-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UzC5PjnoBC8cU6mKU1ajjMBxFBEgONanM5neX9JUordL2SbtKPTZHhxxocgxBWT9 SMYzcVJx3QONxVMg44NebA== 0001005150-01-500918.txt : 20020411 0001005150-01-500918.hdr.sgml : 20020411 ACCESSION NUMBER: 0001005150-01-500918 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYOP SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001111698 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-32355 FILM NUMBER: 1793905 BUSINESS ADDRESS: STREET 1: 409 GRANVILLE ST STE 1000 STREET 2: VANCOUVER BRITISH COLUMBIA V6C 1T2 CITY: CANADA STATE: A1 ZIP: 00000 BUSINESS PHONE: 6046819588 MAIL ADDRESS: STREET 1: 409 GRANVILLE ST STE 1000 STREET 2: VANCOUVER BRITISH COLUMBIA V6C 1T2 CITY: CANADA STATE: A1 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: TRIPLE 8 DEVELOPMENT CORP DATE OF NAME CHANGE: 20000412 10QSB 1 form10qsb.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [xx] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 Commission file Number: 0-32355 CYOP SYSTEMS INTERNATIONAL INCORPORATED (Exact name of small business issuer as specified in its charter) Nevada (State or other jurisdiction of incorporation or organization) 98-0222927 (I.R.S. Employer Identification Number) Suite 300 1286 Homer Street Vancouver, British Columbia V6B 2Y5 (Address of principal executive offices) (604)647-6400 (Issuer's telephone number) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 28,439,975 common shares as at September 30, 2001 Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] CYOP SYSTEMS INTERNATIONAL INCORORATED INDEX PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheet as of December 31, 2000 and September 30, 2001 Statement of Operations for the period ended September 30, 2001 Consolidated Statements of Cash Flows for the period ended September 30, 2001 Consolidated Statements of Changes in Stockholders' Equity Notes to Consolidated Financial Statements Item 2 Plan of Operation PART II. OTHER INFORMATION Item 1 Legal Proceedings Item 2 Changes in Securities Item 3 Defaults Upon Senior Securities Item 4 Submission of Matters to a Vote of Security Holders Item 5 Other Information Item 6 Exhibits and Reports on Form 8K SIGNATURES CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Financial Statements (EXPRESSED IN U.S. DOLLARS) September 30, 2001 (Unaudited - Prepared by management) INDEX ----- Consolidated Balance Sheets Consolidated Statements of Stockholders' Deficiency Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Balance Sheets (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS)
================================================================================================================= September 30 December 31 2001 2000 - ----------------------------------------------------------------------------------------------------------------- ASSETS CURRENT Cash and cash equivalents $ 6,336 $ 29,480 Deposits (Note 4) 25,756 1,333 Other receivable 120,508 -- Refundable tax credits -- 16,808 Demand loans, interest at 12% per annum and unsecured 153,370 -- Prepaid expenses 27,483 49,659 - ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 333,453 97,280 FIXED ASSETS (NOTE 5) 143,381 236,246 SOFTWARE DEVELOPMENT COSTS (NOTE 6) 100 100 - ----------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 476,934 $ 333,626 ================================================================================================================= LIABILITIES CURRENT Bank overdraft $ 21,443 $ -- Demand loans (Note 7a and 8e) 1,431,823 1,177,805 Accounts payable and accrued liabilities (Note 8a) 771,367 433,062 Short-term loan (Note 7b) 378,501 -- - ----------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 2,603,134 1,610,867 - ----------------------------------------------------------------------------------------------------------------- NATURE AND CONTINUANCE OF OPERATIONS (NOTE 1) COMMITMENTS (NOTE 9) STOCKHOLDERS' (DEFICIENCY) SHARE CAPITAL Authorized: 100,000,000 shares of common stock with a par value of $0.0001 per share Issued and outstanding: 28,439,975 shares of common stock (2000 - 28,382,975) 2,844 2,838 ADDITIONAL PAID-IN CAPITAL 211,431 149,237 ACCUMULATED OTHER COMPREHENSIVE INCOME 119,336 14,801 DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (2,459,811) (1,444,117) - ----------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' (DEFICIENCY) (2,126,200) (1,277,241) - ----------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) $ 476,934 $ 333,626 =================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. On behalf of the Board: /s/Mitch White, Director ------------------------ Mitch White, Director CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Stockholders' Deficiency Nine-Month Period Ended September 30, 2001 (Unaudited - Prepared by management) Page 1 of 2 (Expressed in U.S. Dollars)
==================================================================================================================================== Accumulated Compre- other Total Common stock Additional hensive compre- Stock- ------------------------ paid-in income Deficit hensive holders' Shares Amount capital (loss) accumulated income (deficiency) - ------------------------------------------------------------------------------------------------------------------------------------ Recapitalization as a result of reverse acquisition (Note 3) -- $ -- $ 69 $ (67,863) $ (66,465) $ (1,398) $ (67,794) - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income (loss) (67,863) ============ BALANCE, December 31, 1999 -- -- 69 (66,465) (1,398) (67,794) Shares issued for cash on February 29, 2000 10,020,500 1,002 1,448 -- -- 2,450 Shares issued for services on February 29, 2000 9,202,500 920 1,330 -- -- 2,250 Deficit accumulated as at November 3, 2000 -- -- -- (14,401) -- (14,401) Recapitalization adjustment (Note 3) -- -- (2,968) 14,401 -- 11,433 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AFTER RECAPITALIZATION ADJUSTMENT 19,223,000 1,922 (121) (66,465) (1,398) (66,062) Shares issued for equity of shell in stock acquisition (Note 3) 9,000,000 900 (10,601) -- -- -- (9,701) Shares issued for cash on December 13, 2000 159,975 16 159,959 -- -- -- 159,975 Other comprehensive income - - foreign currency translation adjustment -- -- -- 16,199 -- 16,199 16,199 Comprehensive income - net (loss) for the period -- -- -- (1,377,652) (1,377,652) -- (1,377,652) - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income (loss) $ (1,361,453) ============ BALANCE, December 31, 2000 28,382,975 2,838 149,237 (1,444,117) $ 14,801 $ (1,277,241) - ------------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Stockholders' Deficiency Nine-month Period Ended September 30, 2001 (Unaudited - Prepared by management) Page 2 of 2 (EXPRESSED IN U.S. DOLLARS)
==================================================================================================================================== Accumulated Compre- other Total Common stock Additional hensive compre- Stock- ----------------------- paid-in income Deficit hensive holders' Shares Amount capital (loss) accumulated income (deficiency) - ------------------------------------------------------------------------------------------------------------------------------------ (continued from page 1) BALANCE, December 31, 2000 28,382,975 2,838 149,237 (1,444,117) 14,801 (1,277,241) Shares issued for cash at $1.00 per share 44,000 5 43,995 -- -- 44,000 Shares issued for cash at $1.40 per share 13,000 1 18,199 -- -- 18,200 Other comprehensive income - foreign currency translation adjustment -- -- -- $ 104,535 -- 104,535 104,535 Comprehensive income - net (loss) for the period -- (1,015,694) (1,015,694) -- (1,015,694) - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income (loss) $ (911,159) =========== BALANCE, September 30, 2001 28,439,975 $ 2,844 $ 211,431 $(2,459,811) $ 119,336 $(2,126,200) ====================================================================== ===========================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Operations (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS)
- ----------------------------------------------------------------------------------------------------------- Three Months Nine Months Cumulative from Ended Ended October 1, 1999 September 30 September 30 to September 30 2001 2001 2001 - ----------------------------------------------------------------------------------------------------------- EXPENSES Accounting and audit $ 5,804 $ 30,888 $ 95,286 Advertising and promotion 61 100,676 176,463 Automobile 13,645 43,301 76,905 Bank charges and interest (Note 8c) 28,895 96,591 150,892 Depreciation of fixed assets 1,904 5,594 12,999 Legal and other professional fees 45,372 119,224 238,944 Office and miscellaneous 17,894 64,353 127,993 Rent 8,814 43,473 71,941 Salaries and benefits 42,460 117,171 292,209 Software development costs, net of recoveries (Note 6) (73,057) 285,802 1,064,050 Telephone and bandwidth 8,791 15,335 31,571 Travel 121 7,024 21,362 Foreign exchange loss 45,120 54,336 67,270 - ----------------------------------------------------------------------------------------------------------- OPERATING LOSS (145,824) (983,768) (2,427,885) Leasehold improvements write off (183) 31,542 31,542 Loss on disposal of fixed assets 56 384 384 - ----------------------------------------------------------------------------------------------------------- NET LOSS FOR THE PERIOD $ (145,697) $(1,015,694) $(2,459,811) =========================================================================================================== LOSS PER SHARE Basic and diluted $ (0.01) $ (0.02) =========================================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic and diluted 28,439,975 48,431,224 ===========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Cash Flows (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS)
=================================================================================================================== Three Months Nine Months Cumulative from Ended Ended October 1, 1999 September 30 September 30 to September 30 2001 2001 2001 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net (loss) for the period $ (145,697) $(1,015,694) $(2,459,811) Adjustments to reconcile net loss to net cash used in operating activities: - depreciation of fixed assets 15,761 49,500 92,232 - fixed assets write off (183) 31,542 31,542 - loss on disposal of fixed assets 56 384 384 - exchange loss on fixed assets 7,729 10,819 10,819 - ------------------------------------------------------------------------------------------------------------------- (122,334) (923,449) (2,324,834) Changes in assets and liabilities: - deposits 1,250 (24,423) (24,423) - other receivable (100,473) (120,508) (120,508) - refundable tax credits 11,785 16,808 -- - demand loans (37,666) (153,370) (153,370) - prepaid expenses 12,023 22,176 (28,816) - accounts payable and accrued liabilities 19,966 338,305 763,398 - ------------------------------------------------------------------------------------------------------------------- (215,449) (844,461) (1,888,553) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Capitalized software development costs -- -- (100) Disposal of fixed assets -- 6,806 6,806 Purchase of fixed assets -- (6,186) (285,164) - ------------------------------------------------------------------------------------------------------------------- -- 620 (278,458) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Shares issued for cash -- 62,200 222,244 Proceeds from demand loans (42,393) 254,018 1,431,823 Proceeds from short-term loans 152,113 378,501 378,501 - ------------------------------------------------------------------------------------------------------------------- 109,720 694,719 2,032,568 - ------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE ON FOREIGN CURRENCY TRANSLATION 102,687 104,535 119,336 - ------------------------------------------------------------------------------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (3,042) (44,587) (15,107) CASH AND CASH EQUIVALENTS (DEFICIENCY), beginning of period (12,065) 29,480 -- - ------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS (DEFICIENCY), end of period $ (15,107) $ (15,107) $ (15,107) =================================================================================================================== CASH AND CASH EQUIVALENTS (DEFICIENCY) REPRESENTED BY: Cash $ 6,336 $ 6,336 $ 6,336 Bank overdraft (21,443) (21,443) (21,443) - ------------------------------------------------------------------------------------------------------------------- $ (15,107) $ (15,107) $ (15,107) ===================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 1. NATURE AND CONTINUANCE OF OPERATIONS The Company was incorporated on October 29, 1999 in the name of Triple 8 Development Corporation under the laws of the State of Nevada to engage in any lawful business or activity for which corporations may be organized under the laws of the State of Nevada. The Company changed its name to CYOP Systems International Incorporated on October 30, 2000. On November 3, 2000, the Company acquired 100% of the issued and outstanding shares of CYOP Systems Inc., Barbados ("CYOP Barbados"). This transaction was accounted for as a reverse acquisition recapitalization (see Note 3). The efforts of the Company have been devoted to sales and marketing of multimedia transactional technology solutions and services on internet for the entertainment industry. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting by Development Stage Companies", the Company is deemed to be in the Development Stage. CYOP Barbados was incorporated under the laws of Barbados on June 20, 2000. CYOP Barbados is in the business of developing personal computer and console entertainment software designed to provide interactive online games, and development of multimedia transactional technology solutions and services on internet for the entertainment industry. On August 31, 2000, CYOP Barbados acquired 100% of the issued and outstanding shares of Moshpit Entertainment Inc., Canada ("Moshpit"), a company in the business of developing software for interactive online games incorporated under the laws of British Columbia, Canada. Both CYOP Barbados and Moshpit are considered to be in the development stage. These consolidated financial statements have been prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has suffered recurring losses from operations and has a net capital deficiency. The ability of the Company to continue as a going concern is dependent upon many factors, including the ability of the Company to obtain financing to fund working capital requirements, the degree of competition encountered by the Company, technology risks, government regulation and general economic conditions. The Management's plan in this regard are to raise equity financing as required and keep abreast of the multimedia technology. These financial statements do not include any adjustments that might result from this uncertainty. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Consolidation These interim consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, include the accounts of the Company and its subsidiaries CYOP Barbados and Moshpit. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of Consolidation (continued) The consolidated balance sheets, as at September 30, 2001 and December 31, 2000 include the assets and liabilities of the Company, CYOP Barbados and Moshpit. The consolidated statements of operations for the three-month and the nine-month periods ended September 30, 2001 and the cumulative period from October 1, 1999 (commencement) to September 30, 2001 include the operating results of the Company, CYOP Barbados and Moshpit for the periods and cumulative period then ended. Significant inter-company accounts and transactions have been eliminated. (b) Basis of Presentation These interim consolidated financial statements have been prepared using the same accounting policies and methods of their application as the most recent annual consolidated financial statements of the Company. These interim consolidated financial statements do not include all disclosures normally provided in the annual consolidated financial statements and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2000. In management's opinion, all adjustments necessary for fair presentation have been included in these interim consolidated financial statements. Interim results are not necessary indicative of the results expected for the fiscal year. Certain comparative figures have been reclassified to conform to the current period's presentation. (c) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from those estimates. (d) Cash Equivalents Cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturities of three months or less when purchased. As at September 30, 2001 and December 31, 2000, cash and cash equivalents consist of cash only. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Consolidated Statements of Operations (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Fixed Assets Fixed assets are recorded at historical cost. Depreciation is charged to earnings in amounts sufficient to allocate the costs over their estimated useful lives, as follows:
Audio and visual equipment 20% declining-balance basis Computer hardware 30% declining-balance basis Computer software 100% declining-balance basis Office furniture and equipment 20% declining-balance basis Leasehold improvements 20% straight-line basis
(f) Software Development Costs Software development costs are charged to expenses as incurred. (g) Advertising and Promotion The Company expenses advertising and promotion costs as incurred. Total advertising and promotion costs charged to expenses for the nine months ended September 30, 2001 amounted to $100,676. (h) Foreign Currency Transactions The Company and CYOP Barbados maintain their accounting records in their functional currency (i.e., US dollars). Foreign currency transactions are translated into their functional currency in the following manner. At the transaction date, each asset, liability, revenue and expense is translated into the functional currency by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are translated into the functional currency by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. (i) Foreign Currency Translations Assets and liabilities of Moshpit, whose functional currency is Canadian dollars, are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average exchange rate. Gain and losses from such translations are included in stockholders' equity, as a component of other comprehensive income. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (j) Income Taxes The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The effect on deferred income tax assets and liabilities of a change in income tax rates is included in the period that includes the enactment date. (k) Impairment Certain long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. If impairment is deemed to exist, the assets will be written down to fair value. (l) Comprehensive Income The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its consolidated Statement of Stockholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. SFAS NO. 130 did not change the current accounting treatments for components of comprehensive income. (m) Financial Instruments and Concentration of Risks Fair value of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Financial Instruments and Concentration of Risks (continued) The carrying value of cash and cash equivalents, deposits, other receivable, refundable tax credits, demand loans receivable, bank overdraft, demand loans payable, accounts payable and accrued liabilities and short-term loans approximate their fair values because of the short-term maturity of these instruments. Moshpit is operating in Canada, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Canadian dollars. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, the balances of which are stated on the balance sheet. The Company places its cash in high credit quality financial institutions. The Company does not require collateral or other security to support financial instruments subject to credit risk. (n) Reporting on Costs of Start-Up Activities The Company has adopted the Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-Up Activities" issued by the American Institute of Certified Public Accountants on the financial reporting of start-up costs and organization costs. It requires costs to be expensed as incurred. The Company charged all start-up costs to expenses as incurred. (o) Accounting for Derivative Instruments and Hedging Activities The Company has adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" issued by the Financial Accounting Standards Board. SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Net Income (Loss) Per Share Basic net income (loss) per share are computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share incorporate the incremental shares issuable upon the assumed exercise of stock options and other dilutive securities. Convertible loan and option to purchase 45,000 shares of common stock outstanding during the three-month and nine-month period ended September 30, 2001 were not included in the net income (loss) per share computation, as the effect of including them would be anti-dilutive. (q) Stock-based Compensation The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-based Compensation". SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. 3. ACQUISITION OF CYOP SYSTEMS INC., BARBADOS On November 3, 2000, the Company acquired 100% of the issued and outstanding common shares of CYOP Barbados. As the Company was a non-operating shell company, the transaction resulted in the management of CYOP Barbados having effective operating control of the combined company, with the shareholders of the Company continuing only as passive investors. Accounting principles applicable to reverse acquisition recapitalization have been applied to record this transaction. Under this basis of accounting, CYOP Barbados has been identified as the acquirer and, accordingly, the combined company is considered to be a continuation of the operations of CYOP Barbados with the net liabilities of the Company deemed to have been assumed by CYOP Barbados. The net liabilities of the Company assumed by CYOP Barbados are summarized as follows: ------------------------------------------------------- Current assets $ 2,399 Current liabilities (12,100) ------------------------------------------------------- Net liabilities assumed $ (9,701) ======================================================= 4. DEPOSITS The deposits are interest bearing at 4.2% per annum, and are hypothecated for merchant visa accounts. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 5. FIXED ASSETS
--------------------------------------------------------------------------------------------------- September 30, 2001 --------------------------------------------------------------------------------------------------- Accumulated Net book Cost depreciation Value --------------------------------------------------------------------------------------------------- Audio and visual equipment $ 21,178 $ 4,934 $ 16,244 Computer hardware 190,422 71,801 118,621 Computer software 3,100 2,321 779 Office furniture and equipment 9,433 1,696 7,737 --------------------------------------------------------------------------------------------------- Total $224,133 $ 80,752 143,381 ===================================================================================================
--------------------------------------------------------------------------------------------------- December 31, 2000 --------------------------------------------------------------------------------------------------- Accumulated Net book Cost depreciation Value --------------------------------------------------------------------------------------------------- Audio and visual equipment $ 22,411 $ 2,241 $ 20,170 Computer hardware 204,682 33,549 171,133 Computer software 3,280 1,640 1,640 Office furniture and equipment 9,982 1,043 8,939 Leasehold improvements 38,182 3,818 34,364 --------------------------------------------------------------------------------------------------- Total $278,537 $ 42,291 $236,246 ===================================================================================================
For the nine months ended September 30, 2001, depreciation expenses of $49,500 were charged to expenses. 6. SOFTWARE DEVELOPMENT COSTS
-------------------------------------------------------------------------------- September December 31 2001 2000 -------------------------------------------------------------------------------- Balance, beginning of period $ 100 $ 100 Salaries and benefits 436,247 715,198 Depreciation on fixed assets 43,906 33,622 Expense recoveries (194,351) -- -------------------------------------------------------------------------------- 285,902 748,920 Software development costs charged to expenses (285,802) (748,820) -------------------------------------------------------------------------------- Balance, end of period $ 100 $ 100 ================================================================================
CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 7. LOANS (a) Demand loans
--------------------------------------------------------------------------------------- September 30 December 31 2001 2000 --------------------------------------------------------------------------------------- i. Interest at the Bank of Montreal's prime lending rate of 6.0% plus 1.5% per annum and unsecured: - Mitchell White - director: Cdn$1,077,579 $ 682,660 $ 428,642 (2000:Cdn$643,048) - Greenday Inc. - shareholder 296,487 296,487 - Cyber Roads Inc. 178,519 178,519 - Tapijkabouter BV 99,157 99,157 --------------------------------------------------------------------------------------- 1,256,823 1,002,805 ii. Interest at the Hongkong Bank of Canada's prime lending rate of 6.0% plus 1% per annum and unsecured: - Ameera Group Inc. 75,000 75,000 iii. Non-interest bearing and unsecured: - Tapijkabouter BV 100,000 100,000 --------------------------------------------------------------------------------------- $1,431,823 $1,177,805 ======================================================================================
(b) Short-term loan
--------------------------------------------------------------------------------------- September 30 December 31 2001 2000 --------------------------------------------------------------------------------------- i. Interest at 40% per annum, due on January 25, 2002, convertible to 20,000 shares of common stock of the Company at due date: - Kornfeld MacOff (Cdn$25,000) $ 15,748 $ -- ii. Interest at 10% per annum, due on June 1, 2002: - RedRuth Ventures 362,753 -- --------------------------------------------------------------------------------------- $ 378,501 $ -- =======================================================================================
CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 8. RELATED PARTY TRANSACTIONS Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows: (a) Accounts payable and accrued liabilities include $83,393 interest accrued to a director and a shareholder of the Company. (b) Accounting fees of $10,338 were paid to a company controlled by individuals related to a director of the Company and were charged to expenses. (c) Interest expenses of $43,110 were accrued to a director and a shareholder of the Company and were charged to expenses. (d) Professional fees of $12,800 were paid to an individual related to a director of the Company and were charged to expenses. (e) Demand loans include $979,147 due to a director and a shareholder of the Company. These demand loans bear interests at the Bank of Montreal's prime lending rate of 6.0% plus 1.5% per annum and are unsecured (see Note 7ai). 9. COMMITMENTS (a) Moshpit has entered into lease contracts for automobiles and computer equipment with minimum lease payments for the year ending December 31st, as follows: --------------------------- 2001 $ 16,754 2002 88,635 2003 77,974 2004 19,409 --------------------------- Total $ 202,772 =========================== (b) The Company has entered into contracts with service providers to pay for the services received partly by cash and partly by issuance of common stock of the Company when the common stock are freely trading in the equity market. As at September 30, 2001, 67,410 shares of common stock of the Company are to be issued for services received. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 10. INCOME TAXES (a) A reconciliation of the statutory income tax to the Company's effective income tax rate is as follows:
-------------------------------------------------------------------------------------------------------- Statutory income tax rate 15% Tax losses not benefited (15%) -------------------------------------------------------------------------------------------------------- Effective income tax rate -- ========================================================================================================
(b) The tax effect of temporary differences that give rise to the Company's deferred tax assets (liabilities) are as follows:
-------------------------------------------------------------------------------------------------------- Undepreciated capital cost of capital assets over their net book value $ 20,000 Estimated tax loss carryforwards 1,004,000 Less: valuation allowance (1,024,000) -------------------------------------------------------------------------------------------------------- $ -- ========================================================================================================
The valuation allowance reflects the Company's estimate that the tax assets, more likely than not, will not be realized. As at September 30, 2001, the Company has non-capital losses of approximately $2,176,000 which can be carried forward for tax purposes and are available to reduce taxable income of future years. The non-capital losses expire commencing in 2006 through 2008. 11. STOCK OPTION On May 8, 2001, the Company granted a stock option to a service provider to acquire 25,000 shares of common stock at a price of US$1 per share. The stock option expires on May 9, 2004. CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES (A development stage company) Notes to Consolidated Financial Statements September 30, 2001 (Unaudited - Prepared by management) (EXPRESSED IN U.S. DOLLARS) - -------------------------------------------------------------------------------- 12. SEGMENTED INFORMATION (a) Industry Information The Company operates in one reportable operating segment, being in the developing and providing multimedia transactional technology solutions and services on internet for the entertainment industry. (b) Geographic Information All the Company's operations and fixed assets are located in Canada. 13. COMPARATIVE FIGURES Certain 2000 comparative figures have been reclassified to conform with the financial statement presentation adopted for 2001. PLAN OF OPERATIONS The following discussion of the plan of operations of the Company should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this quarterly report for the nine months ended September 30, 2001. This quarterly report contains certain forward-looking statements and the Company's future operation results could differ materially from those discussed herein. In the six months ended September 30, 2001, we earned revenue of US$194,351 from website development. This is not our core business. We have been primarily focused on developing our product for market launch. Management has financed our operations to date. Management will continue to fund our operations through shareholders loans for the next 12 months or until such time as we are able to raise equity or debt financing privately, through a public listing, or until we have positive cash flow. We can satisfy our cash requirements solely from funds loaned by management for approximately 12 months. However, management is not under any contractual obligation to provide continued funding. We will spend approximately $2 million in additional capital in the next 12 months to maintain current operations at our current expenditure rate. Additional funds in the amount of $500,000 will be required for a complete launch of the Bloodmoney Universe including a full marketing budget. We anticipate maintaining our staff of 19 persons during the next 12 months. We do not expect to acquire any material physical assets or significant equipment in the next 12 months. We will not be performing any significant research and development in the next 12 months as our pay for play software is complete and tested. We launched our first pay-for-play online video game, Urban Mercenary in February, 2001. In March, 2001, the Company secured the Canadian Imperial Bank of Commerce as the Company's merchant account processor. Also in March, 2001, the Company hosted a trade booth at the Computer Gamers and Developers Conference (CDGC) in California. The Company signed seven letters of intent with game developers as a result of its exposure at the CDGC conference. In June, 2001, we signed a licensing contract with Bingo.com. This contract calls for our company to provide front end game development and site management. It is also a licensing agreement under which Bingo.com will use our pay for play transaction software. Bingo.com has approximately 700,000 members playing bingo online. Bingo.com has devised a new format for bingo which is a skill based game and not a game of chance. The Bingo.com site will begin using CYOP's pay for play transaction software commencing in October, 2001. The Company's agreement with Bingo.com generated revenue of US$194,351 for the nine months ended September 30, 2001. This revenue was from web site development which will be a sporadic source of revenue for the Company. This revenue has been treated as a software development cost expense recovery in the Company's September 30, 2001 financial statements. This treatment has been applied because the revenue received by the Company in the quarter ended September 30, 2001 was not considered revenue from the Company's core business. The Company's online video game Urban Mercenary is completely developed as is our pay for play transaction software. Our agreement with Bingo.com is the first which will demonstrate the effectiveness of our e-commerce pay for play platform with third party licensees. Management will continue to fund the Company through shareholders' loans until such time as the Company is financially self supporting. Management of the Company will be aggressively seeking private financing to launch an aggressive marketing campaign for our pay for play network and our flagship video game Urban Mercenary. In order for our Company to expand it's operations and realize profits from pay for play online video gaming a number of additional steps must be taken. We must continue to maintain and upgrade our software programs and our website. This is an ongoing month to month responsibility which is handled by our current staff members. Funds for this ongoing software maintenance have been budgeted and are covered by funds which are being loaned to our Company by management. In the future, the funds required for ongoing software maintenance will come from revenue from licensing fees or system maintenance fees from pay for play video gaming. Secondly, to increase our Company's exposure and attract players to our website we will be required to complete a full marketing launch of our Bloodmoney Universe. We anticipate that this marketing launch will cost approximately $500,000. Until we complete a marketing launch we cannot expect large volumes of players for our online pay for play video game. Revenues will be derived from licensing fees from third parties. We will also continue to pursue our pending patent applications in the United States. Patent protection will improve our competitive position in the online pay for play video gaming industry. We anticipate spending up to an additional $25,000 for costs associated with our patent applications. We anticipate it may take up to one year for our current patent applications to be granted. "CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters, the matters discussed in this Form 10-QSB are forward-looking statements based on current expectations and involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements under the following heading: "Managements Discussion And Analysis Or Plan Of Operations" the timing and expected profitable results of sales and the need for no additional financing. PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None Item 2 CHANGES IN SECURITIES AND USE OF PROCEEDS None Item 3 DEFAULTS UPON SENIOR SECURITIES None Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5 OTHER INFORMATION None Item 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES 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. CYOP SYSTEMS INTERNATIONAL INCORPORATED Dated: November 15, 2001 Per: /s/Mitch White ------------------------------------------- Mitch White, President, C.F.O. and Director -----END PRIVACY-ENHANCED MESSAGE-----