Edgar Filing: CYIOS CORP

form10qsb.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2007

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-27243

CYIOS CORPORATION, INC.

(Exact name of Registrant as specified in its charter)

Nevada	03-7392107
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1300 PENNSYLVANIA AVE, SUITE 700 WASHINGTON DC	20004
(Address of principal executive offices)	(Zip/Postal Code)

(703) 294-9933

(Telephone Number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x YES ¨ NO

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, or a non-accelerated filer.

x Non-accelerated filer

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

State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date. There were 23,824,210 common stock shares and 29,713.000 preferred shared convertible to common at a 1:1 ratio, par value $0.001, as of June 30^th, 2007.

Note Regarding FORWARD-LOOKING STATEMENTS

In addition to historical information, this Report contains forward-looking statements. Such forward-looking statements are generally accompanied by words such as "intends," "projects," "strategies," "believes," "anticipates," "plans," and similar terms that convey the uncertainty of future events or outcomes. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in ITEM 2 of this Report, the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof and are in all cases subject to the Company's ability to cure its current liquidity problems. There is no assurance that the Company will be able to generate sufficient revenues from its current business activities to meet day-to-day operation liabilities or to pursue the business objectives discussed herein.

The forward-looking statements contained in this Report also may be impacted by future economic conditions. Any adverse effect on general economic conditions and consumer confidence may adversely affect the business of the Company. CYIOS Corporation undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. In addition, readers should carefully review the factors described in other documents the Company files from time to time with the Securities and Exchange Commission.

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Part I - FINANCIAL INFORMATION	1
Item 1. Financial Statements and Supplementary Information	1
Consolidated Condensed Balance Sheet (Unaudited)	1
Consolidated Statement of Operations (Unaudited)	2
Consolidated Statements of Cash Flows (Unaudited)	3
Item 2. Management’s Discussion and Analysis	8
Corporate Overview	8
Recent Developments	9
FINANCIAL CONDITION	10
RESULTS OF OPERATIONS	10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.	11
Item 4. Controls and Procedures.	11
Part II – OTHER INFORMATION	12
Item 1. Legal Proceedings.	12
Item 1A. Risk Factors.	12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	12
Item 3. Defaults Upon Senior Securities.	12
Item 4. Submission of Matters to a Vote of Security Holders.	12
Item 5. Other Information.	12
Item 6. Exhibits.	12
SIGNATURE	13
Exhibit 31.1 - Certifications	14
Exhibit 32.1- Certification Pursuant to 18 U.S.C. Section 1350	15

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Part I - FINANCIAL INFORMATION

Item 1. Financial Statements and Supplementary Information

In the opinion of management, the accompanying unaudited financial statements included in this Form 10-QSB reflect all adjustments necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

CYIOS Corporation, Inc. and Subsidiaries

Consolidated Condensed Balance Sheet (Unaudited)

As of June 30, 2007

ASSETS

CURRENT ASSETS
Cash and Cash Equivalents	$	50,141
Accounts Receivable		58,041
Other Current Assets		7,400
Loan to Shareholder		31,595
TOTAL CURRENT ASSETS		147,177

TOTAL ASSETS	$	147,177

LIABILITIES AND STOCKHOLDERS' DEFICIT

LIABILITIES
Current Liabilities:
Line of Credit	$	100,979
Shareholder Loan Payable		25,350
Interest Payable		12,714
Taxes Payable		13,629
Payroll Taxes Payable		46,606
Accounts Payable		407,097
TOTAL LIABILITIES		606,375

STOCKHOLDERS' DEFICIT
Convertible Preferred Stock ($.001 par value, 5,000,000 authorized:29,704 issued and outstanding)		30
Common Stock ($.001 par value, 100,000,000 shares authorized: 23,824,210 shares issued and outstanding)		23,824
Additional Paid-in-Capital		23,630,397
Accumulated Deficit		(24,113,449	)
TOTAL STOCKHOLDERS' DEFICIT		(459,198	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	147,177

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CYIOS Corporation, Inc. and Subsidiaries

Consolidated Statement of Operations (Unaudited)

For the period ended June 30,

	Three Months Ended June 30,					Six Months Ended June 30,
	2007		2006			2007		2006
SALES AND COST OF SALES:
Sales	$	600,601	$	397,887		$	1,166,619	$	792,327
Cost of sales		334,432		134,387			614,247		207,800
Gross Profit		266,169		263,500			552,372		584,527


EXPENSES:

Selling, general and administrative		39,399		30,707			99,825		69,976
Payroll Expense		140,947		264,531			260,092		467,805
Employee Benefit Expense		29,800		18,657			70,695		39,709
Consulting Expense		6,050		19,343			11,204		34,785
Bad Debt Expense		-		-			-		525,000
Depreciation Expense		-		7,054			-		49,111
Professional Fees		21,989		51,230			44,562		65,672
Interest Expense		8,738		3,547			13,344		8,991
		246,922		395,069			499,722		1,261,050


NET INCOME/(LOSS)	$	19,246	$	(131,568	)	$	52,650	$	(676,523	)


Basic and diluted income (loss) per share	$	0.001	$	<(0.01	)	$	0.002	$	<(0.01	)

Weighted Average Shares Outstanding		23,774,880		21,595,070			23,616,972		21,581,490

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CYIOS Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2007 and 2006

	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(loss)	$	52,650		$	(676,523	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		-			48,904
Common Shares issued for employee compensation, net		4,243			-
Changes in Assets and Liabilities:
Decrease in Accounts Receivable Written Off as Bad Debt		-			525,000
(Increase)/Decrease in Accounts Receivable		2,606			(511	)
(Increase)/Decrease in Other Assets		12,513			2,120
Increase/(Decrease) In Interest Payable		7,743			-
Increase/(Decrease) In Taxes Payable		(173	)		(141,417	)
Increase/(Decrease) in Accounts Payable		(794	)		(3,004	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		78,788			(245,431	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		2,000			308,128
(Increase)/Decrease Shareholder's Loan Receivable		(55,952	)		(16,213	)
Increase/(Decrease) in borrowings on Notes Payable		-			(109,540	)
Increase/(Decrease) in borrowings on Line of Credit		-			57,259
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(53,952	)		239,634

NET INCREASE IN CASH AND CASH EQUIVALENTS		24,836			(5,797	)

CASH AND CASH EQUIVALENTS:
Beginning of Period		25,305			49,857

End of Period	$	50,141		$	44,060

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest	$	13,344		$	8,991

NON-CASH OPERATING ACTIVITIES:
Value of Common Stock and Warrants issued in exchange for services	$	4,243		$	-

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CYIOS CORPORATION. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007

(Unaudited)

NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The interim financial statements and summarized notes included herein were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to rules and regulations of the Securities and Exchange Commission. Because certain information and notes normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America were condensed or omitted pursuant to such rules and regulations, it is suggested that these financial statements be read in conjunction with the Consolidated Financial Statements and the Notes thereto, included in CYIOS Corporations 10Ksb filed April 17^th, 2007. These interim financial statements and notes hereto reflect all adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods presented. Such financial results should not be construed as necessarily indicative of future results

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS

All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments, including cash, receivables and other current assets, are carried at amounts that approximate fair value. Accounts payable, loans and notes payable and other liabilities are carried at amounts that approximate fair value.

PROPERTY AND EQUIPMENT

The Company provides for depreciation of equipment using accelerated and straight-line methods based on estimated useful lives of five years. Depreciation expense was $0 and $48,904 respectively for the six months ended June 30, 2007 and 2006.

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REVENUE RECOGNITION/CONTRACTS

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. The Company follows SOP 81-1 Accounting for Performance of Construction-Type and Certain Production-Type Contracts, as it applies to time-and-material contracts. Revenue on time-and-materials contracts is recognized based on the hours actually incurred at the negotiated contract billing rates, plus the cost of any allowable material costs and out-of-pocket expenses. Revenue on fixed-price contracts pursuant to which a client pays the Company a specified amount to provide only a particular service for a stated time period, or so-called fee-for-service arrangement, is recognized as amounts become billable, assuming all other criteria for revenue recognition are met. We recognize revenue from government contracts and sales from our product CYIPRO. CYIOS Corporation has contracts extending out until 2010. All contracts are with the DoD and are in good standing. CYIOS Corporation certifies that it is not on the Debarred/Suspended Contractors List. This has been verified by checking the GAO, Excluded Parties List system http://epls.arnet.gov and www.pogo.org (Project on Government Oversight). DoD and government contracts are the primary method to bring revenue into the company.

NET LOSS PER SHARE OF COMMON STOCK

Net loss per share of common stock is based on the weighted average number of shares of common stock outstanding. Common stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive.

PREFERRED STOCK

During 2005, we authorized a reverse split 30:1 of all common and preferred shares outstanding. During 2005, the common shares were converted 30 for 1, but the preferred shares were not in error. We have corrected this error by applying the reverse split to our preferred shares outstanding. The outstanding preferred shares before the split is 891,109 and preferred shares outstanding after the 30:1 reverse split is 29,704. This correction is reflected on our current Balance Sheet in the Stockholders’ Deficit section.

COMMON STOCK TRANSACTIONS

The following table recaps the capital account transactions occurring during the 1^st and 2^nd quarters of 2007:

Month/Description of transaction	Number of shares		Price per share		Total Value
January--stock issued for consultant services		50,000	$	0.005	$	250
February--stock issued for consultant services		50,000		0.0050		250
February--stock issued for employee services		75,000		0.0100		750
March--stock issued for employee services		54,000		0.0500		2,700
April--stock issued for consultant services		50,000		0.0100		500
April--stock issued for employee services		26,000		0.0500		1,300
April--stock issued for employee services		75,000		0.0100		750
May--stock issued for employee services		4,000		0.3000		1,200
May--stock issued for employee services		25,000		0.0100		250
May--stock issued for consultant services		50,000		0.0100		500
June--stock issued for consultant services		50,000		0.0100		500
June--stock issued for employee services		15,000		0.0500		750
		524,000			$	9,700.00

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STOCK OPTIONS AND WARRANTS

On April 21, 2006, the company instituted a New Employee Stock Option Plan (New Plan) which voids the Old Employee Stock Option Plan instituted in 2004. Briefly, the purpose of the New Plan is to be carried out by issuing incentive stock options and nonqualified options pursuant to the New Plan (hereinafter referred to as "Options") to one or more key employees of the Company, as determined by the Administrator at the time of the grant. It is intended that to the maximum extent permissible under the Plan, Options shall constitute incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the internal Revenue Code (the "Code") and that to the extent not so permissible, such Options shall not constitute Incentive Stock Options ("Nonqualified Stock Options"). For purposes of the Plan, all references to a subsidiary or subsidiaries shall include only wholly-owned subsidiaries of the Company.

Outstanding stock options and warrants as of December 31, 2006 are as follows:

				Weighted					Weighted
				average					average
				price per					price per
	Options			share		Warrants			share
Outstanding at December 31, 2003		1,232,000		$	0.29		4,036,650		$	0.66

Year ended December 31, 2004
Granted		2,350,000			0.13		9,000,000			0.05
Exercised		-			-		(9,000,000	)		0.05
Expired		-			-		(886,650	)		2.45
Outstanding at December 31, 2004		3,582,000			0.19		3,150,000			0.16

Year ended December 31, 2005
Granted		-			-		-
Exercised		-			-		-
Expired		(87,000	)		0.19		-			-
Outstanding at December 31, 2005		3,495,000			0.19		3,150,000			0.16

Year ended December 31, 2006
Granted		1,876,300			0.30		-
Exercised		(1,872,300	)		0.30		-
Expired		(145,000	)		0.29		(3,150,000	)		0.16
Options cancelled and replaced by new option plan		(3,350,000	)*		0.18		-			-
Outstanding at December 31, 2006		4,000			0.30		-			-

*	These options were issued under the plan from 2004, the options have been cancelled and superseded by the 2006 plan.

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STOCK OPTIONS AND WARRANTS (CONT’D)

Outstanding stock options and warrants as of June 20, 2007 are as follows:

				Weighted				Weighted
				average				average
				price per				price per
	Options			share		Warrants		share
Outstanding at December 31, 2005		3,495,000			0.19

Year ended December 31, 2006
Granted		1,876,300			0.30		-
Exercised		(1,872,300	)		0.30		-
Options cancelled and replaced by new option plan		(3,495,000	)*		0.19		-		-
Outstanding at December 31, 2006		4,000			0.19		-		-

For the six months ended June 30, 2007
Granted		520,000			0.02		-
Exercised from 2006		(4,000	)		0.30
Exercised from 2007		(520,000	)		0.02		-
Expired		-			0.19		-		-
Outstanding at June 30, 2007		-			0.19		-		-

*	These options were issued under the plan from 2004, the options have been cancelled and superseded by the 2006 Plan. The remaining authorized to be granted is 603,700.

GOING CONCERN

We have had recurring losses from operations to date. During 2006, we had a net loss of $893,526, a net deficiency of $24,170,258 and a net working capital deficit of $522,260. During the second quarter 2007 we showed a net profit of $19,246 as compared to a net loss ($131,568) for the same period in 2006.

Management believes that actions presently being taken to raise equity capital, seek strategic relationships and alliances, and build its marketing efforts to generate positive cash flow provide the means for us to continue as a going concern. The unaudited financial statements included with this 10-QSB do not include any adjustments that might result from the outcome of this uncertainty.

SHAREHOLDER LOANS/RELATED PARTY

We have a Loan Outstanding with one of our officers and major shareholders. The note is payable on demand and bears no interest. The total amount of the Loan Receivable Outstanding is $6,245.

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Item 2. Management’s Discussion and Analysis

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the financial statements, related notes, and other detailed information included elsewhere in this Form 10QSB. Certain information contained below and elsewhere in this Form 10QSB, including information regarding our plans and strategy for our business, are forward-looking statements. See "Note Regarding Forward-Looking Statements."

Corporate Overview

CYIOS Corporation operates three subsidiaries. The first two, CYIOS Corporation and CKO Incorporated, are the two vehicles the company will be operating its business in, going forward after its merger on September 19, 2005. The company, through its services subsidiary, CYIOS Corporation, provides innovative Business Transformation and Information Technology solutions to the United States Army, Department of Defense (DoD), and other prospective U.S. Government agencies. CYIOS supports its customers through a variety of current contract vehicles including prime contracts, subcontracts, sole source, blanket purchase agreements, and multiple award task orders extending as far out as 2010. CYIOS has received many commendations for its outstanding customer service and support in systems integration and application development, knowledge management and business transformation, and program and project management. As a certified Small Business, CYIOS provides its services within the following North American Industry Classification System (NAICS) codes:

518112	WEB SEARCH PORTALS
518210	DATA PROCESSING, HOSTING AND RELATED SERVICES
519100	OTHER INFORMATION SERVICES
519190	ALL OTHER INFORMATION SERVICES
541510	COMPUTER SYSTEMS DESIGN AND RELATED SERVICES
541511	CUSTOM COMPUTER PROGRAMMING SERVICES
541512	COMPUTER SYSTEMS DESIGN SERVICES
541513	COMPUTER FACILITIES MANAGEMENT SERVICES
541519	OTHER COMPUTER RELATED SERVICES
541611	ADMIN. MANAGEMENT AND GENERAL MGMT CONSULTING SERVICES
541618	OTHER MANAGEMENT CONSULTING SERVICES
541690	OTHER SCIENTIFIC AND TECHNICAL CONSULTING SERVICES

CKO Incorporated is CYIOS’ product subsidiary, which offers CYIPRO, an internally-developed online office management platform that has been modeled after Army Knowledge Online (AKO). CYIOS built the prototype for AKO, which now servers over 1.8 million Army users worldwide. CYIPRO was developed as an agency-level business transformation solution in response to Government initiatives in teleworking led by OPM and GSA; the President’s Management Agenda and its focus on retaining human capital; FISMA, HSPD-12 and PKI for secure communications through common access cards; Lean Six Sigma to improve workflow and reduce redundancies; and the Clinger-Cohen Act to improve efficiencies in technology. CYIPRO has been positioned to work in conjunction with the AKO model to sell as a customized product to Federal, State and Local Governments. This, in turn, can lead to growth in service contracts for business transformation and modernization solutions.

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Recent Developments

This section has two parts, contracts and ongoing strategy for partnerships and our product CYIPRO.

In May of 2007, after a month of discussions, CYIOS began working, in a type of sub-contracting environment, with a large Federal Government contractor, to place CYIOS personnel on already existing Government contracts. As of May 10^th, CYIOS has been asked to fill over a dozen different Top Secret positions, ranging from system administrators and application developers to UNIX and CISCO engineers. This is an ongoing effort to work on this contract. We have not to date started any work. We do anticipate starting and recognizing revenue in September.

In March of 2007 CYIOS was awarded a new one-year task order by the Department of Defense, U.S. Army for $330,000. This task order was awarded on Tuesday, March 28, 2007. The company has the opportunity to get this task order renewed two more times, which would ultimately put the total value at approximately $1 million over three years. This is ongoing an in good standing. Contract has a period until 2010.

In February of 2007 CYIOS once again used the services of InterPlan Systems to co-write a proposal for a U.S. Navy agency. This is a large multi-award contract with award decisions expected by the end of the second quarter of 2007. We have conducted our pre-audit and are in the final stages to complete the audit. It is standard for DCAA to perform audits of contractors before work can commence. Although due to issues out of our control, this has been a lengthy process. We hope to begin biding on task orders and could recognize revenue by the end of October. We do plan on expanding our team with another large partner in order to further our capabilities. This would be subject to review and approval.

In January of 2007 CYIOS started off the New Year with signing a subcontract providing Change Management services worth $225,000 a year. The work is being performed for DHS and is part of a subcontract with one of the top 10 government contractors. This contract is in good standing and has been extended.

In September of 2006 CYIOS Corporation entered into an agreement to set up and own 25% of a joint venture called CLNS LLC. The company retained InterPlan Systems to co-write a proposal for a multi-billion dollar, multi- award contract with a large Federal Agency for this new entity. This joint-venture includes three other small business DoD contractors. This unique arrangement was created to allow a better chance of winning the contract as the past performance from all four companies’s combined offered a very solid proposal. Awards are expected August or September 2007. We are patiently waiting a award decision in the next 30 to 60 days.

In June of 2006, CYIOS was awarded a contract to perform work for the U.S. Army's Senior Leadership Development (SLD) under operational control of the Chief of Staff, Army (CSA). The contract is valued at up to $1 million with over $300,000 invoiced by the date of this filing. CYIOS designed and now supports the General Officer Management Office (GOMO) Knowledge Management system. The CSA approved, and the Secretary of the Army endorsed, the realignment of GOMO to include Colonels Division, Officer Personnel Management Directorate, U.S. Army Human Resources Command (HRC) to form the Army Senior Leader Development Office (SLD). CYIOS has been recognized for delivering quality work, outstanding customer service, and ingenuity; and this initiative is to expand its efforts to build a knowledge management system for the Colonel's Branch of SLD. We are in the process of expanding this contract with a modification for the training and development section of the Colonel branch. We are also expecting to recomplete this contract for an award of five years. If successful, this contract would extend out til 2012.

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In May of 2006, CYIOS was awarded a $400k, 1 year follow-on contract at the Headquarters Department of the Army Information Management Support Center (IMCEN). The program, End-User Workstation Survey and Post Installation Quality Assurance, makes CYIOS responsible for the inventory assets of over 10,000 Headquarters, Department of the Army customer desktop devices in the preparation for upgrade or replacement; conduct post-installation quality assurance surveys to gauge customer satisfaction; and provide technical support and training to end users for desktop-related issues after an upgrade or replacement.

About our product CYIPRO, during the first quarter of 2007, CYIOS began converting its virtual office project management product into a .net environment with the main goal of allowing the product to work on Microsoft Mobile 5.0 and upcoming versions. This enables the product to work on any PDA (Personnel Digital Assistant) and cell phone device that has Internet access utilizing the MS Mobile browser. CYIOS has renamed the product CYIPRO (C-Your Integrated Projects). The prototype is 90% complete and we will be presenting to the Army and to Large integrators for the possibility of licensing our product. We also have engaged with Microsoft to become a ISV in Microsoft SQL product line and Mobile 6.0 operating system. This is a unique opportunity in that there are only 250 companies that have applications in this area. Our product is an enterprise project management system that provides solutions to meet the needs of a consultant or a program manager of multiple teams. See www.cyipro.com for more information.

In April of 2006, CYIOS received certification as a Microsoft Small Business Specialist. Not only does this help the company become more valuable as it reaffirms the company as an expert in its areas of specialty, but also it will help increase business, especially in the commercial sector as Microsoft offers very aggressive sales assistance programs to its small business specialist partners. Recently this has become more significant as the company works with Microsoft on its recent efforts to convert its product, CKO, to work on MS Mobile 5.0/6.0 software for mobile phone PDA’s.

To take advantage of the very low cost of Mobile Internet access in the United Kingdom, in early May of 2007, CYIOS completed negotiations, with an initial sale, with a partner in the United Kingdom to resell and distribute CYIPRO through a network of VAR’s (Value Added Resellers). This effort is on hold until we accomplish our presentations above.

FINANCIAL CONDITION

We currently have financial resources but to support its 25+ member staff in addition to its investment in operations (bids and proposals team) and our product, CYIPRO. The bids and proposals team and management infrastructure of current contracts has been successful in generating more revenue necessary for growth and profit. We are profitable and have outstanding bids awaiting to be awarded and in the process of pre award audit. Over the last quarter, we have sustained and shown growth and are continuing along that successful path.

RESULTS OF OPERATIONS

Total sales for the 2^nd quarter 2007 were $600,601 as compared to $397,887 for the 2^nd quarter 2006, an increase of approximately 33%. This is a result in winning a contract in 1^st QTR and sustaining it.

Our net income for the 2^nd quarter 2007 was $19,246 as compared to ($131,568) for the same period in 2006. Our investment in the bids and proposals team has paid off and will continue to pay off in upcoming quarters. Profits are continued to be realized and the company has continued to invest in CYIPRO, the company’s virtual office project management tool. Cost of Sales and General Expenses can best be described as contracted services being rendered. We have to pay higher than average salaries to employ the best trained staff and we further have to offer the best benefits for these staff. We are continuing to be successful with our strategy and remain profitable.

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NOTE: A – from Consolidated Condensed Balance Sheet – page 1

WorldTeq Corporation has the Liabilities in Accounts Payable of $370,347.78 and Taxes Payable & Payroll Liabilities of $43,206.32. WorldTeq Corporation is an inactive company.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by or (used in) operating activities for the 2^nd quarter, 2007 was $74,545 as compared to $(245,431) for the same period in 2006. This improvement is based upon lowering our overhead and generating more business on our service contracts.

The Company, as of 2^nd quarter, 2007 has $147,177 in assets as compared to $105,865 for the Year End 2006.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements with any party.

Critical Accounting Estimates

There have been no material changes in our critical accounting policies or critical accounting estimates since 2000 nor have we adopted an accounting policy that has or will have a material impact on our consolidated financial statements.

"Summary of Significant Accounting Policies" in this Quarterly Report on Form 10-QSB and the Notes to Consolidated Financial Statements in our Annual Report on Form 10Ksb for the fiscal year ended December 31, 2006

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We have interest rate exposure relating to certain long-term obligations. The interest rates on the Term Loans are NOT affected by changes in market interest rates. We do not believe we have significant risks due to changes in interest rates.

Item 4. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, June 30, 2007, we completed an evaluation, under the supervision and with the participation of our management, consisting of our Chief Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rules 13a-14(C) and 15d-14c). Based upon the foregoing, our Chief Executive Officer concluded that our disclosure controls and procedures are effective in connection with the filing of the annual report on Form 10-KSB for the fiscal year ended December 31, 2006.

CHANGES IN INTERNAL CONTROLS. There were no significant changes in our internal controls over financial reporting during the period ended June 30, 2007 that have materially affected or are reasonably likely to materially affect, our internal controls over financial reporting.

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Part II – OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable

Item 1A. Risk Factors.

All contracts are performance based and if performance metrics are not met, the contract could be negatively affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None to report

Item 3. Defaults Upon Senior Securities.

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders.

Not Applicable

Item 5. Other Information.

Not Applicable

Item 6. Exhibits.

Attached

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SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CYIOS Corporation.

		/s/ Timothy Carnahan
		Timothy Carnahan
		Chief Executive Officer, President, Treasurer, and Chairman of the Board

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	/s/ Timothy Carnahan
	Timothy Carnahan
	Chief Executive Officer, President, Treasurer, and Chairman of the Board

Date: August 14^th, 2007