compliance with Securities and Exchange Commission
(“SEC”) Sarbanes-Oxley regulations and compliance with Defense Contract Audit
Agency (“DCAA”) and performance based contracting for government
contractors.


1
 Table of Contents


CYIOS®
DC





We
believe CYIOS® DC is
recognized as a premier knowledge management solution provider for the
DoD.  Established in 1994, we have worked closely with the United
States military as a small business contractor providing innovative and
comprehensive solutions for the Army’s General Officers and high-level military
agencies.  We pioneered what we believe to be the largest knowledge
management portal, U.S. Army Knowledge Online (“AKO”). We win our business
through bidding against other companies for government
contracts.  These bids may be done independently or through teaming
arrangements with other contractors.





Timothy
Carnahan, our president and Chief Executive Officer, has over 14 years of
executive and technical experience with the highest levels of the U.S.
government. When supporting the Army General Officer Management Office, Mr.
Carnahan designed and implemented the first Knowledge Management (“KM”) system
for the Army, America’s Army Online, which became the core for AKO, the portal
that supports over 1.8 million soldiers and civilians worldwide. We believe that
AKO has become the KM paradigm for the DoD. The DoD intends to increase its KM
spending from $387 million in the fiscal year 2005 to $524 million in the fiscal
year 2010, representing a growing potential market for CYIOS®,
where KM is our core competency in both product and service
support.





With KM
as a major focal point for us, the term and market need further explanation. KM
is the name of a concept in which an enterprise consciously and comprehensively
gathers, organizes, shares, and analyzes its information in terms of resources,
documents, and people skills. In early 1998, it was believed that few
enterprises actually had a comprehensive knowledge management practice (by any
name) in operation. Advances in technology and the way we access and share
information have changed that; it has been proven that successful organizations
have some kind of knowledge management framework in place.  KM
involves data mining and a method or operation to share information among
users.





We use
our expertise in KM, performance-based contracting, enterprise management, and
web-based application development to bid on U.S. government
contracts.  Historically the company has focused on supporting the
U.S. Army, but under its new growth strategy, it is beginning to look at bids
from other DoD agencies as well as all U.S. government agencies.





CKO





CKO Inc.
markets and sells the software product CYIPROTM.
CYIPROTM is a
secure, web-based virtual office that uses an array of tools to give any
organization the ability to manage and retain knowledge, collaborate data and
ideas, and securely store and share information, all for the purpose of making
an organization more efficient and therefore more successful. Using the features
of CYIPROTM,
users can access and manage their entire organization online from any computer
with an Internet connection and web browser or from a mobile device with
Internet capability. The result: connected, organized and effective business
practices.





The tools
of our full online office suite include e-mail, document and file management,
calendar, tasks, meetings, contacts, project management, reporting, and
timesheet management. The power of managing knowledge and collaboration is
unleashed when all of these individual components are shared and used within an
entire organization, a division, or a project team.  We believe
CYIPROTM will
remove the dependency of working from an organization’s office, which will free
employees to access their e-mail, documents, projects, contacts, and reports
from any geographic location at anytime. We believe operational costs are also
reduced as CYIPROTM helps
small businesses eliminate the burdensome expenses of owning and maintaining
servers, associated software, and an internal or outsourced IT
staff.


2
 Table of Contents


Recent
Developments





In our
last three announcements, January 28, 2010 February 8, 2010 and February 9, 2010
we describe what the Company has been doing in the last sixty days. CYIPRO will
be a dominant factor moving forward in revenue growth and its target is the
government telework initiative. CYIOS signed a term sheet for line of equity for
7 million dollars and we will be filing our S1 for SEC approval in the very
short near term. We have made a few strides in our advisory board but nothing
has fully come to fruition.





Competition





As a
small business, we have eliminated discussions of the mid to large size
companies. In the small business space, there are generally about 300 IT
contractors that bid against us. We further separate ourselves with our security
clearance to an estimated 150 IT contractors. As we get into our specific field
of KM, we estimate our competition is narrowed to under 50
companies.





Dependence
on Few Major Customers





We are
either a prime or sub contractor on contracts with Titan Corporation,
Information Management Support Center and GOMO/SLD.  Loss of these
contracts could have a material adverse effect upon our financial condition and
results of operations.  We believe that federal governmental agencies
will continue to be the source of all or substantially all of our revenues for
the foreseeable future.





Government
Regulations





All work
performed in our space is governed by the federal acquisition regulation. There
are small deviations from this named defense federal acquisition
regulation.





Intellectual
Property





Overview





We rely
on a combination of trademarks, trade secrets and contract law rights in order
to protect our brand, intellectual property assets and confidential or
proprietary information (our “Proprietary Rights”). Our Proprietary Rights are
among the most important assets we possess and we depend significantly on these
Proprietary Rights in being able to effectively compete in our industry. We
cannot be certain that the precautions we have taken to safeguard our
Proprietary Rights will provide meaningful protection from the unauthorized use
by others. If we must pursue litigation in the future to enforce or otherwise
protect our Proprietary Rights, or to determine the validity and scope of the
rights of others, we may not prevail and will likely have to make substantial
expenditures and divert valuable resources in the process. Moreover, we may not
have adequate remedies if our Proprietary Rights are appropriated or
disclosed.





Trademarks





As of the
fiscal year ended December 31, 2009, CYIOS DC has registered the CYIOS®, and
CKO has applied for registration of the 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.


3
 Table of Contents


As of the
fiscal year ended December 31, 2009, we have entered into no confidentiality
and/or non-disclosure agreements with our employees, consultants or
advisors.





Employees





As of
December 31, 2009, we had 17 full-time employees, with 2.5 in executive
management and administration, 1.5 in product development and technical
operations, and 13 on service contracts on either prime or subcontracted
contracts with the United States federal government.





We are
not subject to any collective bargaining agreements and believe our
relationships with our employees to be excellent.





Item1A. 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.





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.


4
 Table of Contents


Our
accumulated deficit makes it more difficult for us to borrow funds.





As of the
fiscal year ended December 31, 2009, and as a result of historical operating
losses from prior years, our accumulated deficit was $23,890,616. Lenders
generally regard an accumulated deficit as a negative factor in assessing
creditworthiness, and for this reason, the extent of our accumulated deficit
coupled with our historical operating losses will negatively impact our ability
to borrow funds if and when required. Any inability to borrow funds, or a
reduction in favorability of terms upon which we are able to borrow funds,
including the amount available to us, the applicable interest rate and the
collateralization required, may affect our ability to meet our obligations as
they come due, and adversely affect on our business, financial condition, and
results of operations, raising substantial doubts as to our ability to continue
as a going concern.





Risks
Associated with our Business and Industry





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





Revenues
derived from contracts with federal government agencies accounted for all of our
revenues for the fiscal year ended December 31, 2009, and we believe that
federal government agencies will continue to be the source of all or
substantially all of our revenues for the foreseeable future. For this reason,
any issues that compromise our relationship with agencies of the federal
government in general, or with the Department of Defense in particular, would
have a substantial adverse effect on our business. Key among the factors in
maintaining our relationships with federal government agencies are our
performance on individual contracts, the strength of our professional reputation
and the relationships of our key executives with government personnel. To the
extent that our performance does not meet expectations, or our reputation or
relationships with one or more key personnel are impaired, our business,
financial condition and results of operations will be negatively affected and we
may not be able to meet our obligations as they come due, raising substantial
doubts as to our ability to continue as a going concern.





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





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





·
            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.


5
 Table of Contents


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.





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.


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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.





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;


8
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·
            the
      number of securities analysts, market-makers and brokers following our
      common stock;





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





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





·
            actual
      or anticipated variations in quarterly operating
  results;





·
            conditions
      or trends in our business
industries;





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





·
            additions
      or departures of key personnel;





·
            sales
      of our common stock; and





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





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





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





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





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





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





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





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


9
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·
            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.





Item2. Description of Property.





All of
our property is leased and we do not own any real property.





Our
headquarters are located at The Ronald Reagan Building, 1300 Pennsylvania Ave,
Suite 700 Washington D.C. 20004. We lease this 150 square foot space for a term
of 12 months, with 8 months remaining on the lease as of the fiscal year ended
December 31, 2009, at a rate of $1,476 per month. There are t employees based in
our headquarters, the remaining employees work on-site at our customers’
locations, and, as such we do not maintain separate office or other space for
these employees.





Item3. Legal Proceedings.





As of the
date of this annual report on Form 10-K for the fiscal year ended December 31,
2009, there were no pending material legal proceedings to which we were a party
and we are not aware that any were contemplated.


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Item4. 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.





PARTII





Item
5. Market for Common Equity and Related Stockholder Matters and Registrant
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, 2009
            
            
            Year
      Ended
              December
      31, 2008High
            
            
            Low
            
            
            High
            
            
            LowFirst
      Quarter
            
            $
            0.11
            
            
            $
            0.09
            
            
            $
            0.13
            
            
            $
            0.10Second
      Quarter
            
            $
            0.13
            
            
            $
            0.12
            
            
            $
            0.10
            
            
            $
            0.09Third
      Quarter
            
            $
            0.08
            
            
            $
            0.07
            
            
            $
            0.06
            
            
            $
            0.05Fourth
      Quarter
            
            $
            0.06
            
            
            $
            0.05
            
            
            $
            0.04
            
            
            $
            0.03





As of the
fiscal year ended December 31, 2009 we had approximately 102 shareholders of
record (excluding the number of persons or entities holding shares of our common
stock in nominee or street name through one or more brokerage
firms).





Dividends





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





Reverse
Stock Split





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





Equity
Incentive Plans





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


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 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,
2009 with respect to the shares of our common stock that may be issue under each
of our 2006 Plan and 2007 Plan.





Equity
      Compensation Plan 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
            
            
            -
            
            
            
            -
            
            
            
            35,700Total
            
            
            -
            
            
            
            -
            
            
            
            35,700





Recent
Sales of Unregistered Securities





There
were no previously unreported sales of unregistered securities during the fiscal
year ended December 31, 2009.





Purchases
of Equity Securities





There
were no repurchases of equity securities during the fourth quarter of the fiscal
year ended December 31, 2009.





Item6. 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.


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Item7. 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. 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, 2009 and 2008, 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, 2009, were $1,881,897
compared to $1,494,872 for the fiscal year ended December 31, 2008; an increase
in sales of $387,025 or 26%.  Our other active subsidiary, CKO, Inc.,
a District of Columbia corporation, produced no revenue for the fiscal years
ended December 31, 2009 and 2008. Operating net loss for the year ended December
31, 2009 was $21,044, or net operating loss per share $.00, compared to a net
operating income for the fiscal year ended December 31, 2008 of $202,729, or a
net operating income per share of $.01.  Net income from discontinued
operations was $17,068 for the year ended December 31, 2009 and $256,497 for the
year ended December 31, 2008.  This income from discontinued
operations was the result of a write-off of old Accounts Payable debts that have
been carried on the financial statements of WorldTeq Corporation which is a
subsidiary of the company with discontinued operations.  Management
has determined that the amount that has been written off is reasonable based on
the fact that they exceed the statute of limitations for collection of
debts.  Total net loss for the year ended December 31, 2009 was $3,976
or a net loss per share of $.00 as compared to total net income for the year
ended December 31, 2008 in the amount of $53,768 or a net income per share of
$.00.  In 2006, management made the decision to expand our operations
by attempting to increase our business with the Department of Defense and the
rest of the federal government.  In order to achieve this goal, we
have actively bid on request for proposals by different departments and their
agencies.  We have, and will continue to invest all of our earnings
into additional personnel to help achieve this goal. We believe that our efforts
in working to achieve the aforementioned goals will help turn our operating
losses into a net profit in the fiscal year ended December 31, 2010 and
beyond.





Cost
of Sales





Cost of
sales for the fiscal year ended December 31, 2009 was $1,094,786 compared to
cost of sales for the fiscal year ended December 31, 2008 in the amount of
$781,909; an increase of $312,877 or approximately 40%.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses for the fiscal years ended December 31, 2009
and 2008 were $68,883 and $179,371, respectively; a decrease of $110,488 or
62%.


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 Table of Contents


Other
Expenses





Total
other expenses for the fiscal year ended December 31, 2009 and 2008 were
$739,079 and $732,257, respectively; an increase of $6,822 or
..93%.  The total other expenses of $738,079 in the fiscal year ended
December 31, 2009 consisted primarily of $598,225 in indirect labor and $140,854
in professional service and consulting fees and depreciation.  The
total other expenses of $732,257 for the fiscal year ended December 31, 2008
consisted primarily of $521,681 in indirect labor and $210,576 in professional
services fees and depreciation.





Liquidity
and Capital Resources





At
December 31, 2009, we had cash and cash equivalents of $76,448, compared to
$27,070 at December 31, 2008, an increase of $49,378.





During
the fiscal year ended December 31, 2009, cash provided by operating activities
was $18,442, consisting primarily of the Net Loss of $3,976 offset
by:





·
            Non-cash
      charges related to Depreciation charges of $784, Valuation of Shares
      issued for consulting services of $167,667, Reduction in Liabilities from
      Discontinued Operations of $17,068;
and





·
            Working
      capital changes of $128,965, consisting primarily of a net increase in
      Accounts Receivable, Other Assets in the amount of $176,994 offset by a
      net increase in Payroll Taxes Payable, Accounts Payable, and Accruals in
      the amount of $48,029.





Cash
provided by investing activities for the fiscal year ended December 31, 2009 was
$28,228 for the payments received on the Related Party Loan.





Cash
provided by financing activities for the fiscal year ended December 31, 2009 was
$2,708; consisting primarily of:





·
            Proceeds
      from the sale of Common Stock  in the amount of $20,000;
      and





·
            Payments
      made on the Line of Credit in the amount of
  $17,292.





Our
long-term working capital and capital requirements will depend upon numerous
factors, including our efforts to continue to improve operational efficiency and
conserve cash.





Off-Balance
Sheet Arrangements





As of the
fiscal year ended December 31, 2009, we did not have any off-balance sheet
arrangements as defined in Item 303(c)(2) of Regulation S-B.





Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods.





Our
management routinely makes judgments and estimates about the effects of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the probable future resolution of the uncertainties increase, these
judgments become even more subjective and complex. We have identified the
following accounting policies, described below, as the most critical to an
understanding of our current financial condition and results of
operations.


14
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Revenue
Recognition





We
recognize revenue when persuasive evidence of an arrangement exists, services
have been rendered or goods delivered, the contract price is fixed or
determinable, and it is reasonably assured to be collectible. We follow
Statement of Position (“SOP”) 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, as it applies to
time-and-material contracts. Revenue on time-and-materials contracts is
recognized based on the hours actually incurred at the negotiated contract
billing rates, plus the cost of any allowable material costs and out-of-pocket
expenses. Revenue on fixed-price contracts pursuant to which a client pays us a
specified amount to provide only a particular service for a stated time period,
or so-called fee-for-service arrangement, is recognized as amounts become
billable, assuming all other criteria for revenue recognition are
met.  We recognize revenue from government contracts.





Recent
Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (FASB) issued its final Statement
of Financial Accounting Standards (SFAS) No. 168,“The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles a Replacement of FASB StatementNo. 162”.
SFAS No. 168 made the FASB Accounting Standards Codification (the
Codification) the single source of U.S. GAAP used by nongovernmental
entities in the preparation of financial statements, except for rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws, which are sources of authoritative
accounting guidance for SEC registrants. The Codification is meant to simplify
user access to all authoritative accounting guidance by reorganizing
U.S. GAAP pronouncements into roughly 90 accounting topics within a
consistent structure; its purpose is not to create new accounting and reporting
guidance. The Codification supersedes all existing non-SEC accounting and
reporting standards and was effective for the Company beginning July 1,
2009. Following SFAS No. 168, the Board will not issue new standards
in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts; instead, it will issue Accounting Standards Updates (ASU). The FASB
will not consider ASUs as authoritative in their own right; these updates will
serve only to update the Codification, provide background information about the
guidance, and provide the bases for conclusions on the change(s) in the
Codification.





In August
2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10,
“Fair Value Measurements and Disclosures—Overall”. The update provides
clarification that in circumstances, in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the techniques provided for in this
update. The amendments in this ASU clarify that a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of the liability and
also clarifies  that both a quoted price in an active market for the
identical liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair value
measurements. The guidance provided in this ASU is effective for the first
reporting period, including interim periods, beginning after
issuance.  The adoption of this standard did not have a material
impact on the Company’s consolidated financial position and results of
operations.





In
September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740),
”Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities”, which provides implementation
guidance on accounting for uncertainty in income taxes, as well as eliminates
certain disclosure requirements for nonpublic entities.  For entities
that are currently applying the standards for accounting for uncertainty in
income taxes, this update shall be effective for interim and annual periods
ending after September 15, 2009. For those entities that have deferred the
application of accounting for uncertainty in income taxes in accordance with
paragraph 740-10-65-1(e), this update shall be effective upon adoption of those
standards. The adoption of this standard is not expected to have an impact on
the Company’s consolidated financial position and results of operations since
this accounting standard update provides only implementation and disclosure
amendments.




15
 Table of Contents




In
September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements
and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10,
“Fair Value Measurements and Disclosures – Overall”, to permit a reporting
entity to measure the fair value of certain investments on the basis of the net
asset value per share of the investment (or its equivalent). This ASU also
requires new disclosures, by major category of investments including the
attributes of investments within the scope of this amendment to the
Codification. The guidance in this Update is effective for interim and annual
periods ending after December 15, 2009. Early application is
permitted.   The adoption of this standard did not have an impact
on the Company’s consolidated financial position and results of
operations.





In
October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic
605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services (deliverables) separately rather than as a combined unit.
Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue
Recognition-Multiple-Element Arrangements”, for separating consideration in
multiple-deliverable arrangements. This guidance establishes a selling price
hierarchy for determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence; (b) third-party evidence; or (c)
estimates. This guidance also eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method and also
requires expanded disclosures. The guidance in this update is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early adoption is permitted.
The adoption of this standard is notexpected to have a
material impact on the Company’s consolidated financial position and results of
operations.





Item8. Financial Statements.





CYIOS
Corporation and Subsidiaries





Index
to Consolidated Financial Statements





PageReport
      of Independent Registered Public Accounting Firm
            
            F-17Consolidated
      Balance Sheet as of December 31, 2009 and 2008
            
            F-18Consolidated
      Statements of Operations for the Years Ended December 31, 2009 and
      2008
            
            F-19Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31, 2009
      and 2008
            
            F-20Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009 and
      2008
            
            F-21Notes
      to the Consolidated Financial Statements
            
            F-22


F-16
 Table of Contents







REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To the
board of directors and stockholders of
 Cyios
Corporation
 
 
 We have
audited the accompanying consolidated balance sheet of Cyios Corporation as of
December 31, 2009   and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the year ended
December 31, 2009.  These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Cyios Corporation as of December
31, 2009  and the results of its operations and its cash flows for the
year ended December 31, 2009 in conformity with accounting principles generally
accepted in the United States of America.
   /s/
Jewett, Schwartz, Wolfe and Associates
 
 Hollywood,
Florida
 February
23, 2010


200 South
Park Road, Suite 150  •  Hollywood, Florida
33021  •  Main 954.922.5885  •  Fax
954.922.5957  •  www.jsw-cpa.com
 Member -
American Institute of Certified Public Accountants • Florida Institute of
Certified Public Accountants
 Private
Companies Practice Section of the AICPA • Registered with the Public Company
Accounting Oversight Board of SEC


F-17
 Table of Contents




CYIOS
      Corporation and SubsidiariesConsolidated Balance SheetsAs
      of December 31,2009
            
            
            2008ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
            
            $
            76,448
            
            
            $
            27,070Accounts
      Receivable
            
            
            114,596
            
            
            
            23,181Prepaid
      and Other Current Assets
            
            
            101,697
            
            
            
            16,117TOTAL
      CURRENT ASSETS
            
            
            292,741
            
            
            
            66,368FIXED
      ASSETS, NET
            
            
            2,220
            
            
            
            3,004OTHER
      ASSETSRelated
      Party Loan
            
            
            234,284
            
            
            
            262,512TOTAL
      OTHER ASSETS
            
            
            234,284
            
            
            
            262,512TOTAL
      ASSETS
            
            $
            529,245
            
            
            $
            331,884LIABILITIES
      AND STOCKHOLDERS' EQUITYLIABILITIESCurrent
      Liabilities:Line
      of Credit
            
            $
            71,100
            
            
            $
            88,392Accounts
      Payable
            
            
            4,045
            
            
            
            46,113Accruals
      and Other Payables
            
            
            95,476
            
            
            
            22,447TOTAL
      LIABILITIES
            
            
            170,621
            
            
            
            156,952STOCKHOLDERS'
      EQUITYConvertible
      Preferred Stock ($.001 par value, 5,000,000 authorized: 29,713 and 29,713
      issued and outstanding)
            
            
            30
            
            
            
            30Common
      Stock ($.001 par value, 100,000,000 shares authorized: 30,148,877 and
      26,857,210 shares issued and outstanding)
            
            
            30,149
            
            
            
            26,857Additional
      Paid-in-Capital
            
            
            24,199,038
            
            
            
            24,014,663Accumulated
      Deficit
            
            
            (23,870,593
            )
            
            
            (23,866,618
            )TOTAL
      STOCKHOLDERS' EQUITY
            
            
            358,624
            
            
            
            174,932TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            529,245
            
            
            $
            331,884





The
accompanying notes are an integral part of these consolidated financial
statements.


F-18
 Table of Contents




CYIOS
      Corporation and SubsidiariesConsolidated Statement of
      OperationsFor the years ended
              December 31,2009
            
            
            2008SALES AND COST OF SALESSales
            
            $
            1,881,897
            
            
            $
            1,494,872Cost
      of Sales
            
            
            1,094,786
            
            
            
            781,909Gross
      Profit
            
            
            787,111
            
            
            
            712,963EXPENSESSelling,
      general and administrative
            
            
            68,884
            
            
            
            179,371Payroll
      Expense--Indirect Labor
            
            
            598,225
            
            
            
            521,681Consulting
      and Professional Fees Expense
            
            
            55,909
            
            
            
            209,792Consulting
      Expense--Stock Compensation
            
            
            81,208Depreciation
            
            
            784
            
            
            
            784TOTAL
      EXPENSES
            
            
            805,010
            
            
            
            911,628Net
      Income/(Loss) from Operations
            
            
            (17,899
            )
            
            
            (198,665
            )OTHER INCOME/(EXPENSE)Interest
      Income
            
            
            5,121
            
            
            
            3,042Interest
      Expense
            
            
            (8,264
            )
            
            
            (7,106
            )NET
      OTHER INCOME/(EXPENSE)
            
            
            (3,144
            )
            
            
            (4,064
            )PROVISION
      FOR INCOME TAXES
            
            
            -
            
            
            
            -NET
      INCOME/(LOSS) FROM CONTINUING OPERATIONS
            
            
            (21,044
            )
            
            
            (202,729
            )NET
      INCOME/(LOSS) FROM DISCONTINUED OPERATIONS
            
            
            17,068
            
            
            
            256,497Net
      Income/(Loss)
            
            $
            (3,976
            )
            
            $
            53,768Net
      income/(loss) per share--basic and fully dilutedContinuing
      Operations
            
            $
            (0.00
            )
            
            $
            (0.01
            )Discontinued
      Operations
            
            $
            0.00
            
            
            $
            0.01Net
      income/(loss) per share
            
            $
            (0.00
            )
            
            $
            0.00Weighted
      average shares outstanding--basic and fully diluted
            
            
            27,828,635
            
            
            
            25,802,841





The
accompanying notes are an integral part of these consolidated financial
statements.


F-19
 Table of Contents




CYIOS
      Corporation and SubsidiariesConsolidated
      Statements of Stockholders' DeficitPreferred
            
            
            Preferred
            
            
            Common
            
            
            Common
            
            
            Stock
            
            
            AdditionalShares
            
            
            Stock
            
            
            Shares
            
            
            Stock
            
            
            Subscription
            
            
            Paid-in
            
            
            Accumulated(000's)
            
            
            $
            
            
            
            (000's)
            
            
            $
            
            
            
            Receivable
            
            
            Capital
            
            
            DeficitBalances,
      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
            )Shares
      issued for consulting services
            
            
            -
            
            
            
            -
            
            
            
            2,366,667
            
            
            
            2,367
            
            
            
            -
            
            
            
            159,300
            
            
            
            -Shares
      issued to employees
            
            
            -
            
            
            
            -
            
            
            
            125,000
            
            
            
            125
            
            
            
            
            
            
            
            5,875
            
            
            
            -Shares
      sold
            
            
            -
            
            
            
            -
            
            
            
            800,000
            
            
            
            800
            
            
            
            -
            
            
            
            19,200
            
            
            
            -Net
      Income (loss)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,976
            )Balances,
      December 31, 2009
            
            
            29,713
            
            
            $
            30
            
            
            
            30,148,877
            
            
            $
            30,149
            
            
            $
            -
            
            
            $
            24,199,038
            
            
            $
            (23,870,593
            )





The
accompanying notes are an integral part of these consolidated financial
statements.


F-20
 Table of Contents




CYIOS
      Corporation and SubsidiariesConsolidated Statements of Cash
      FlowsFor
      the years endedDecember
      31,2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Income/(loss)From
      Continuing Operations
            
            $
            (21,044
            )
            
            $
            (202,729
            )From
      Discontinued Operations
            
            
            17,068
            
            
            
            256,497Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
            
            
            784
            
            
            
            784Value
      of Shares Issued for consulting/employee services
            
            
            167,667
            
            
            
            209,630Reduction
      in Stock Receivable
            
            
            -
            
            
            
            7,500Reduction
      in Liabilities from Discontinued Operations
            
            
            (17,068
            )
            
            
            (256,497
            )Changes
      in Assets and Liabilities:(Increase)/Decrease
      in Accounts Receivable
            
            
            (91,415
            )
            
            
            23,216(Increase)/Decrease
      in Prepaid and Other Current Assets
            
            
            (85,579
            )
            
            
            (11,217
            )Increase/(Decrease)
      in Accruals and Other Payables
            
            
            73,029
            
            
            
            (15,073
            )Increase/(Decrease)
      in Accounts Payable
            
            
            (25,000
            )
            
            
            21,492NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
            
            
            18,442
            
            
            
            33,603CASH
      FLOWS FROM INVESTING ACTIVITIES:(Increase)/Decrease
      in Related Party Loan
            
            
            28,228
            
            
            
            (90,106
            )NET
      CASH PROVIDED BY  (USED IN) OPERATING ACTIVITIES
            
            
            28,228
            
            
            
            (90,106
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from Issuance of Common Stock
            
            
            20,000
            
            
            
            -Proceeds
      Received from Payments made on Stock Subscription
    Receivable
            
            
            -
            
            
            
            48,500Payments
      on Line of Credit
            
            
            (17,292
            )
            
            
            (10,425
            )NET
      CASH PROVIDED BY FINANCING  ACTIVITIES
            
            
            2,708
            
            
            
            38,075NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            49,378
            
            
            
            (18,428
            )CASH
      AND CASH EQUIVALENTS:Beginning
      of Period
            
            
            27,070
            
            
            
            45,498End
      of Period
            
            $
            76,448
            
            
            $
            27,070SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:CASH
      PAID DURING THE PERIOD FOR:Interest
            
            $
            8,264
            
            
            $
            7,106Taxes
            
            $
            -
            
            
            $
            -NON
      CASH INVESTING AND FINANCING ACTIVITIES:Stock
      Issued for Prepaid Consulting Services
            
            $
            89,833
            
            
            $
            -Stock
      Issued for Consulting Services/Employee Bonus
            
            $
            77,834
            
            
            $
            209,630Return
      of 500,000 shares and reduction in related Stock
Receivable
            
            $
            -
            
            
            $
            75,000





The
accompanying notes are an integral part of these consolidated financial
statements.


F-21
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009







NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





Business
Activity— China Print, Inc. formerly known as WorldTeq Group
International, Inc. merged on September 19, 2005 with CYIOS Corporation of
Washington DC. During the merger the company’s former CEO notified the public of
his resignation and the assignment of a new CEO and president, Mr. Timothy
Carnahan. After the merger, China Print, Inc. changed its name to
CYIOS.  The consolidated financial statements of CYIOS Corporation
(The Company), formerly China Print, Inc. includes its subsidiary by the same
name CYIOS Corporation, in addition to CKO, Inc. and WorldTeq Corporation. The
Company, through its subsidiary CYIOS Corporation does business as a leading
systems integrator and Knowledge Management Solutions provider supporting the
United States Army. The company contracts its services for single and multiple
year awards to different US Army and US Government agencies. CKO Inc. owns a
custom designed online office management product. The company launched this
product in November of 2005 to the general public and commercial businesses.
WorldTeq Corporation in the past engaged primarily in the long distance service
business and during 2009 and 2008 it had no operating activity.  In
December 2008, the Company filed to dissolve the WorldTeq
Corporation.





Consolidation—The
consolidated financial statements include the accounts of the Company and its
Subsidiaries, after all eliminations of all intercompany accounts and
transactions.





Cash and
Cash Equivalents—For purposes of the Consolidated Statement of Cash
Flows, the Company considers liquid investments with an original maturity of
three months or less to be cash equivalents.





Management’s
Use of Estimates—The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.





Revenue
Recognition—The Company derives revenue primarily from the sale and
service of information technology services to the government. In accordance with
SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”),
revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed and determinable, collectability is
reasonably assured, contractual obligations have been satisfied and title and
risk of loss have been transferred to the customer.





Revenues
are recognized based on completion of a project and acceptance by the
customer.





Selecting
the appropriate revenue recognition method involves judgment based on the
contract and can be complex depending upon the structure and terms and
conditions of the contract.





Contract
claims are unanticipated additional costs incurred but not provided for in the
executed contract price that we seek to recover from the customer. Such costs
are expensed as incurred. Additional revenue related to contract claims is
recognized when the amounts are awarded by the customer.





Comprehensive
Income (Loss)—The Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive
Income”, which establishes standards for the reporting and display of
comprehensive income and its components in the consolidated financial
statements.  There were no items of comprehensive income (loss)
applicable to the Company during the periods covered in the consolidated
financial statements.





Advertising
Costs—Advertising costs are expensed as incurred.  For the
years ended December 31, 2009 and 2008, the company incurred $9,784 and $11,983
respectively.


F-22
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009







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, 2009 and 2008,
the following amounts by subsidiary were deemed uncollectible and written off as
bad debts.  Outstanding Accounts Receivable as of December 31, 2009
was $114,596 and as of December 31, 2008 was $23,181 (CYIOS
Subsidiary).




Impairment
of Long-Lived Assets—. Using the guidance of Statement of Financial
Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, the Company reviews the carrying value of
property, plant, and equipment for impairment whenever events and circumstances
indicate that the carrying value of an asset may not be recoverable from the
estimated future cash flows expected to result from its use and eventual
disposition. In cases where undiscounted expected future cash flows are less
than the carrying value, an impairment loss is recognized equal to an amount by
which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current operating
results, trends and prospects, the manner in which the property is used, and the
effects of obsolescence, demand, competition, and other economic
factors.


F-23
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009




---




Property
and Equipment—Property and equipment is stated at
cost.  Depreciation is provided by the straight-line method over the
estimated economic life of the property and equipment remaining from five to
seven years.  New computer equipment assets in the amount of $3,917
were purchased in 2007.  These assets will be depreciated of their
estimated useful life which the Company has determined to be 5
years.  Total depreciation expense for the year ended December 31,
2009 was $784 and for the year ended December 31, 2008 was $784.





Recent
Accounting Pronouncements—In June 2009, the Financial Accounting
Standards Board (FASB) issued its final Statement of Financial Accounting
Standards (SFAS) No. 168,“The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a Replacement of FASB StatementNo. 162”.
SFAS No. 168 made the FASB Accounting Standards Codification (the
Codification) the single source of U.S. GAAP used by nongovernmental
entities in the preparation of financial statements, except for rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws, which are sources of authoritative
accounting guidance for SEC registrants. The Codification is meant to simplify
user access to all authoritative accounting guidance by reorganizing
U.S. GAAP pronouncements into roughly 90 accounting topics within a
consistent structure; its purpose is not to create new accounting and reporting
guidance. The Codification supersedes all existing non-SEC accounting and
reporting standards and was effective for the Company beginning July 1,
2009. Following SFAS No. 168, the Board will not issue new standards
in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts; instead, it will issue Accounting Standards Updates (ASU). The FASB
will not consider ASUs as authoritative in their own right; these updates will
serve only to update the Codification, provide background information about the
guidance, and provide the bases for conclusions on the change(s) in the
Codification.





In August
2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10,
“Fair Value Measurements and Disclosures—Overall”. The update provides
clarification that in circumstances, in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the techniques provided for in this
update. The amendments in this ASU clarify that a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of the liability and
also clarifies  that both a quoted price in an active market for the
identical liability at the measurement date and the quoted price for the
identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair value
measurements. The guidance provided in this ASU is effective for the first
reporting period, including interim periods, beginning after
issuance.  The adoption of this standard did not have a material
impact on the Company’s consolidated financial position and results of
operations.





In
September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740),
”Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities”, which provides implementation
guidance on accounting for uncertainty in income taxes, as well as eliminates
certain disclosure requirements for nonpublic entities.  For entities
that are currently applying the standards for accounting for uncertainty in
income taxes, this update shall be effective for interim and annual periods
ending after September 15, 2009. For those entities that have deferred the
application of accounting for uncertainty in income taxes in accordance with
paragraph 
740-10-65-1(e), this update shall be effective
upon adoption of those standards. The adoption of this standard is not expected
to have an impact on the Company’s consolidated financial position and results
of operations since this accounting standard update provides only implementation
and disclosure amendments.


F-24
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009







NOTE A—SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)





Recent Accounting
Pronouncements (cont’d)


In
September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements
and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10,
“Fair Value Measurements and Disclosures – Overall”, to permit a reporting
entity to measure the fair value of certain investments on the basis of the net
asset value per share of the investment (or its equivalent). This ASU also
requires new disclosures, by major category of investments including the
attributes of investments within the scope of this amendment to the
Codification. The guidance in this Update is effective for interim and annual
periods ending after December 15, 2009. Early application is
permitted.   The adoption of this standard did not have an impact
on the Company’s consolidated financial position and results of
operations.





In
October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic
605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services (deliverables) separately rather than as a combined unit.
Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue
Recognition-Multiple-Element Arrangements”, for separating consideration in
multiple-deliverable arrangements. This guidance establishes a selling price
hierarchy for determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence; (b) third-party evidence; or (c)
estimates. This guidance also eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method and also
requires expanded disclosures. The guidance in this update is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early adoption is permitted.
The adoption of this standard is notexpected to have a
material impact on the Company’s consolidated financial position and results of
operations.





NOTE B—FINANCING
FACILITY





During
the year ended December 31, 2003 the Company entered into an accounts receivable
financing facility for a maximum of $500,000 with an unrelated third party.
Collateral for the facility is a first security interest in all corporate assets
and a personal guarantee of the Company’s shareholder.  The Company
pays a 2% fee for each advance and interest accrues on all advances at a
floating rate, at the prime rate published in the Wall Street Journal plus 2%
(7.25% at December 31, 2009).  The Company is advanced 90% of all
government contract invoices. The advances are used for general corporate
working capital. Residual, or holdback amounts, less fees and interest, are
remitted to the Company when payments are received from the government.
Substantially all of the Company’s revenue stream and accounts receivables are
factored through this facility.


F-25
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009




---




NOTE C—INCOME
TAXES





Due to
the prior years’ operating losses and the inability to recognize an income tax
benefit therefrom, there is no provision for current or deferred federal or
state income taxes for the year ended December 31, 2009.





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for federal and state income tax purposes.





The
Company’s total deferred tax asset, calculated using federal and state effective
tax rates, as of December 31, 2009 is as follows:





Total
      Deferred Tax Asset
            
            $
            2,264,327Valuation
      Allowance
            
            
            (2,264,327
            )Net
      Deferred Tax Asset
            
            
            -





The
reconciliation of income taxes computed at the federal statutory income tax rate
to total income taxes for the years ended December 31, 2009 and 2008 is as
follows:





2009
            
            
            2008Income
      tax computed at the federal statutory rate
            
            
            34
            %
            
            
            34
            %State
      income tax, net of federal tax benefit
            
            
            0
            %
            
            
            0
            %Total
            
            
            34
            %
            
            
            34
            %Valuation
      allowance
            
            
            -34
            %
            
            
            -34
            %Total
      deferred tax asset
            
            
            0
            %
            
            
            0
            %





Because
of the Company’s lack of earnings history, the deferred tax asset has been fully
offset by a valuation allowance.  The valuation allowance increased
(decreased) by $8,160 and $(18,281) in 2009 and 2008,
respectively.  No tax benefits have been recorded for the
nondeductible (tax) expenses (including stock for services) totaling
$17,210,808.





As of
December 31, 2009, the Company had federal and state net operating loss
carryforwards as follows of $6,659,786 which will expire at various times
through the year 2029.





NOTE
D—CONCENTRATION





The
Company is either a prime or sub contractor on contracts with the Information
Management Support Center U.S. Army and GOMO/SLD. Loss of these contracts could
have a material effect upon the Company’s financial condition and results of
operations.


F-26
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009







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,
      2009CYIOS
            
            
            CYIOS Group
            
            
            CKO
            
            
            TotalsSales,
      net
            
            $
            1,881,897
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,881,897Cost
      of Sales
            
            
            1,094,786
            
            
            
            -
            
            
            
            -
            
            
            
            1,094,786Gross
      Profit
            
            $
            787,111
            
            
            $
            -
            
            
            $
            -
            
            
            $
            787,111Profit/(Loss) by Segment
            
            For the Year Ended December 31,
      2009CYIOS
            
            
            CYIOS Group
            
            
            CKO
            
            
            TotalsNet
      Operating Profit/(Loss)
            
            $
            (13,119
            )
            
            $
            2,331
            
            
            $
            (10,256
            )
            
            $
            (21,044
            )Net
      (Loss)
            
            $
            (13,119
            )
            
            $
            19,399
            
            
            $
            (10,256
            )
            
            $
            (3,976
            )





Net Sales by Segment
            
            For the Year Ended December 31,
      2009CYIOS
            
            
            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,
      2009CYIOS
            
            
            CYIOS Group
            
            
            CKO
            
            
            WorldTeq
            
            
            TotalsNet
      Operating Profit/(Loss)
            
            $
            (198,072
            )
            
            $
            (20
            )
            
            $
            (4,637
            )
            
            $
            -
            
            
            $
            (202,729
            )Net
      (Loss)
            
            $
            (198,072
            )
            
            $
            (20
            )
            
            $
            (4,637
            )
            
            $
            256,497
            
            
            $
            53,768





The
accounting policies used for segment reporting are the same as those described
in Note A “Summary of Significant Accounting Policies”;





NOTE
F—EQUITY





Common
Shares





The
Company is authorized to issue 100,000,000 shares of $.001 par value stock and
as of December 31, 2009 the Company had 30,148,877 shares
outstanding.  During 2009 and 2008, the Company issued the following
shares of common stock:


F-27
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009




---




NOTE F—EQUITY
(CONT’D)





During
2009, the Company issued 3,291,667 common shares to investors, employees, and
consultants.  The shares issued to the employees and consultants were
issued from the Company’s 2007 Equity Incentive Plan (see Note
H).  The shares issued as stock compensation were valued at the fair
market value price at date of issuance.  The issuance of the shares
and the value is detailed in the following table:





Month/Description of
      transaction
            
            Number of shares
            
            
            Price per share
            
            
            Total ValueJanuary
      29, 2009
            
            
            100,000
            
            
            $
            0.05
            
            
            $
            4,500January
      29, 2009
            
            
            550,000
            
            
            $
            0.05
            
            
            $
            27,500February
      9, 2009
            
            
            25,000
            
            
            $
            0.06
            
            
            $
            1,500May
      1, 2009*
            
            
            100,000
            
            
            $
            0.14
            
            
            $
            14,000May
      13, 2009
            
            
            400,000
            
            
            $
            0.05
            
            
            $
            20,000October
      5, 2009
            
            
            1,400,000
            
            
            $
            0.07
            
            
            $
            98,000October
      28, 2009
            
            
            316,667
            
            
            $
            0.07
            
            
            $
            22,167December
      17, 2009*
            
            
            400,000
            
            
            $
            -
            
            
            $
            -Total
            
            
            3,291,667
            
            
            
            
            
            
            $
            187,667





*These
shares were sold in May 2009.





During
2008, the Company issued 2,003,000 free trading common shares to employees and
consultants.  These shares were issued from the Company’s 2007 Equity
Incentive Plan (see Note H).  The shares were valued at the fair
market value price at date of issuance.  The issuance of the shares
and the value is detailed in the following table:





Month
            
            Number of shares
            
            
            Price per share
            
            
            Total 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





Preferred
Shares





The
Company is authorized to issue 5,000,000 shares of $.001 par value, non-voting,
convertible preferred shares.  The preferred shares are convertible to
common shares at a 1 to 1 ratio.  As of December 31, 2009, the Company
had 29,713 preferred shares outstanding.  During 2009 and 2008, the
Company did not issue any preferred shares of stock.


F-28
 Table of Contents




CYIOS
CORPORATION AND SUBSIDIARIES
 NOTES TO
AUDITED FINANCIAL STATEMENTS
 FOR THE
YEAR ENDED DECEMBER 31, 2009




NOTE G—STOCK OPTIONS AND
WARRANTS





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





On April
21, 2006 the Company filed a registration statement on Form S-8 with the SEC
registering 3,000,000 shares of common stock for issuance upon exercise of
options granted pursuant to the 2006 Plan.  As of December 31, 2009,
options to acquire 1,812,300 shares of common stock were granted and exercised
and there are 1,187,700 shares available for issuance under the 2006
Plan.





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





On
November 29, 2007 the Company filed a registration statement on Form S-8 with
the SEC registering 3,500,000 shares of common stock for issuance upon exercise
of options granted and exercised pursuant to the 2007 Plan.  As of
December 31, 2009, options to acquire 2,054,000 shares of common stock were
granted and exercised and there are 1,210,700 shares available for issuance
under the 2007 Plan.


F-29
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009







NOTE G—STOCK OPTIONS AND
WARRANTS (CONT’D)





Outstanding
stock options granted as of December 31, 2009 are as follows:





Stock/Options
            
            
            Weighted average price per
      share
            
            
            Aggregate intrinsic valueOutstanding
      at December 31, 2007
            
            
            2,750,000
            
            
            
            0.18
            
            
            
            495,000For the year ended December 31,
      2008Granted
            
            
            2,003,000
            
            
            
            0.18
            
            
            
            360,540Options
      forfeited or expired
            
            
            (335,716
            )
            
            
            0.13
            
            
            
            (43,643
            )Options
      forfeited or expired
            
            
            (400,000
            )
            
            
            0.29
            
            
            
            (116,000
            )Exercised
      in 2008
            
            
            (2,003,000
            )
            
            
            0.18
            
            
            
            (360,540
            )Outstanding
      at December 31, 2008
            
            
            2,014,284
            
            
            
            0.13
            
            
            
            261,857For the period ended December 31,
      2009Granted
            
            
            3,291,667
            
            
            
            0.06
            
            
            
            197,500Options
      forfeited or expired
            
            
            (2,014,284
            )
            
            
            0.13
            
            
            
            (261,857
            )Exercised
      in 2009
            
            
            (3,291,667
            )
            
            
            0.06
            
            
            
            (197,500
            )Outstanding
      at December 31, 2009
            
            
            -
            
            
            
            0.13
            
            
            
            -





Securities
available for future issuance under the 2007 and 2006 plan are as
follows:





Plan
      Category
            
            Number
      of shares available for issuanceEquity
      compensation approved by security holders
            
            
            -3
            
            
            35,700





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.





All of
the options granted in each of the two years ended December 31, 2009 and 2008
were immediately vested upon grant and were immediately exercised upon grant
too.





The
weighted-average exercise prices for options outstanding at the beginning and
end of the two years ended December 31, 2009 did not change.  The
method used to estimate the fair value of the awards granted under the
share-based payment arrangements was the value of the stock at the date the
stock option was granted because on this same date the options were
exercised.  The stock options granted and exercised were immediately
vested.


F-30
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009







NOTE G—STOCK OPTIONS AND
WARRANTS (CONT’D)





Compensation
expense for restricted stock is recognized on the date of the grant at the
closing price of the stock on the date of the grant because the options are
immediately exercised on that same date





Our
statement of operations for the years ended December 31, 2009 and 2008 included
stock-based compensation of $167,667 and $209,630, respectively.  In
2009, $77,834 of the total $167,667 was expensed and the remaining amount is
prepaid expenses in the amount of $89,833 which will be amortized over the next
33 months.  In 2008, $193,455 was expensed and the remaining amount
was a prepaid amount of $9,375 that was expensed in 2009.





The
Company does not have any unrecognized stock-based compensation expense at
December 31, 2009.





NOTE H—PENSION
PLAN





The
Company has a 401(k) plan which is administered by a third-party
administrator.  Individuals who have been employed for one month and
reached the age of 21 years are eligible to participate.  Employees
may contribute up to the legal amount allowed by law.  The Company
matches one-half of the employee’s contribution up to a maximum of 4% of the
employee’s wages.  Employees are vested in the Company’s contribution
25% a year and are fully vested after four years.  The Company’s
contributions for the years ended December 31, 2009 and 2008 were $13,294 and
$28,371 respectively.





NOTE
I—COMMITMENTS/LEASES





The
Company entered into a lease agreement on July 8, 2005 for office
space.  The current lease agreement is in effect from August 2009 to
August 2010, and at that time is up for renewal.  Monthly fees are
approximately $1,476.   The Company’s estimated future yearly
minimum lease obligations are as follows:





2010
            
            $
            17,700





Total
rent expense for 2009 and 2008 was $17,715 and $18,189
respectively.





NOTE J—RELATED
PARTIES





The
Company has a Note Receivable with one of its officers and major
shareholders.  The note is payable on demand and bears 8% interest per
annum.  The outstanding balance as of December 31, 2009 is
$234,284.





Annual
payments including principal and interest are as follows:








Year ended
            
            Interest and principal
    payments2010
            
            $
            38,2202011
            
            
            38,2202012
            
            
            38,2202013
            
            
            38,2202014
            
            
            38,2202015
      and thereafter
            
            
            130,564Total
      principal and interest payments
            
            $
            321,664


F-31
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009




---




NOTE K—LINE OF
CREDIT





Two of
the Company’s subsidiaries have lines of credit with Bank of
America.  The line of credit for CKO is 10.75% interest and the line
of credit for China Print, Inc. is 14.75%.  The outstanding balances
of the line of credit by Subsidiary as of December 31, 2009 are as
follows:





CKO
            
            $
            44,729CYIOS
      Group
            
            
            26,371$
            71,100





NOTE L—LIABILITIES OF
DISCONTINUED OPERATIONS





The
original amount of the accounts payables and other payables from discontinued
operations was $441,670.  The amount written off in 2007 was $185,173
and the amount written off in 2008 was the $256,497.





Our basis
for writing off the payables balance into income in 2008 and 2007 was based upon
management’s estimation and determination that these particular amounts had
fallen into one of three categories:





1.
            Some
      of the outstanding accounts payable had already been paid off by one of
      the other subsidiaries, but were never actually written off the books of
      the subsidiary (Worldteq) until now.   The officers and
      managers of the company prior to the merger in 2005 provided the new
      officers and management with records that were
      incomplete.  After careful review, management has concluded that
      some accounts outstanding had actually been paid, but not cleared off the
      books of the subsidiary (Worldteq).





2.
            Using
      reasonable estimates, management determined that amounts under $1,000 were
      immaterial and exceeded the statute of limitations for the State of
      Delaware could be written-off as of December 31, 2008 and
      2007.





3.
            The
      officers and management of the company prior to the merger in 2005
      calculated accruals based on estimates for expenses for services that were
      never rendered to the company.





In 2009,
Management wrote off an additional $17,068 in accounts payable that also
pertained to amounts owed by WorldTeq Corporation to various
vendors.  These amounts have been sitting on the books since 2003 and
2004 and no attempt has been made by the vendors to collect these
amounts.  Management believes that like the other outstanding
payables, these amounts were already paid and not written off the books prior to
the merger in 2005.





The
Income from Discontinued Operations was $17,068 and $202,729 for the years ended
December 31, 2009 and 2008, respectively.


F-32
 Table of Contents


CYIOS
CORPORATION AND SUBSIDIARIES


NOTES TO
AUDITED FINANCIAL STATEMENTS


FOR THE
YEAR ENDED DECEMBER 31, 2009







NOTE L—LIABILITIES OF
DISCONTINUED OPERATIONS (CONT’D)





The
Company absorbed WorldTeq Corporation (a Delaware corporation) as a result of
the merger in 2005.  Since that time the Company has carried the debts
of WorldTeq Corporation.  Since the merger, management has determined
that many of the debts outstanding had been satisfied by other subsidiaries and
many other debts exceeded the State of Delaware’s rules regarding the statute of
limitations for collection of outstanding debts.  According to
Delaware code, title 6, section 2437A, the statute of limitations for debts
classified as general written contracts is 3 years.  The Company has
carried the debts for over 3 years.  Moreover, the Company plans to
dissolve Worldteq since it has had no operations since 2005, the Company does
not intend to continue operations in this subsidiary or business segment, and
the CEO of Worldteq passed away.  Since the merger in 2005, no attempt
on the part of the creditors have been made to collect these debts, so based on
management’s estimate we have determined it reasonable to write them off over
2008 and 2007 as we have abandoned operations in this business segment and the
Company has closed out and dissolved WorldTeq as of December 31,
2009.





NOTE M—NET INCOME/ (LOSS)
PER COMMON SHARE





The
Company’s reconciliation of the numerators and denominators of the basic and
fully diluted income per shares is as follows for the years ended December 31,
2009 and 2008 are as follows:





For the 12 months ended December 31,
      2009
            
            
            For the 12 Months Ended December 31,
      2008Income
            
            
            Shares
            
            
            Per-Share
            
            
            Income
            
            
            Shares
            
            
            Per-Share(Numerator)
            
            
            (Denominator)
            
            
            Amount
            
            
            (Numerator)
            
            
            (Denominator)
            
            
            AmountNet
      Income/(Loss)
            
            $
            (3,976
            )
            
            
            
            
            
            
            
            $
            53,768Basic
      EPSIncome
      available to common stockholders
            
            
            (3,976
            )
            
            
            27,798,922
            
            
            $
            (0.00
            )
            
            
            53,768
            
            
            
            25,744,896
            
            
            $
            0.00Effect
      of Dilutive SecuritiesWarrantsConvertible
      preferred stock
            
            
            
            
            
            
            29,713
            
            
            
            
            
            
            
            
            
            
            
            29,713Diluted
      EPSNet
      Income/(Loss)
            
            
            (3,976
            )
            
            
            27,828,635
            
            
            $
            (0.00
            )
            
            
            53,768
            
            
            
            25,774,609
            
            
            $
            0.00


F-33
 Table of Contents


Item9. 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, 2009.  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.





Item9A(T). Controls and Procedures.




Our
management is responsible for establishing and maintaining adequate control over
our financial reporting, as defined in Rule 13a-15(f) of the Exchange Act.
Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America.





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.





Our
disclosure controls and procedures were designed to provide reasonable assurance
that the information required to be disclosed in reports filed Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time period specified and that it is accumulated and communicated to our
management, including certifying officers, as appropriate to allow timely
decisions regarding timely disclosure.  Our management including our
certifying officer concludes that our disclosure controls and procedures are
effective at the reasonable assurance level as of the end of the period covered
by the report.





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.





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. 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.





We
evaluated and assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007, using criteria set forth in the Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).





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, 2009, our
internal controls over financial reporting are effective and provide a
reasonable assurance of achieving their objective.


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 Table of Contents


The Chief
Executive Officer and Principal Financial Officer has also concluded that there
were 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 original
amount).  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.





Item9B. Other Information.





None


17
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PARTIII





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, 2009.





Name
            
            Age
            
            PositionTimothy
      W. Carnahan
            
            42
            
            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, 2009.


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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, 2009, 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








Item11. 
Executive Compensation.





The
following table sets forth all compensation awarded, paid to or earned by our
Chief Executive Officer, who was our only executive officer during the fiscal
year ended December 31, 2009.





Summary
      Compensation 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
            2009
            
            $
            151,534
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            $
            151,534





The
following table sets forth certain information concerning unexercised options,
stock that has not vested, and equity incentive plan awards for each of our
named executive officers outstanding as of December 31, 2009.





Outstanding
      Equity Awards at Fiscal Year-EndOption
      Awards
            
            
            Stock
      AwardsName
            
            Number
      of securities underlying unexercised options (#)
    Exercisable
            
            
            Number
      of securities underlying unexercised options (#)
              Unexercis-able
            
            
            Equity
      Incentive Plan Awards: Number of Securities underlying unexercised
      unearned options (#)
            
            
            Option
      exercise price ($)
            
            
            Option
      expiration date
            
            
            Number
      of shares or units of stock that have not vested (#)
            
            
            Market
      value of shares or units of stock that have not vested ($)
            
            
            Equity
      incentive plan awards: number of unearned shares, units or other rights
      that have not vested (#)
            
            
            Equity
      incentive plan awards: Market or payout value of unearned shares, units or
      other rights that have not vested ($)Timothy
      Carnahan, Chief Executive Officer
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --





Director
Compensation





No salary
or regular compensation is paid to our directors. Pursuant to our bylaws, our
directors are eligible to be reimbursed for their actual out-of-pocket expenses
incurred in attending board meetings and other director functions, as well as
fixed fees and other compensation to be determined by our board of directors. No
such compensation or expense reimbursements have been requested by our directors
or paid to date.


19
 Table of Contents


Item12. 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 February 25, 2010. The information in this
table provides the ownership information for:





·
            each
      person known by us to be the beneficial owner of more than 5% of our
      common stock;





·
            each
      of our directors and executive officers;
and





·
            all
      of our directors and executive officers as a
  group.





Beneficial
ownership has been determined in accordance with the rules and regulations of
the SEC and includes voting or investment power with respect to our common stock
and those rights to acquire additional shares within sixty days. Unless
otherwise indicated, the persons named in the table below have sole voting and
investment power with respect to the number of shares of common stock indicated
as beneficially owned by them, except to the extent such power may be shared
with a spouse. Common stock beneficially owned and percentage ownership are
based on 30,148,877 shares of common stock currently outstanding and no
additional shares potentially acquired within sixty days.





Name
      and address of beneficial owner (1)
            
            Amount
      and nature of beneficial ownership
            
            
            Percent
      of ClassTimothy
      Carnahan
            
            
            15,976,294
            
            
            
            52.99
            %All
      officers and directors as a group
            
            
            15,976,294
            
            
            
            52.99
            %





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





Item13. 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.





Item14. Principal Accountant Fees and Services.





The
following table sets forth the aggregate amount of various professional fees
billed by our principal accountants with respect to our last two fiscal
years:





Year
      Ended December 31,
            
            2009
            
            
            2008JSW
      & Assoc. (6)
            
            
            Anderson
      (5)
            
            
            Baum
      (5)
            
            
            Baum
      (5)
            
            
            Anderson(5)Audit
      Fees (1)
            
            $
            5,000
            
            
            $
            -
            
            
            $
            12,500
            
            
            $
            27,500
            
            
            $
            -Audit
      Related Fees (2)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Tax
      Fees (3)
            
            
            -
            
            
            
            1,500
            
            
            
            -
            
            
            
            -
            
            
            
            1,500All
      Other Fees (4)
            
            
            -
            
            
            
            7,425
            
            
            
            -
            
            
            
            -
            
            
            
            10,237Total
      Accounting Fees and Services
            
            $
            5,000
            
            
            $
            8,925
            
            
            $
            12,500
            
            
            $
            27,500
            
            
            $
            11,737


20
 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, 2007.  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.


(6)
            As
      disclosed in a current report on Form 8-K filed with the SEC on July 15,
      2009, Baum & Company (Baum) resigned as our independent auditor, and
      we appointed Jewett, Schwartz, Wolfe, & Associates (JSW & Assoc.)
      as our new independent accountant  for the fiscal year ended
      December 31, 2009





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.





PARTIV





Item
15. Exhibits.





No.
            Description
      of Exhibit21.1
            Subsidiaries
      of CYIOS Corporation.*23.1
            Independent
      Auditor’s consent31.1
            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 j.*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 January 31, 2010.*  *
      Filed herewith.


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 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:
      February 25, 2010CYIOS
      CorporationBy:
            /s/
      Timothy
      W. CarnahanTimothy
      W. CarnahanPresident,
      Chief Executive Officer &
              Principal
      Financial Officer






22