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 MARCH 31, 2003

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 225

425 Carrall  Street

Vancouver, British Columbia

V6B 6E3

(Address of principal executive offices)

(604) 685-0696

(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:

28,474,682 common shares as at March 31, 2003

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 March 31, 2003 and December 31, 2002

Statement of Income for the period ended

March 31, 2003

Consolidated Statements of Cash Flows for the period ended

March 31, 2003

Consolidated Statements of Changes in Stockholders' Equity

Notes to Consolidated Financial Statements

Item 2

Management Discussion and Analysis

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

Consolidated Financial Statements

(Expressed in U.S. Dollars)

March 31, 2003

(Unaudited)

Index

Consolidated Balance Sheets

Consolidated Statement of Stockholders’ Deficiency

Consolidated Statements of Income

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

CYOP SYSTEMS INTERNATIONAL INCORPORATED & SUBSIDIARIES

Consolidated Balance Sheets
(Unaudited)
(Expressed in U.S. Dollars)
		March 31, 2003	December 31, 2002
ASSETS
Current
Cash and cash equivalents	$	3,551	$	4,253
Loans receivable		11,757		-
Demand loan, interest at 12% per annum and unsecured		-		-
Due from director, non interest bearing and unsecured		-		-
Interest receivable related party (Note 7)		112,500		90,000
Prepaid expenses and deposit		-		-
Total current assets		127,808		94,253
Note receivable related party (Note 6)		1,590,272		1,585,034
Intellectual property (Note 4)		108,436		115,665
Fixed assets (Note 3)		54,940		58,953
Total assets	$	1,881,456	$	1,853,905
LIABILITIES
Current
Bank overdraft	$		$
Demand loans (Note 5)
Demand loans related party (Not 5b)		710,116		562,238
Accounts payable and accrued liabilities		161,468		147,480
Player funds on deposit		31,891		36,783
Short-term loan (Note 5)		212,725		212,725
Total current liabilities		1,116,200		959,226
Deferred revenue (Note 6)		2,197,263		2,198,552
Total Liabilities		3,313,463		3,157,778
Nature and continuance of operations (Note 1)
Commitments
STOCKHOLDERS' (DEFICIENCY)
Share capital
Authorized:
100,000,000 shares of common stock with a par value
of $0.0001 per share
Issued, allotted and outstanding:
28,439,975 shares of common stock		2,848		2,848
Additional paid-in capital		299,307		284,551
Accumulated other comprehensive income		-		-
Deficit accumulated		(1,734,162)		(1,591,272)
Total stockholders' (deficiency)		(1,432,007)		(1,303,873)
Total liabilities and stockholders' (deficiency)	$	1,881,456	$	1,853,905

Page 5

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Consolidated Statements of Operations
Three months ended March 31, 2002 and 2001
(Expressed in U.S. Dollars)
		March 31, 2003		March 31, 2002
Revenue
Sale - Crediplay - related party (Note 7)	$	1,289	$	257,852
Sale - Crediplay		-		15,210
License fees related party		-		-
Service fees		13,119		-
Banking fees		580		-
		14,988		273,062
Cost of sales		41,422		138,904
Gross profit
		(26,434)		134,158
Sales and marketing expenses		62,495		11,733
Loan interest expense		-		13,359
Software development costs		-		94,368
General and administrative expenses
Accounting and audit		-		-
Amortization of intangible assets		7,229		-
Automobile		-		9,399
Bad debt		432		-
Bank charges and interest		1,218		-
Commissions		-		-
Depreciation of fixed assets		4,013		622
Filing fees		223
Foreign exchange loss		-		(2,597)
Imputed interest expense - related party		14,756		-
Legal and other professional fees		1,943		2,929
Office and miscellaneous		2,619		165
Rent		8,112		4,277
Contractors and consultants fees		32,700		34,599
Stock-based compensation		-		-
Telephone and bandwidth		6,271		346
Travel		2,184		-
		144,195		169,200
Operating loss	$	(170,629)	$	(35,042)
Other income (loss)
Interest income related party		27,738		-
Write down of intangible assets		-		-
Write off of leasehold improvement		-		-
Loss on disposal of fixed assets		-		-
Gain on disposal of subsidiary		-		-
Net income (loss) for the period
	$	(142,891)	$	(35,042)
Earning (loss) per share - basic and diluted	$	(0.00)		(0.00)
Weighted average number of common
shares outstanding - basic and diluted		28,474,682		28,439,975

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

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Consolidated Statements of Cash Flows
Three months ended March 31, 2003 and 2002
(Expressed in U.S. Dollars)
		March 31, 2003		March 31, 2002
Cash flows from (used in) operating activities
Net loss for the period	$	(142,891)	$	(35,042)
Adjustments to reconcile net loss to net cash
Used in operating activities:
- amortization of intangible assets		7,229		-
- bad debt				-
- depreciation of fixed assets		4,013		10,409
- capitalized software development costs		-		-
- gain on sale of subsidiary		-		-
- loss on disposal of fixed assets		-		-
- imputed interest on related party loan		14,756		1,250
- stock-based compensation		-		-
- shares issuance for services		-		-
- write down of intangible asset		-		-
- write off leasehold improvement		-		-
Changes in assets and liabilities:
- accounts receivable		-		(82,945)
- interest receivable		(22,500)		-
- loan receivable		(11,757)		-
- prepaid expenses and deposit		-		20,502
- note receivable related party		(5,238)		-
- accounts payable and accrued liabilities		13,990		27,341
- payroll deductions payable		-		12,486
- player funds on deposit		(4,892)		-
- deferred revenue		(1,289)		-
		(148,579)		(45,999)
Cash flows from (used in) investing activities
Proceeds from disposal of fixed assets		-		-
Increase in software development costs		-		-
Purchase of intellectual property		-		-
Purchase of fixed assets		-		-
		-		-
Cash flows from (used in) financing activities
Shares issued for cash		-		-
Increase (decrease) in demand loan		-		(49,743)
Increase in due from director		147,878		118,650
Proceeds from investor deposit		-		10,000
Proceeds from demand loan - related party		-		-
Proceeds from short-term loans		-		-
		147,878		78,907
Effect of exchange rate changes		-		(5,193)
Decrease in cash and cash equivalents
		(701)		27,715
Cash and cash equivalents, beginning of period		4,253		(16,752)
Cash and cash equivalents (deficiency), end of period	$	3,551	$	10,963

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

CYOP SYSTEMS INTERNATIONAL INCORPORATED 

& SUBSIDIARIES 

Consolidated Statement of Stockholders' Deficiency

Three Months Ended march 31, 2003 

(Unaudited)

(Expressed in U.S. Dollars)

 

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

CYOP SYSTEMS INTERNATIONAL INCORPORATED
Consolidated Statements of Operations
Three months ended March 31, 2002 and 2001
(Expressed in U.S. Dollars)
		March 31, 2003		March 31, 2002
Revenue
Sale - Crediplay - related party (Note 7)	$	1,289	$	257,852
Sale - Crediplay		-		15,210
License fees related party		-		-
Service fees		13,119		-
Banking fees		580		-
		14,988		273,062
Cost of sales		41,422		138,904
Gross profit		(26,434)		134,158
Sales and marketing expenses		62,495		11,733
Loan interest expense		-		13,359
Software development costs		-		94,368
General and administrative expenses
Accounting and audit		-		-
Amortization of intangible assets		7,229		-
Automobile		-		9,399
Bad debt		432		-
Bank charges and interest		1,218		-
Commissions		-		-
Depreciation of fixed assets		4,013		622
Filing fees		223
Foreign exchange loss		-		(2,597)
Imputed interest expense - related party		14,756		-
Legal and other professional fees		1,943		2,929
Office and miscellaneous		2,619		165
Rent		8,112		4,277
Contractors and consultants fees		32,700		34,599
Stock-based compensation		-		-
Telephone and bandwidth		6,271		346
Travel		2,184		-
		144,195		169,200
Operating loss	$	(170,629)	$	(35,042)
Other income (loss)
Interest income related party		27,738		-
Write down of intangible assets		-		-
Write off of leasehold improvement		-		-
Loss on disposal of fixed assets		-		-
Gain on disposal of subsidiary		-		-
Net income (loss) for the period	$	(142,891)	$	(35,042)
Earning (loss) per share - basic and diluted	$	(0.00)		(0.00)
Weighted average number of common
shares outstanding - basic and diluted		28,474,682		28,439,975
The accompanying notes are an integral part of these financial statements.

CYOP SYSTEMS INTERNATIONAL INCORPORATED
Consolidated Statements of Cash Flows
Three months ended March 31, 2003 and 2002
(Expressed in U.S. Dollars)
		March 31, 2003		March 31, 2002
Cash flows from (used in) operating activities
Net loss for the period	$	(142,891)	$	(35,042)
Adjustments to reconcile net loss to net cash
Used in operating activities:
- amortization of intangible assets		7,229		-
- bad debt				-
- depreciation of fixed assets		4,013		10,409
- capitalized software development costs		-		-
- gain on sale of subsidiary		-		-
- loss on disposal of fixed assets		-		-
- imputed interest on related party loan		14,756		1,250
- stock-based compensation		-		-
- shares issuance for services		-		-
- write down of intangible asset		-		-
- write off leasehold improvement		-		-
Changes in assets and liabilities:
- accounts receivable		-		(82,945)
- interest receivable		(22,500)		-
- loan receivable		(11,757)		-
- prepaid expenses and deposit		-		20,502
- note receivable related party		(5,238)		-
- accounts payable and accrued liabilities		13,990		27,341
- payroll deductions payable		-		12,486
- player funds on deposit		(4,892)		-
- deferred revenue		(1,289)		-
		(148,579)		(45,999)
Cash flows from (used in) investing activities
Proceeds from disposal of fixed assets		-		-
Increase in software development costs		-		-
Purchase of intellectual property		-		-
Purchase of fixed assets		-		-
		-		-
Cash flows from (used in) financing activities
Shares issued for cash		-		-
Increase (decrease) in demand loan		-		(49,743)
Increase in due from director		147,878		118,650
Proceeds from investor deposit		-		10,000
Proceeds from demand loan - related party		-		-
Proceeds from short-term loans		-		-
		147,878		78,907
Effect of exchange rate changes		-		(5,193)
Decrease in cash and cash equivalents		(701)		27,715
Cash and cash equivalents, beginning of period		4,253		(16,752)
Cash and cash equivalents (deficiency), end of period	$	3,551	$	10,963
The accompanying notes are an integral part of these financial statements.

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Three months ended March 31, 2003

(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.

CYOP Barbados was incorporated under the laws of Barbados on June 20, 2000. On August 31, 2000, CYOP Barbados acquired 100% of the issued and outstanding shares of Moshpit Entertainment Inc., Canada (“Moshpit”), a company incorporated under the laws British Columbia, Canada. CYOP Barbados sold 100% of the issued and outstanding shares of Moshpit by an agreement dated April 1, 2002 to a former stockholder and the sole director (see Note 8).

The Company, and its subsidiary, is a provider of multimedia transactional technology solutions and services for the entertainment industry.   The Company’s range of products and services include financial transaction platforms for on-line video games and integrated e-commerce transaction technology for on-line merchants.  These services are considered as one segment only based on internal organizational structure.

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 is to raise equity financing as required and keep abreast with the multimedia technology. These consolidated financial statements do not include any adjustments that might result from this uncertainty.

2.

Significant Accounting Policies

(a)

Basis of Consolidation

These 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 subsidiary CYOP Barbados. Significant inter-company accounts and transactions have been eliminated.

2.

Significant Accounting Policies (continued)

(b)

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.

(c)

Cash Equivalents

Cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturity of three months or less when purchased.

(d)

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

(e)

Revenue recognition

The Company derives revenue from providing services on software development and online internet transaction platform maintenance. Service revenues are recognized when services have been performed and delivered in accordance with service agreements, the Company has no significant remaining performance requirements, there are no material uncertainties regarding customer acceptance and collection of the resulting receivable is deemed probable.

(f)

Software Development Costs

Software development costs incurred prior to the establishment of technological feasibility 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 year period ended March 31, 2003 amounted to $62,495 (2002 - $11,733).

.

2.

Significant Accounting Policies (continued)

(h)

Foreign Currency Transactions

The Company and CYOP Barbados maintain their accounting records in their functional currency.  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)

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.

(j)

Long-Lived Assets Impairment

Effective January 1, 2002, certain long-term assets of the Company are reviewed when changes in circumstances require consideration as to whether their carrying value has become impaired pursuant to guidance established in Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  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.  Prior to January 1, 2002, the Company evaluated long-term assets of the Company in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.  The adoption of SFAS No. 144 did not have a material effect on the consolidated financial statements.

2.

Significant Accounting Policies (continued)

(k)

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.

The carrying value of cash and cash equivalents, interest receivable, note receivable, demand loans, accounts payable and accrued liabilities, player funds on deposit and short-term loans approximate their fair values because of the short-term maturity of these instruments.

Financial instruments that potentially subject the Company to concentration of credit risk consist of interest receivable and note receivable, the balances of which are stated on the balance sheet. The Company performs ongoing credit evaluations of its debtors and maintains allowances for possible losses with, when realized, have been within the range of management’s expectations.   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.

(l)

Accounting for Derivative Instruments and Hedging Activities

The Financial Accounting Standards Board (“FASB”) issued SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. 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 designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

As at March 31, 2003, the Company has not entered into any derivative contracts either to hedge existing risks or for speculative purposes.

(m)

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 incorporates the incremental shares issuable upon the assumed exercise of stock options and other dilutive securities. Diluted income (loss) per share is equal to the basic income (loss) per share as the stock options to acquire 25,000 common shares that are outstanding at March 31, 2003 are not dilutive.

2.

Significant Accounting Policies (continued)

(o)

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.

(p)

New Accounting Pronouncements

In April 2002, the Financial Accounting Standard Board issued Statement of Financial Accounting Standard No. 145 (SFAS No. 145), Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.  The rescission of SFAS No. 4, Reporting Gains and Losses from Extinguishments, and SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking Fund Requirements, which amended SFAS No. 4, will affect income statement classification of gains and losses from extinguishment of debt.  SFAS No. 145 is effective for fiscal years beginning January 1, 2002.  The adoption of SFAS No. 145 will not have an impact on the Company’s financial statements.

In June 2002, the Financial Accounting Standard Board issued Statement of Financial Accounting Standard No. 146 (SFAS No. 146), Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issued No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.  SFAS No. 146 generally requires a liability for a cost associated with an exit or disposal activity to be recognized and measured initially at its fair value in the period in which the liability is incurred.  The pronouncement is effective for exit or disposal activities initiated after December 31, 2002.  The adoption of SFAS No. 146 will not have an impact on the Company’s financial statements.

In December 2002, the Financial Accounting Standard Board issued Statement of Financial Accounting Standard No. 148 (SFAS No. 148), Accounting for Stock-based Compensation - Transition and Disclosure.  SFAS No. 148 amends SFAS No. 123, Accounting for Stock-based Compensation, to provide alternative methods for voluntary transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation.  SFAS No. 148 also requires disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income (loss) and earnings (loss) per share in annual and interim financial statements.  SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The adoption of SFAS No. 148 will not have an impact on the Company’s financial statements.

2.

Significant Accounting Policies (continued)

In November 2002, the Financial Accounting Standard Board issued FASB Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of indebtedness of Others - An Interpretation of FASB Statements of No. 5, 57 and 107 and rescission of FASB Interpretation No. 34.  This interpretation clarifies the requirements for a guarantor’s accounting for and disclosures of certain guarantees issued and outstanding.  FIN 45 also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee.  FIN 45 is effective for guarantees entered into or modified after December 31, 2002.  The adoption of FIN 45 will not have impact on the Company’s financial statements.

In January 2003, the Financial Accounting Standard Board issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities - An Interpretation of Accounting Research Bulletin (ARB) No. 51.  This interpretation addressed the requirements for business enterprises to consolidate related entities in which they are determined to be the primary economic beneficiary as a result of their variable economic interest.  The interpretation is intended to provide guidance in judging multiple economic interests in an entity and in determining the primary beneficiary.  The interpretation outlines disclosure requirements for VIEs in existence prior to January 31, 2003, outlines consolidation requirements for VIEs created after January 31, 2003.  The company has reviewed its major commercial relationship and its overall economic interests with other companies consisting of related parties, vendors, loan creditors and other suppliers to determine the extent of its variable economic interest in these parties.  The review has not resulted in a determination that the Company would be judged to be the primary economic beneficiary in any material relationships, or that any material entities would be judged to be Variable Interest Entities of the Company.

3.

Fixed assets

	March 31, 2003
	Cost	Accumulated depreciation	Net book Value
Audio and visual equipment	$ 21,558	$ 9,705	$ 11,853
Computer hardware	60,864	21,454	39,410
Computer software	3,088	3,088	-
Office furniture and equipment	9,227	5,550	3,677
Total

3.  

Fixed Assets   (continued)

	December 31, 2002
	Cost	Accumulated depreciation	Net book Value
Audio and visual equipment	$ 21,558	$    9,081	$    12,477
Computer hardware	60,864	18,259	42,605
Computer software	3,088	3,088	-
Office furniture and equipment	9,227	5,356	3,871
Total		$  35,784	$  58,953

For the period ended March 31, 2003, depreciation expenses charged to cost of service, software development costs and general and administrative expenses were $4,013.

4.

Intangible Assets

On May 21, 2002, the Company terminated the software development agreement and a software licensing, technical support and operation of customer service and data centre agreement with a related company (related by a common director) was terminated. As at that date $240,000 license fees were billed with $200,000 remaining unpaid at May 21, 2002.

In satisfaction of this unpaid amount and in consideration of terminating the agreement the related company assigned all right, title and interest in:

(a)

the Skill-Bingo Patents and the Skill-Bingo Inventions purchased from FYRC Inc.

(b)

the Skill-Bingo game software

(c)

the website located at http://www.bigrbingo.com

(d)

the trademark “BiG’rBingo”

(e)

the BiG’rBingo customer deposits

The above has been collectively recorded as intellectual property with an expected useful life of 5 years.

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”.  This statement requires that intangible assets with an indefinite life are not amortized.  Intangible assets with a definite life are amortized over its useful life or estimated of its useful life.  Indefinite life intangible assets will be tested for impairment annually, and will be tested for impairment between annual tests if any events occurs or circumstances change that would indicate that the carrying amount may be impaired.  Intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset (asset group) may not be recoverable.  An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated non-discounted cash flows used in determining the fair value of the assets.  The amount of the impairment loss to be recorded is calculated by the excess of the assets carrying value over its fair value.

5.

Intangible Assets   (continued)

In accordance with SFAS No. 142, the Company wrote down the acquired intellectual property of $13,719 to its fair value.  The changes in the carrying amount of intellectual property as follows:

		March 31      2003		December 31 2002
Balance, beginning of period	$	115,665	$	-
Intangible assets acquired during the period
- intellectual property		-		158,300
Impairment of intangible assets during the period		-		(13,719)
Fair value		115,665		144,581
Amortization for the period		(7,229)		(28,916)
Balance, end of period	$	108,436	$	115,665

5.

Loans

(a)

Demand Loans

	March 31      2003	December 31 2002
i. Interest at the Bank of Montreal’s prime lending rate of 6.0% plus 1.5% per annum and unsecured:
- Cyber Roads Inc.	$            -	$ 178,519
- Tapijkabouter BV	-	99,157
	-
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
iii. Non-interest bearing and unsecured: - Tapijkabouter BV	-	100,000
Total	$           -	$ 452,676

(a)

5.

Loans   (continued)

(b)

Demand Loans Related Party

	March, 31 2003	December 31 2002
i. Non-interest bearing and unsecured:     - Jack Carley - related to a director and stockholder	$   44,625	$  44,625
-  Mitch White - a director and stockholder	665,491	517,613
Total	$710,116	$ 562,238

(c)

Short-term Loan

	March 31 2003	December 31 2002
i. Interest at 40% per annum, due on January 25, 2002:
- Kornfeld MacOff (Cdn$25,000)	$ -	$            -
ii. Interest at 10% per annum, due on June 1, 2002:
- RedRuth Ventures	212,725	212,725
Total	$ 212,725	$212,725

6.

Sale and License-back of Computer Software

On December 14, 2001, the Company sold computer software identified as Crediplay System to the sole director and a major stockholder and creditor of the Company for $3,000,000. The purchase price was settled by retiring $1,200,000 of debt owed to the purchaser and a promissory note for $1,800,000. The promissory note bears interest at 5% per annum with maturity on December 14, 2010.  The promissory note is secured through a first priority lien and security interest in the Crediplay System and amount due to Mr. Mitch White (the “Purchaser”) totalling $517,613 (2001 - nil).  As at December 31, 2001, the present value of the promissory note is $1,565,452, with discount rate at 7% per annum. As at December 31, 2002, the present value of the promissory note is $1,585,034 after calculating at the discount of 7% and accruing interest at 5%. Interest receivable was calculated at 1,800,000 X 5% or $90,000.   

Pursuant to a Marketing, Development and Distribution Agreement entered into on the same date, the Crediplay System was licensed back to the Company for a term of 15 years. A licensing fee payable will be calculated on Gross Earnings derived from the Crediplay System as follows:

2002	Gross Earnings x 20%
2003	Gross Earnings x 17%
2004	Gross Earnings x 15%
2005 to 2017	Gross Earnings x 10%

The development costs of the Crediplay System expended by the Company amounted to approximately $1,273,406 of which $778,348 was expensed previously.  Management of the Company has estimated the $3,000,000 value based on the discounted future cash flow projection and the estimate provided by knowledgeable parties of the software.

The gain on the sale of the Crediplay System is calculated as follows:

Sales price
Retirement of loan due to the purchaser	$	1,200,000
Present value of $1,800,000    promissory note discounted at 7% per annum		1,565,452
		2,765,452
Software development costs incurred in 2001		(495,058)
Deferred gain 2001	$	2,270,394
Accumulated gain recognized		(73,131)
Deferred gain as at March 31, 2003	$	2,197,263

The 2001 deferred gain of $2,270,394 will be amortized in proportion to the licensing fees payable over the term of the agreement.

2.

7.

Related Party Transactions

Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows:

(a)

During the period ending March 31, 2003, the Company accrued imputed interest of $14,756 at an interest rate of 10% per annum on interest-free loan totalling $710,116 from a director and stockholder of the Company and an individual related to a director and stockholder of the Company.  

(b)

Interest expenses of $nil was paid to a director and a stockholder of the Company.

(c)

Interest receivable of $22,500 was booked as 5% on the $1,800,000 promissory note from a director of the company in connection with the sale and license back of software.  (see note 7)

(d)       See Note 4, and 5 (b)

1.

8.

Income Taxes

As at March 31, 2003 the Company has non-capital losses and undepreciated capital cost of approximately $1,629,000 and $40,000, respectively, 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 2009.

The tax effect of temporary differences that give rise to the Company’s deferred tax assets are as follows:

	March 31 2003	December 31 2002
Undepreciated capital cost of capital assets over their net book value	14,000	13,000
Estimated tax loss carryforwards	570,000	520,000
Less: valuation allowance	(584,000)	(533,000)
	-	-

The valuation allowance reflects the realization of the tax assets is uncertain.

9.

Stock Option  

The following is a summary of the stock option outstanding as at March 31, 2003:

	Shares	Weighted Average Exercise Price
Options outstanding at March  31, 2002	25,000	$ 1.00

Options Outstanding and Exercisable
Range of Exercise Prices	Number Outstanding and Exercisable	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$0 - $1.00	25,000	2.42	$1.00

10.

Geographic Information

All the Company’s operations and fixed assets are located in Canada.

11.

Legal Proceedings

As filed on the Company’s Form 8-k on August 20, 2002 reporting the sale of the wholly-owned subsidiary, Moshpit Entertainment Inc., former employees filed complaints under the Employment Standards Act , R.S.B.C. 1996, c. 113 with the Employment Standards Branch  of British Columbia. The former wholly owned subsidiary settled these complaints as at March 20, 2003.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following management's discussion and analysis 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 three months ended March 31, 2003.  This quarterly report contains certain forward-looking statements and the Company's future operation results could differ materially from those discussed herein.

We were incorporated on October 29, 1999 under the laws of the State of Nevada as Triple 8 Development Corporation to engage in any lawful corporate purpose.  We changed our name to CYOP Systems International Incorporated on October 30, 2000.

We have not been involved in any bankruptcy, receivership or similar proceedings.

We have been primarily focused on developing our product for market launch.  Management has financed most of 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 and/or until we have positive cash flow.  We will satisfy cash requirements solely from funds loaned by management or family and friends or private investors.  However, management is not under any contractual obligation to provide continued funding.  We will spend approximately $1/2 million in the next 12 months to maintain current operations at our current expenditure rate; not including any marketing initiatives or expansion plans. Additional funds in the amount of $1.5 million will be required for a complete launch of the Crediplay system including a full marketing budget.

We anticipate contracting human resources as required 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.  

In September 2002, we launched a suite of free and “pay for play” games including card, strategy, arcade, sports and multiplayer games, terminating our licensing contract with Bingo.com.  The Bingo.com contract called for our company to provide front end game development and site management.  It was also a licensing agreement under which Bingo.com used 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 began using CYOP's pay for play transaction software in October 2001. Our proprietary site www.skillarcade.com as at December 31, 2002 has about 100,000 members.

In order for our Company to expand it's operations and realize profits from pay for play online video gaming we are actively signing up affiliate company’s and pursuing strategic acquisitions that bring internet traffic and more games to be integrated into our existing suite of games. Until we increase our Company's exposure and attract players to our website and/or complete strategic acquisitions 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 that already have an established community and significant traffic to their web sites.  We are also continuing 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.

Liquidity and Capital Resources

At March 31, 2003 the Company had a working capital deficit of $(988,392) with the deficiency arising primarily from $710,116 in loans from directors, compared to a working capital deficit of  ($864,973) at March 31, 2002 to satisfy requirements for operations for the same period ending March 31, 2002. No assurances can be given that the Company will successful in realizing sufficient funding to continue operations. While development of the Crediplay system is complete and operational very little cash is available to begin the process of marketing and promoting the Crediplay system.

Deterioration of funding sources for internet based businesses has continued into the calendar year 2003 creating financial stresses for the Company. Operations have continued with funding from management. Funding will continue from management for baseline operations. The Company plans to raise capital during 2003.

The Company’s consolidated financial statements have been prepared on a continuing operation basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

Management recognizes that the Company must generate additional investment in a timely manner to maintain operations. The Company plans to seek private placements of equity capital to fund its operations but has no commitments at date of this report for funding.

As of March 31, 2003, there were no material commitments for capital expenditures.

Results of operations for the quarter ended March 31, 2003 as compared to the quarter ended March 31, 2002.

For the quarter ended March 31, 2003 the Company generated revenue of $14,988, from operations. The same period ending March 31, 2002 generated revenues of $273,062 primarily from one development contract with Bingo.com. Current revenues are now from a wide variety of affiliates and the company’s proprietary URL.  The Company had general and administrative expenses of $81,700 for the period compared with $63,099 for the same three month period in 2002. Software development costs were NIL for the period and $94,368 for the period ending March 31, 2002. This is indicative of completion of development. Advertising and promotion  was, $62,495 compared to $11,733 in 2002. This trend will continue as the company now moves to a stage of marketing its intellectual property.

"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

Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)

Reports on Form 8-K

Nil

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:  May 13, 2003                                

Per:

/s/ Mitch White                                                

Mitch White, CEO and Director