SB-2

As filed with the Securities and Exchange Commission on March 1, 2004

Registration No. _________

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Nevada	CYOP SYSTEMS INTERNATIONAL INCORPORATED		98-0222927
(State of Incorporation )	(Name of Registrant in Our Charter)		(I.R.S. Employer Identification No.)
Suite 390	7373		Suite 390
1090 Homer Street	(Primary Standard Industrial Classification Code Number)		1090 Homer Street
Vancouver, British Columbia			Vancouver, British Columbia
V6B 2W9			V6B 2W9
Canada			Canada
(604) 685-0696			(604) 685-0696
(Address and telephone number of Principal Place of Business)			(Name, address and telephone number of agent for service)
Copies to:
Clayton E. Parker, Esq. Kirkpatrick & Lockhart LLP 201 S. Biscayne Boulevard, Suite 2000 Miami, Florida 33131 (305) 539-3300 Telecopier No.: (305) 358-7095		Troy J. Rillo, Esq. Kirkpatrick & Lockhart LLP 201 S. Biscayne Boulevard, Suite 2000 Miami, Florida 33131 (305) 539-3300 Telecopier No.: (305) 358-7095

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE

Title Of Each Class Of Securities To Be Registered	Amount To Be Registered	Proposed Maximum Offering Price Per Share(1)	Proposed Maximum Aggregate Offering Price(1)	Amount Of Registration Fee
Common stock	137,812,500	$0.03	$4,134,375	$523.83

(1)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933.  For the purposes of this table, we have used the average of the closing bid and asked prices as of current date.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

MI-152254 v4 0950000-102

PROSPECTUS

Subject to completion, dated March 1, 2004

CYOP SYSTEMS INTERNATIONAL INCORPORATED
137,812,500 Shares of Common Stock

This prospectus relates to the sale of up to 137,812,500 shares of CYOP's common stock by certain persons who are, or will become, stockholders of CYOP. Please refer to "Selling Stockholders" beginning on page 11. CYOP is not selling any shares of common stock in this offering and therefore will not receive any proceeds from this offering. CYOP will, however, receive proceeds from the sale of common stock under the standby equity distribution agreement. All costs associated with this registration will be borne by CYOP.

The shares of common stock are being offered for sale by the selling stockholders at prices established on the Over-the-Counter Bulletin Board during the term of this offering.  On February 12, 2004, the last reported sale price of our common stock was $0.03 per share. Our common stock is quoted on the Over-the-Counter Bulletin Board under the symbol "CYOS."  These prices will fluctuate based on the demand for the shares of common stock.

Cornell Capital Partners, L.P. is an "underwriter" within the meaning of the Securities Act of 1933 in connection with the sale of common stock under the standby equity distribution agreement Agreement. Cornell Capital Partners, L.P. will pay CYOP 98% of the lowest closing bid price of the common stock during the 5 consecutive trading-day period immediately following the notice date.

Brokers or dealers effecting transactions in these shares should confirm that the shares are registered under the applicable state law or that an exemption from registration is available.

These securities are speculative and involve a high degree of risk.

Please refer to "Risk Factors" beginning on page 5.

With the exception of Cornell Capital Partners, L.P., which is an "underwriter" within the meaning of the Securities Act of 1933, no other underwriter or person has been engaged to facilitate the sale of shares of common stock in this offering. This offering will terminate 24 months after the accompanying registration statement is declared effective by the Securities and Exchange Commission. None of the proceeds from the sale of stock by the selling stockholders will be placed in escrow, trust or any similar account.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is February ___, 2004.

TABLE OF CONTENTS

PROSPECTUS SUMMARY	1
THE OFFERING	2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION	3
RISK FACTORS	5
FORWARD-LOOKING STATEMENTS	10
SELLING STOCKHOLDERS	11
USE OF PROCEEDS	13
DILUTION	14
STANDBY EQUITY DISTRIBUTION AGREEMENT	15
PLAN OF DISTRIBUTION	16
MANAGEMENT'S DISCUSSION AND ANALYSIS	18
DESCRIPTION OF BUSINESS	23
MANAGEMENT	31
DESCRIPTION OF PROPERTY	34
LEGAL PROCEEDINGS	34
PRINCIPAL STOCKHOLDERS	35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	36
DESCRIPTION OF SECURITIES	39
EXPERTS	41
LEGAL MATTERS	41
HOW TO GET MORE INFORMATION	41
PART II	1
FINANCIAL STATEMENTS	F-1

Our audited financial statements for the fiscal year ended December 31, 2002, were contained in our Annual Report on Form 10-KSB.

i

PROSPECTUS SUMMARY

CYOP develops and distributes financial transaction platforms.  Its first branded platform is CrediPlay, which CYOP licenses to gaming communities and portals to offer additional revenue sources through pay-for-play tournaments of skill.  CYOP also markets its proprietary website, www.skillarcade.com.  SkillArcade.com is an online games destination where people play popular skill-based games against other players and compete in tournaments to win money prizes.  This website permits game developers and publishers to process transactions and collect fees each time a tournament or game is played.  CYOP earns a fee for processing these transactions.

CYOP has suffered recurring losses from operations and had a stockholders' deficiency of $1,499,037 as of September 30, 2003.  For the three- and nine-month periods ended September 30, 2003, CYOP had net losses of $55,624 and $281,515, respectively.  CYOP's chartered accountants have added an explanatory note to their audit report raising substantial doubt about CYOP's ability to continue as a going concern.  The ability of CYOP to continue as a going concern is dependent upon many factors, including CYOP's ability to obtain financing to fund working capital requirements, the degree of competition, technology risks, government regulation (such as the legality of its gaming website) and general economic conditions.  Management's plan, in this regard, is to raise equity financing as required and to keep abreast of technological and regulatory changes that may affect CYOP's operations.

About Us

CYOP's principal place of business is located at 1090 Homer Street, Suite 390, Vancouver, British Columbia  V6B 2W9.  Its telephone number is (604) 685-0696.

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THE OFFERING

This offering relates to the sale of common stock by Cornell Capital Partners, L.P. and Newbridge Securities Corporation.  Cornell Capital Partners will acquire the shares being offered in this prospectus:  (i) upon conversion of outstanding debentures and (ii) pursuant to an standby equity distribution agreement.  The terms of these are summarized below:

Convertible Debentures.  We currently have $125,000 of outstanding convertible debentures that are convertible into shares of common stock at a price equal to equal to either (a) an amount equal to one hundred twenty percent (120%) of the closing bid price of the common stock as of the closing date or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the common stock for the five trading days immediately preceding the conversion date.  The convertible debentures are secured by all of CYOP's assets.

Standby equity distribution agreement.  Pursuant to the standby equity distribution agreement, we may, at our discretion, periodically issue and sell to Cornell Capital Partners, L.P. shares of common stock for a total purchase price of $5.0 million. The amount of each advance is subject to an aggregate maximum advance amount of $70,000 every 7 trading days. Cornell Capital Partners will pay us 98% of the lowest closing bid price of the common stock during the 5 consecutive trading days immediately following the notice date. We have paid Cornell Capital Partners a one-time commitment fee of $240,000, payable by the issuance of 7,500,000 shares of common stock. In addition, Cornell Capital Partners will be entitled to retain 4% of each advance under the standby equity distribution agreement. Cornell Capital Partners intends to sell any shares purchased under the standby equity distribution agreement at the then prevailing market price. Among other things, this prospectus relates to the shares of common stock to be issued under the standby equity distribution agreement.

We have engaged Newbridge Securities Corporation, a registered broker-dealer, to advise us in connection with the standby equity distribution agreement. Newbridge Securities Corporation was paid a fee of $10,000, payable by the issuance of 312,500 shares of our common stock. Newbridge Securities Corporation is not participating as an underwriter in this offering.

Common Stock Offered	137,812,500 shares by selling stockholders
Offering Price	Market price
Common Stock Outstanding Before the Offering	150,998,160 shares
Use of Proceeds	We will not receive any proceeds from the shares offered by the selling stockholders. Any proceeds we receive from the sale of common stock under the standby equity distribution agreement will be used for general working capital purposes. See "Use of Proceeds."
Risk Factors	The securities offered hereby involve a high degree of risk and immediate substantial dilution. See "Risk Factors" and "Dilution."
Over-the-Counter Bulletin Board Symbol	CYOS

2

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The summary financial information set forth below is derived from and should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this prospectus.

	Three Months Ended		Nine Months Ended
	September 30, 2003	September 30, 2002	September 30 2003	September 30, 2002
Income Statements	(Unaudited)		(Unaudited)
Revenues, net	$             4,466	$           34,359	$           26,848	$        460,778
Cost of Sales	(36,860)	(48,157)	(120,844)	(269,556)
Gross Profit (Loss)	(33,236)	(13,798)	(94,838)	191,222
Operating Expenses	(44,888)	(165,955)	(259,415)	(552,986)
Operating Income (Loss)	(78,124)	(179,753)	(354,253)	744,208
Interest Income, Related Party	22,500	44,947	72,378	89,894
Net Income (Loss)	$         (55,624)	$      (134,806)	$      (281,515)	$        834,102
Earnings (Loss) Per Share - Basic and Diluted	$(0.00)	$(0.00)	$(0.00)	$0.01

	Years Ended December 31,
	2002	2001
Revenues, Net:	$545,123	$512,930
Cost of Sales	(209,518)	(300,647)
Gross Profit (Loss)	335,605	212,283
Operating Expenses	(777,064)	(931,601)
Operating Income (Loss)	(441,459)	(719,318)
Interest Income, Related Party	109,582	--
Gain on Disposal of Subsidiary	949,577	--
Write down of intangible assets	(13,719)	--
Net Income (Loss)	$603,981	$(751,136)
Earnings (Loss) Per Share - Basic and Diluted	$0.02	$(0.03)

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	September 30, 2003	December 31,
Balance Sheets	(Unaudited)	2002
Assets:	$4,355	$4,253
Cash and Cash Equivalents	157,500	90,000
Interest Receivable, Related Party	1,538	--
Total Current Assets	163,394	94,253
Note Receivable, Related Party	1,590,722	1,585,034
Intellectual Property	93,978	115,665
Fixed Assets	83,893	58,953
Total Assets	$1,931,537	$1,853,905
Liabilities:
Demand Loans, Related Party	$786,561	$562,238
Accounts Payable and Accrued Liabilities	208,077	147,480
Player funds on deposit	26,900	36,783
Short-Term Loan	212,725	212,725
Total Current Liabilities	1,234,263	959,226
Deferred Revenue	2,196,311	2,198,552
Total Liabilities	3,430,574	3,157,778
Stockholders' Deficiency:
Common Stock	2,860	2,848
Paid-In Capital	370,889	284,551
Deficit accumulated	(1,872,786)	(1,591,272)
Total Stockholders' Deficiency	(1,499,037)	(1,303,873)
Total Liabilities and Stockholders' Deficiency	$1,931,537	$1,853,905

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RISK FACTORS

We are subject to various risks that may materially harm our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.

Risks Related To Our Business

We Have Historically Lost Money and Losses May Continue In The Future

For the three and nine months ended September 30, 2003, we lost $55,624 and $281,515, respectively. Our accumulated deficit was $1,872,786 at September 30, 2003.  Future losses may occur.

We May Need To Raise Additional Capital and Debt Funding To Sustain Operations

To the extent that we cannot obtain cash in advance or dedicated financing for our products and generate sufficient profits on sales, we are reliant on either term debt financing or sale of equity to obtain cash to pay our employees and suppliers. Thus unless we can become profitable, we will require additional capital to sustain operations and we may need access to additional capital or additional debt financing to grow our sales.

Since inception in 1999, we have relied on external financing to fund our operations. Such financing has historically come from a combination of borrowings and the sale of common stock to related and third parties. We cannot assure you that financing whether from external sources or related parties will be available if needed or on favorable terms. Our inability to obtain adequate financing will result in the need to scale back our business operations. Any of these events could be materially harmful to our business and may result in a lower stock price. We will need to raise additional capital from either the equity market or from debt sources to fund our operating costs, current liabilities and anticipated future expansion.

We Have Been The Subject Of A Going Concern Opinion As Of December 31, 2002 and December 31, 2001 From Our Independent Auditors, Which Means That We May Not Be Able To Continue Operations Unless We Obtain Additional Funding

Our independent auditors have added an explanatory paragraph to their audit opinions issued in connection with our consolidated financial statements for the years ended December 31, 2002 and 2001, which states that our ability to continue as a going concern depends upon our ability to obtain financing to fund working capital requirements, the degree of competition, technology risks, government regulation and general economic conditions.  Our ability to obtain additional funding will determine our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Based on our current budget assessment, and excluding any acquisitions which may occur in 2004, we believe that we may need to obtain approximately $2.0 million in additional debt or equity capital from one or more sources to fund operations fo r the next 12 months.  These funds are expected to be obtained from the sale of securities, including the sale of stock under the standby equity distribution agreement.

We Are Subject To A Working Capital Deficit, Which Means That Our Current Assets On September 30, 2003 Were Not Sufficient To Satisfy Our Current Liabilities

We had a working capital deficit of $1,070,869 at September 30, 2003, which means that our current liabilities as of that date exceeded our current assets on September 30, 2003 by $1,070,869.  Current assets are assets that are expected to be converted to cash within one year and, therefore, may be used to pay current liabilities as they become due. Our working capital deficit means that our current assets on September 30, 2003 were not sufficient to satisfy all of our current liabilities on that date. If our ongoing operations do not begin to provide sufficient profitability to offset the working capital deficit we may have to raise capital or debt to fund the deficit or  reach agreement with some of our creditors to convert debt to equity, or curtail our operations.

5

Our Common Stock May Be Affected By Limited Trading Volume And May Fluctuate Significantly

Prior to this offering, there has been a limited public market for our common stock and there can be no assurance that a more active trading market for our common stock will develop. An absence of an active trading market could adversely affect our shareholders' ability to sell our common stock in short time periods, or possibly at all. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our stock will be stable or appreciate over time.

Our Common Stock Is Deemed To Be "Penny Stock," Which May Make It More Difficult For Investors To Sell Their Shares Due To Suitability Requirements

Our common stock is deemed to be "penny stock" as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline. Penny stocks are stock:

• With a price of less than $5.00 per share;

• That are not traded on a "recognized" national exchange;

• Whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stock must still have a price of not less than $5.00 per share); or

• In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.

We Could Fail To Attract Or Retain Key Personnel

Our success largely depends on the efforts and abilities of key executives and consultants, including Mitch White, our Chairman and Chief Executive Officer, and Gordon Samson, our Chief Financial Officer.  The loss of the services of either officer could materially harm our business because of the cost and time necessary to replace and train a replacement. Such a loss would also divert management attention away from operational issues. We do not presently maintain key-man life insurance policies on either White or Samson.  We also have a number of key employees that manage our operations and, if we were to lose their services, senior management would be required to expend time and energy to replace and train replacements. In addition we need to attract additional high quality sales and consulting personnel. To the extent that we are smaller than our competitors and have fewer resources we may not be able to attract the sufficient number and quality of staff.

Our Limited Operating History Makes It Difficult Or Impossible To Evaluate Our Performance And Make Predictions About Our Future

CYOP commenced its current operations in October 2000, when it acquired CYOP Systems Inc., Barbados.  CYOP will continue to encounter the types of risks, uncertainties and difficulties frequently encountered by companies that pursue both organic as well as growth through acquisitions, including the ability to control overhead costs and professional expenses, and to maintain adequate liquid resources as sales revenues increase. Many of these risks and uncertainties are described in more detail elsewhere in this "Risk Factors" section. If CYOP's management does not successfully address these

6

risks, then its future business prospects will be significantly impeded and a process of reversing investment in certain areas may have to be undertaken.

If We Fail To Keep Pace With Rapid Technological Change And Evolving Industry Standards, Our Products Could Become Less Competitive Or Obsolete

The market for multi-media transactional technology solutions and services are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, intense competition and frequent new product introductions. If we fail to source distribution agreements for saleable products or modify or improve our own products in response to changes in technology or industry standards, our product offerings could rapidly become less competitive or obsolete. A portion of our future success will depend, in part, on our ability to:

• enhance and adapt current software products and develop new products that meet changing customer needs;

• adjust the prices of software applications to increase customer demand;

• successfully advertise and market our products; and

• influence and respond to emerging industry standards and other technological changes.

We need to respond to changing technology and industry standards in a reasonably timely and cost-effective manner. We may not be successful in effectively using new technologies, developing new products or enhancing our existing product lineup on a timely basis. Our pursuit of necessary technology may require time and expense. We may need to license new technologies to respond to technological change. These licenses may not be available to us on terms that give us a profit margin with which to actively pursue reselling these products. Finally, we may not succeed in adapting various products to new technologies as they emerge.

Risks Related To This Offering

Future Sales By Our Stockholders May Adversely Affect Our Stock Price And Our Ability To Raise Funds In New Stock Offerings

Sales of our common stock in the public market following this offering could lower the market price of our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all. Of the 150,998,160 shares of common stock shown as outstanding as of February 10, 2004, 44,990,000 shares are, or will be, freely tradable without restriction, unless held by our "affiliates." The remaining 106,008,160 shares of common stock which will be held by existing stockholders, including the officers and directors, are "restricted securities" and may be resold in the public market only if registered or pursuant to an exemption from registration. Some of these shares may be resold under Rule 144.

Existing Shareholders Will Experience Significant Dilution From Our Sale Of Shares Under The standby equity distribution agreement

The sale of shares pursuant to the standby equity distribution agreement will have a dilutive impact on our stockholders. For example, at September 30, 2003, at an assumed offering price of $0.03 per share, the new stockholders would have experienced an immediate dilution in the net tangible book value of $0.0249 per share. Dilution per share at prices of $0.0225, $0.0150 and $0.0075 per share would be $$0.0204, $0.0158 and $0.0113, respectively.

As a result, our net income per share could decrease in future periods, and the market price of our common stock could decline. In addition, the lower our stock price, the more shares of common stock we will have to issue under the standby equity distribution agreement to draw down the full amount. If our stock price is lower, then our existing stockholders would experience greater dilution.

7

Cornell Capital Partners Under The Line Of Credit Will Pay Less Than The Then-Prevailing Market Price Of Our Common Stock

The common stock to be issued under the standby equity distribution agreement will be issued at a 2% discount to the lowest closing bid price for the 5 days immediately following the notice date of an advance. These discounted sales could cause the price of our common stock to decline.

The Selling Stockholders Intend To Sell Their Shares Of Common Stock In The Market, Which Sales May Cause Our Stock Price To Decline

The selling stockholders intend to sell in the public market the shares of common stock being registered in this offering subject to rule 144 restrictions to affiliates and insiders. That means that up to 137,812,500 shares of common stock may be sold subject to various rules such as 144 and insider trading restrictions. Such sales may cause our stock price to decline. The officers and directors of the company and those shareholders who are significant shareholders as defined by the SEC will continue to be subject to the provisions of various insider trading and rule 144 regulations.

The Sale Of Our Stock Under Our standby equity distribution agreement Could Encourage Short Sales By Third Parties, Which Could Contribute To The Future Decline Of Our Stock Price

In many circumstances the provision of an standby equity distribution agreement for companies that are traded on the OTCBB has the potential to cause a significant downward pressure on the price of common stock. This is especially the case if the shares being placed into the market exceed the market's ability to take up the increased stock or if the company has not performed in such a manner to show that the equity funds raised will be used to grow the company. Such an event could place further downward pressure on the price of common stock. Under the terms of our standby equity distribution agreement CYOP may request numerous draw downs pursuant to the terms of the standby equity distribution agreement. Even if CYOP uses the proceeds from the standby equity distribution agreement to grow its revenues and profits or invest in assets which are materially beneficial to CYOP the opportunity exists for short sellers and others to contribute to the future decline of our stock price. If there are significant short sales of stock, the price decline that would result from this activity will cause the share price to decline more so which in turn may cause other stockholders to sell their shares thereby contributing to sales of stock in the market. If there is an imbalance on the sell side of the market for the stock the price will decline.

It is not possible to predict if the circumstances whereby a short sales could materialize or to what level the share price could drop. In some companies that have been subjected to short sales the stock price has dropped to near zero. This could happen to CYOP.

The Price You Pay In This Offering Will Fluctuate And May Be Higher Or Lower Than The Prices Paid By Other People Participating In This Offering

The price in this offering will fluctuate based on the prevailing market price of the common stock on the Over-the-Counter Bulletin Board. Accordingly, the price you pay in this offering may be higher or lower than the prices paid by other people participating in this offering.

We May Not Be Able To Access Sufficient Funds Under The standby equity distribution agreement When Needed

We are to a great extent dependent on external financing to fund our operations. Our financing needs may be partially provided from the standby equity distribution agreement. No assurances can be given that such financing will be available in sufficient amounts or at all when needed, in part, because we are limited to a maximum draw down of $70,000 every 7 trading days.

The Conversion of Our Outstanding Debentures Will Cause Dilution to Our Existing Shareholders

The issuance of shares upon the conversion of the outstanding debentures will have a dilutive impact on our stockholders.  We currently have $125,000 of outstanding convertible debentures that are convertible into shares of common stock at a price equal to equal to either (a) an amount equal to one hundred twenty percent (120%) of the closing bid price of the common stock as of the closing date or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the common stock for the 5 trading days immediately preceding the conversion date.  If such conversion had taken place at $0.024 (i.e., 80% of the recent price of $0.03), then the holders of the convertible debentures would have received 5,208,333 shares of common stock.  As a result, our net income per share could decrease, in future periods, and the market price of our common stock could decline.  

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FORWARD-LOOKING STATEMENTS

Information included or incorporated by reference in this prospectus may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology.

This prospectus contains forward-looking statements, including statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. These statements may be found under "Management's Discussion and Analysis or Plan of Operations" and "Business," as well as in this prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus will in fact occur.

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SELLING STOCKHOLDERS

The following table presents information regarding the selling stockholders.  A description of each selling shareholder's relationship to CYOP and how each selling shareholder acquired or will acquire the shares to be sold in this offering is detailed in the information immediately following this table.

Selling Stockholder	Shares Beneficially Owned Before Offering	Percentage of Outstanding Shares Beneficially Owned Before Offering (1)	Shares to be Acquired under the standby equity distribution agreement	Percentage of Outstanding Shares to Be Acquired under the standby equity distribution agreement	Shares to be Sold in the Offering	Percentage of Shares Beneficially Owned After Offering(1)
Shares Acquired in Financing Transactions with CYOP, Inc.
Cornell Capital Partners, L.P.	12,708,333(2)	8.1%	100,000,000(2)	39.8%	137,500,000	0.0%
Newbridge Securities Corporation	312,500	*	--	*	312,500	0.0%
Total	13,020,833		100,000,000		137,812,500	0.0%

_________________________________________

*

Less than 1%.

(1)

Applicable percentage of ownership is based on 150,998,160 shares of common stock outstanding as of February 10, 2004, together with securities exercisable or convertible into shares of common stock within 60 days of February 10, 2004.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days of February 10, 2004 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2)

The 12,708,333 shares of common stock represent 7,500,000 shares issued as a commitment fee under the standby equity distribution agreement and 5,208,333 shares that represent the approximate number of shares underlying convertible debentures held by Cornell Capital Partners at an assumed price of $0.024 per share.  Because the conversion price will fluctuate based on the market price of our stock, the actual number of shares to be issued upon conversion of the debentures may be higher or lower.  We are registering a total of 30,000,000 shares to cover such conversions.  To the extent that less than 30,000,000 shares are needed to cover conversions, then the balance of such shares shall be available to be issued under the standby equity distribution agreement.

The following information contains a description of the selling shareholder's relationship to CYOP and how the selling shareholder acquired the shares to be sold in this offering.  The selling stockholder has not held a position or office, or had any other material relationship, with CYOP, except as follows:

Shares Acquired In Financing Transaction With CYOP

• Cornell Capital Partners, L.P. Cornell Capital Partners, L.P. is the investor under the standby equity distribution agreement and the holder of convertible debentures. All investment decisions of Cornell Capital Partners are made by its general partner, Yorkville Advisors, LLC. Mark Angelo, the managing member of Yorkville Advisors, makes the investment decisions on behalf of Yorkville Advisors. Cornell Capital Partners acquired all shares being registered in this offering in financing transactions with CYOP Technology. That transaction is explained below:

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Standby Equity Distribution Agreement. In January 2004, we entered into an standby equity distribution agreement with Cornell Capital Partners, L.P. Pursuant to the standby equity distribution agreement, we may, at our discretion, periodically sell to Cornell Capital Partners shares of common stock for a total purchase price of up to $5.0 million. For each share of common stock purchased under the standby equity distribution agreement, Cornell Capital Partners will pay CYOP 98% of the lowest closing bid price of our common stock on the Over-the-Counter Bulletin Board or other principal market on which our common stock is traded for the 5 days immediately following the notice date. Further, Cornell Capital Partners will retain a fee of 4% of each advance under the standby equity distribution agreement. In connection with the standby equity distribution agreement, Cornell Capital Partners received a commitment fee of $240,000, payable by the issuance of 7,500,000 shares of common stock.  We are reg istering 137,500,000 shares in this offering that may be issued under the standby equity distribution agreement.

Convertible Debentures.  The debentures are convertible at the holder's option any time up to maturity at a conversion price equal to the lower of (i) 120% of the closing bid price of the common stock as of the closing date (ii) 80% of the lowest closing bid price of the common stock for the 5 trading days immediately preceding the conversion date.  At maturity, CYOP has the option to either pay the holder 120% of the outstanding principal balance and accrued interest or to convert the debentures into shares of common stock at a conversion price equal to the lower of (i) 120% of the closing bid price of the common stock as of the closing date or (ii) 80% of the lowest closing bid price of the common stock for the lowest trading days of the 5 trading days immediately preceding the conversion date.  The convertible debentures are secured by all of CYOP's assets.  In the event the debentures are redeemed, then CYOP will issue to Cornell a warrant to purchase 50,000 shares for every $100,000 redeemed at an exercise price of  $0.036 per share.  Cornell Capital Partners purchased the convertible debentures from CYOP in a private placement in January 2004.  CYOP is registering in this offering 30,000,000 shares of common stock underlying the convertible debentures.

There Are Certain Risks Related To Sales By Cornell Capital Partners

There are certain risks related to sales by Cornell Capital Partners, including:

• The outstanding shares are issued based on discount to the market rate. As a result, the lower the stock price around the time Cornell is issued shares, the greater chance that Cornell gets more shares. This could result in substantial dilution to the interests of other holders of common stock.

• To the extent Cornell sells its common stock, the common stock price may decrease due to the additional shares in the market. This could allow Cornell to sell greater amounts of common stock, the sales of which would further depress the stock price.

• The significant downward pressure on the price of the common stock as Cornell sells material amounts of common stocks could encourage short sales by Cornell or others. This could place further downward pressure on the price of the common stock.

• Newbridge Securities Corporation.  Newbridge Securities Corporation is a registered broker-dealer that we engaged to advise us in connection with the standby equity distribution agreement.  Guy Amico makes the investment decisions on behalf of Newbridge Securities Corporation.  We paid Newbridge Securities Corporation a fee of $10,000 for such advice, payable by the issuance of 312,500 shares of common stock.  CYOP is registering these shares in this offering.

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USE OF PROCEEDS

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders.  There will be no proceeds to us from the sale of shares of common stock in this offering. However, we will receive the proceeds from the sale of shares of common stock to Cornell Capital Partners, L.P. under the standby equity distribution agreement. The purchase price of the shares purchased under the standby equity distribution agreement will be equal to 98% of the lowest closing bid price of our common stock on the Over-the-Counter Bulletin Board for the 5 days immediately following the notice date. CYOP will pay Cornell Capital 4% of each advance as an additional fee.

CYOP is registering 100,000,000 shares of common stock for issuance under the standby equity distribution agreement. At a recent price of $0.03 per share, CYOP would receive gross proceeds of $3.0 million.

For illustrative purposes, we have set forth below our intended use of proceeds for the range of net proceeds indicated below to be received under the standby equity distribution agreement. The table assumes estimated offering expenses of $50,000 plus 4% retainage payable to Cornell Capital Partners.

USE OF PROCEEDS:
Gross Proceeds	$3,000,000	$5,000,000
Net Proceeds	2,880,000	4,800,000
Working Capital	1,000,000	1,500,000
Marketing	1,880,000	3,300,000
Total	$2,880,000	$4,800,000

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DILUTION

The net tangible book value of our Company as of September 30, 2003 was $(1,593,015) or $(0.0111) per share of common stock. Net tangible book value per share is determined by dividing the tangible book value of our Company (total tangible assets less total liabilities) by the number of outstanding shares of our common stock. Since this offering is being made solely by the selling stockholders and none of the proceeds will be paid to our Company, our net tangible book value will be unaffected by this offering. Our net tangible book value, however, will be impacted by the common stock to be issued under the standby equity distribution agreement. The amount of dilution will depend on the offering price and number of shares to be issued under the standby equity distribution agreement. The following example shows the dilution to new investors at an offering price of $0.03 per share which is in the range of the recent share price.

If we assume that our Company had issued 100,000,000 shares of common stock under the standby equity distribution agreement at an assumed offering price of $0.03 per share (i.e., the number of shares registered in this offering under the standby equity distribution agreement), less retention fees of $120,000 and offering expenses of $50,000, our net tangible book value as of September 30, 2003 would have been $0.0051 per share. Note that at an offering price of $0.03 per share, CYOP would receive gross proceeds of $3.0 million or $2.0 million than is available under the standby equity distribution agreement.  Such an offering would represent an immediate increase in net tangible book value to existing stockholders of $0.0162 per share and an immediate dilution to new stockholders of $0.0249 per share. The following table illustrates the per share dilution:

Assumed public offering price per share		$0.0300
Net tangible book value per share before this offering	$(0.0111)
Increase attributable to new investors	$0.0162
Net tangible book value per share after this offering		$0.0051
Dilution per share to new stockholders		$0.0249

The offering price of our common stock is based on the then-existing market price. In order to give prospective investors an idea of the dilution per share they may experience, we have prepared the following table showing the dilution per share at various assumed offering prices:

ASSUMED OFFERING PRICE	NO. OF SHARES TO BE ISSUED (1)	DILUTION PER SHARE TO NEW INVESTORS
$0.0300	100,000,000	$0.0249
$0.0225	100,000,000	$0.0204
$0.0150	100,000,000	$0.0158
$0.0075	100,000,000	$0.0113

(1)

This represents the maximum number of shares of common stock that will be registered under the standby equity distribution agreement.

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STANDBY EQUITY DISTRIBUTION AGREEMENT

Summary. In February 2004, we entered into an standby equity distribution agreement with Cornell Capital Partners, L.P. Pursuant to the standby equity distribution agreement, we may, at our discretion, periodically sell to Cornell Capital Partners shares of common stock for a total purchase price of up to $5.0 million. For each share of common stock purchased under the standby equity distribution agreement, Cornell Capital Partners will pay 98% of the lowest closing bid price of our common stock on the Over-the-Counter Bulletin Board or other principal market on which our common stock is traded for the 5 days immediately following the notice date. Cornell Capital Partners is a private limited partnership whose business operations are conducted through its general partner, Yorkville Advisors, LLC. Further, Cornell Capital Partners will retain a fee of 4% of each advance under the standby equity distribution agreement. In addition, we engaged Newbridge Securities Corporation, a registered broker-dealer, to advise us in connection with the standby equity distribution agreement. For its services, Newbridge Securities Corporation received a fee of $10,000, payable by the issuance of 312,500 shares of our common stock.  CYOP is registering an additional 100,000,000 shares of common stock for the standby equity distribution agreement pursuant to this registration statement. The costs associated with this registration will be borne by us. There are no other significant closing conditions to draws under the standby equity distribution agreement.

Standby equity distribution agreement Explained. Pursuant to the standby equity distribution agreement, we may periodically sell shares of common stock to Cornell Capital Partners, L.P. to raise capital to fund our working capital needs. The periodic sale of shares is known as an advance. We may request an advance every 10 trading days. A closing will be held 7 trading days after such written notice at which time we will deliver shares of common stock and Cornell Capital Partners, L.P. will pay the advance amount. There are no closing conditions for any of the draws other than the written notice and associated correspondence.

We may request advances under the standby equity distribution agreement once the underlying shares are registered with the Securities and Exchange Commission. Thereafter, we may continue to request advances until Cornell Capital Partners has advanced $5.0 million or 24 months after the effective date of the accompanying registration statement, whichever occurs first.

The amount of each advance is limited to a maximum draw down of $70,000 every 7 trading days. The amount available under the standby equity distribution agreement is not dependent on the price or volume of our common stock. Our ability to request advances is conditioned upon us registering the shares of common stock with the SEC. In addition, we may request advances if the shares to be issued in connection with such advances would result in Cornell Capital Partners owning more than 9.9% of our outstanding common stock. We do not have any agreements with Cornell Capital Partners regarding the distribution of such stock, although Cornell Capital Partners has indicated that intends to promptly sell any stock received under the standby equity distribution agreement.

We cannot predict the actual number of shares of common stock that will be issued pursuant to the standby equity distribution agreement, in part, because the purchase price of the shares will fluctuate based on prevailing market conditions and we have not determined the total amount of advances we intend to draw. Nonetheless, we can estimate the number of shares of our common stock that will be issued using certain assumptions. Assuming we issued the number of shares of common stock being registered in the accompanying registration statement at a recent price of $0.03 per share, we would issue 100,000,000 shares of common stock to Cornell Capital Partners, L.P. for gross proceeds of $3.0 million. These shares would represent 39.8% of our outstanding common stock upon issuance. We are registering 100,000,000 shares of common stock for the sale under the standby equity distribution agreement.

Proceeds used under the standby equity distribution agreement will be used in the manner set forth in the "Use of Proceeds" section of this prospectus. We cannot predict the total amount of proceeds to be raised in this transaction because we have not determined the total amount of the advances we intend to draw.

We expect to incur expenses of approximately $50,000 in connection with this registration, consisting primarily of professional fees. In connection with the standby equity distribution agreement, we paid Cornell Capital Partners a one-time commitment fee of $240,000, payable by the issuance of 7,500,000 shares of common stock.  In addition, we issued 312,500 shares of common stock to Newbridge Securities Corporation, a registered broker-dealer, as a placement agent fee.

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PLAN OF DISTRIBUTION

The selling stockholders have advised us that the sale or distribution of our common stock owned by the selling stockholders may be effected directly to purchasers by the selling stockholders or by pledgees, transferees or other successors in interest, as principals or through one or more underwriters, brokers, dealers or agents from time to time in one or more transactions (which may involve crosses or block transactions) (i) on the over-the-counter market or in any other market on which the price of our shares of common stock are quoted or (ii) in transactions otherwise than on the over-the-counter market or in any other market on which the price of our shares of common stock are quoted. Any of such transactions may be effected at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at varying prices determined at the time of sale or at negotiated or fixed prices, in each case as determined by the selling stockholders or by agreement between the selling stockholders and underwriters, brokers, dealers or agents, or purchasers. If the selling stockholders effect such transactions by selling their shares of common stock to or through underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of common stock f or whom they may act as agent (which discounts, concessions or commissions as to particular underwriters, brokers, dealers or agents may be in excess of those customary in the types of transactions involved). The selling stockholders and any brokers, dealers or agents that participate in the distribution of the common stock may be deemed to be underwriters, and any profit on the sale of common stock by them and any discounts, concessions or commissions received by any such underwriters, brokers, dealers or agents may be deemed to be underwriting discounts and commissions under the Securities Act.

Cornell Capital Partners is an "underwriter" within the meaning of the Securities Act of 1933 in connection with the sale of common stock under the standby equity distribution agreement. Cornell Capital Partners will pay us 98% of the lowest closing bid price of our common stock on the Over-the-Counter Bulletin Board or other principal trading market on which our common stock is traded for the 5 days immediately following the advance date. In addition, Cornell Capital Partners will retain 4% of the proceeds received by us under the standby equity distribution agreement, and received a one-time commitment fee of 7,500,000 shares of our common stock.  The 2% discount, the 4% retention and the one-time commitment fee are underwriting discounts. In addition, we engaged Newbridge Securities Corporation, a registered broker-dealer, to advise us in connection with the standby equity distribution agreement. For its services, Newbridge Securities Corporation received 312,500 shares of our common stock.

Cornell Capital Partners, L.P. was formed in February 2000 as a Delaware limited partnership. Cornell Capital Partners is a domestic hedge fund in the business of investing in and financing public companies. Cornell Capital Partners does not intend to make a market in our stock or to otherwise engage in stabilizing or other transactions intended to help support the stock price. Prospective investors should take these factors into consideration before purchasing our common stock.

Under the securities laws of certain states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. The selling stockholders are advised to ensure that any underwriters, brokers, dealers or agents effecting transactions on behalf of the selling stockholders are registered to sell securities in all fifty states. In addition, in certain states the shares of common stock may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

We will pay all the expenses incident to the registration, offering and sale of the shares of common stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. We have agreed to indemnify Cornell Capital Partners and its controlling persons against certain liabilities, including liabilities under the Securities Act. We estimate that the expenses of the offering to be borne by us will be approximately $50,000.  The offering expenses consist of: a SEC registration fee of $524, printing expenses of $2,500, accounting fees of $10,000, legal fees of $35,000 and miscellaneous expenses of $1,976. We will not receive any proceeds from the sale of any of the shares of common stock by the selling stockholders. We will, however, receive proceeds from the sale of common stock under the standby equity distribution agreement.

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The selling stockholders should be aware that the anti-manipulation provisions of Regulation M under the Exchange Act will apply to purchases and sales of shares of common stock by the selling stockholders, and that there are restrictions on market-making activities by persons engaged in the distribution of the shares. Under Registration M, the selling stockholders or their agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our common stock while such selling stockholders are distributing shares covered by this prospectus. Accordingly, except as noted below, the selling stockholders are not permitted to cover short sales by purchasing shares while the distribution is taking place. The selling stockholders are advised that if a particular offer of common stock is to be made on terms constituting a material change from the information set forth above w ith respect to the Plan of Distribution, then, to the extent required, a post-effective amendment to the accompanying registration statement must be filed with the Securities and Exchange Commission.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

The following information should be read in conjunction with the consolidated financial statements of CYOP and the notes thereto appearing elsewhere in this filing. Statements in this Management's Discussion and Analysis and elsewhere in this prospectus that are not statements of historical or current fact constitute "forward-looking statements." For an overview of the company please see the section entitled Description of the Business which follows this section.

Overview

We have been primarily focused on developing our product for market launch.  Management has financed most of our operations to date. Except for funds raised through the sale of the common stock under the standby equity distribution agreement, management is expected to continue to fund our operations through shareholders loans for the next 12 months.  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, CYOP secured the Canadian Imperial Bank of Commerce as CYOP'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. 

In order for our Company to expand its 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. Funds for this ongoing software maintenance have been budgeted, which are being loaned to our Company by management.  In the future, we anticipate that 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 the CrediPlay system.  We anticipate that this marketing launch will cost approximately $1.5 million.  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.  

Going Concern

CYOP has suffered recurring losses from operations and had a stockholders' deficiency of $1,499,037 as of September 30, 2003.  For the three- and nine-month periods ended September 30, 2003, CYOP had net losses of $55,624 and $281,515, respectively.  CYOP's chartered accountants have added an explanatory note to their audit report raising substantial doubt about CYOP's ability to continue as a going concern.  The ability of CYOP to continue as a going concern is dependent upon many factors, including CYOP's ability to obtain financing to fund working capital requirements, the degree of competition, technology risks, government regulation (such as the legality of its gaming website) and general economic conditions.  Management's plan, in this regard, is to raise equity financing as required and to keep abreast of technological and regulatory changes that may affect CYOP's operations.< /P>

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Results Of Operations

Nine Months Ended September 30, 2003 Compared With The Nine Months Ended September 30, 2002

For the quarter ended September 30, 2003 CYOP generated revenue of $4,030. The same period ending September 30, 2002 generated revenues of $34,359 including $29,666 from ad serving. Current revenues are now from a wide variety of affiliates and CYOP's proprietary URL.  CYOP had general and administrative expenses of $43,366 for the period compared with $129,719 for the same three-month period in 2002. Software development costs were NIL for both comparative periods ending September 30. This is indicative of completion of development. Advertising and promotion was, $1,522 for the three-month period, compared to $24,772 in 2002.  

Twelve Months Ended December 31, 2002 Compared With The Twelve Months Ended December 31, 2001

Revenue.  Revenue increased to $545,123 for the year ended December 31, 2002 from $512,930 for the year ended December 31, 2001, from no revenue in the same period in the prior year. This increase is a result of the move away from a primarily a development company with the first proof of concept contract with Bingo.com in September 2001, and the additional revenues earned from a proprietary game site.

Cost of Revenue.  CYOP recorded cost of revenue of  $209,518 during the year ended December 31, 2002 and $300,647 during the year ended December 31, 2001. This significantly decreased, as the direct costs associated with the development work for Bingo.com finished in early 2002.  

Sales and Marketing Expenses.  Sales and marketing expenses increased to $209,619 for the year ended December 31, 2002 from $101,217 for the year ended December 31, 2001, an increase of $108,402. This is a result of a settlement with a company with a common director (see note 8 in financial statements) a certain amount of advertising inventory was granted to one of our directors. During the year 2002, $159,209 of ad serving was provided by a director on account of CYOP with a common director and was charged as advertising cost to CYOP. Sales and marketing expenses include principally costs for marketing, co-brand advertising and keyword buys for our site and participation in trade shows.

We expect to continue to incur sales and marketing expenses to further our efforts to increase traffic to our Web portal and develop licensee opportunities with gaming portals. These costs will include commissions, salaries, advertising, and other promotional expenses intended to increase traffic to licensees and improve revenue. There can be no assurances that these expenditures will result in increased traffic or significant new revenue sources.

General and Administrative Expenses.  General and administrative expenses consist primarily of contract personnel costs, rent for CYOP's office, legal and audit professional fees, insurance and other general corporate and office expenses, including $92,778 of bad debt for the fiscal year 2002 from $46,500 for the fiscal year 2001. General and administrative expenses decreased to $567,445 for the year ended December 31, 2002 from $653,096 for the year ended December 31, 2001, a decrease of 6% over the previous year. General and administrative expenses decreased primarily from the prior year as a result of a decrease in legal and professional fees associated with obtaining clearance with NASD and SEC for quotation of our securities on the OTC BB.

We expect to continue to incur general and administrative expenses to support the business, and there can be no assurances that CYOP will be able to generate sufficient revenue to cover these expenses.

Interest expense.  Interest expense consists of accrued interest on the demand loans and demand loans to related parties. Interest expense decreased from $177,288 for 2001, to $0.00, however imputed interest expense increased to $30,721 in 2002 from $1,900 from demand loans from related parties. Additionally a significant interest expense has been accrued related to a Canada Customs and Revenue Agency ("CCRA") assessment of payroll taxes due on the Canadian subsidiary in fiscal year 2001. No loan interest expense was captured for the year ended December 31, 2002 as the subsidiary that incurred corresponding liabilities was sold on April 1, 2002; see Form 8-k filed August 20, 2002.

Loss per share and net loss.  CYOP ended the year with a net profit of $603,981 as a result of the gain booked on the sale of a subsidiary of $949,577. The net profit position is a gain of $0.02 per share compared to the net loss of ($751,136), a loss per share of ($0.03) for the year ended December 31, 2001.

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Liquidity And Capital Resources

At September 30, 2003 CYOP had a working capital deficit of $(1,070,869) with the deficiency arising primarily from $786,561 in loans from directors, compared to a working capital deficit of  ($518,321) at September 30, 2002 to satisfy requirements for operations for the same period ending September 30, 2002. No assurances can be given that CYOP will successful in realizing sufficient funding to continue operations. While development of the CrediPlay system is complete and operational very little cash is available for the process of marketing and promoting the CrediPlay system and www.skillarcade.com the proprietary site.

Deterioration of funding sources for internet based businesses has continued into the calendar year 2003 creating financial stresses for CYOP. Operations have continued with funding from management, and the convertible debentures. We anticipate the funding will come from the standby equity distribution agreement and from loans from management. 

CYOP'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 CYOP must generate additional investment in a timely manner to maintain operations. CYOP 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 September 30, 2003, there were no material commitments for capital expenditures.

Capital Resources

Pursuant to the standby equity distribution agreement, CYOP may periodically sell shares of common stock to Cornell Capital Partners to raise capital to fund its working capital needs. The periodic sale of shares is known as an advance. CYOP may request an advance every 5 trading days. A closing will be held 7 trading days after such written notice at which time CYOP will deliver shares of common stock and Cornell Capital Partners will pay the advance amount, less the 4% retention. CYOP may request advances under the standby equity distribution agreement once the underlying shares are registered with the Securities and Exchange Commission. Thereafter, CYOP may continue to request advances until Cornell Capital Partners has advanced $5.0 million or two years after the effective date of the registration statement, whichever occurs first. The amount of each advance is subject to an aggregate maximum advance amount of $70,000 every 7 trading days.  The amount available under the standby equity distribution agreement is not dependent on the price or volume of our common stock.

CYOP registered 137,500,000 shares of common stock in connection with the standby equity distribution agreement and upon conversion of the debentures. CYOP cannot predict the actual number of shares of common stock that will be issued pursuant to the standby equity distribution agreement, in part, because the purchase price of the shares will fluctuate based on prevailing market conditions and CYOP has not determined the total amount of advances CYOP intends to draw.

Nonetheless, if CYOP issued all 100,000,000 shares of common stock at a recent price of $0.03 per share, then CYOP would receive gross proceeds of $3.0 million under the standby equity distribution agreement. This is $2.0 million less than is available under the standby equity distribution agreement. CYOP's stock price would have to rise substantially for us to have access to the full amount available under the standby equity distribution agreement. These shares would represent 39.8% of our outstanding common stock upon issuance. Accordingly, CYOP would need to register additional shares of common stock in order to fully utilize the $5.0 million available under the standby equity distribution agreement at the current price of $0.03 per share. At a recent price of $0.03 per share, CYOP would be required to issue 166,666,667 shares of common stock in order to fully utilize the $5.0 million available.

In January 2004, CYOP raised $125,000 of gross proceeds from the issuance of convertible debentures.  Cornell Capital Partners purchased these debentures.  These debentures accrue interest at a rate of 5% per year and mature two years from the issuance date.  The debentures are convertible at the holder's option any time up to maturity at a conversion price equal to the lower of (i) 120% of the closing bid price of the common stock as of the closing date (ii) 80% of the lowest closing bid price of the common stock for the 5 trading days immediately preceding the conversion date.  At maturity, CYOP has the option to either pay the holder the outstanding principal balance and accrued interest or to convert the debentures into shares of common stock at a conversion price equal to the lower of (i) 120% of the

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closing bid price of the common stock as of the closing date or (ii) 80% of the lowest closing bid price of the common stock for the 5 trading days immediately preceding the conversion date.  The convertible debentures are secured by all of CYOP's assets.  CYOP has the right to redeem the debentures upon 30 days notice for 120% of the amount redeemed.  Upon such redemption, CYOP will issue the investor a warrant to purchase 50,000 shares of common stock at an exercise price of $0.036 per share for every $100,000 of debentures that are redeemed.

Consolidated Statement Of Cash Flows

For the nine months ended September 30, 2003, CYOP had a net increase in cash and cash equivalents of $102.  Of that total, CYOP used cash in operating activities of $224,219 and generated cash from financing activities of $224,322.  Cash used in operating activities consisted primarily of a net loss of $281,515 and increase in interest receivable of $67,500, which were partially offset by non-cash expenses of amortization and depreciation of $32,747, imputed interest of $50,351 and an increase in accounts payable and accrued liabilities o $60,598.  Cash from financing activities consisted of an increase in due from a director of $224,322.

Critical Accounting Policies

CYOP's consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 2 of our consolidated financial statements. While all these significant accounting policies impact its financial condition and results of operations, CYOP views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on CYOP's consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

Our critical accounting policies are as follows: revenue recognition, determining functional currency for the purpose of consolidation; and valuation of long-lived assets.

Revenue Recognition.  CYOP derives revenue from online internet transaction platform maintenance. Revenues are recognized when players complete an on-line game. CYOP has no significant performance requirements, and, there are no material uncertainties regarding customer acceptance and collection of the network maintenance fee is deemed probable.

Foreign Currency Transactions.  CYOP 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.

Long-Lived Assets Impairment.  Effective January 1, 2002, certain long-term assets of CYOP 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, CYOP evaluated long-term assets of CYOP 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 financi al statements.

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Stock-Based Compensation.  CYOP 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.  CYOP 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.

Recent Accounting Pronouncements

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.  CYOP 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 CYOP 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 CYOP.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement is effective for contracts entered into or modified after June 30, 2003. We do not expect the implementation of SFAS No. 149 to have a material impact on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 30, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We do not expect the implementation of SFAS No. 150 to have a material impact on our consolidated financial statements.

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DESCRIPTION OF BUSINESS

CYOP Systems develops and distributes financial transaction platforms.  Its first branded platform is CrediPlay.  CYOP licenses the software to gaming communities and portals to offer additional revenue sources through pay-for-play tournaments of skill and markets CYOP's proprietary site www.skillarcade.com.  A player's fee is charged every time a tournament or game is played.  This fee is disbursed to the game developer or publisher who owns the game being played, the server operator (portal) who runs the tournament and CYOP, the transaction processor. CYOP has 250 affiliate portals and has processed approximately 2.3 million transactions to date.

CYOP is defining the third phase of the Internet Revolution by developing high-demand content for consumers and businesses alike.  CrediPlay is an online financial transaction network supporting a community of online gamers who compete in skill games to win each other's money. CrediPlay allows gamers to play a game for a one-time fee, or pay-to-play in cash tournaments. One hundred percent automated, it registers players in tournaments, runs the tournaments and pays the winners instantly.  The basic model for business is based on charging a Network Maintenance Fee (NMF) for each game played over the Internet, including Puzzle, Trivia, Action Games, Strategy, Driving/Racing and Adventure/Role Play games.  The player opens an account on-line using any number of merchant processors, including Paypal and Visa, so that he or she may register with, and gain access to any pay-for-play tournament of skill.  After registering, the individual player may then enter into a tournament pool, out of which the winner(s) are paid from 100% of the entry fees.  By structuring the software in this way, CrediPlay has differentiated itself from the I-gambling industry, as its software is neither based on chance nor accepts third party betting and therefore is in compliance with the existing laws of most Internet rich jurisdictions in the United States and Canada.  

We believe that collecting and processing fees through financial institutions and disbursing funds through a revenue sharing model to vertical channel partners in this manner creates market opportunity through revenue sharing and reducing upfront investment costs in a vertically integrated marketing channel.

CYOP also owns and operates a proprietary gaming community, www.skillarcade.com, which was launched in the beginning of September 2002.  SkillArcade.com is an online games destination where people play popular skill-based games against other players and compete in tournaments to win real money prizes. The ultimate goal is to be recognized as the number one pay-for-play Gaming site on the Internet, which we believe will:

• Establish Brand Recognition in targeted audience areas

• Direct and generate traffic to the site

• Build a database of players

• Convert traffic into Accounts.

• Build a positive reputation in the gaming market

• Retain Clients and Establish Loyal client base

• Drive Corporate revenues

Network Maintenance Fees - - The Source Of Revenue

Gamers wishing to compete in tournaments of skill for money are charged a network maintenance fee ("NMF") each time they access a "pay-for-play" tournament.  Using CrediPlay, the network maintenance fee is split between CYOP, game developers and game server operators.  Tournaments may only last ten minutes.  

Network Maintenance Fees are negotiated and preset among the members of the supply chain.  Game developers, publishers, server operators and CYOP agree on fees and percentages of fees in advance, which are separate from the Tournament Entrance Fee.  The Network Maintenance Fee does not change in proportion to the tournament prize money.  

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This business model is predicated on licensing the software to online communities, wireless networks and portals with high traffic bases.  Games are either built in-house or licensed from developers and publishers.   A player's fee is charged every time a tournament is played.  This fee is disbursed to the game developer or publisher who owns the game being played, the server operator (portal) who runs the tournament and CYOP, the transaction processor.  CYOP also licenses gaming software on a straight annual fee basis, and does not pay a percentage to these types of game developers.

Pay-For-Play Tournaments Of Skill

A tournament of skill is where competitors play a series of skill games where eventually one person or team is the victor. A pay-for-play tournament is where competitors pay fees to enter the tournament and a prize is awarded to the victor.

CrediPlay allows online gaming server operators to organize and run pay-for-play tournaments of skill.  Competitors pay a Tournament Entrance Fee.  It creates a prize pool, which is disbursed to the winners.  A Network Maintenance Fee is paid by the competitors to cover the costs of tournaments, much like a green's fee for a golf tournament.  The Network Maintenance Fee is portioned to the server operators, the game developer / publisher and CYOP.  The Network Maintenance Fee is how vertical channel members generate revenue.

Pay-for-play tournaments of skill are an incentive-based product.  Online gamers pay fees and participate for the competitive spirit and the goal of winning prize money.  It is a highly motivating marketing strategy for online communities and portals.  It introduces a new revenue model for the online gaming industry.

Tournaments generally run no longer than five minutes and involve five people on average.  Thousands of tournaments can be played per day depending on the number of users on the system.  The systems have been load balanced to allow for 1000 tournaments per second on a single server with each tournament having approximately 5 contestants.  

Network Maintenance Fees collected through the play of tournaments are divided among the game developer / publisher who owns the game played, the server operator (portal) who runs the tournament, and CYOP.  The game developer / publisher receives a percentage (where the game has not been developed by CYOP), the server operator receives a percentage and CYOP receives the remaining percentage.  At the end of each month respective payments are made.

If a gamer wishes to withdraw the funds, he or she posts a withdraw notice and a check is sent to the gamers' listed address or the merchant processor (Paypal or Visa account) is credited back.

The advantages to the CREDIPLAY credit system are:

• Gamers prepay to open and use accounts in advance of purchases.

• Using a Crediplay account reduces the cost of merchant transactions on credit cards.

• CYOP can track fraudulent transactions through transaction reports and easily debit and credit gaming credits to the appropriate accounts.

A pay-for-play tournament of skill is not gambling.  CrediPlay's software is based on the individual player's skill and knowledge, while most games of chance on the Internet are based on algorithms.  Several sets of criteria are introduced that make Skill-Bingo, for example, a competitive game played in tournaments or head to head, where skill, knowledge or a combination of both determines the winning outcome. The following are used to allow for competition between players:

• Hand-eye coordination

• Reaction time

• Dexterity

• Spatial memory

• Long-term memory

• Pattern recognition

• Organizational skills

• Strategic planning

• Game play knowledge, general knowledge and intelligence

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Legality

To ensure that CYOP is running games of skill and not gambling, determinations have been made by gaming experts and legal counsel to insure that games and software meet regulatory requirements.  

Games of skill are not ‘wagering' against the house for a prize.  For example, we believe that our model more closely resembles four buddies playing golf. One pays a green fee to play on the course.  One then decides to play skins for money. The golf course takes no part in that, and is therefore in compliance with most legal jurisdictions with respect to the legality of ‘Skill Based Gaming'.

We are unaware of any existing or probable government regulations, which would have an adverse affect on the implementation of our current business plan.  We are relying on American and Canadian legal opinions to ensure that our business falls within current government regulations in those jurisdictions.

CYOP does not profit from the size of a player's wager on his or her own skills. In fact, players don't ‘wager' at all, they simply decide how much of a tournament entry into the pool they are willing to pay. CYOP also does not profit from the size of the cash prize pool, nor does it profit if one player wins over another specific player.  

Even adhering to such a rigorous process doesn't guarantee that every government everywhere will view pay-for-play tournaments as legal. The reality is that different governments have different ways of classifying games of skill and chance. For example, backgammon is a game of skill in the UK, but a game of chance in the USA. All of the information CYOP has gathered regarding a game enables CYOP to work with these various governments and comply with their laws. If a government or jurisdiction informs CYOP that their laws do not allow CYOP to run particular game tournaments, CYOP has the capability to not allow competitors in that specific jurisdiction to play tournament games.  Finally, the Terms and Conditions clearly state that members may not use any of CYOP's sites or services if these violate the laws, statutes, ordinances, or regulations of that person's geographic location.

Our network is organized to generate three core revenue streams: membership fees, pay-for-play network maintenance fees, and credit card processing fees.  The CrediPlay network is operational.  To date, a minimal amount of money has been spent marketing our products and services.  Accordingly, traffic to our site has been limited.  

Non-Competitive Strategy

We are committed to the Linux open source movement, which allows our members to share and contribute to the development of games.  Our members will have access to all information surrounding game development and game hosting.  All resources are available to members except the technology behind our processing network.

We allow members to use our technology to become pay-for-play game developers and game server operators.  We believe that this open source strategy creates new business and integrates and binds members to our transaction network.

We developed the CrediPlay network as a new playing field for the growing number of people playing games on-line.

Distribution Methods Of Our Products And Services

Game And Information Portals

North America And English Speaking Countries

The dominant gaming portals are located in North America and are in the English language. They include GameSpy, MSN Game Zone, Yahoo! Games, Lycos Games, and Pogo (Electronic Arts).  Stung by the overall advertising crunch that has shut down many content sites, operators of free game sites are scrambling for ways to make a consistent profit.  We believe that  the portals that survive will be those that form both short and long-term alliances with other content and service providers, so they can offer new revenue-generating services such as e-commerce, subscription fees, placement fees, and premium content.

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We have dedicated sales and business development personnel in Vancouver who market our systems through outbound sales tactics. Those are our primary targets.  

CYOP's intent is to partner with portals and to license to third parties in this market place because:

• Existing traffic - these types of sites are well established and they aggressively market themselves to keep their unique and returning visitor numbers high.

• Existing databases - these sites have developed large databases of members with sophisticated information.

• Software built in English - CrediPlay has been designed in English, so integration is immediate.

• Proximity for business development.

• Instant revenues - CYOP does not have to spend great amount of resources marketing.

• The portals need new revenue sources.

Asia/Europe

Most of the up and coming markets outside the English-speaking world are not even online yet, but they are coming online. By making the effort to address non-English speaking markets now, CYOP believes it can establish a competitive advantage over competitors who arrive later on. Although the U.S. accounts for the most of the world's Internet usage by a single country, analysts at Bear Stearns believe that international markets currently hold the strongest growth opportunities for I-gaming; especially the emerging Asian "Digital Dragons."

The opportunity to develop a gaming portal exists in the emerging markets of Asia and Europe.  Marketing to these relatively under-developed areas of the e-commerce world costs a fragment of the same in North America.  China, Taiwan and Korea are being made a priority as they have a high proportion of gamers, strong Internet growth and readily disposable income.  The largest Internet market in Europe is Germany at present, and it is expected to continue its domination in e-commerce.    

CYOP plans to partner with companies in each market, and to localize its proprietary portal and systems into respective languages.  The Partner companies will be expected to handle local issues and drive marketing efforts.   A summation of why CYOP intends to build global portals is as follows:

• Higher share of Network Maintenance Fees through JV agreements.

• First in Market - North America is approximately two to five years ahead of the rest of the Internet world, and we believe there exists an opportunity for start-up ventures.

• Relative ease and low cost of marketing - as compared to the Americas.

• Long-term revenues -We belive that  future growth in the industry will be driven by extra-American countries.

Our product of providing on-line access to pay-for-play video gaming is not distributed in the conventional sense.  Rather, video gamers log on to our Internet site and register at one of the membership levels to enter play.  We expect that news of our unique site and pay-for-play concept will spread quickly through the on-line gaming community.  We also propose to advertise at venues such as the computer game developers conference, electronic entertainment exposition and various on-line traditional video game sites.  Word of mouth and our targeted marketing plan will effectively be the way our product is distributed.

The video game industry can be segregated into three main technology areas: game developers, platform developers, and game server operators.  Game developers create games to be played on different platforms such as those developed by Sony, Sega and Nintendo, on personal computers or on arcade machines.  With the introduction of the Internet, games are now hosted on servers where players from around the world log in and play.

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Internet-enabled consoles are ushering in a new generation of interactive gaming with technology that utilizes the Internet to create new dimensions in interactive gaming and which we believe will transform the entertainment industry.  The report outlines three evolutionary changes in technology that will create pervasive gaming:

• Platforms will connect to the Internet and control TVs.

• Pipes will deliver content at the speed of Broadband.

• People will seamlessly switch from playing games to watching TV.

We believe that these changes will force new business models within the industry such as subscription and pay-per-use revenue streams. We also believe that advertising revenue will  increase as interactive media advances technologically.  

Target Market

The myth that most gamers are children also seems to defy the changing gaming demographics. In reality, nearly 75% of PC gamers are adults, with only 30% being under the age of 18.  The Forrester Report indicates that 25% of the on-line population plays games on-line, 49% are women and 51% are men, and they have a median age of 39.  On-line gamers generate an average yearly income of $49,000 US/year and play an average of 13 hours/week.

Industry Players

Console Developers

The video game industry has some giants that are a dominant force in the marketplace.  Sega, Sony, Microsoft and Nintendo dominate the game platform market.

Publishers/Game Developers

Electronic Arts, headquartered in Redwood City, California, is the world's leading interactive entertainment software company.  Electronic Arts develops, publishes and distributes software worldwide for personal computers and video game systems such as the PlayStation® and Nintendo® 64.

Blizzard Entertainment® is a premier publisher of entertainment software.  Since establishing the Blizzard label in 1994, Blizzard has quickly become one of the most popular and well-respected makers of computer games.  With blockbuster hits including the Warcraft ® series, the Diablo series, and StarCraft, Blizzard has enjoyed back-to-back number-one selling games, as well as consecutive Game of the Year awards.  Blizzard Entertainment operates a free online game service, Battle.net®, the largest in the world with millions of active users.  

As a known leader in the industry and one of the world's leading developers of best selling software, id Software has forged frenetic titles such as Wolfenstein 3-D, DOOM, DOOM II, QUAKE, and QUAKE II.  With intense graphics and adventure, id creates frenzied demands worldwide and continues to break retail and shareware sales records.  id has proven itself to be genius at more than just software development.  Using non-traditional means of product distribution, shareware channels, online services, and the Internet. id has helped to create a new way to market computer games.  id's titles have become cultural phenomenon's inspiring other developers, while spawning mainstream licensing agreements for movie and book series. id games have been featured on prime time TV shows such as Friends and ER and in the movies The Net, Congo and Gross Point B lank.

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Game Server Operators

On-line, multi-player games allow for the game player to link to game servers hosting the game.  These game servers constitute any corporation or anyone with a server that wishes to host a game.  Game server operators have not had a revenue generating model beyond providing a web portal where game players can log on and search for different games being hosted.  

Professional (For Money) Video Game Leagues

Professional video gaming is a new concept that is gaining momentum within the video game industry. Two organizations have evolved to cultivate this new trend.

The Cyberathlete Professional League (CPL) was founded on June 26, 1997.  The CPL is a computer gamer's league attempting to transform computer game competitions into a professional sport.  The CPL sets up physical local area network tournaments and receives sponsorship financing.  Through its various sponsors, the CPL awards tournament winners as much as $150,000 in cash prizes.  The CPL events feature: professional computer game tournaments, large spectator arenas, amateur local area network competitions, hardware and software exhibitions and occasionally a variety of workshops.

Online Athletes (OLA) is member-based professional game league.  Members are charged a $25/year membership fee, which gives them a registered server.  The league monitors play and distributes cheques to top players each week based on performance.

CYOP Systems And The Video Game Industry

We belive that CYOP Systems is positioning itself as an asset to all industry players through its integrated transaction technology.  The Bloodmoney Universe is a complete entertainment network where game players can access and play their favorite games for real money distributed to them via their electronic accounts.

Game console developers are creating web browser capabilities within their next generation systems that will enable players to connect to the CrediPlay network.

Transaction technology within the CrediPlay network creates a means by which game developers can create pay-for-play versions of their games.  Developers can utilize the CrediPlay network to market and promote their games.

CYOP Systems has created a new business model for game server operators.  By simply utilizing the CrediPlay network, games from their server, can host pay-for-play video games, generating a significant additional source of revenue.

Professional game leagues are limited to physical tournament settings or reliance on sponsorships for financing.  The CrediPlay network creates a 24-hour market of interactive video gaming where players enter tournaments through their own financial accounts.

Management is aware of www.worldwinner.com and www.skilljam.com as the only other companies, which offers pay for play video gaming with the capacity to credit players in real time.  It is likely we will receive competition from other companies offering online pay for play video gaming. These competitors may utilize future off the shelf software systems or custom designed pay for play video software.  Our business model is designed to provide financial incentives for game developers and server operators who may otherwise compete against our Company.  

How We Plan To Expand Our Business Model

CYOP is capitalizing on its experience in the On-Line Gaming Industry by leveraging its experience and contacts.  With the ability to integrate with popular online games like Bingo, CYOP has the opportunity to gain acceptance by licensing its software to the mainstream Internet Portals and Games Sites as a viable on going alternative to advertising and subscription-based revenues

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Portals such as Bingo.com have been depending on the Internet Advertising model as their sole source of revenues with moderate success. We believe that the addition of the <Pay-for-Play> model allows these portals to further capitalize on their existing database; a demographic of repeat game players.  The ease of integration allows companies to add to their core business without any software development costs or expensive downtime. One hundred percent automated, the system registers players in tournaments, runs the tournaments and pays the winners instantly.  

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MANAGEMENT

Our directors and officers are as follow:

Name and Address	Age	Position
Mitch White	42	Chief Executive Officer and Chairman of the Board of Directors
Patrick Smyth	36	President
Gordon A. Samson	45	Chief Financial Officer and Director
Norman MacKinnon	61	Director

Below are biographies of our executive officers as of December 31, 2003:

Mitch White, Chairman and CEO, Vancouver, B.C., Canada.  Mr. White was appointed to his positions on February 14, 2001.  Mr. White devotes his time on an as needed basis, which he expects to be approximately 120 hours per month.  Mr. White is a director and officer of CYOP Systems International Inc.

From March, 1995 to June, 1998, Mr. Mitch White held the position of Chairman of the Board of Directors of Starnet Systems International which is a publicly traded reporting company quoted on the NASD OTC Bulletin Board under the symbol "WGMGY" and on the AIM market in London, England.  Starnet Systems developed and implemented computer software designed to process online casino transactions in those jurisdictions in which online gaming is permitted.  From June 1998 until the present, Mr. White has been principally engaged in the founding, funding and development of Moshpit Entertainment and its pay for play electronic transactional platform.  Mr. White is also President of Caribbean Way.com, a Montreal, Canada based online travel and booking agency.  Mr. White possesses 15 years of experience in sales, marketing and management in the high technology and entertainment industries.

Patrick Smyth, President & Director, West Vancouver, B.C., Canada.  Mr. Smyth was appointed to his positions in October 2002 and devotes 50% of his time to CYOP. Mr. Smyth has had a number of years experience in the management of private and public companies. At CYOP, he is responsible for Business Development, Global Growth Strategies, Investor Relations, Public Relations, and Communications. Prior to joining CYOP, he was the President of NextLevel.com Inc.; a digital marketing company specializing in new media, celebrity web-property management, and online streaming. In 1999 he founded and was President of Wiremix Media Inc.; a successful advertising and marketing agency specializing in online gaming and e-commerce. Prior to that, Mr. Smyth has worked with a number of companies including Starnet Communications International (OTC:WGMGY.OB), Global Media (NAS:GLMC), 3LOG Systems, Swan Trading International Incorporated, International PBX Ventures Inc. (CDNX:IVU.V), Integral Technologies Incorporated (OTC:ITKG.OB), Elephant & Castle Corp. (OTC:PUBS), Tricon Commodities, Acheiva Development Corporation (CDNX:AHE.V), and Tsawwassen Recreation Resort Limited.  He is also an advisor to the IGDA (International Gaming Developers Association) 2003 Online Gaming White Paper and has authored a number of articles on Online Gaming.

Gordon A. Samson, CFO & Director, Vancouver, B.C., Canada.  Mr. Samson was appointed to his positions in October 2002.  Mr. Samson devotes 50% of his time to CYOP and his experience includes a number of years with Canada Customs and Revenue Agency ("CCRA") (formerly Revenue Canada), as a Senior Banker with a major Canadian institution, as an Accounting Manager with a regional, full service brokerage house and as a Chief Financial Officer Consultant to public companies.  Mr. Samson, a Certified General Accountant ("CGA"), is also CYOP's Chief Financial Officer. Mr. Samson has a background in technology firms and is also a director and officer of Data Fortress Systems Group Ltd. a dually listed company quoted on the TSX Venture Exchange ("TSX"), trading under the symbol DFG and quoted on the OTC BB under the symbol DFGRF.  

Norman MacKinnon, Director, Vancouver, B.C., Canada.  Mr. MacKinnon was appointed to his position as an independent Director in October 2002. Mr. MacKinnon founded his own accounting firm and has been engaged in private practice providing chartered accountant services for the past fifteen years. Mr. MacKinnon served his articles with Peat, Marwick, Mitchell (now "KPMG). He has extensive experience involving numerous private and public companies, generally in the financial and taxation areas of practice, and has served on the board of directors of numerous public companies trading on the TSX. During 1982 to 1984, Mr. MacKinnon served as the chief financial officer of a television production syndicated

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company, Century II Productions, Inc. During 1968 to 1972, Mr. MacKinnon served as the chief executive officer of Imaginaction International, Ltd., a venture capital company.  Mr. MacKinnon also served Seven years as a Director of Crime Stoppers- Greater Vancouver. Mr. MacKinnon is a disinterested member of the Audit Committee.

There are no family relationships among directors, executive officers or persons nominated to become directors of executive officers.

Director Compensation

Directors currently do not receive cash compensation for their services as members of the Board of Directors, although members are reimbursed for expenses in connection with attendance at Board of Directors meetings and specific Bingo business meetings. Option grants to directors are at the discretion of the Board of Directors. Compensation received by officers, directors, and management personnel will be determined from time to time by our Board of Directors.  

Committees of the Board of Directors

Messrs. Samson and MacKinnon serve on CYOP's audit committee.  The audit committee reports to the Board of Directors regarding the appointment of our independent public accountants, the scope and results of our annual audits, compliance with our accounting and financial policies and management's procedures and policies relative to the adequacy of our internal accounting controls.

Executive Compensation

Summary Compensation Table. The following summary compensation table shows certain compensation information for services rendered in all capacities for the years ended December 31, 2003, 2002 and 2001. Other than as set forth herein, no executive officer's cash salary and bonus exceeded $100,000 in any of the applicable years. The following information includes the dollar value of base salaries, bonus awards, the value of restricted shares issued in lieu of cash compensation and certain other compensation, if any, whether paid or deferred:

	Annual Compensation				Long-Term Compensation
Name & Principal Position	Year	Salary	Bonus	Other Accrued Compensation	Restricted Stock Awards in US$	Options/SARs	LTIP Payouts	All Other Compensation
Mitch White	2003	--	--	--	--	--	--	--
	2002	--	--	--	--	--	--	--
	2001	--	--	--	--	--	--	--
Gordon Samson	2003	--	--	--	--	--	--	--
	2002	--	--	--	--	--	--	--
	2001	--	--	--	--	--	--	--

Employment Agreements

In January 2003, CYOP entered into management contracts with Messrs. White and Samson.  Each contract can be terminated upon one year's prior written notice unless there is a change of control.  If a change of control occurs, then each contract can be terminated only after two years following such change of control.  The following table describes the annual compensation provided under each contract.  All compensation in 2003 has been deferred.  CYOP will accrue compensation effective as of January 1, 2004.

Name:	Base Compensation:	Bonus Compensation:
Mitch White	$120,000	Up to 120% of base compensation
Gordon Samson	$120,000	Up to 120% of base compensation

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If each employee is terminated other than for cause or disability or in violation of the change of control, then each employee shall be entitled to be paid 200% of such employee's base compensation, plus 200% of such employee's annual incentive bonus.  

In January 2003, CYOP entered into an employment contract with Mr. Smyth.  The contract provides that Mr. Smyth with be employed by CYOP as President.  The contract may be terminated by CYOP upon 30 days' notice.  Mr. Smyth is paid an annual salary of $60,000 per year.  Mr. Smyth is required to devote 25 hours per week to CYOP's business and affairs.

Options

CYOP does not maintain a stock option plan and does not have any options outstanding.

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DESCRIPTION OF PROPERTY

At December 31, 2002 we maintained an office at Suite 406, 1040 Hamilton Street, Vancouver, British Columbia, Canada.  This is leased office space of approximately 3,500 square feet, which houses our current operations.  Monthly lease payments on this office space are $6,000.  These facilities are fully utilized and are adequate for our needs for the next 12 months. In April 2003 we moved to a much smaller space sharing with another company at no cost. This office is located at 225-425 Carrall Street, Vancouver, British Columbia, Canada. All our infrastructure and equipment is located in the Westin Building in Seattle, Washington on a co-location agreement for $1,500 per month.

LEGAL PROCEEDINGS

We are not a party to any legal proceedings. Management is not aware of any legal proceedings proposed to be initiated against CYOP.

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PRINCIPAL STOCKHOLDERS

The following table contains information about the beneficial ownership of our common stock as of February 10, 2004 for:

(i)

each person who beneficially owns more than five percent of our common stock;

(ii)

each of our directors;

(iii)

the named executive officers; and

(iv)

all directors and executive officers as a group.

		Common Stock Beneficially Owned
Name/Address	Title of Class	Amount	Percentage (1)
Mitch White	Common Stock	22,500,000(2)	14.9%
406-1040 Hamilton Street
Vancouver, B.C. V6V 2R9
Patrick Smyth	Common Stock	0	0.0%
1040 Hamilton Street, Suite 406
Vancouver, B.C. V6V 2R9
Gordon A. Samson	Common Stock	0	0.0%
1040 Hamilton Street, Suite 406
Vancouver, B.C. V6V 2R9
Norman MacKinnon	Common Stock	0	0.0%
1040 Hamilton Street, Suite 406
Vancouver, B.C. V6V 2R9
Officers and directors as a group		22,500,000	14.9%
Pacific Rim Consulting	Common Stock	49,100,000	32.5%
3076 Sir Francis Drake Hwy
Box 3463 Road Town
Tortola, BVI
Lancaster Estate Trust(3)	Common Stock	7,500,000	5.0%
Beckwith Mall, Suite 29 - 1st Floor
Lower Broad Street
Bridgetown, Barbados

_______________

*

Less than one percent.

(1)

Applicable percentage of ownership is based on 150,998,160 shares of common stock outstanding as of February 10, 2004, for each stockholder. Beneficial ownership is determined in accordance within the rules of the Commission and generally includes voting of investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days of February 10, 2004, are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such persons, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2)

Of that total, Mr. White is the indirect beneficial owner of 20,000,000 shares of common stock through Greenday Inc.

(3)

Mr. Richard Gallo is the potential recipient of 7,500,000 shares held by the Lancaster Estate Trust in the event of a distribution of property by that trust.

34

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On November 1, 1999, our former Chief Executive Officer and director, Mr. Keith Ebert, received 11,250,000 (adjusted for the 5-for-1 stock split) shares of our common stock valued at $0.001 per share ($2,250.00) in consideration for his services in helping to set up our company and for managing our operations.

On November 3, 2000 we acquired 100% of the issued and outstanding common shares of CYOP Systems Inc.  The former shareholders of CYOP Systems Inc. now collectively own 45,000,000 of our 150,998,160 (adjusted for the 5-for-1 stock split) issued common shares or 31.6% of our company.  Certain of the former shareholders of CYOP Systems Inc. are independently managed trusts.  The following individuals are potential beneficiaries of the trusts in the event of a distribution of property (all of which have been adjusted for the 5-for-1 stock split):

Name of Former CYOP Systems Inc. Shareholder	Number of CYOP Systems Inc. Shares Formerly Held	Number of CYOP Systems International Incorporated Shares Received	Name of Potential Beneficial Owner
Greenday Inc.	40,000,000	20,000,000	Mitch White
Andrea Carley	5,000,000	2,500,000	Andrea Carley
Mitch White	5,000,000	2,500,000	Mitch White
Caska Trust	12,500,000	6,250,000	Stephen White
Jazzco Trust	12,500,000	6,250,000	Bill Shreeve
Lancaster Estate Trust	15,000,000	7,500,000	Richard Gallo

Our Chairman and Chief Executive Officer, Mr. Mitch White, has been the primary source of funding.   As of the date of this registration statement, Mr. White has directly advanced total proceeds of US$869,393. These loans are not secured by any of the assets of our company or its subsidiaries.

35

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS

CYOP's common stock is traded on the Over-the-Counter Bulletin Board under the symbol "CYOP". The following table sets forth, for the periods indicated, the high and low bid prices of a share of common stock for the last two years.

	HIGH BID	LOW BID
2003
Quarter Ended March 31, 2003	$0.07	$0.01
Quarter Ended June 30, 2003	$001	$0.01
Quarter Ended September 30, 2003	$0.07	$0.01
Quarter Ended December 31, 2003	$0.10	$0.03
2002
Quarter Ended March 31, 2002	$0.08	$0.01
Quarter Ended June 30, 2002	$0.02	$0.01
Quarter Ended September 30, 2002	$0.08	$0.01
Quarter Ended December 31, 2002	$0.15	$0.03

Holders Of Common Equity

At February 13, 2004 there were approximately 114 registered shareholders holding 150,998,160 of record of our issued common shares.  

Dividends

CYOP has never paid any dividends on its capital stock. CYOP currently expects that it will retain future earnings for use in the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. Any decision on the future payment of dividends will depend on our earnings and financial position at that time and such other factors as the Board of Directors deems relevant.

Recent Sales Of Unregistered Securities

Since January 1, 2001, CYOP sold the following securities without registering under the Securities Act of 1933:

In January 2001, CYOP sold 148,500 shares of common stock for total consideration of $29,700 to accredited investors.

In February 2001, CYOP sold 65,000 shares of common stock for total consideration of $18,200 to accredited investors.

In March 2001, CYOP sold 15,000 shares of common stock for total consideration of $3,000 to accredited investors.

In April 2001, CYOP sold 56,500 shares of common stock for total consideration of $11,300 to accredited investors.

In March 2002, CYOP issued 173,535 shares of common stock for services valued at $34,707.

In September 2003, CYOP issued 600,000 shares of common stock for capital equipment valued at $36,000.

In September 2003, CYOP affected a 5-for-1 stock split pursuant to which CYOP issued four additional shares of common stock for each share outstanding as of September 26, 2003.

36

With respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated under the 1933 Act. In each instance, the purchaser had access to sufficient information regarding CYOP so as to make an informed investment decision. More specifically, CYOP had a reasonable basis to believe that each purchaser was an "accredited investor" as defined in Regulation D of the 1933 Act and otherwise had the requisite sophistication to make an investment in CYOP's securities.

37

DESCRIPTION OF SECURITIES

General

CYOP's authorized capital consists of 500,000,000 shares of common stock, par value $0.00002 per share. At February 10, 2004, there were 150,998,160 outstanding shares of common stock and no outstanding shares of preferred stock. Set forth below is a summary description of certain provisions relating to CYOP's capital stock contained in its Articles of Incorporation and By-Laws and under the Nevada Revised Statutes. The summary is qualified in its entirety by reference to CYOP's Articles of Incorporation and By-Laws and the Nevada law.

Common Stock

Each outstanding share of common stock has one vote on all matters requiring a vote of the stockholders. There is no right to cumulative voting; thus, the holder of fifty percent or more of the shares outstanding can, if they choose to do so, elect all of the directors. In the event of a voluntary of involuntary liquidation, all stockholders are entitled to a pro rata distribution after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the common stock. The holders of the common stock have no preemptive rights with respect to future offerings of shares of common stock. Holders of common stock are entitled to dividends if, as and when declared by the Board out of the funds legally available therefore. It is CYOP's present intention to retain earnings, if any, for use in its business. The payment of dividends on the common stock is, therefore, unlikely in the foreseeable future.

Stock Split

In September 2003, CYOP affected a 5-for-1 stock split pursuant to which CYOP issued four additional shares of common stock for each share outstanding as of September 26, 2003.

Transfer Agent

Our transfer agent is The Nevada Agency and Trust Company of Suite 880, Bank of America Plaza, 50 West Liberty Street, Reno, Nevada, 89501.

Limitation Of Liability: Indemnification

Our Articles of Incorporation include an indemnification provision under which we have agreed to indemnify directors and officers of CYOP to fullest extent possible from and against any and all claims of any type arising from or related to future acts or omissions as a director or officer of CYOP. In addition, the liability of our officers and directors for breaches of their fiduciary duty as a director or officer other than: (a) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of the law; or (b) the payment of dividends in violation of Nevada Revised Statutes Section 78.300.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of CYOP pursuant to the foregoing, or otherwise, CYOP has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

Anti-Takeover Effects Of Provisions Of The Articles Of Incorporation

Authorized and Unissued Stock. The authorized but unissued shares of our common are available for future issuance without our stockholders' approval. These additional shares may be utilized for a variety of corporate purposes including but not limited to future public or direct offerings to raise additional capital, corporate acquisitions and employee incentive plans. The issuance of such shares may also be used to deter a potential takeover of CYOP that may otherwise be beneficial to stockholders by diluting the shares held by a potential suitor or issuing shares to a stockholder that will vote in accordance with CYOP' Board of Directors' desires. A takeover may be beneficial to stockholders because, among other reasons, a potential suitor may offer stockholders a premium for their shares of stock compared to the then-existing market price.

38

EXPERTS

The consolidated financial statements as of and for the years ended December 31, 2002 and 2001 included in the Prospectus have been audited by Moore Stephens Ellis Foster Ltd., independent certified public accountants, to the extent and for the periods set forth in their report (which contains an explanatory paragraph regarding CYOP's ability to continue as a going concern) appearing elsewhere herein and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

LEGAL MATTERS

Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity of the shares of common stock offered hereby for us.

HOW TO GET MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form SB-2 under the Securities Act with respect to the securities offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information set forth in the registration statement, as permitted by the rules and regulations of the Commission. For further information with respect to us and the securities offered by this prospectus, reference is made to the registration statement. Statements contained in this prospectus as to the contents of any contract or other document that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the to the exhibits for a complete statement of their terms and conditions. The registration statement and other information may be read and copied at the Commission's Public Reference Ro om at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission.

39

CYOP SYSTEMS INTERNATIONAL

INCORPORATED & SUBSIDIARIES

Consolidated Financial Statements

(Expressed in U.S. Dollars)

September 30, 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)
	September 30		December 31
	2003		2002
ASSETS
Current
Cash and cash equivalents	$	4,355	$	4,253
Interest receivable related party (Note 6)		157,500		90,000
Prepaid expenses and deposit	-	1,538	-	-
Total current assets		163,394		94.253
Note receivable related party (Note 6)		1,590,272		1,585,034
Intellectual property (Note 4)		93,978		115,665
Fixed assets (Note 3)	-	83,893	-	58,953
Total assets	$	1,931,537	$	1,853,905
LIABILITIES
Current
Demand loans related party (Note 5a)	$	786,561	$	562,238
Accounts payable and accrued liabilities		208,077		147,480
Player funds on deposit		26,900		36,783
Short-term loan (Note 5b)	-	212,725	-	212,725
Total current liabilities		1,234,263		959,226
Deferred revenue (Note 6)	-	2,196,311	-	2,198,552
Total Liabilities	-	3,430,574	-	3,157,778
Nature and continuance of operations  (Note 1)
STOCKHOLDERS' (DEFICIENCY)
Share capital
Authorized:
500,000,000 shares of common stock with a par value of $0.00002 per share
Issued, allotted and outstanding:
142,973,410 shares of common stock		2,860		2,848
Additional paid-in capital		370,889		284,551
Accumulated other comprehensive income		-		-
Deficit accumulated	-	(1,872,786)	-	(1,591,272)
Total stockholders' (deficiency)	-	(1,499,037)	-	(1,303,873)
Total liabilities and stockholders' (deficiency)	$	1,931,537	$	1,853,905

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

F-2

CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
Consolidated Statement of Stockholders' Deficiency
Nine Months Ended September 30, 2003
(Unaudited)
(Expressed in U.S. Dollars)
				Compre-		Total
			Additional	hensive		Stock-
	Common stock		paid-in	income	Deficit	holders'
	Shares	Amount	capital	(loss)	accumulated	(deficiency)
Balance, December 31, 2002	142,373,410	$         2,848	$       284,551		$   (1,591,271)	$   (1,303,872)
Imputed interest on loan due to a related party	-	-	50,350			50,350
Shares issued for capital equipment at $0.06 Per share on September 30, 2003	600,000	12	35,988			36,000
Comprehensive income - net income for the period	-	-	-	(281,515)	(281,515)	(281,515)
				$(281,515)
Balance, September 30, 2003	142,973,410	14,297	370,889		(1,872,786)	(1,499,037)

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

F-3 

 

CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(Expressed in U.S. Dollars)
	For the Three Months Ended September 30		For the Nine Months Ended September 30
	2003	2002	2003	2002
Revenue
License fees	-	-	-	240,000
Service fees	4,030	4,693	23,656	82,544
Sale - Crediplay - related party (Note 6)	350	-	2,241	-
Ad sales	-	29,666	-	138,234
Banking fees	86	-	951	-
	4,466	34,359	26,848	460,778
Cost of sales	36,860	48,157	120,844	269,556
Charge-backs	842		842
Gross profit (loss)	(33,236)	(13,798)	(94,838)	191,222
Advertising and promotion expenses	(1,522)	(24,772)	(78,330)	(40,199)
Commissions	-	(11,464)	-	(36,169)
Software development costs	-	-	-	(94,368)
Gain on disposal of a subsidiary	-	-	-	1,017,262
General and administrative expenses
Accounting and audit	(4,990)	(5,073)	(635)	(23,518)
Amortization of intangible assets	(7,229)	-	(21,687)
Automobile	-	(11,000)	-	(20,398)
Bad debt	-	-	(12,189)	-
Bank charges and interest	(348)	(8,973)	(1,649)	(30,625)
Contractors and consultants fees	-	-	(32,700)	-
Depreciation of fixed assets	(3,480)	(5,167)	(11,060)	(16,794)
Filing fees	(300)	-	(4,354)
Foreign exchange (gain) loss	-	(12,007)	(66)	(10,274)
Hosting fees	-	(44,947)		(89,894)
Imputed interest expense - related party	(18,262)		(50,351)
Legal and other professional fees	(817)	(1,929)	(11,700)	(2,799)
Office and miscellaneous	(41)	(13,053)	(3,164)	(13,876)
Press Release expense	(274)	-	(274)	-
Rent	(487)	(14,678)	(8,599)	(28,801)
Salaries and benefits	-	-		(34,599)
Telephone and bandwidth	(7,048)	(12,547)	(20,383)	(21,617)
Travel	(90)	(345)	(2,274)	(345)
	(44,888)	(165,955)	(259,415)	552,986
Operating income (loss)	(78,124)	$   (179,753)	(354,253)	$    744,208
Other income (loss)
Interest income related party	22,500	44,947	72,738	89,894
Net income (loss) for the period	(55,624)	(134,806)	(281,515)	834,102
Earnings (loss) per share - basic and diluted	(0.00)	(0.00)	(0.00)	0.01
Weighted average number of	142,973,410	142,199,875	142,973,410	142,199,875

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

F-4

CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in U.S. Dollars)
	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2003		2002		2003		2002
Cash flows from (used in) operating activities
Net (loss) income for the year	(55,624)		(134,806)		(281,515)		834,102
Adjustments to reconcile net loss to net cash
Used in operating activities:
- amortization of intangible assets	7.229		-		21,687		-
- depreciation of fixed assets	3,480		5,167		11,060		26,581
- imputed interest on related party loan	18,262		-		50,351		2,500
Changes in assets and liabilities:
- accounts receivable	-		(3,829)		-		150,923
- accounts payable and accrued liabilities	30,320		31,207		60,598		(425,513)
- deferred revenue	(350)		-		(2,241)		-
- interest receivable	(22,500)		-		(67,500)		-
- loan receivable	-		(5,375)		-		(458,051)
- note receivable related party	-		-		(5,238)		-
- prepaid expenses	(1,538)		-		(1,538)		49,191
- player funds on deposit	(1,673)		32,017		(9,883)		32,017
- payroll deductions payable	-		-				(359,245)
	(22,394)		(75,619)		(224,219)		(147,495)
Cash flows used in investing activities
Increase in demand loan receivable	-		101,108		-		98,301
Disposal of fixed assets	-		-				125,766
	-		101,108		-		65,767
Cash flows from financing activities
Proceeds of investor deposit	-		-		-		-
Increase in due from a director	20,809		(26,000)		224,322		102,967
Proceeds from demand loans			-		-
	20,809		(26,000)		224,322		102,967
Foreign exchange gain (loss) on cash held in
foreign currency	-		1,250		-		1,250
Increase (decrease) in cash and cash equivalents	(1,584)		(509)		102		21,239
Cash, beginning of period	5,939		4,997		4,253		(16,752)
Cash (deficiency), end of period	$	4,355	$	5,737	$	4,355	$	5,737
Cash represented by:
Cash	$	1,422	$	1,287	$	1,422	$	1,287
Cash with processors		2,933		4,450		2,933		4,450
	$	4,355	$	5,737	$	4,355	$	5,737

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

F-5

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(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.

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.

F-6

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

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 online internet transaction platform maintenance. Revenues are recognized when players complete an on-line game. The Company has no significant performance requirements, and, there are no material uncertainties regarding customer acceptance and collection of the network maintenance fee 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 period ended September 30, 2003 amounted to $78,330 (2002 - $40,199).

F-7

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

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.

F-8

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

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 September 30, 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 is 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 125,000 common shares that are outstanding at September 30, 2003 are not dilutive.

F-9

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

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 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.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement is effective for contracts entered into or modified after June 30, 2003. We do not expect the implementation of SFAS No. 149 to have a material impact on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 30, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We do not expect the implementation of SFAS No. 150 to have a material impact on our consolidated financial statements.

F-10

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

3.

Fixed assets

	September 30, 2003
	Cost	Accumulated depreciation	Net book Value
Audio and visual equipment	$21,558	$10,861	$10,697
Computer hardware	96,864	27,144	69,720
Computer software	3,088	3,088	-
Office furniture and equipment	9,227	5,751	3,476
Total

	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	$  130,737	$  35,784	$  58,953

For the period ended September 30, 2003, depreciation expenses charged to cost of service, software development costs and general and administrative expenses were $11,060.

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.

F-11

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

4.

Intangible Assets   (continued)

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.

In accordance with SFAS No. 142, the Company wrote down the acquired intellectual property of $13,719 to its fair value in fiscal year 2002.  The changes in the carrying amount of intellectual property as follows:

		September 30 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		(21,687)		(28,916)
Balance, end of period	$	93,978	$	115,665

F-12

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

5.

Loans

(a)

Demand Loans Related Party

	September 30 2003	December 31 2002
i. Non-interest bearing and unsecured: - Jack Carley - related to a director	$           44,625	$           44,625
-  Mitch White - a director and stockholder	739,822	517,613
-  Gordon Samson - a director	2,114	-
Total	$         786,561	$         562,238

(b)

Short-term Loan

	September 30 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

F-13

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

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:

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		(74,083)
Deferred gain as at September 30, 2003	$	2,196,311

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

F-14

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

7.

Related Party Transactions

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

(a)

During the period ending September 30, 2003, the Company accrued imputed interest of $50,351 at an interest rate of 10% per annum on interest-free loan on a weighted average totaling $730,492 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 in the quarter 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 6)

(d)

See Note 4, and 5 (a)

8.

Income Taxes

As at September 30, 2003 the Company has non-capital losses and undepreciated capital cost of approximately $1,685,000 and $43,000, 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:

	September 30 2003	December 31 2002
Undepreciated capital cost of capital assets over their net book value	15,000	13,000
Estimated tax loss carryforwards	590,000	520,000
Less: valuation allowance	(605,000)	(533,000)
	-	-

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

F-15

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

9.

Stock Option

The following is a summary of the stock option outstanding as at September 30, 2003:

	Shares	Weighted Average Exercise Price
Options outstanding at September 30, 2002	125,000	$      0.20

Options Outstanding and Exercisable
Range of Exercise Prices	Number Outstanding and Exercisable	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$0 - $1.00	125,000	2.42	$0.20

10.

Geographic Information

The Company's fixed assets are located in the United States.

11.

Legal Proceedings

Former independent contractors filed complaints under the Employment Standards Act, R.S.B.C. 1996, c. 113 with the Employment Standards Branch of British Columbia. A subsequent Determination made by the Delegate of the Director of Employment Standards dated July 14, 2003 rendered a decision that the three complainants are not independent contractors and determined the complainants to be employees of the Company. The Company on August 21, 2003 appealed this determination. As at this date a final determination has not been rendered by the Employment Standards Tribunal.

Further with respect to the above complainants an audit for payroll taxes is being conducted by Canada Customs and Revenue Agency ("CCRA").

12.

Non Cash Investing Activity

During the period, the Company issued 600,000 common shares valued at $36,000 to acquire computer hardware.

F-16

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Nine months ended September 30, 2003

(Unaudited)

(Expressed in U.S. dollars)

14.

Share Split

The Company announced on September 26, 2003 that by a special directors resolution dated September 19, 2003: "That the Secretary of the corporation is hereby ordered and directed to obtain the written consent of stockholders owning at least a majority or the voting power of the outstanding stock of the corporation for the following purpose, to amend Article Four to effect a forward split of the stock of the corporation on a basis of one (1) share of the presently outstanding stock being surrendered for five (5) shares of the newly authorized stock."

The financial statements of the Company have been restated to reflect the five (5) shares to one (1) share forward split.

F-17

CYOP SYSTEMS INTERNATIONAL

INCORPORATED

Consolidated Financial Statements

(Expressed in U.S. Dollars)

December 31, 2002 and 2001

Index

Report of Independent Accountants

Consolidated Balance Sheets

Consolidated Statement of Stockholders' Deficiency

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

MOORE STEPHENS

ELLIS FOSTER LTD.

CHARTERED ACCOUNTANTS

1650 West 1^st Avenue

Vancouver, BC  Canada   V6J 1G1

Telephone:  (604) 737-8117  Facsimile: (604) 714-5916

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders

CYOP SYSTEMS INTERNATIONAL INCORPORATED

We have audited the consolidated balance sheets of CYOP Systems International Incorporated ("the Company") as at December 31, 2002 and 2001, the related consolidated statements of stockholders' deficiency and the consolidated statements of operations and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2002 and 2001 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.   As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 1.  These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Vancouver, Canada	"MOORE STEPHENS ELLIS FOSTER LTD."
February 6, 2003	Chartered Accountants

F-2

CYOP SYSTEMS INTERNATIONAL INCORPORATED
Consolidated Balance Sheets
December 31, 2002 and 2001
(Expressed in U.S. Dollars)
		2002		2001
ASSETS
Current
Cash and cash equivalents	$	4,253	$	1,852
Accounts receivable		-		178,910
Demand loan, interest at 12% per annum and unsecured		-		14,472
Due from director, non interest bearing and unsecured		-		105,738
Interest receivable related party (Note 7)		90,000		-
Prepaid expenses and deposit		-		49,191
Total current assets		94,253		350,163
Note receivable related party  (Note 7)		1,585,034		1,565,452
Fixed assets (Note 3)		58,953		222,646
Intangible assets (Note 5)		115,665		-
Total assets	$	1,853,905	$	2,138,261
LIABILITIES
Current
Bank overdraft	$	-	$	18,604
Demand loans (Note 6a)		-		452,676
Demand loans related party (Note 6b)		562,238		50,000
Accounts payable and accrued liabilities		147,480		586,139
Payroll deductions payable		-		365,115
Player funds on deposit		36,783		-
Short-term loan (Note 6c)		212,725		228,421
Investor deposit		-		10,000
Total current liabilities		959,226		1,707,955
Deferred revenue (Note 7)		2,198,552		2,270,394
Total Liabilities		3,157,778		3,978,349
Nature and continuance of operations  (Note 1)
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:
28,474,682 shares of common stock (2001 - 28,439,975)		2,848		2,844
Additional paid-in capital		284,551		219,127
Accumulated other comprehensive income		-		133,194
Deficit accumulated		(1,591,272)		(2,195,253)
Total stockholders' (deficiency)		(1,303,873)		(1,840,088)
Total liabilities and stockholders' (deficiency)	$	1,853,905	$	2,138,261

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

F-3

CYOP SYSTEMS INTERNATIONAL INCORPORATED
Consolidated Statement of Stockholders' Deficiency
Years ended December 31, 2002 and 2001											Page 1 of 2
(Expressed in U.S. Dollars)
	Common stock			Additional paid-in			Compre- hensive income	Deficit		Accumulated other compre- hensive		Total Stock- holders'
	Shares	Amount		capital			(loss)	accumulated		income		(deficiency)
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	17,500		2		17,498				-		-		17,500
on January 8, 2001
Shares issued for cash at $1.00 per share	12,200		1		12,199				-		-		12,200
on January 19, 2001
Shares issued for cash at $1.40 per share	13,000		1		18,199				-		-		18,200
on February 14, 2001
Shares issued for cash at $1.00 per share	3,000		1		2,999				-		-		3,000
on March 8, 2001
Shares issued for cash at $1.00 per share	11,300		1		11,299				-		-		11,300
on April 24, 2001
Imputed interest on loan due to a related party	-		-		1,900				-		-		1,900
Components of comprehensive income
- foreign currency translation adjustment	-		-		-	$	118,393		-		118,393		118,393
- net (loss) for the year	-						(751,136)		(751,136)		-		(751,136)
Stock-based compensation					5,796								5,796
Comprehensive income (loss)						$	(632,743)
Balance, December 31, 2001	28,439,975	$	2,844	$	219,127			$	(2,195,253)	$	133,194	$	(1,840,088)

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

F-4

CYOP SYSTEMS INTERNATIONAL INCORPORATED
Consolidated Statement of Stockholders' Deficiency
Years ended December 31, 2002 and 2001											Page 2 of 2
(Expressed in U.S. Dollars)
				Additional			Compre- hensive			Accumulated other compre-		Total Stock-
	Common stock			paid-in			income	Deficit		hensive		Holders'
	Shares	Amount		capital			(loss)	accumulated		income		(deficiency)
(continued from page 1)
Balance, December 31, 2001	28,439,975		2,844		219,127				(2,195,253)		133,194		(1,840,088)
Shares issued for services at $1.00 per share	34,707		4		34,703				-		-		34,707
on March 11, 2002
Imputed interest on loan due to a related party	-		-		30,721				-		-		30,721
Components of comprehensive income
- foreign currency translation adjustment	-		-		-		(133,194)		-		(133,194)		(133,194)
- net income for the year	-		-		-		603,981		603,981		-		603,981
Comprehensive income (loss)						$	470,787
Balance, December 31, 2002	28,474,682	$	2,848	$	284,551			$	(1,591,272)	$	-	$	(1,303,873)

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

F-5

CYOP SYSTEMS INTERNATIONAL INCORPORATED
Consolidated Statements of Operations
Years ended December 31, 2002 and 2001
(Expressed in U.S. Dollars)
		2002		2001
Revenue
Sale - Crediplay - related party (Note 7)	$	71,842	$	-
Sale - Crediplay		27,340		-
License fees related party		240,000		509,225
Service fees		61,576
Ad sales		144,365		3,705
		545,123		512,930
Cost of sales		209,518		300,647
Gross profit		335,605		212,283
Sales and marketing expenses		(209,619)		(101,217)
Loan interest expense		-		(177,288)
General and administrative expenses
Accounting and audit		(30,438)		(38,221)
Amortization of intangible assets		(28,916)		-
Automobile		(22,400)		(64,192)
Bad debt		(92,778)		(46,500)
Bank charges and interest		(31,068)		-
Commissions		(35,873)
Depreciation of fixed assets		(21,574)		(5,058)
Foreign exchange loss		(5,361)		(64,032)
Imputed interest expense - related party		(30,721)		(1,900)
Legal and other professional fees		(2,959)		(149,017)
Office and miscellaneous		(42,933)		(68,741)
Rent		(38,181)		(52,807)
Contractors and consultants fees		(137,109)		(131,605)
Stock-based compensation		-		(5,796)
Telephone and bandwidth		(42,778)		(25,227)
Travel		(4,356)		-
Operating loss		(441,459)		(719,318)
Other income (loss)
Interest income related party		109,582		-
Write down of intangible assets		(13,719)		-
Write off of leasehold improvement		-		(31,434)
Loss on disposal of fixed assets		-		(384)
Gain on disposal of subsidiary (Note 8)		949,577		-
Net income (loss) for the year	$	603,981	$	(751,136)
Earning (loss) per share - basic and diluted	$	0.02		(0.03)
Weighted average number of common shares outstanding - basic and diluted		28,457,328		28,433,430

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

F-6

CYOP SYSTEMS INTERNATIONAL INCORPORATED
Consolidated Statements of Cash Flows
Years Ended December 31, 2002 and 2001
(Expressed in U.S. Dollars)
		2002		2001
Cash flows from (used in) operating activities
Net loss for the year	$	603,981	$	(751,136)
Adjustments to reconcile net loss to net cash
Used in operating activities:
- amortization of intangible assets		28,916		-
- bad debt		92,778		46,500
- depreciation of fixed assets		21,574		45,176
- capitalized software development costs		-		100
- gain on sale of subsidiary		(949,577)		-
- loss on disposal of fixed assets		-		384
- imputed interest on related party loan		30,721		1,900
- stock-based compensation		-		5,796
- shares issuance for services		34,707		-
- write down of intangible asset		13,719		-
- write off leasehold improvement		-		31,434
Changes in assets and liabilities:
- accounts receivable		76,005		(162,102)
- interest receivable		(90,000)		-
- note receivable related party		(19,582)		-
- prepaid expenses and deposit		-		1,801
- accounts payable and accrued liabilities		49,543		380,766
- payroll deductions payable		-		134,426
- player funds on deposit		36,783		-
- deferred revenue		(71,842)		-
		(142,274)		(264,955)
Cash flows from (used in) investing activities
Proceeds from disposal of fixed assets		-		6,743
Increase in software development costs		-		(454,840)
Purchase of intellectual property		(158,300)		-
Purchase of fixed assets		-		(103,819)
		(158,300)		(551,916)
Cash flows from (used in) financing activities
Shares issued for cash		-		62,200
Increase (decrease) in demand loan		14,472		(14,472)
Increase in due from director		6,498		(105,738)
Proceeds from investor deposit		(10,000)		10,000
Proceeds from demand loan - related party		443,803		471,835
Proceeds from short-term loans		-		228,421
		454,773		652,246
Effect of exchange rate changes		(133,194)		118,393
Decrease in cash and cash equivalents		21,005		(46,232)
Cash and cash equivalents, beginning of year		(16,752)		29,480
Cash and cash equivalents (deficiency), end of year	$	4,253	$	(16,752)
Cash and cash equivalents (deficiency)  represented by:
Cash	$	4,253	$	1,852
Bank overdraft		-		(18,604)
	$	4,253	$	(16,752)

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

F-7

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(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.

F-8

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

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 ended December 31, 2002 amounted to $209,619 (2001 - $101,217).

F-9

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

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.

F-10

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

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 December 31, 2002, 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 December 31, 2002 are not dilutive.

F-11

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

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.

F-12

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

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

	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	$     94,737	$     35,784	$     58,953

F-13

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

3.

Fixed Assets   (continued)

	December 31, 2001
	Cost	Accumulated depreciation	Net book Value
Audio and visual equipment	$    21,578	$    5,957	$    15,621
Computer hardware	284,526	84,237	200,289
Computer software	3,090	3,090	-
Office furniture and equipment	9,402	2,666	6,736
Total	$  318,596	$     95,950	$    222646

For the year ended December 31, 2002, depreciation expenses charged to cost of service, software development costs and general and administrative expenses were $21,574 (2001 - $45,176).

4.

Software Development Costs

	2002	2001
Balance, beginning of year	$     -	$   100
Salaries and benefits	-	454,840
Depreciation on fixed assets	-	40,118
	-	495,058
Costs charged to expenses	-	-
Costs charged to sale of software (Note 7)	-	(495,058)
Balance, end of year	$     -	$     -

F-14

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

5.

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.

F-15

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

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:

		2002		2001
Balance, beginning of year	$	-	$	-
Intangible assets acquired during the period
- intellectual property		158,300		-
Impairment of intangible assets during the period		( 13,719)		-
Fair value		144,581		-
Accumulated amortization		( 28,916)		-
Balance, end of year	$	115,665	$	-

6.

Loans

(a)

Demand Loans

	December 31 2002	December 31 2001
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

F-16

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

6.

Loans   (continued)

(b)

Demand Loans Related Party

	December 31 2002	December 31 2001
i. Non-interest bearing and unsecured: - Jack Carley - related to a director and stockholder	$     44,625	$     50,000
-  Mitch White - a director and stockholder	517,613	-
Total	$     562,238	$     50,000

(c)

Short-term Loan

	December 31 2002	December 31 2001
i. Interest at 40% per annum, due on January 25, 2002:
- Kornfeld MacOff (Cdn$25,000)	$                 -	$       15,696
ii. Interest at 10% per annum, due on June 1, 2002:
- RedRuth Ventures	212,725	212,725
Total	$     212,725	$     228,421

F-17

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

7.

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
Recognized gain		(71,842)
Deferred gain 2002	$	2,198,552

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

F-18

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

8.

Gain on Disposal of Subsidiary

During the fiscal year 2002, the Company sold its wholly owned subsidiary Moshpit Entertainment Inc. ("Moshpit") to a former stockholder and the sole director of Moshpit for a total consideration of $100.  Upon the disposition of Moshpit, the Company recognized a book gain of $949,577.

9.

Economic Dependence

In fiscal year 2001, the Company entered into a software development agreement and a software licensing, technical support and operation of customer service and data centre agreement with a company with a common director.

The Company received fees of $193,685 in completion of the software development agreement. Pursuant to the software licensing, technical support and operation of customer service and data centre agreement, the Company is to receive a monthly license fee equal to 25% of the network maintenance fees collected (minimum at $60,000 per month), and a monthly service fee equal to 5% of the network maintenance fees collected (minimum at $18,000).

During the fiscal year 2001, total revenue of $509,225 were accrued from the serviced company.

As at December 31, 2001, $167,886 related to these services was still unpaid and included in accounts receivable.

During the fiscal year 2002, the Company terminated the above noted agreements (see Note 5)

F-19

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

10.

Related Party Transactions

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

(a)

During the fiscal year 2002, the Company accrued imputed interest of $30,721 at an interest rate of 10% per annum on interest-free loan totalling $562,238 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 (2001 - $76,234) was paid to a director and a stockholder of the Company and were charged to expenses.

(c)

Interest receivable of $90,000 (2001 - $nil) 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)

In a settlement with a company with a common director (see note 5) a certain amount of advertising inventory was granted to one of the Company's directors. During the year 2002, $159,209 of ad-serving was provided by a director on account of the company with a common director and was charged as advertising cost to the company.

(e)

See Note 5, 6 (b), 7 and 8.

11.

Non-cash Activities

During the fiscal year 2002, the Company issued 34,707 shares of common stock for services performed during the year.  The 34,707 shares of common stock were recorded at $34,707 as the fair value of services received.

F-20

CYOP SYSTEMS INTERNATIONAL INCORPORATED

Notes to Consolidated Financial Statements

Years Ended December 31, 2002 and 2001

(Expressed in U.S. dollars)

12.

Income Taxes

As at December 31, 2002 the Company has non-capital losses and undepreciated capital cost of approximately $1,487,000 and $36,000, 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:

	2002	2001
Undepreciated capital cost of capital assets over their net book value	13,000	34,000
Estimated tax loss carryforwards	520,000	745,000
Less: valuation allowance	(533,000)	(779,000)
	-	-

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

13.

Stock Option

On May 8, 2001, 25,000 options were granted to a service provider for the deferral of the payment obligation permitting the purchase of common shares at $1.00 per share effectively immediately and expiring on May 9, 2004.  Under the SAFS 123, accounting for Stock-Based Compensation, fair value of the options at the date of grant was determined to be $5,796 based on the imputed interest expenses forgiven by the service provider.  There was no stock option granted and issued during the fiscal year 2002.

The following is a summary of the stock option outstanding as at December 31, 2002:

	Shares	Weighted Average Exercise Price
Options outstanding at December 31, 2002 and 2001	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

14.

Geographic Information

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

15.

Subsequent Events

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.

F-21

We have not authorized any dealer, salesperson or other person to provide any information or make any representations about CYOP Systems International Incorporated except the information or representations contained in this prospectus. You should not rely on any additional information or representations if made.
-----------------------
This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy any securities: except the common stock offered by this prospectus; in any jurisdiction in which the offer or solicitation is not authorized; in any jurisdiction where the dealer or other salesperson is not qualified to make the offer or solicitation; to any person to whom it is unlawful to make the offer or solicitation; or to any person who is not a United States resident or who is outside the jurisdiction of the United States. The delivery of this prospectus or any accompanying sale does not imply that: there have been no changes in the affairs of CYOP Systems International Incorporated after the date of this prospectus; or the information contained in this prospectus is correct after the date of this prospectus.	---------------------- PROSPECTUS --------------------- 137,812,500 Shares of Common Stock CYOP SYSTEMS INTERNATIONAL INCORPORATED ______________, 2004
-----------------------
Until _________, 2004, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Indemnification Of Directors And Officers

Our Articles of Incorporation include an indemnification provision under which we have agreed to indemnify directors and officers of CYOP to fullest extent possible from and against any and all claims of any type arising from or related to future acts or omissions as a director or officer of CYOP. In addition, the liability of our officers and directors for breaches of their fiduciary duty as a director or officer other than: (a) acts or omissions which involve intentional misconduct, fraud, or a knowing violation of the law; or (b) the payment of dividends in violation of Nevada Revised Statutes Section 78.300.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of CYOP pursuant to the foregoing, or otherwise, CYOP has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

Other Expenses Of Issuance And Distribution

The following table sets forth estimated expenses expected to be incurred in connection with the issuance and distribution of the securities being registered. CYOP will pay all expenses in connection with this offering.

Securities and Exchange Commission Registration Fee	$	524
Printing and Engraving Expenses	$	2,500
Accounting Fees and Expenses	$	10,000
Legal Fees and Expenses	$	35,000
Miscellaneous	$	1,976
TOTAL	$	50,000

Recent Sales Of Unregistered Securities

Since January 1, 2001, CYOP sold the following securities without registering under the Securities Act of 1933:

In January 2001, CYOP sold 29,700 shares of common stock for total consideration of $29,700 to accredited investors.

In February 2001, CYOP sold 13,000 shares of common stock for total consideration of $18,200 to accredited investors.

In March 2001, CYOP sold 3,000 shares of common stock for total consideration of $3,000 to accredited investors.

In April 2001, CYOP sold 11,300 shares of common stock for total consideration of $11,300 to accredited investors.

In March 2002, CYOP issued 34,707 shares of common stock for services valued at $34,707.

In September 2003, CYOP issued 600,000 shares of common stock for capital equipment valued at $36,000.

In September 2003, CYOP affected a 5-for-1 stock split pursuant to which CYOP issued four additional shares of common stock for each share outstanding as of September 26, 2003.

II-1

With respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and Regulation D promulgated under the 1933 Act. In each instance, the purchaser had access to sufficient information regarding CYOP so as to make an informed investment decision. More specifically, CYOP had a reasonable basis to believe that each purchaser was an "accredited investor" as defined in Regulation D of the 1933 Act and otherwise had the requisite sophistication to make an investment in CYOP's securities.

II-2

                                 Exhibits

Exhibit No.	Description	Location
3.1	Articles of Incorporation	Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 30, 2001
3.2	Certificate of Amendment to Articles of Incorporation	Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 30, 2001
3.3	Certificate of Amendment to Articles of Incorporation	Incorporated by reference to Exhibit 99.3 to the Company's Form 8-K filed with the Securities and Exchange Commission on October 8, 2003
3.4	Bylaws	Incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 30, 2001
5.1	Opinion re: Legality	To be provided by amendment
10.1	Share Purchase Agreement between CYOP Systems, Inc. (Vendors), a wholly-owned subsidiary of the Company, and Steve White (Purchaser) dated as of April 1, 2002	Incorporated by reference to Exhibit 1.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on August 20, 2002
10.2	Software Acquisition Agreement between CYOP Systems, Inc. (Vendor), a wholly-owned subsidiary of the Company, and Mitch White (Purchaser) dated as of December 14, 2001	Incorporated by reference to Exhibit 1.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on April 15, 2002
10.3	Marketing Development & Distribution Agreement between the Company (Marketer) and Mitch White (Vendor) dated as of December 14, 2001	Incorporated by reference to Exhibit 1.2 to the Company's Form 8-K filed with the Securities and Exchange Commission on April 15, 2002
10.4	Share Purchase Agreement	Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 30, 2001
10.5	Software License Agreement	Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 30, 2001
10.6	2003 Consultant Stock Plan	Incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 29, 2003
10.7	Management Agreement dated as of January 2003 between CYOP and Mitch White	Provided herewith
10.8	Management Agreement dated as of January 2003 between CYOP and Gordon Samson	Provided herewith

II-3

10.9	Management Agreement dated as of January 2003 between CYOP and Patrick Smyth	Provided herewith
10.10	Standby Equity Distribution Agreement dated as of January 2004 between the Company and Cornell Capital Partners, L.P.	Provided herewith
10.11	Placement Agent Agreement dated as of January 2004 between the Company and Newbridge Securities Corporation	Provided herewith
10.12	Registration Rights Agreement dated as of January 2004 between the Company and Cornell Capital Partners, L.P.	Provided herewith
10.13	Securities Purchase Agreement dated as of  January 2004 between the Company and Cornell Capital Partners, L.P.	Provided herewith
10.14	Secured Debenture dated as of January 2004	Provided herewith
10.15	Security Agreement dated as of January 2004 between the Company and Cornell Capital Partners, L.P.	Provided herewith
10.16	Escrow Agreement dated as of January 2004 between the Company and Cornell Capital Partners, L.P.	Provided herewith
10.17	Registration Rights Agreement dated as of January 2004 between the Company and Cornell Capital Partners, L.P.	Provided herewith
10.18	Escrow Agreement dated as of January 2004 between the Company and Cornell Capital Partners, L.P.	Provided herewith
10.19	Irrevocable Transfer Agent Instructions	Provided herewith
10.20	Form of Warrant	Provided herewith
21.1	Subsidiaries of Company	Incorporated by reference to Exhibit 21.1 to the Company's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on October 30, 2001
23.1	Consent of Independent Public Accountants	Provided herewith

II-4

Undertakings

The undersigned registrant hereby undertakes:

(1)

               To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:

(i)

                                           Include any prospectus required by Sections 10(a)(3) of the Securities Act of 1933 (the "Act");

(ii)

                                                               Reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement;

(iii)

                                  Include any additional or changed material information on the plan of distribution;

  (2)            That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the bona fide offering thereof.

  (3)            To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the end of the offering.

Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been set tled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

II-5

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on our behalf by the undersigned, on March 1, 2004.

CYOP SYSTEMS INTERNATIONAL INCORPORATED

By:         /s/ MitchWhite                                                

Name:                 Mitch White                                        

Title:                    Chief Executive Officer                       

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.

SIGNATURE	TITLE	DATE
/s/ Mitch White		March 1, 2004
Mitch White	Chief Executive Officer (Principal Executive
	Officer) and Chairman of the Board of Directors
/s/ Gordon A. Samson	Chief Financial Officer (Principal Financial	March 1, 2004
Gordon A. Samson	Officer) and Director
/s/ Norman MacKinnon	Director	March 1 , 2004
Norman MacKinnon

II-6

EX-10

EXHIBIT 10.7

MANAGEMENT AGREEMENT

THIS AGREEMENT made as of  January 1, 2003.

BETWEEN:

CYOP Systems International Inc. a company duly incorporated under the laws of the State of Nevada under Certificate of Incorporation and having a place of business at Suite 406, 1040 Hamilton Street, Vancouver, British Columbia.

(hereinafter called the "Company" or “CYOP”)

OF THE FIRST PART

AND:

Mitch White of 5469 Wildwood Crescent, Tsawwassen, British Columbia  V4M 3S9

(hereinafter called the "Executive")

OF THE SECOND PART

WITNESSETH that the parties agree as a follows:

APPOINTMENT

1.01

The Company hereby employs Executive as its Chairman of the Board and Chief Executive Officer ("CEO") upon the terms and conditions set forth in this Agreement. As CEO, the Executive shall always be the most senior Company officer and shall have the duties, responsibilities and authority that are customarily associated with such position. Executive’s duties and responsibilities shall include authority for acquisitions, divestitures, investor relations and overall management of the company subject to Board policies or direction. Executive shall also perform other functions consistent with the CEO position and shall report directly and solely to the Board. Executive shall perform his job in City, State and shall not have to render services at another location except on a temporary basis. Executive shall be permitted to perform outside business endeavors, subject to non-competition agreements between the Company and the Executive and provided that such outside activities do not interfere with the performance of Executive’s duties.

TERM

2.01

The Executive will provide the Services in accordance with the provisions of this Agreement. Notwithstanding execution and delivery of this Agreement, this is an at-will agreement deemed to have commenced on the effective date of this agreement.

"Termination of Agreement: This Agreement shall expire when all obligations of the parties hereunder have been satisfied.

(1)

In General: In addition, except as described in Paragraph 2 below, either the Corporation or the Executive may terminate this Agreement for any reason, and without affecting the Executive’s status as an employee, by giving the other party one year’s advance notice in writing.

(2)

After a Change In Control: If a Change in Control occurs, the Corporation may not provide notice of termination of this Agreement under Paragraph (1) above within the one-year period after the Change In Control. In other words, in this case, the effective date of the termination of the Agreement may be no earlier than two years after the Change in Control. For all purposes under this Agreement, the term "Corporation" shall include any successor to the Corporation’s business and/or assets that executes and delivers the assumption agreement described in this Agreement or that becomes bound by this Agreement by operation of law.

A ‘Change in Control’ shall mean:

(1)

The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; or

(2)

 the sale, transfer or other disposition of all or substantially all of    the Company’s assets; or

(3)

A change in the composition of the Board of Directors, as a result of which fewer than one-half of the incumbent directors are directors who either:

(A)

Had been directors of the Company twenty-four (24) months prior to such change; or

(B)

Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of the Company twenty-four (24) months prior to such change and who were still in office at the time of the election or nomination.

A transaction shall not constitute a Change of Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction."

A termination of this Agreement pursuant to this subsection shall be effective for all purposes at the end of the notice period, except that such termination shall not affect the payment or provision of compensation or benefits under this Agreement on account of a termination of employment occurring prior to the termination of this Agreement."

TERMINATION

3.01

Cause: The Company may terminate your employment for "Cause." "Cause" includes a willful violation of any major Company policy, conviction of any criminal or civil law involving moral turpitude, willful misconduct resulting in a material reduction of your work effectiveness, or willful and reckless disregard for the best interests of the Company."

3.02

For these purposes, no act or failure to act shall be considered "willful" unless it is done, or omitted to be done, in bad faith without reasonable belief that the action or omission was in the best interest of the Company. In the event corrective action is not satisfactorily taken by you, in each case as determined by the Board, as described above, a final written notice of termination shall be provided to you by the Company."

3.03

Involuntary Termination Without Cause or Disability: In the event that, during the term of this Agreement, the Corporation terminates Executive’s employment for any reason other than Cause or Disability, or, such termination does not occur in accordance with paragraph 2.01 (2) after a Change in Control, then the Executive shall be entitled to receive the following payments and benefits:

(a)

Severance (2x payment): The Corporation shall pay to the Executive following the date of the employment termination and over the succeeding 24 months, in accordance with standard payroll procedures, an amount equal to the following:

(1)

Two hundred percent (200%) of the Executive’s Base Compensation in effect on the date of the employment termination;

Plus

(3)

Two hundred percent (200%) of the Executive’s annual incentive     bonus earned on a quarterly basis as of the date of the termination, assuming the Executive was employed on the last day of the quarter in which termination of employment occurred.

Any other provision of this Agreement or of the Corporation’s Incentive Bonus Plan notwithstanding, after the amount described in this Subsection (a) has been paid to the Executive, the Executive shall have no further interest in such Plan.

No Mitigation: The Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this section, nor shall any such payment or benefit be reduced by any earnings or benefits that the Executive may receive from any other source.

3.04

Incentive Programs: The Continuation Period shall be counted as employment with the Corporation for purposes of vesting in each of the incentive awards heretofore or hereafter granted to the Executive by the Corporation, any contrary provisions of such awards or the applicable plan notwithstanding. This Subsection shall not be construed to require any member of the Corporation to grant any new awards to the Executive during the Continuation Period. The parties understand and agree that the Continuation Period also counts as employment with the Corporation for purposes of determining the expiration date of any incentive award granted by any member of the Corporation and held by the Executive when employment terminates."

LATE PAYMENT

4.01

Late or Refused Payment: If the Corporation refuses or fails to timely pay or provide the compensation and benefits specified in this section upon demand as provided in this Agreement and if such refusal or failure is not corrected within 10 business days after the Executive provides written notice to the Corporation concerning the refusal or failure, then the Corporation shall pay immediately to the Executive an additional amount equal to 50% of the Executive’s Base Compensation."

PAYMENT

5.01

The Company will pay a Base Salary to the Executive, $10,000.00USD per month, in full payment and reimbursement for providing the Services and expenses in the amounts, in the manner and at the times set out in Schedule “B” attached hereto and the Executive will accept such fees and expenses as full payment and reimbursement as aforesaid.

5.02

Incentive Compensation: In addition to the Base Salary, the Company shall pay to Executive as incentive compensation ("Incentive Compensation") in respect of each calendar year (or portion thereof) of the Company, an amount determined in accordance with any bonus or short term incentive compensation program (which may be based upon achieving certain specified performance criteria) which may be established by the Board either for the Executive or for senior management. The determination as to the amounts of any awards available to the Executive under these programs shall be reviewed at least annually by the Company’s Executive Compensation Committee to ensure that such amounts are competitive with awards granted to similarly situated executives of publicly held companies comparable to the Company.

5.03

INITIAL ANNUAL BONUS. The Executive's target annual bonus will be sixty percent (60%) of his Base Salary as in effect for the 2003 year (the "Target Bonus"), and his actual annual bonus may range from 0% to 120% (2 times target), and will be determined based upon achievement of performance goals (seventy percent (70%)  

            financial  (initially positive EBITDA, but may be tied to other metrics as may be established from time to time by the Compensation Committee of the Board) and thirty percent (30%) personal), all as approved by the Compensation Committee of the Board from time to time.

INDEPENDENT CONTRACTOR

6.01     The Executive will be an independent contractor and not the servant, employee or agent of the Company it being recognized, however, that to the extent the provisions of this Agreement result in the creation of an agency relationship to allow the Executive to perform certain of the Services on behalf of the Company, then the Executive will, in that context, be the agent of the Company, as the case may be.

6.02    The Company may, from time to time, give such instructions to the Executive as it considers necessary in connection with the provision of the Services, which instructions the Executive will follow, but the Executive will not be subject to the control of the Company in respect to the manner in which such instructions are carried out.

6.03    The Executive will pay, promptly, as the same become due and payable as a result or consequence of monies paid or payable by the Company to the Executive pursuant to this Agreement, all taxes, and contributions payable pursuant to any or all, as the case may be, of the Income Tax Act (Canada), the Income Tax Act (British Columbia), the Workers Compensation Act (British Columbia and the Canada Pension Plan (Canada) or any contributions deemed required by the Internal Revenue Service (“IRS”) or the State of Nevada.

6.04    The Executive agrees to indemnify and save harmless the Company against and for all and any claims, assessments, penalties, interest charges and legal fees and disbursements and taxes incurred as result of having to defend same made against the Company as a result of the Executive failure to comply with Article 6.03, or as a result of any decisions or investigations made by any government agency or body in connection with the relationship between the parties hereto.

6.05    The Company reserves the right to refuse any person retained by the Executive to provide the Services that it deems is unable to provide the Services in a manner and standard established by the Company.

6.06    The Executive will not in any manner whatsoever commit or purport to commit the Company to the payment of any money to any person, firm, or corporation except with the prior permission of the Company.

REPORTS

7.01

The Executive will upon request, from time to time, of the Company fully inform the Company of the matters and things done, and to be done by the Executive in connection with the provisions of the Services and, if so requested by the Company, submit such information in writing in a timely manner.

CONFIDENTIALITY

8.01     Nondisclosure: As a consequence of the employment by employer, executive will have access to information not generally known to the general public or in the industry in which employer is or may become engaged about employer’s products, processes, customers, services, suppliers, pricing policies and related matters. In addition, employer may provide training to executive in relation to these areas. It is the desire of the employer and executive that all such training and information be and remain confidential. Executive acknowledges that the interests afforded protection by this Agreement are legitimate business interests of employer, deserving of protection, including without limitation trade secrets, proprietary hardware/software, valuable confidential business information that does not legally qualify as a trade secret, goodwill, spec ial training and skills provided to executive, and customer relationships. Executive also acknowledges that because of technological advances, the employer’s products can be developed and marketed anywhere in the world; the market in which employer competes is worldwide; and therefore the protection afforded employer must likewise be worldwide.

CONFLICT AND NON-COMPETITION

9.01

The Executive will not, provide any services to any person, firm, or corporation where the performance of that service or the provision of that advice may or does, in the reasonable opinion of the Company, give rise to a conflict of interest between the obligations of the Executive, under this Agreement, and the obligations of the Executive to such other person, firm or corporation.

9.02

If the Executive is asked by any person, firm, or corporation, otherwise than pursuant to this Agreement, to perform a service or to advice and in the opinion of the Executive the performance of that service or the provision of that advice might result in the Executive breaching Article 9.01, then the Executive will forthwith notify the Company, of the particular circumstances and the Company will thereafter promptly notify the Executive whether or not the Executive may, in light of those circumstances and Article 9.01, perform that service or provide that advice.

ARBITRATION

10.01

All claims, disputes and other matters in questions arising out of or relating to this Agreement or to a breach or alleging breach thereof may, if the parties mutually agree in writing, be referred to a single arbitrator under the Commercial Arbitration Act, R.S.B.C. 1996, c. 55, and if so referred, the decision of that arbitrator will be final, conclusive and binding upon the parties.

NOTICES

11.01

Any notice, other than document or payment that, either party may be required or may desire to give to the other party will be conclusively deemed validly given to and received by the addressee, if served personally on the date of such personal service or,

             if mailed, on the second business day after the mailing of the same in British Columbia by prepaid post addressed, if to the Company:

CYOP Systems International Inc.

225 – 425 Carrall Street

Vancouver, British Columbia

Attention: Board of Directors

and if to the Executive:

Mitch White
5469 Wildwood Crescent
Tsawwassen, British Columbia
V4M 3S9

11.02

Either party may, from time to time, advise the other party by notice in writing of any change of address of the party giving such notice and from and after the giving of such notice the address therein specified will, for the purposes of paragraph 16.01, be conclusively deemed to be the address of the party giving such notice.

ENTIRE AGREEMENT

12.01

This Agreement constitutes the entire agreement between the parties and no representations, warranties, understandings or agreements, oral or otherwise, exist between the parties, except as expressly set out in this Agreement.

MISCELLANEOUS

13.01

This Agreement will be governed by and construed in accordance with the laws of the Province of British Columbia.

14.01

The Schedules to this Agreement are an integral part of this Agreement as if set    out at length in the body of this Agreement.

15.01

The headings appearing in this Agreement have been inserted for reference and as a matter of convenience only, and in no way define, limit or enlarge the scope of any provision of this Agreement.

16.01

No modification, amendment or variation hereof shall be of effect or binding upon the parties unless agreed to in writing by each of them and thereafter such modification, amendment or variation shall have the same effect as if it had originally formed part of this Agreement.

 REPRESENTATIONS AND WARRANTIES

17.01

   The Executive represents and warrants to the Company that:

(a)

he shall prior to commencing work under this Agreement and, if required, obtain and maintain during the Term the necessary coverage pursuant to the Workers’ Compensation Act of British Columbia for himself, his employees, servants and agents who may be providing the Services under this Agreement, and shall provide proof of coverage to the Company at the Company’s request.

(b)

he is not an undischarged bankrupt; and

(c)

he will and if required by law be bonded and all costs associated with acquiring that bonding will the sole responsibility of the Executive.

18.01   Representations and warranties made in this Agreement:

(a)

are material;

(b)

will conclusively be deemed to have been relied upon by the Company in entering into this Agreement, notwithstanding any prior or subsequent investigation by the Company; and

IN WITNESS WHEREOF the parties have executed this Agreement this 1st day of December, 2002.

CYOP Systems International Inc.

Per:

_____________________________

Authorized Signing Officer

IN WITNESS WHEREOF Mitch Ross has hereunto set his hand and seal at the City of Vancouver, in the Province of British Columbia, as of this 1st day of January, 2003.

SIGNED BY Mitch White

)

in the presence of :

)

)

)

____________________________________

)   ______________________________

(Print Name of Witness)

)

Mitch White

EX-10

EXHIBIT 10.8

MANAGEMENT AGREEMENT

THIS AGREEMENT made as of  January 1, 2003.

BETWEEN:

CYOP Systems International Inc. a company duly incorporated under the laws of the State of Nevada under Certificate of Incorporation and having a place of business at Suite 406, 1040 Hamilton Street, Vancouver, British Columbia.

(hereinafter called the "Company" or “CYOP”)

OF THE FIRST PART

AND:

Gordon A. Samson of 2740 Oliver Crescent, Vancouver, BC  V6L 1S9

(hereinafter called the "Executive")

OF THE SECOND PART

WITNESSETH that the parties agree as a follows:

APPOINTMENT

1.01

The Company hereby employs Executive as its Chief Financial Officer ("CFO") and Director upon the terms and conditions set forth in this Agreement. As CFO, the Executive shall always be a senior Company officer and shall have the duties, responsibilities and authority that are customarily associated with such position. Executive’s duties and responsibilities shall include authority for acquisitions, divestitures, investor relations and overall management of the company subject to Board policies or direction. Executive shall also perform other functions consistent with the CFO position and shall report directly and solely to the Chief Executive Officer (“CEO”). Executive shall perform his job in City, State and shall not have to render services at another location except on a temporary basis. Executive shall be permitted to perform outside busi ness endeavors, subject to non-competition agreements between the Company and the Executive and provided that such outside activities do not interfere with the performance of Executive’s duties.

TERM

2.01

The Executive will provide the Services in accordance with the provisions of this Agreement. Notwithstanding execution and delivery of this Agreement, this is an at-will agreement deemed to have commenced on the effective date of this agreement.

"Termination of Agreement: This Agreement shall expire when all obligations of the parties hereunder have been satisfied.

(1)

In General: In addition, except as described in Paragraph 2 below, either the Corporation or the Executive may terminate this Agreement for any reason, and without affecting the Executive’s status as an employee, by giving the other party one year’s advance notice in writing.

(2)

After a Change In Control: If a Change in Control occurs, the Corporation may not provide notice of termination of this Agreement under Paragraph (1) above within the one-year period after the Change In Control. In other words, in this case, the effective date of the termination of the Agreement may be no earlier than two years after the Change in Control. For all purposes under this Agreement, the term "Corporation" shall include any successor to the Corporation’s business and/or assets that executes and delivers the assumption agreement described in this Agreement or that becomes bound by this Agreement by operation of law.

A ‘Change in Control’ shall mean:

(1)

The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; or

(2)

 the sale, transfer or other disposition of all or substantially all of    the Company’s assets; or

(3)

A change in the composition of the Board of Directors, as a result          of which fewer than one-half of the incumbent directors are directors who either:

(A)

Had been directors of the Company twenty-four (24) months prior to such change; or

(B)

Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of the Company twenty-four (24) months prior to such change and who were still in office at the time of the election or nomination.

A transaction shall not constitute a Change of Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction."

A termination of this Agreement pursuant to this subsection shall be effective for all purposes at the end of the notice period, except that such termination shall not affect the payment or provision of compensation or benefits under this Agreement on account of a termination of employment occurring prior to the termination of this Agreement."

TERMINATION

3.01

Cause: The Company may terminate your employment for "Cause." "Cause" includes a willful violation of any major Company policy, conviction of any criminal or civil law involving moral turpitude, willful misconduct resulting in a material reduction of your work effectiveness, or willful and reckless disregard for the best interests of the Company."

3.02

For these purposes, no act or failure to act shall be considered "willful" unless it is done, or omitted to be done, in bad faith without reasonable belief that the action or omission was in the best interest of the Company. In the event corrective action is not satisfactorily taken by you, in each case as determined by the Board, as described above, a final written notice of termination shall be provided to you by the Company."

3.03

Involuntary Termination Without Cause or Disability: In the event that, during the term of this Agreement, the Corporation terminates Executive’s employment for any reason other than Cause or Disability, or, such termination does not occur in accordance with paragraph 2.01 (2) after a Change in Control, then the Executive shall be entitled to receive the following payments and benefits:

(a)

Severance (2x payment): The Corporation shall pay to the Executive following the date of the employment termination and over the succeeding 24 months, in accordance with standard payroll procedures, an amount equal to the following:

(1)

Two hundred percent (200%) of the Executive’s Base Compensation in effect on the date of the employment termination;

Plus

(2)

Two hundred percent (200%) of the Executive’s annual incentive     bonus earned on a quarterly basis as of the date of the termination, assuming the Executive was employed on the last day of the quarter in which termination of employment occurred.

Any other provision of this Agreement or of the Corporation’s Incentive Bonus Plan notwithstanding, after the amount described in this Subsection (a) has been paid to the Executive, the Executive shall have no further interest in such Plan.

No Mitigation: The Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this section, nor shall any such payment or benefit be reduced by any earnings or benefits that the Executive may receive from any other source.

3.04

Incentive Programs: The Continuation Period shall be counted as employment with the Corporation for purposes of vesting in each of the incentive awards heretofore or hereafter granted to the Executive by the Corporation, any contrary provisions of such awards or the applicable plan notwithstanding. This Subsection shall not be construed to require any member of the Corporation to grant any new awards to the Executive during the Continuation Period. The parties understand and agree that the Continuation Period also counts as employment with the Corporation for purposes of determining the expiration date of any incentive award granted by any member of the Corporation and held by the Executive when employment terminates."

LATE PAYMENT

4.01

Late or Refused Payment: If the Corporation refuses or fails to timely pay or provide the compensation and benefits specified in this section upon demand as provided in this Agreement and if such refusal or failure is not corrected within 10 business days after the Executive provides written notice to the Corporation concerning the refusal or failure, then the Corporation shall pay immediately to the Executive an additional amount equal to 50% of the Executive’s Base Compensation."

PAYMENT

5.01

The Company will pay a Base Salary to the Executive, $10,000.00USD per month, in full payment and reimbursement for providing the Services and expenses in the amounts, in the manner and at the times set out in Schedule “B” attached hereto and the Executive will accept such  fees and expenses as full payment and reimbursement as aforesaid.

5.02

Incentive Compensation: In addition to the Base Salary, the Company shall pay to Executive as incentive compensation ("Incentive Compensation") in respect of each calendar year (or portion thereof) of the Company, an amount determined in accordance with any bonus or short term incentive compensation program (which may be based upon achieving certain specified performance criteria) which may be established by the Board either for the Executive or for senior management. The determination as to the amounts of any awards available to the Executive under these programs shall be reviewed at least annually by the Company’s Executive Compensation Committee to ensure that such amounts are competitive with awards granted to similarly situated executives of publicly held companies comparable to the Company.

5.03

INITIAL ANNUAL BONUS. The Executive's target annual bonus will be sixty percent (60%) of his Base Salary as in effect for the 2003 year (the "Target Bonus"), and his actual annual bonus may range from 0% to 120% (2 times target), and will be determined based upon achievement of performance goals (seventy percent (70%)  

            financial  (initially positive EBITDA, but may be tied to other metrics as may be established from time to time by the Compensation Committee of the Board) and thirty percent (30%) personal), all as approved by the Compensation Committee of the Board from time to time.

INDEPENDENT CONTRACTOR

6.01

The Executive will be an independent contractor and not the servant, employee or agent of the Company it being recognized, however, that to the extent the provisions of this Agreement result in the creation of an agency relationship to allow the Executive to perform certain of the Services on behalf of the Company, then the Executive will, in that context, be the agent of the Company, as the case may be.

6.02

The Company may, from time to time, give such instructions to the Executive as it considers necessary in connection with the provision of the Services, which instructions the Executive will follow, but the Executive will not be subject to the control of the Company in respect to the manner in which such instructions are carried out.

6.03

The Executive will pay, promptly, as the same become due and payable as a result or consequence of monies paid or payable by the Company to the Executive pursuant to this Agreement, all taxes, and contributions payable pursuant to any or all, as the case may be, of the Income Tax Act (Canada), the Income Tax Act (British Columbia), the Workers Compensation Act (British Columbia and the Canada Pension Plan (Canada) or any contributions deemed required by the Internal Revenue Service (“IRS”) or the State of Nevada. .

6.04

The Executive agrees to indemnify and save harmless the Company against and for all and any claims, assessments, penalties, interest charges and legal fees and disbursements and taxes incurred as result of having to defend same made against the Company as a result of the Executive failure to comply with Article 6.03, or as a result of any decisions or investigations made by any government agency or body in connection with the relationship between the parties hereto.

6.05

The Company reserves the right to refuse any person retained by the Executive to provide the Services that it deems is unable to provide the Services in a manner and standard established by the Company.

6.06

The Executive will not in any manner whatsoever commit or purport to commit the Company to the payment of any money to any person, firm, or corporation except with the prior permission of the Company.

REPORTS

7.01

The Executive will upon request, from time to time, of the Company fully inform the Company of the matters and things done, and to be done by the Executive in connection with the provisions of the Services and, if so requested by the Company, submit such information in writing in a timely manner.

CONFIDENTIALITY

8.01     Nondisclosure: As a consequence of the employment by employer, executive will have access to information not generally known to the general public or in the industry in which employer is or may become engaged about employer’s products, processes, customers, services, suppliers, pricing policies and related matters. In addition, employer may provide training to executive in relation to these areas. It is the desire of the employer and executive that all such training and information be and remain confidential. Executive acknowledges that the interests afforded protection by this Agreement are legitimate business interests of employer, deserving of protection, including without limitation trade secrets, proprietary hardware/software, valuable confidential business information that does not legally qualify as a trade secret, goodwill, spec ial training and skills provided to executive, and customer relationships. Executive also acknowledges that because of technological advances, the employer’s products can be developed and marketed anywhere in the world; the market in which employer competes is worldwide; and therefore the protection afforded employer must likewise be worldwide.

CONFLICT AND NON-COMPETITION

9.01

The Executive will not, provide any services to any person, firm, or corporation where the performance of that service or the provision of that advice may or does, in the reasonable opinion of the Company, give rise to a conflict of interest between the obligations of the Executive, under this Agreement, and the obligations of the Executive to such other person, firm or corporation.

9.02

If the Executive is asked by any person, firm, or corporation, otherwise than pursuant to this Agreement, to perform a service or to advice and in the opinion of the Executive the performance of that service or the provision of that advice might result in the Executive breaching Article 9.01, then the Executive will forthwith notify the Company, of the particular circumstances and the Company will thereafter promptly notify the Executive whether or not the Executive may, in light of those circumstances and Article 9.01, perform that service or provide that advice.

ARBITRATION

10.01

All claims, disputes and other matters in questions arising out of or relating to this Agreement or to a breach or alleging breach thereof may, if the parties mutually agree in writing, be referred to a single arbitrator under the Commercial Arbitration Act, R.S.B.C. 1996, c. 55, and if so referred, the decision of that arbitrator will be final, conclusive and binding upon the parties.

NOTICES

11.01

Any notice, other than document or payment that, either party may be required or may desire to give to the other party will be conclusively deemed validly given to and received by the addressee, if served personally on the date of such personal service or,

             if mailed, on the second business day after the mailing of the same in British Columbia by prepaid post addressed, if to the Company:

CYOP Systems International Inc.

225 – 425 Carrall Street

Vancouver, British Columbia

Attention: Board of Directors

and if to the Executive:

Gordon A. Samson
2740 Oliver Crescent
Vancouver, British Columbia
V6L 1S9

11.02

Either party may, from time to time, advise the other party by notice in writing of any change of address of the party giving such notice and from and after the giving of such notice the address therein specified will, for the purposes of paragraph 16.01, be conclusively deemed to be the address of the party giving such notice.

ENTIRE AGREEMENT

12.01

This Agreement constitutes the entire agreement between the parties and no representations, warranties, understandings or agreements, oral or otherwise, exist between the parties, except as expressly set out in this Agreement.

MISCELLANEOUS

13.01

This Agreement will be governed by and construed in accordance with the laws of the Province of British Columbia.

14.01

The Schedules to this Agreement are an integral part of this Agreement as if set    out at length in the body of this Agreement.

15.01  The headings appearing in this Agreement have been inserted for reference and as a matter of convenience only, and in no way define, limit or enlarge the scope of any provision of this Agreement.

16.01

No modification, amendment or variation hereof shall be of effect or binding upon the parties unless agreed to in writing by each of them and thereafter such modification, amendment or variation shall have the same effect as if it had originally formed part of this Agreement.

 REPRESENTATIONS AND WARRANTIES

17.01

   The Executive represents and warrants to the Company that:

(a)

The Executive is a member in good standing of the Certified General Accountants Association of British Columbia;

(b)

The Executive is not aware of any disciplinary matters or proceedings pending against or involving the Executive under Certified General Accountants Association of British Columbia

(c)

he shall prior to commencing work under this Agreement and, if required, obtain and maintain during the Term the necessary coverage pursuant to the Workers’ Compensation Act of British Columbia for himself, his employees, servants and agents who may be providing the Services under this Agreement, and shall provide proof of coverage to the Company at the Company’s request.

(d)

he is not an undischarged bankrupt; and

(e)

he will and if required by law be bonded and all costs associated with acquiring that bonding will the sole responsibility of the Executive.

18.01   Representations and warranties made in this Agreement:

(a)

are material;

(b)

will conclusively be deemed to have been relied upon by the Company in entering into this Agreement, notwithstanding any prior or subsequent investigation by the Company; and

IN WITNESS WHEREOF the parties have executed this Agreement this 1st day of December, 2002.

CYOP Systems International Inc.

Per:

_____________________________

Authorized Signing Officer

IN WITNESS WHEREOF Gordon A. Samson has hereunto set his hand and seal at the City of Vancouver, in the Province of British Columbia, as of this 1st day of January, 2003.

SIGNED BY Gordon Samson

)

in the presence of :

)

)

)

____________________________________

)   ______________________________

(Print Name of Witness)

)

Gordon Samson

EX-10

EXHIBIT 10.9

MANAGEMENT AGREEMENT

THIS AGREEMENT made as of September 10, 2002 to be effective January 1, 2003.

BETWEEN:

CYOP Systems International Inc. a company duly incorporated under the laws of the State of Nevada under Certificate of Incorporation and having a place of business at Suite 406, 1040 Hamilton Street, Vancouver, British Columbia.

(hereinafter called the "Company" or “CYOP”)

OF THE FIRST PART

AND:

Patrick Smyth of  2120  Mathers Avenue, West Vancouver, B.C. V7V 2H3

(hereinafter called the "Consultant")

OF THE SECOND PART

WITNESSETH that the parties agree as a follows:

APPOINTMENT

1.01

The Company engages the Consultant to provide services (the “Services”) described in Schedule “A” attached hereto.

TERM

2.01

The Consultant will provide the Services in accordance with the provisions of this Agreement during the term of this Agreement (the “Term”) which Term will, notwithstanding the date of execution and delivery of this Agreement, conclusively deemed to have commenced on the effective date of this agreement, unless terminated pursuant to Article 11, of this Agreement.

PAYMENT

3.01

The Company will pay to the Consultant, $5,000.00USD per month, in full payment and reimbursement for providing the Services and for necessary expenses incurred in connection therewith, in addition to any fees and expenses in the amounts, in the manner and at the times set out in Schedule “B” attached hereto and the Consultant will accept such fees and expenses as full payment and reimbursement as aforesaid.

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RECORDS

4.01

The Consultant will:

(a)

establish and maintain records of the days on which the Consultant provides Services and of the time expended on each of these days in providing Services including travel time;

(b)

establish and maintain books of accounts of all expenses incurred in providing the Services;

(c)

maintain invoices, receipts and vouchers for all expenses referred to in subparagraph (b) of this Article; and

(d)

upon the request of the Company, provide information, in summary form, relative to the records referred to in subparagraph (a) of this paragraph;

and the Company will have access at all reasonable times to such records, books of account, invoices, receipts and vouchers for the purposes of copying or auditing (or both) the same.

INDEPENDENT CONTRACTOR

5.01

The Consultant will be an independent contractor and not the servant, employee or agent of the Company it being recognized, however, that to the extent the provisions of this Agreement result in the creation of an agency relationship to allow the Consultant to perform certain of the Services on behalf of the Company, then the Consultant will, in that context, be the agent of the Company, as the case may be.

5.02

The Company may, from time to time, give such instructions to the Consultant as it considers necessary in connection with the provision of the Services, which instructions the Consultant will follow, but the Consultant will not be subject to the control of the Company in respect to the manner in which such instructions are carried out.

5.03

The Consultant will pay, promptly, as the same become due and payable as a result or consequence of monies paid or payable by the Company to the Consultant pursuant to this Agreement, all taxes, and contributions payable pursuant to any or all, as the case may be, of the Income Tax Act (Canada), the Income Tax Act (British Columbia), the Workers Compensation Act (British Columbia and the Canada Pension Plan (Canada) or any contributions deemed required by the Internal Revenue Service (“IRS”) or the State of Nevada.

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5.04

The Consultant agrees to indemnify and save harmless the Company against and for all and any claims, assessments, penalties, interest charges and legal fees and disbursements and taxes incurred as result of having to defend same made against the Company as a result of the Consultant’s failure to comply with Article 5.03, or as a result of any decisions or investigations made by any government agency or body in connection with the relationship between the parties hereto.

5.05

The Consultant may, subject to the compliance with the provisions of this Agreement and at any time or times during the Term, carry on the business of providing services to the general public in the Province of British Columbia either alone or in association or partnership with another or others, so long as it does not create a conflict of interest with the interests of the Company, or hinders the Consultant from his commitment to providing the requisite hours of Services to the Company, or does not prevent him from providing the Services in a timely and competent manner.

5.06

The Company reserves the right to refuse any person retained by the Consultant to provide the Services that it deems is unable to provide the Services in a manner and standard established by the Company.

5.07

The Consultant will not in any manner whatsoever commit or purport to commit the Company to the payment of any money to any person, firm, or corporation except with the prior written permission of the Company.

CERTIFICATIONS AND LICENCES

6.01

The Consultant will at his own cost, obtain and maintain in force throughout the Term of this Agreement all certifications and licenses necessary to qualify himself in connection with carrying out his business in the Province of British Columbia, and to provide the Services in a lawful manner to the Company.

REPORTS

7.01

The Consultant will upon request, from time to time, of the Company fully inform the Company of the matters and things done, and to be done by the Consultant in connection with the provisions of the Services and, if so requested by the Company, submit such information in writing in a timely manner.

7.02

All property including, but not limited to, files, manuals, equipment, securities, and monies of any and all customers of the Company related to the provision of the Services that are, from time to time, in the possession or control of the Consultant will be, at all times, the exclusive property of the Company. All aforesaid property will be forthwith delivered by the Consultant to the Company on the earlier of:

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(a)

the termination of this Agreement; or

(b)

the completion by the Consultant of the provisions of the Services with respect thereto; or

(c)

upon the request, at any time, by the Company.

CONFIDENTIALITY

8.01

The Consultant will treat as confidential and will not, without the prior written consent of the Company, publish, release or disclose or permit to be published, released or disclosed, either before or after the termination of this Agreement, any information supplied to, obtained by, or which comes to the knowledge of the Consultant as a direct or indirect result of this Agreement except insofar as such publication, release or disclosure is necessary to enable the Consultant to fulfill the obligations under this Agreement.

8.02

During the term of contract and for 12 months thereafter, the Consultant will not use, directly or indirectly, for his own benefit, or disclose, except in the performance of his duties hereunder:

• any trade secrets, confidential information or know-how relating to customers;

• any agreements or communications, written or verbal, including but not limited to, information regarding the Company’s Business which he has known since his association with the Company, or becomes aware of during his contract with the Company,

to any person or persons, other than the directors or the management of the Company.  This restriction will not apply to any knowledge or information which is or may become (otherwise and through a default of the Consultant) available to the public generally; or to any information required to be given or made public pursuant to an order of a court of competent jurisdiction or to information which is or becomes known to the Consultant on a non-confidential basis prior to his receipt of the information during the course of discharging his duties to the Company.

CONFLICT AND NON-COMPETITION

9.01

The Consultant will not, during the Term, provide any services to any person, firm, or corporation where the performance of that service or the provision of that advice may or does, in the reasonable opinion of the Company, give rise to a conflict of interest between the obligations of the Consultant, under this Agreement, and the obligations of the Consultant to such other person, firm or corporation.

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9.02

If the Consultant is asked by any person, firm, or corporation, otherwise than pursuant to this Agreement, to perform a service or to advice and in the opinion of the Consultant the performance of that service or the provision of that advice might result in the Consultant breaching Article 9.01, then the Consultant will forthwith notify the Company, of the particular circumstances and the Company will thereafter promptly notify the Consultant whether or not the Consultant may, in light of those circumstances and Article 9.01, perform that service or provide that advice.

9.03

The Consultant further agrees to not, directly or indirectly, solicit any of the existing customers of the Company for any purpose which may be construed in any way as in direct or indirect competition with the Company for a period of 12 months from the date of termination of the Consultant's contract with the Company.

ASSIGNMENT AND SUB-CONTRACTING

10.01

The Consultant will not, without the prior written consent of the Company, assign or transfer this Agreement or sub-contract any or all of the obligations of the Consultant under this Agreement.

10.02

No sub-contract entered into by the Consultant will relieve the Consultant from any of the Consultant’s obligations under this Agreement or impose any obligations or liability upon the Company to any such sub-contractor.

10.03

The Consultant may, notwithstanding Article 10.01, assign any or all of the monies payable by the Company to the Consultant pursuant to this Agreement to any person, firm or corporation.

TERMINATION

11.01

Notwithstanding any other provision of this Agreement, if:

(a)

the Consultant fails to comply with any provision of this Agreement; or

(b)

any representation or warranty made by the Consultant in this Agreement is untrue or incorrect; or

(c)

the Consultant breaches any covenant in Article 17.

then, and in addition, to any other remedy or remedies available to the Company, the Company may, at its sole discretion and option, terminate this Agreement by written notice of termination given by the Company to the Consultant and if such option is exercised, the Company will not be under any further obligation to the Consultant except to pay the Consultant such fees and expenses as the Consultant

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may, subject to paragraph 13.01(b), be entitled to receive, pursuant to Schedule “B” attached hereto, for Services provided and expenses incurred in connection therewith to the date this Agreement is so terminated.

11.02

Notwithstanding any other provision of this Agreement, this Agreement may be terminated by either party giving, at any time, and for any reason, 30 days prior written notice of termination to the other party and if this Agreement is so terminated the Company will be under no further obligation to the Consultant except to pay to the Consultant such fees and expenses as Counsel may, subject to paragraph 13.01 (b), be entitled to receive pursuant to Schedule “B” attached hereto, for Services provided and expenses incurred in connection therewith to the date this Agreement is so terminated.

OFFICE SPACE AND CLERICAL ASSISTANCE

12.01

If at any time or time during the Term the Company and the Consultant mutually agree and consider that he Consultant, in connection with the provision of any of the Services, should be provided with office space, business equipment, or clerical assistance then the Company shall provide the Consultant with such office space, business equipment, or such clerical assistance as the Company considers necessary for such period or periods of time.  All of the Company’s business equipment shall be at all times kept at the Company’s premises unless the Consultant is given express permission to remove it from the Company’s premises.  

ABSENCE

13.01

The Consultant may, during the Term, absent himself from providing the Services for up to 15 working days, or such other absence in the aggregate, provided that:

(a)

the Company’s Board of Directors pre-approves,  any such absence; and

(b)

if this Agreement is, for any reason, terminated prior to the end of the Term, then the Consultant will, on a pro rata basis, account for any absence for purposes of determining fees and expenses that the Consultant may be entitled to receive, pursuant to Schedule “B” attached hereto.

NON WAIVER

14.01

No provision of this Agreement and no breach by a party of any such provision will be deemed to have been waived unless such waiver is in writing signed by other party.

14.02

The written waiver by a party of any breach of any provision of this Agreement by other party will not be deemed a waiver of such provision or of any subsequent breach of the same or any other provision of this Agreement.

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ARBITRATION

15.01

All claims, disputes and other matters in questions arising out of or relating to this Agreement or to a breach or alleging breach thereof may, if the parties mutually agree in writing, be referred to a single arbitrator under the Commercial Arbitration Act, R.S.B.C. 1996, c. 55, and if so referred, the decision of that arbitrator will be final, conclusive and binding upon the parties.

NOTICES

16.01

Any notice, other than document or payment that, either party may be required or may desire to give to the other party will be conclusively deemed validly given to and received by the addressee, if served personally on the date of such personal service or, if mailed, on the second business day after the mailing of the same in British Columbia by prepaid post addressed, if to the Company:

CYOP Systems International Inc.

406 – 1040 Hamilton Street

Vancouver, British Columbia

Attention: Board of Directors

and if to the Consultant:

Patrick Smyth
2120 Mathers Avenue
West Vancouver, B.C.
V7V 2H3

16.02

Either party may, from time to time, advise the other party by notice in writing of any change of address of the party giving such notice and from and after the giving of such notice the address therein specified will, for the purposes of paragraph 16.01, be conclusively deemed to be the address of the party giving such notice.

CONSULTANT’S COVENANTS

(a)

Non-Disclosure

17.01

The Consultant acknowledges and agrees that the Company has certain confidential information which is defined to include, but not limited to, knowledge of trade secrets whether patented or not, computer programs, research and development data, testing and evaluation plans, business plans, opportunities, forecasts, products, strategies, proposals, suppliers, sales, manuals, work programs, financial and

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7

            marketing information, customer lists or names, and information regarding customers, contracts and accounts of the Company whether printed or stored electronically (hereinafter referred to as “Confidential Information”).

17.02

The Consultant agrees the Confidential Information developed or acquired by the Company is among the Company’s most valuable assets and its value may be destroyed by dissemination or unauthorized use.  

17.03

The Consultant agrees that during the term of this Agreement, or at any time thereafter, he shall not, either directly or indirectly, disclose, divulge, or communicate any Confidential Information, or any information whatsoever relating to the Company or its customers to any person other than for the Company’s purposes and benefit, and shall not use for any of his own purposes that he will acquire during the term of his employment with the Company.

(b)

Non-Solicitation of Company Customers/Prospective Customers

17.07

The Consultant agrees that he shall not, without the prior written consent of the Company, at any time for a period of 12 months following the date of termination of this Agreement for whatever circumstance and reason, and with or without cause, on his own behalf, or on behalf of any person competing or endeavouring to compete with the Company, directly or indirectly, solicit, endeavour to solicit or gain the custom of, canvass or interfere with any person that:

(i)

is a customer of the Company at the date this Agreement is terminated;

(ii)

was a customer of the Company at any time within 12 months prior to the termination of this Agreement;

(iii)

has been pursued as a prospective customer by or on behalf of the Company at any time within 12 months prior to the termination of this Agreement, and in respect of whom the Company has not determined to cease all such pursuit; or

(iv)

use his personal  knowledge of or influence over any such customer or any other person known to the Consultant to be or have been a customer of the Company to or for his own benefit or that of any other person competing or endeavouring to compete with the Company.

17.08

The Consultant agrees and confirms that the restrictions in Article 17.07 are reasonable and waives all defences to the strict enforcement of them by the Company.

17.09

The Consultant agrees and confirms that Articles 17.07, 17.07 (i), 17.07 (ii), 17.07 (iii) and 17.07 (iv) are each separate and distinct covenants, severable one from the

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8

            other, and if any such covenant or covenants are determined to be unenforceable in whole or in part, such un-enforceability shall attach only to the covenant or covenants as determined, and all other such covenants shall continue in full force and effect.

(a)

Return of Company Property

17.10

The Consultant agrees that upon any termination of this Agreement, he shall at once deliver to the Company all books, manuals, reports, documents, records, effects, money, securities, whether in print or stored electronically, or other property belonging to the Company or for which the Company is liable to others which are in his possession, charge, control or custody.

(b)

Consultant’s Covenants Survive Termination of Agreement

17.11

The Consultant agrees that notwithstanding any termination of this Agreement for any reason or circumstance whatsoever, and with or without cause, all of the provisions entitled “Consultant’s Covenants” in this Agreement and any other provision in this Agreement necessary to give effect thereto, shall continue in full force and effect following such termination.

(c)

Remedies on Breach of Consultant’s Covenants and Breach of Agreement

17.12

The Consultant agrees that compliance with this Agreement is absolutely necessary for the Company to protect is overall business and position in the marketplace and that a breach of the obligation of secrecy and confidentiality of information of the Company and the other covenants and agreements contained in this Agreement will result in irreparable and continuing damages to the Company for which there will be no adequate remedy at law.  As a result and in the event of any breach of any such obligation, covenant or agreement, the Company shall be entitled to such injunctive and other relief as may be proper or as it may be entitled to for each and every instance of such breach from the Consultant.  

17.13

The Company may exercise these remedies at such times and in such order as it may choose, and such remedies shall be cumulative.  In the event that the Company retains counsel in endeavouring to enforce this Agreement, it shall be entitled to recover, in addition to all other relief available, it s related expenses and legal fees, on a solicitor and own client basis, as well as all applicable taxes paid and disbursements incurred from the Consultant.

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ENTIRE AGREEMENT

18.01

This Agreement constitutes the entire agreement between the parties and no representations, warranties, understandings or agreements, oral or otherwise, exist between the parties, except as expressly set out in this Agreement.

MISCELLANEOUS

19.01

This Agreement will be governed by and construed in accordance with the laws of the Province of British Columbia.

19.02

The Schedules to this Agreement are an integral part of this Agreement as if set out at length in the body of this Agreement.

19.03

The headings appearing in this Agreement have been inserted for reference and as a matter of convenience only, and in no way define, limit or enlarge the scope of any provision of this Agreement.

19.04

If any covenant or provision contained in this Agreement is determined to be void, invalid or unenforceable in whole, or in part for any reason whatsoever, it shall not be deemed to affect or impair the validity or enforceability of any other covenant or provisions herein, and such unenforceable covenant or provisions or part thereof shall be treated as severable from the remainder of the Agreement.

19.05

No modification, amendment or variation hereof shall be of effect or binding upon the parties unless agreed to in writing by each of them and thereafter such modification, amendment or variation shall have the same effect as if it had originally formed part of this Agreement.

19.06

In this Agreement wherever the singular or masculine is used it will be construed as if the plural or feminine or neuter, as the case may be, had been used where the context or the parties so require.

19.07

Any reference to a statute in this Agreement, whether or not that statute has been defined or cited, includes:

(a)

all regulations made under it;

(b)

any amendments made to it and in force; and

(c)

any statute passed in replacement of or in substitution for it.

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REPRESENTATIONS AND WARRANTIES

20.01

The Consultant represents and warrants to the Company that:

(a)

The Consultant is not aware of any disciplinary matters or proceedings pending.

(b)

he shall prior to commencing work under this Agreement and, if required, obtain and maintain during the Term the necessary coverage pursuant to the Workers’ Compensation Act of British Columbia for himself, his employees, servants and agents who may be providing the Services under this Agreement, and shall provide proof of coverage to the Company at the Company’s request.

(c)

he is not an undischarged bankrupt; and

(d)

he will and if required by law be bonded and all costs associated with acquiring that bonding will the sole responsibility of the Consultant.

20.02

All representations and warranties made in this Agreement:

(a)

are material;

(b)

will conclusively be deemed to have been relied upon by the Company in entering into this Agreement, notwithstanding any prior or subsequent investigation by the Company; and

(c)

will continue in full force and effect so long as this Agreement remains in force.

IN WITNESS WHEREOF the parties have executed this Agreement this 10th day of September, 2002.

CYOP Systems International Inc.

Per:

_____________________________

Authorized Signing Officer

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IN WITNESS WHEREOF Patrick Smyth has hereunto set his hand and seal at the City of Vancouver, in the Province of British Columbia, as of this 10th day of September, 2002.

SIGNED BY Patrick Smyth

)

in the presence of :

)

)

)

____________________________________

)   ______________________________

(Print Name of Witness)

)

Patrick Smyth

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Schedule “A”

A.

The Company agrees to contract Patrick Smyth to perform the Services.

The Consultant will be engaged as the President, of the Company. Duties will include;

• Manage and direct daily operations pursuant to the directives of the Board of Directors: and,

• Such other duties as may be assigned from time to time by the Board of Directors.

B.

Hours of Work

The Consultant will devote a minimum of 25.0 hours per week, as a combination of attendance at the Company’s office, attending meetings outside the office and telecommuting, to provide the Services.

C.

Remuneration Rate and Payment Schedule

The remuneration of the Consultant for the Services shall be at the rate of $5,000.00USD, per month, payable semi-monthly in arrears. PROVIDED that the Consultant fulfills the minimum required number of hours per week as set out in section B of this Schedule “A” and in accordance with the provisions of Section 13.01 of this Management Agreement.

In the event that Consultant does not provide the minimum number of hours required in any calendar month, then the Company at its sole option, may either terminate this Management Agreement in accordance with provisions of Section 11.01 or reduce the monthly remuneration paid to the Consultant on a pro rata basis.

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Schedule “B”

As per Section 11.02 in the agreement in the event of termination the Consultant will be entitled to a 30 day notice period with full remuneration notwithstanding the pro rata provision of Schedule “A”.

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EX-10

EXHIBIT 10.10

STANDBY EQUITY DISTRIBUTION AGREEMENT

AGREEMENT dated as of the ___ day of January 2004 (the “Agreement”) between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the “Investor”), and CYOP SYSTEMS INTERNATIONAL INC., a corporation organized and existing under the laws of the State of Nevada (the “Company”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company up to Five Million Dollars ($5,000,000) of the Company’s common stock, par value $0.00002 per share (the “Common Stock”); and

WHEREAS, such investments will be made in reliance upon the provisions of Regulation D (“Regulation D”) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder (the “Securities Act”), and or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments to be made hereunder.

WHEREAS, the Company has engaged Newbridge Securities Corporation, to act as the Company’s exclusive placement agent in connection with the sale of the Company’s Common Stock to the Investor hereunder pursuant to the Placement Agent Agreement dated the date hereof by and among the Company, the Placement Agent and the Investor (the “Placement Agent Agreement”).

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE .
Certain Definitions

Section 1.1

“Advance” shall mean the portion of the Commitment Amount requested by the Company in the Advance Notice.

Section 1.2

“Advance Date” shall mean the date Butler Gonzalez LLP Escrow Account is in receipt of the funds from the Investor and Butler Gonzalez LLP, as the Investor’s Counsel, is in possession of free trading shares from the Company and therefore an Advance by the Investor to the Company can be made and Butler Gonzalez LLP can release the free trading shares to the Investor. No Advance Date shall be less than six (6) Trading Days after an Advance Notice Date.

Section 1.3

“Advance Notice” shall mean a written notice to the Investor setting forth the Advance amount that the Company requests from the Investor and the Advance Date.

Section 1.4

“Advance Notice Date” shall mean each date the Company delivers to the Investor an Advance Notice requiring the Investor to advance funds to the Company, subject to

MI-149945 v2 0950000-102

the terms of this Agreement.  No Advance Notice Date shall be less than seven (7) Trading Days after the prior Advance Notice Date.

Section 1.5

“Bid Price” shall mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if the Common Stock is not traded on a Principal Market, the highest reported bid price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc.

Section 1.6

“Closing” shall mean one of the closings of a purchase and sale of Common Stock pursuant to Section 2.3.

Section 1.7

“Commitment Amount” shall mean the aggregate amount of up to Five  Million Dollars ($5,000,000) which the Investor has agreed to provide to the Company in order to purchase the Company’s Common Stock pursuant to the terms and conditions of this Agreement.

Section 1.8

“Commitment Period” shall mean the period commencing on the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the Company and the Investor may mutually agree in writing, and expiring on the earliest to occur of (x) the date on which the Investor shall have made payment of Advances pursuant to this Agreement in the aggregate amount of Five Million Dollars ($5,000,000), (y) the date this Agreement is terminated pursuant to Section 2.5, or (z) the date occurring twenty-four (24) months after the Effective Date.

Section 1.9

“Common Stock” shall mean the Company’s common stock, par value $0.00002 per share.

Section 1.10

“Condition Satisfaction Date” shall have the meaning set forth in Section 7.2.

Section 1.11

“Damages” shall mean any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorney’s fees and disbursements and costs and expenses of expert witnesses and investigation).

Section 1.12

“Effective Date” shall mean the date on which the SEC first declares effective a Registration Statement registering the resale of the Registrable Securities as set forth in Section 7.2(a).

Section 1.13

“Escrow Agreement” shall mean the escrow agreement among the Company, the Investor, and Butler Gonzalez LLP dated the date hereof.

Section 1.14

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Section 1.15

“Material Adverse Effect” shall mean any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement or the Registration Rights Agreement in any material respect.

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Section 1.16

“Market Price” shall mean the lowest closing Bid Price of the Common Stock during the Pricing Period.

Section 1.17

“Maximum Advance Amount” shall be Seventy Thousand Dollars ($70,000) per Advance Notice.

Section 1.18

“NASD” shall mean the National Association of Securities Dealers, Inc.

Section 1.19

“Person” shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

Section 1.20

“Placement Agent” shall mean Newbridge Securities Corporation, a registered broker-dealer.

Section 1.21

“Pricing Period” shall mean the five (5) consecutive Trading Days after the Advance Notice Date.

Section 1.22

“Principal Market” shall mean the Nasdaq National Market, the Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.

Section 1.23

“Purchase Price” shall be set at ninety eight percent (98%) of the Market Price during the Pricing Period.

Section 1.24

“Registrable Securities” shall mean the shares of Common Stock to be issued hereunder (i) in respect of which the Registration Statement has not been declared effective by the SEC, (ii) which have not been sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act (“Rule 144”) or (iii) which have not been otherwise transferred to a holder who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend.

Section 1.25

“Registration Rights Agreement” shall mean the Registration Rights Agreement dated the date hereof, regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between the Company and the Investor.

Section 1.26

“Registration Statement” shall mean a registration statement on Form S-1 or SB-2 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale of the Registrable Securities to be registered there under in accordance with the provisions of this Agreement and the Registration Rights Agreement, and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act.

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Section 1.27

“Regulation D” shall have the meaning set forth in the recitals of this Agreement.

Section 1.28

“SEC” shall mean the Securities and Exchange Commission.

Section 1.29

“Securities Act” shall have the meaning set forth in the recitals of this Agreement.

Section 1.30

“SEC Documents” shall mean Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy Statements of the Company as supplemented to the date hereof, filed by the Company for a period of at least twelve (12) months immediately preceding the date hereof or the Advance Date, as the case may be, until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement.

Section 1.31

“Trading Day” shall mean any day during which the New York Stock Exchange shall be open for business.

ARTICLE .
Advances

Section 2.1

Investments.

(a)

Advances.  Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII hereof), on any Advance Notice Date the Company may request an Advance by the Investor by the delivery of an Advance Notice.  The number of shares of Common Stock that the Investor shall receive for each Advance shall be determined by dividing the amount of the Advance by the Purchase Price.  No fractional shares shall be issued. Fractional shares shall be rounded to the next higher whole number of shares.  The aggregate maximum amount of all Advances that the Investor shall be obligated to make under this Agreement shall not exceed the Commitment Amount.

Section 2.2

Mechanics.

(a)

Advance Notice.  At any time during the Commitment Period, the Company may deliver an Advance Notice to the Investor, subject to the conditions set forth in Section 7.2; provided, however, the amount for each Advance as designated by the Company in the applicable Advance Notice, shall not be more than the Maximum Advance Amount.  The aggregate amount of the Advances pursuant to this Agreement shall not exceed the Commitment Amount.  The Company acknowledges that the Investor may sell shares of the Company’s Common Stock corresponding with a particular Advance Notice on the day the Advance Notice is received by the Investor.  There will be a minimum of seven (7) Trading Days between each Advance Notice Date.

(b)

Date of Delivery of Advance Notice.  An Advance Notice shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii) the immediately succeeding

4

Trading Day if it is received by facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day which is not a Trading Day.  No Advance Notice may be deemed delivered, on a day that is not a Trading Day.

(c)

Pre-Closing Share Credit.  Within two (2) business days after the Advance Notice Date, the Company shall credit shares of the Company’s Common Stock to the Investor’s balance account with The Depository Trust Company through its Deposit Withdrawal At Custodian system, in an amount equal to the amount of the requested Advance divided by the closing Bid Price of the Company’s Common Stock as of the Advance Notice Date multiplied by one point one (1.1).  Any adjustments to the number of shares to be delivered to the Investor at the Closing as a result of fluctuations in the closing Bid Price of the Company’s Common Stock shall be made as of the date of the Closing.  Any excess shares shall be credited to the next Advance.  In no event shall the number of shares issuable to the Investor pursuant to an Advance cause the Investo r to own in excess of nine and 9/10 percent (9.9%) of the then outstanding Common Stock of the Company.

(d)

Hardship.  In the event the Investor sells the Company’s Common Stock pursuant to subsection (c) above and the Company fails to perform its obligations as mandated in Section 2.5 and 2.2 (c), and specifically fails to provide the Investor with the shares of Common Stock for the applicable Advance, the Company acknowledges that the Investor shall suffer financial hardship and therefore shall be liable for any and all losses, commissions, fees, or financial hardship caused to the Investor.  

Section 2.3

Closings.  On each Advance Date, which shall be six (6) Trading Days after an Advance Notice Date, (i) the Company shall deliver to the Investor’s Counsel, as defined pursuant to the Escrow Agreement, shares of the Company’s Common Stock, representing the amount of the Advance by the Investor pursuant to Section 2.1 herein, registered in the name of the Investor which shall be delivered to the Investor, or otherwise in accordance with the Escrow Agreement and (ii) the Investor shall deliver to Butler Gonzalez LLP (the “Escrow Agent”) the amount of the Advance specified in the Advance Notice by wire transfer of immediately available funds which shall be delivered to the Company, or otherwise in accordance with the Escrow Agreement.  In addition, on or prior to the Advance Date, each of the Company and the Investor shall delive r to the other through the Investor’s Counsel all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein.  Payment of funds to the Company and delivery of the Company’s Common Stock to the Investor shall occur in accordance with the conditions set forth above and those contained in the Escrow Agreement; provided, however, that to the extent the Company has not paid the fees, expenses, and disbursements of the Investor the Investor’s counsel or Kirkpatrick & Lockhart LLP in accordance with Section 12.4, the amount of such fees, expenses, and disbursements may be deducted by the Investor (and shall be paid to the relevant party) from the amount of the Advance with no reduction in the amount of shares of the Company’s Common Stock to be delivered on such Advance Date.

Section 2.4

Termination of Investment.  The obligation of the Investor to make an Advance to the Company pursuant to this Agreement shall terminate permanently (including with respect to an Advance Date that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate

5

of fifty (50) Trading Days, other than due to the acts of the Investor, during the Commitment Period, and (ii) the Company shall at any time fail materially to comply with the requirements of Article VI and such failure is not cured within thirty (30) days after receipt of written notice from the Investor, provided, however, that this termination provision shall not apply to any period commencing upon the filing of a post-effective amendment to such Registration Statement and ending upon the date on which such post effective amendment is declared effective by the SEC..

Section 2.5

Agreement to Advance Funds.

(a)

The Investor agrees to advance the amount specified in the Advance Notice to the Company after the completion of each of the following conditions and the other conditions set forth in this Agreement:

(i)

the execution and delivery by the Company, and the Investor, of this Agreement, and the Exhibits hereto;

(ii)

Investor’s Counsel shall have received the shares of Common Stock applicable to the Advance in accordance with Section 2.2(c) hereof;

(iii)

the Company’s Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement shall have been declared effective by the SEC;

(iv)

the Company shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the Registrable Securities, or shall have the availability of exemptions therefrom.  The sale and issuance of the Registrable Securities shall be legally permitted by all laws and regulations to which the Company is subject;

(v)

the Company shall have filed with the Commission in a timely manner all reports, notices and other documents required of a “reporting company” under the Exchange Act and applicable Commission regulations;

(vi)

the fees as set forth in Section 12.4 below shall have been paid or can be withheld as provided in Section 2.3; and

(vii)

the conditions set forth in Section 7.2 shall have been satisfied.

(viii)

The Company shall have provided to the Investor an acknowledgement, from Moore Stephens Ellis Foster Ltd. as to its ability to provide all consents required in order to file a registration statement in connection with this transaction;

(ix)

The Company’s transfer agent shall be DWAC eligible.

Section 2.6

Lock Up Period.

(a)

During the Commitment Period, the Company shall not, issue or sell (i) any Common Stock or Preferred Stock without consideration or for a consideration per

6

share less than the Bid Price on the date of issuance or (ii) issue or sell any warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than the Bid Price on the date of issuance.

(b)

On the date hereof, the Company shall obtain from each officer and director a lock-up agreement, as defined below, in the form annexed hereto as Schedule 2.6(b) agreeing to only sell in compliance with the volume limitation of Rule 144.

ARTICLE .
Representations and Warranties of Investor

Investor hereby represents and warrants to, and agrees with, the Company that the following are true and as of the date hereof and as of each Advance Date:

Section 3.1

Organization and Authorization.  The Investor is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite power and authority to purchase and hold the securities issuable hereunder.  The decision to invest and the execution and delivery of this Agreement by such Investor, the performance by such Investor of its obligations hereunder and the consummation by such Investor of the transactions contemplated hereby have been duly authorized and requires no other proceedings on the part of the Investor.  The undersigned has the right, power and authority to execute and deliver this Agreement and all other instruments (including, without limitations, the Registration Rights Agreement), on behalf of the Investor.  This Agreement has been duly executed and delivered by the Invest or and, assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms.

Section 3.2

Evaluation of Risks.  The Investor has such knowledge and experience in financial tax and business matters as to be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Company and of protecting its interests in connection with this transaction.  It recognizes that its investment in the Company involves a high degree of risk.

Section 3.3

No Legal Advice From the Company.  The Investor acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors.  The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

Section 3.4

Investment Purpose. The securities are being purchased by the Investor for its own account, for investment and without any view to the distribution, assignment or resale to others or fractionalization in whole or in part.  The Investor agrees not to assign or in any way transfer the Investor’s rights to the securities or any interest therein and acknowledges that the Company will not recognize any purported assignment or transfer except in accordance with

7

 

applicable Federal and state securities laws.  No other person has or will have a direct or indirect beneficial interest in the securities.  The Investor agrees not to sell, hypothecate or otherwise transfer the Investor’s securities unless the securities are registered under Federal and applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such laws is available.

Section 3.5

Accredited Investor.  The Investor is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.

Section 3.6

Information.  The Investor and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information it deemed material to making an informed investment decision.  The Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management.  Neither such inquiries nor any other due diligence investigations conducted by such Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement. The   Investor understands that its investment involves a high degree of risk.  The Investor is in a position regarding the Company, which, based upon employment, family relati onship or economic bargaining power, enabled and enables such Investor to obtain information from the Company in order to evaluate the merits and risks of this investment.  The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to this transaction.

Section 3.7

Receipt of Documents. The Investor and its counsel has received and read in their entirety:  (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (iii) the Company’s Form 10-KSB for the year ended year ended December 31, 2002 and Form 10-QSB for the periods ended March 31, 2003, June 3, 2003 and September 30, 2003; and (iv) answers to all questions the Investor submitted to the Company regarding an investment in the Company; and the Investor has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.  

Section 3.8

Registration Rights Agreement and Escrow Agreement.  The parties have entered into the Registration Rights Agreement and the Escrow Agreement, each dated the date hereof.

Section 3.9

No General Solicitation.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the shares of Common Stock offered hereby.

Section 3.10

Not an Affiliate.  The Investor is not an officer, director or a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company or any “Affiliate” of the Company (as that term is defined in Rule 405 of the Securities Act). Neither the Investor nor its Affiliates has an open short position in the Common Stock of the Company, and the Investor agrees that it will not, and that it will

8

 

cause its Affiliates not to, engage in any short sales of or hedging transactions with respect to the Common Stock, provided that the Company acknowledges and agrees that upon receipt of an Advance Notice the Investor will sell the Shares to be issued to the Investor pursuant to the Advance Notice, even if the Shares have not been delivered to the Investor.

Section 3.11.

Trading Activities.  The Investor’s trading activities with respect to the Company’s Common Stock shall be in compliance with all applicable federal and state securities laws, rules and regulations and the rules and regulations of the Principal Market on which the Company’s Common Stock is listed or traded. Neither the Investor nor its affiliates has an open short position in the Common Stock of the Company and, except as set forth below, the Investor shall not and will cause its affiliates not to engage in any short sale as defined in any applicable SEC or National Association of Securities Dealers rules on any hedging transactions with respect to the Common Stock. Without limiting the foregoing, the Investor agrees not to engage in any naked short transactions in excess of the amount of shares owned (or an offsetting long position) during t he Commitment Period. The Investor shall be entitled to sell Common Stock during the applicable Pricing Period.  

ARTICLE .
Representations and Warranties of the Company

Except as stated below, on the disclosure schedules attached hereto or in the SEC Documents (as defined herein), the Company hereby represents and warrants to, and covenants with, the Investor that the following are true and correct as of the date hereof:

Section 4.1

Organization and Qualification.  The Company is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite power and authority corporate power to own its properties and to carry on its business as now being conducted.  Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

Section 4.2

Authorization, Enforcement, Compliance with Other Instruments.  (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Placement Agent Agreement and any related agreements, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Placement Agent Agreement and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Placemen t Agent Agreement and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Placement Agent Agreement and assuming the execution and delivery thereof and acceptance by the Investor and any related agreements constitute the valid and binding obligations of the Company enforceable

9

 

against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.

Section 4.3

Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of 500,000,000 shares of Common Stock, par value $0.00002 per share of which 142,973,410 shares of Common Stock were issued and outstanding.  All of such outstanding shares have been validly issued and are fully paid and nonassessable.  Except as disclosed in the SEC Documents, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company.  Except as disclosed in the SEC Documents, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contr acts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities (iii) there are no outstanding registration statements other than on Form S-8 and (iv) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement).  There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any related agreement or the consummation of the transactions described herein or therein.  The Company has furnished to the Investor true and correct copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.

Section 4.4

No Conflict.  The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market  on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any material property or asset of the Company or any of its subsidiaries is bound or affected and which would cause a Material Adverse Effect.  Except as disclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to

10

 

the Company or its subsidiaries.  The business of the Company and its subsidiaries is not being conducted in violation of any material law, ordinance, regulation of any governmental entity.  Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.  T he Company and its subsidiaries are unaware of any fact or circumstance which might give rise to any of the foregoing.

Section 4.5

SEC Documents; Financial Statements.  Since January 1, 2002, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under of the Exchange Act.  The Company has delivered to the Investor or its representatives, or made available through the SEC’s website at http://www.sec.gov, true and complete copies of the SEC Documents.  As of their respective dates, the financial statements of the Company disclosed in the SEC Documents (the “Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods in volved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

Section 4.6

10b-5.

The SEC Documents do not include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

Section 4.7

No Default.  Except as disclosed in the SEC Documents, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it is or its property is bound and neither the execution, nor the delivery by the Company, nor the performance by the Company of its obligations under this Agreement or any of the exhibits or attachments hereto will conflict with or result in the breach or violation of any of the terms or provisions of, or constitute a default or result in the creation or imposition of any lien or charge on any assets or properties of the Company under its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other material agreement ap plicable to the Company or instrument to which the

11

 

Company is a party or by which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court or governmental agency or body having jurisdiction over the Company or its properties, in each case which default, lien or charge is likely to cause a Material Adverse Effect on the Company’s business or financial condition.

Section 4.8

Absence of Events of Default.  Except for matters described in the SEC Documents and/or this Agreement, no Event of Default, as defined in the respective agreement to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (as so defined), has occurred and is continuing, which would have a Material Adverse Effect on the Company’s business, properties, prospects, financial condition or results of operations.

Section 4.9

Intellectual Property Rights.  The Company and its subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted.   The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company, there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, b eing threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.  

Section 4.10

Employee Relations.  Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened.  None of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.

Section 4.11

Environmental Laws.  The Company and its subsidiaries are (i) in compliance with any and all applicable material foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.

Section 4.12

Title.  Except as set forth in the SEC Documents, the Company has good and marketable title to its properties and material assets owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are not material to the business of the Company.  Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases

12

 

with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.

Section 4.13

Insurance.  The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged.  Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.

Section 4.14

Regulatory Permits.  The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

Section 4.15

Internal Accounting Controls.  The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

Section 4.16

No Material Adverse Breaches, etc.  Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.  Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its su bsidiaries.

Section 4.17

Absence of Litigation.  Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a Material Adverse Effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents

13

 

contemplated herein, or (iii) except as expressly disclosed in the SEC Documents, have a Material Adverse Effect on the business, operations, properties, financial condition or results of operation of the Company and its subsidiaries taken as a whole.

Section 4.18

Subsidiaries.  Except as disclosed in the SEC Documents, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, association or other business entity.

Section 4.19

Tax Status.  The Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

Section 4.20

Certain Transactions.  Except as set forth in the SEC Documents none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

Section 4.21

Fees and Rights of First Refusal.  Except as set forth in the SEC Documents, the Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.

Section 4.22

Use of Proceeds.  The Company represents that the net proceeds from this offering will be used for general corporate purposes.  However, in no event shall the net proceeds from this offering be used by the Company for the payment (or loaned to any such person for the payment) of any judgment, or other liability, incurred by any executive officer, officer, director or employee of the Company, except for any liability owed to such person for services rendered, or if any judgment or other liability is incurred by such person originating from services rendered to the Company, or the Company has indemnified such person from liability.

Section 4.23

Further Representation and Warranties of the Company.  For so long as any securities issuable hereunder held by the Investor remain outstanding, the Company acknowledges, represents, warrants and agrees that it will maintain the listing of its Common Stock on the Principal Market

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Section 4.24

Opinion of Counsel.  Investor shall receive an opinion letter from Kirkpatrick & Lockhart LLP, counsel to the Company on the date hereof.

Section 4.25

Opinion of Counsel.  The Company will obtain for the Investor, at the Company’s expense, any and all opinions of counsel which may be reasonably required in order to sell the securities issuable hereunder without restriction.

Section 4.26

Dilution.  The Company is aware and acknowledges that issuance of shares of the Company’s Common Stock could cause dilution to existing shareholders and could significantly increase the outstanding number of shares of Common Stock.  

ARTICLE .
Indemnification

The Investor and the Company represent to the other the following with respect to itself:

Section 5.1

Indemnification.

(a)

In consideration of the Investor’s execution and delivery of this Agreement, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Investor, and all of its officers, directors, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Investor Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Investor Indemnitee not arising out of any action or inaction of an Investor Indemnitee, and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Investor Indemnitees.  To the extent that the foregoing undertaking by the Company may be unenforceable for a ny reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

(b)

In consideration of the Company’s execution and delivery of this Agreement, and in addition to all of the Investor’s other obligations under this Agreement, the Investor shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, shareholders, employees and agents (including, without limitation, those retained in

15

 

connection with the transactions contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred by the Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Investor in this Agreement, the Registration Rights Agreement, or any instrument or document contemplated hereby or thereby executed by the Investor, (b) any breach of any covenant, agreement or obligation of the Investor(s) contained in this Agreement,  the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Investor, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on  misrepresentations or due to a &nbs p;breach by the Investor and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnitees.  To the extent that the foregoing undertaking by the Investor may be unenforceable for any reason, the Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

(c)

The obligations of the parties to indemnify or make contribution under this Section 5.1 shall survive termination.

ARTICLE .
Covenants of the Company

Section 6.1

Registration Rights.  The Company shall cause the Registration Rights Agreement to remain in full force and effect and the Company shall comply in all material respects with the terms thereof.

Section 6.2

Listing of Common Stock.  The Company shall maintain the Common Stock’s authorization for quotation on the National Association of Securities Dealers Inc’s Over the Counter Bulletin Board.  

Section 6.3

Exchange Act Registration.  The Company will cause its Common Stock to continue to be registered under Section 12(g) of the Exchange Act, will file in a timely manner all reports and other documents required of it as a reporting company under the Exchange Act and will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Exchange Act.

Section 6.4

Transfer Agent Instructions.

Not later than two (2) business days after each Advance Notice Date and prior to each Closing and the effectiveness of the Registration Statement and resale of the Common Stock by the Investor, the Company will deliver instructions to its transfer agent to issue shares of Common Stock free of restrictive legends.

Section 6.5

Corporate Existence.  The Company will take all steps necessary to preserve and continue the corporate existence of the Company.

Section 6.6

Notice of Certain Events Affecting Registration; Suspension of Right to Make an Advance.  The Company will immediately notify the Investor upon its becoming aware of the occurrence of any of the following events in respect of a registration statement or related

16

 

prospectus relating to an offering of Registrable Securities: (i) receipt of any request for additional information by the SEC or any other Federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other Federal or state governmental authority of  any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or rela ted prospectus of any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the related prospectus. &n bsp;The Company shall not deliver to the Investor any Advance Notice during the continuation of any of the foregoing events.

Section 6.7

Expectations Regarding Advance Notices.  Within ten (10) days after the commencement of each calendar quarter occurring subsequent to the commencement of the Commitment Period, the Company must notify the Investor, in writing, as to its reasonable expectations as to the dollar amount it intends to raise during such calendar quarter, if any, through the issuance of Advance Notices.  Such notification shall constitute only the Company’s good faith estimate and shall in no way obligate the Company to raise such amount, or any amount, or otherwise limit its ability to deliver Advance Notices.  The failure by the Company to comply with this provision can be cured by the Company’s notifying the Investor, in writing, at any time as to its reasonable expectations with respect to the current calendar quarter.

Section 6.8

Restriction on Sale of Capital Stock.  During the Commitment Period, the Company shall not issue or sell (i) any Common Stock or Preferred Stock without consideration or for a consideration per share less than the bid price of the Common Stock determined immediately prior to its issuance, (ii) issue or sell any Preferred Stock warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than such Common Stock’s Bid Price determined immediately prior to its issuance, or (iii) file any registration statement on Form S-8.

Section 6.9

Consolidation; Merger.  The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all the assets of the Company to another entity (a “Consolidation Event”) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the

17

 

obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement.

Section 6.10

Issuance of the Company’s Common Stock.  The sale of the shares of Common Stock shall be made in accordance with the provisions and requirements of Regulation D and any applicable state securities law.

ARTICLE .
Conditions for Advance and Conditions to Closing

Section 7.1

Conditions Precedent to the Obligations of the Company.  The obligation hereunder of the Company to issue and sell the shares of Common Stock to the Investor incident to each Closing is subject to the satisfaction, or waiver by the Company, at or before each such Closing, of each of the conditions set forth below.

(a)

Accuracy of the Investor’s Representations and Warranties.  The representations and warranties of the Investor shall be true and correct in all material respects.

(b)

Performance by the Investor.  The Investor shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Investor at or prior to such Closing.

Section 7.2

Conditions Precedent to the Right of the Company to Deliver an Advance Notice and the Obligation of the Investor to Purchase Shares of Common Stock.  The right of the Company to deliver an Advance Notice and the obligation of the Investor hereunder to acquire and pay for shares of the Company’s Common Stock incident to a Closing is subject to the fulfillment by the Company, on (i) the date of delivery of such Advance Notice and (ii) the applicable Advance Date (each a “Condition Satisfaction Date”), of each of the following conditions:

(a)

Registration of the Common Stock with the SEC.  The Company shall have filed with the SEC a Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement.  As set forth in the Registration Rights Agreement, the Registration Statement shall have previously become effective and shall remain effective on each Condition Satisfaction Date and (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC’s concerns have been addressed and the Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (ii) no other suspension of the use or withdrawal of the effectiveness of the Registration Statement or related prospectus shall exist.  The Registration Statement must have been declared effective by the SEC prior to the first Advance Notice Date.

(b)

Authority.  The Company shall have obtained all permits and qualifications required by any applicable state in accordance with the Registration Rights Agreement for the offer and sale of the shares of Common Stock, or shall have the availability of

18

 

exemptions therefrom.  The sale and issuance of the shares of Common Stock shall be legally permitted by all laws and regulations to which the Company is subject.

(c)

Fundamental Changes. There shall not exist any fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post-effective amendment to the Registration Statement.  

(d)

Performance by the Company.  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement (including, without limitation, the conditions specified in Section 2.5 hereof) and the Registration Rights Agreement to be performed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date.

(e)

No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement.

(f)

No Suspension of Trading in or Delisting of Common Stock.  The trading of the Common Stock is not suspended by the SEC or the Principal Market (if the Common Stock is traded on a Principal Market).  The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market (if the Common Stock is traded on a Principal Market).  The Company shall not have received any notice threatening the continued listing of the Common Stock on the Principal Market (if the Common Stock is traded on a Principal Market).

(g)

Maximum Advance Amount.  The amount of any Advance Notice requested by the Company shall not exceed the Maximum Advance Amount.  In addition, in no event shall the number of shares issuable to the Investor pursuant to an Advance cause the Investor to own in excess of nine and 9/10 percent (9.9%) of the then outstanding Common Stock of the Company.

(h)

No Knowledge.  The Company has no knowledge of any event which would be more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective.

(i)

Other.  On each Condition Satisfaction Date, the Investor shall have received the certificate executed by an officer of the Company in the form of Exhibit A attached hereto.

ARTICLE .
Due Diligence Review; Non-Disclosure of Non-Public Information

Section 8.1

Due Diligence Review.  Prior to the filing of the Registration Statement the Company shall make available for inspection and review by the Investor, advisors to and representatives of the Investor, any underwriter participating in any disposition of the Registrable

19

 

Securities on behalf of the Investor pursuant to the Registration Statement, any such registration statement or amendment or supplement thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees to supply all such information reasonably requested by the Investor or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investor and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement.

Section 8.2

Non-Disclosure of Non-Public Information.

(a)

The Company shall not disclose non-public information to the Investor, advisors to or representatives of the Investor unless prior to disclosure of such information the Company identifies such information as being non-public information and provides the Investor, such advisors and representatives with the opportunity to accept or refuse to accept such non-public information for review.  The Company may, as a condition to disclosing any non-public information hereunder, require the Investor’s advisors and representatives to enter into a confidentiality agreement in form reasonably satisfactory to the Company and the Investor.

(b)

Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in t he prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading.  Nothing contained in this Section 8.2 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circu mstances in which they were made, not misleading.

20

ARTICLE .
Choice of Law/Jurisdiction

Section 9.1

Governing Law.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws.  The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County, New Jersey and the United States District Court of New Jersey, sitting in Newark, New Jersey, for the adjudication of any civil action asserted pursuant to this paragraph.

ARTICLE .
Assignment; Termination

Section 10.1

Assignment.  Neither this Agreement nor any rights of the Company hereunder may be assigned to any other Person.  

Section 10.2

Termination.  The obligations of the Investor to make Advances under Article II hereof shall terminate twenty-four (24) months after the Effective Date.

ARTICLE .
Notices

Section 11.1

Notices.  Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard – Suite 2000
	Miami, FL 33131-2399
	Attention: Clayton E. Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095

21

If to the Investor(s):	Cornell Capital Partners, LP
	101 Hudson Street –Suite 3606
	Jersey City, NJ 07302
	Attention: Mark Angelo
	Portfolio Manager
	Telephone: (201) 985-8300
	Facsimile: (201) 985-8266
With a Copy to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue – Suite 6
	Union, NJ 07083
	Attention: David Gonzalez, Esq.
	Telephone: (908) 810-8588
	Facsimile: (908) 810-0973

Each party shall provide five (5) days’ prior written notice to the other party of any change in address or facsimile number.

ARTICLE .
Miscellaneous

Section 12.1

Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof, though failure to deliver such copies shall not affect the validity of this Agreement.

Section 12.2

Entire Agreement; Amendments.  This Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

Section 12.3

Reporting Entity for the Common Stock.  The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.  The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity.

22

Section 12.4.

Fees and Expenses.  The Company hereby agrees to pay the following fees:

(a)

Legal Fees.  Each of the parties shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby, except that upon the execution of this Agreement the Company will pay to Butler Gonzalez LLP Fifteen Thousand Dollars ($15,000) for legal, administrative, and escrow fees (which shall be paid directly from the gross proceeds held in escrow from the Company’s sale of the convertible debenture on the date hereof) and the fees and expenses of Kirkpatrick & Lockhart LLP.  Subsequently on each advance date, the Company will pay Butler Gonzalez LLP, the sum of Five Hundred Dollars  ($500) for legal, administrative and escrow fees and any outstanding fees of Kirkpatrick & Lockhart LLP directly out the proc eeds of any Advances hereunder.

(b)

Commitment Fees.

(i)

On each Advance Date the Company shall pay to the Investor, directly from the gross proceeds held in escrow, an amount equal to four percent (4%) of the amount of each Advance.  The Company hereby agrees that if such payment, as is described above, is not made by the Company on the Advance Date, such payment will be made at the direction of the Investor as outlined and mandated by Section 2.3 of this Agreement.  

(ii)

Upon the execution of this Agreement the Company shall issue to the Investor shares of the Company’s Common Stock in an amount equal to Two Hundred Forty Thousand Dollars ($240,000) divided by the Closing Bid Price on the Closing Date (the “Investor’s Shares”).   

(iii)

Fully Earned.  The Investor’s Shares shall be deemed fully earned as of the date hereof.

(iv)

Registration Rights.  The Investor’s Shares will have “piggy-back” registration rights.

(c)

Due Diligence Fee.  The Company shall pay to the investor a due diligence fee of $2,500 within 10 days hereof to defray the costs of performing due diligence on the Company.  

Section 12.5

Brokerage.  Except for the fee to Jeffrey Salomon, each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party.  The Company on the one hand, and the Investor, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder’s fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby.

23

Section 12.6

Confidentiality.  If for any reason the transactions contemplated by this Agreement are not consummated, each of the parties hereto shall keep confidential any information obtained from any other party (except information publicly available or in such party’s domain prior to the date hereof, and except as required by court order) and shall promptly return to the other parties all schedules, documents, instruments, work papers or other written information without retaining copies thereof, previously furnished by it as a result of this Agreement or in connection herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

24

IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity Distribution Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.

COMPANY:

CYOP SYSTEMS INTERNATIONAL INC.

By:

Name:

Mitch White

Title:

President

INVESTOR:

CORNELL CAPITAL PARTNERS, LP

By:

Yorkville Advisors, LLC

Its:

General Partner

By:

Name:

Mark Angelo

Title:

Portfolio Manager

25

EXHIBIT A

ADVANCE NOTICE/COMPLIANCE CERTIFICATE

CYOP SYSTEMS INTERNATIONAL INC.

The undersigned, ___________________ hereby certifies, with respect to the sale of shares of Common Stock of CYOP Systems International Inc.,  (the “Company”), issuable in connection with this Advance Notice and Compliance Certificate dated ___________________ (the “Notice”), delivered pursuant to the Standby Equity Distribution Agreement (the “Agreement”), as follows:

1.

The undersigned is the duly elected President of the Company.

2.

There are no fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post effective amendment to the Registration Statement.

3.

The Company has performed in all material respects all covenants and agreements to be performed by the Company on or prior to the Advance Date related to the Notice and has complied in all material respects with all obligations and conditions contained in the Agreement.

4.

The Advance requested is _____________________.

The undersigned has executed this Certificate this ____ day of _________________.

CYOP SYSTEMS INTERNATIONAL INC.

By:                                                                   

Name:

Mitch White

Title:

President

SCHEDULED 2.6(b)

CYOP SYSTEMS INTERNATIONAL INC.

The undersigned hereby agrees that for a period commencing on the date hereof and expiring on the termination of the Agreement dated ________________ between CYOP SYSTEMS INTERNATIONAL INC. (the “Company”), and Cornell Capital Partners, LP, (the “Investor”) (the “Lock-up Period”), he, she or it will not, directly or indirectly, without the prior written consent of the Investor, issue, offer, agree or offer to sell, sell, grant an option for the purchase or sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber or dispose of except pursuant to Rule 144 of the General Rules and Regulations under the Securities Act of 1933, any securities of the Company, including common stock or options, rights, warrants or other securities underlying, convertible into, exchangeable or exercisable for or evidenci ng any right to purchase or subscribe for any common stock (whether or not beneficially owned by the undersigned), or any beneficial interest therein (collectively, the “Securities”).

In order to enable the aforesaid covenants to be enforced, the undersigned hereby consents to the placing of legends and/or stop-transfer orders with the transfer agent of the Company’s securities with respect to any of the Securities registered in the name of the undersigned or beneficially owned by the undersigned, and the undersigned hereby confirms the undersigned’s investment in the Company.

Dated: _______________, 2003

Signature

Address:                                                                        

City, State, Zip Code:                                                    

Print Social Security Number

or Taxpayer I.D. Number

EX-10

EXHIBIT 10.11

CYOP SYSTEMS INTERNATIONAL INC.

PLACEMENT AGENT AGREEMENT

Dated as of: January ___, 2004

Newbridge Securities Corporation

1451 Cypress Creek Road, Suite 204

Fort Lauderdale, Florida 33309

Ladies and Gentlemen:

The undersigned, CYOP Systems International, Inc., a Nevada corporation (the “Company”), hereby agrees with Newbridge Securities Corporation (the “Placement Agent”) and Cornell Capital Partners, LP, a Delaware Limited Partnership (the “Investor”), as follows:

1.

Offering.  The Company hereby engages the Placement Agent to act as its exclusive placement agent in connection with the Standby Equity Distribution Agreement dated the date hereof (the “Standby Equity Distribution Agreement”), pursuant to which the Company shall issue and sell to the Investor, from time to time, and the Investor shall purchase from the Company (the “Offering”) up to Five Million Dollars ($5,000,000) of the Company’s common stock (the “Commitment Amount”), par value $0.00002 per share (the “Common Stock”), at price per share equal to the Purchase Price, as that term is defined in the Standby Equity Distribution Agreement.  The Placement Agent services shall consist of reviewing the terms of the Standby Equity Distribution Agreement and advising the Company with res pect to those terms.

All capitalized terms used herein and not otherwise defined herein shall have the same meaning ascribed to them as in the Standby Equity Distribution Agreement.  The Investor will be granted certain registration rights with respect to the Common Stock as more fully set forth in the Registration Rights Agreement between the Company and the Investor dated the date hereof (the “Registration Rights Agreement”).  The documents to be executed and delivered in connection with the Offering, including, but not limited, to the Company’s latest Quarterly Report on Form 10-QSB as filed with the United States Securities and Exchange Commission, this Agreement, the Standby Equity Distribution Agreement, the Registration Rights Agreement, and the Escrow Agreement dated the date hereof (the “Escrow Agreement”), are referred to sometimes hereinafter collectively as the “Offering Materials.”  The Company’s Common Stock purchased by the Investor hereunder is sometimes referred to hereinafter as the “Securities.”  The Placement Agent shall not be obligated to sell any Securities.

2.

Compensation.

A.

Upon the execution of this Agreement, the Company shall issue to the Placement Agent or its designee shares of the Company’s Common Stock in an amount equal to

Ten Thousand Dollars ($10,000) divided by the Closing Bid Price of the Company’s Common Stock on the date hereof (the “Placement Agent’s Shares”).  The Placement Agent shall be entitled to “piggy-back” registration rights, which shall be triggered upon registration of any shares of Common Stock by the Investor with respect to the Placement Agent’s Shares pursuant to the Registration Rights Agreement dated the date hereof.

3.

Representations, Warranties and Covenants of the Placement Agent.

A.

The Placement Agent represents, warrants and covenants as follows:

(i)

The Placement Agent has the necessary power to enter into this Agreement and to consummate the transactions contemplated hereby.

(ii)

The execution and delivery by the Placement Agent of this Agreement and the consummation of the transactions contemplated herein will not result in any violation of, or be in conflict with, or constitute a default under, any agreement or instrument to which the Placement Agent is a party or by which the Placement Agent or its properties are bound, or any judgment, decree, order or, to the Placement Agent’s knowledge, any statute, rule or regulation applicable to the Placement Agent.  This Agreement when executed and delivered by the Placement Agent, will constitute the legal, valid and binding obligations of the Placement Agent, enforceable in accordance with their respective terms, except to the extent that (a) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, (b) the enforceability hereof or thereof is subject to general principles of equity, or (c) the indemnification provisions hereof or thereof may be held to be in violation of public policy.

(iii)

Upon receipt and execution of this Agreement, the Placement Agent will promptly forward copies of this Agreement to the Company or its counsel and the Investor or its counsel.

(iv)

The Placement Agent will not intentionally take any action that it reasonably believes would cause the Offering to violate the provisions of the Securities Act of 1933, as amended (the “1933 Act”), the Securities Exchange Act of 1934 (the “1934 Act”), the respective rules and regulations promulgated thereunder (the “Rules and Regulations”) or applicable “Blue Sky” laws of any state or jurisdiction.

(v)

The Placement Agent is a member of the National Association of Securities Dealers, Inc., and is a broker-dealer registered as such under the 1934 Act and under the securities laws of the states in which the Securities will be offered or sold by the Placement Agent unless an exemption for such state registration is available to the Placement Agent.  The Placement Agent is in material compliance with the rules and regulations applicable to the Placement Agent generally and applicable to the Placement Agent’s participation in the Offering.

4.

Representations and Warranties of the Company.

A.

The Company represents and warrants as follows:

(i)

The execution, delivery and performance of each of this Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement, and the Registration Rights Agreement has been or will be duly and validly authorized by the Company and is, or with respect to this Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement, and the Registration Rights Agreement will be, a valid and binding agreement of the Company, enforceable in accordance with its respective terms, except to the extent that (a) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, (b) the enforceability hereof or thereof is subject to general principles of equity or (c) the indemnification provisions hereof or thereof may be held to be in violation of public policy.  The Securities to be issued pursuant to the transactions contemplated by this Agreement and the Standby Equity Distribution Agreement have been duly authorized and, when issued and paid for in accordance with this Agreement, the Equity Line of Agreement and the certificates/instruments representing such Securities, will be valid and binding obligations of the Company, enforceable in accordance with their respective terms, except to the extent that (1) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, and (2) the enforceability thereof is subject to general principles of equity.  All corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken by the Company.

(ii)

The Company has a duly authorized, issued and outstanding capitalization as set forth herein and in the Standby Equity Distribution Agreement.  The Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the agreements described herein and as described in the Standby Equity Distribution Agreement, dated the date hereof and the agreements described therein.  All issued and outstanding securities of the Company, have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission or preemptive rights with respect thereto and are not subject to personal liability solely by reason of being security holders; and none of such securities were issued in viola tion of the preemptive rights of any holders of any security of the Company.  As of the date hereof, the authorized capital stock of the Company consists of 500,000,000 shares of Common Stock, par value $0.00002 per share, of which 142,973,410 shares of Common Stock were issued and outstanding as of the date thereof.

(iii)

The Common Stock to be issued in accordance with this Agreement and the Standby Equity Distribution Agreement has been duly authorized and, when issued and paid for in accordance with this Agreement and the Standby Equity Distribution Agreement, the certificates/instruments representing such Common Stock will be validly issued, fully-paid and non-assessable; the holders thereof will not be subject to personal liability solely

by reason of being such holders; such Securities are not and will not be subject to the preemptive rights of any holder of any security of the Company.

(iv)

The Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property necessary to conduct its business (including, without limitation, any real or personal property stated in the Offering Materials to be owned or leased by the Company), free and clear of all liens, encumbrances, claims, security interests and defects of any material nature whatsoever, other than those set forth in the Offering Materials and liens for taxes not yet due and payable.

(v)

There is no litigation or governmental proceeding pending or, to the best of the Company’s knowledge, threatened against, or involving the properties or business of the Company, except as set forth in the Offering Materials.

(vi)

The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Nevada.  Except as set forth in the Offering Materials, the Company does not own or control, directly or indirectly, an interest in any other corporation, partnership, trust, joint venture or other business entity.  The Company is duly qualified or licensed and in good standing as a foreign corporation in each jurisdiction in which the character of its operations requires such qualification or licensing and where failure to so qualify would have a material adverse effect on the Company.  The Company has all requisite corporate power and authority, and all material and necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies (domestic and foreign) to conduct its businesses (and proposed business) as described in the Offering Materials. Any disclosures in the Offering Materials concerning the effects of foreign, federal, state and local regulation on the Company’s businesses as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact.  The Company has all corporate power and authority to enter into this Agreement, the Standby Equity Distribution Agreement, the Registration Rights Agreement, and the Escrow Agreement, to carry out the provisions and conditions hereof and thereof, and all consents, authorizations, approvals and orders required in connection herewith and therewith have been obtained.  No consent, authorization or order of, and no filing with, any court, government agency or other body is required by the Company for the issuance of the Securities or execution and delivery of the Offering Materials except for applicable federal and state securities laws.  The Comp any, since its inception, has not incurred any liability arising under or as a result of the application of any of the provisions of the 1933 Act, the 1934 Act or the Rules and Regulations.

(vii)

There has been no material adverse change in the condition or prospects of the Company, financial or otherwise, from the latest dates as of which such condition or prospects, respectively, are set forth in the Offering Materials, and the outstanding debt, the property and the business of the Company conform in all material respects to the descriptions thereof contained in the Offering Materials.

(viii)

Except as set forth in the Offering Materials, the Company is not in breach of, or in default under, any term or provision of any material indenture, mortgage, deed of trust, lease, note, loan or Standby Equity Distribution Agreement or any other material agreement or instrument evidencing an obligation for borrowed money, or any other

material agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected.  The Company is not in violation of any provision of its charter or by-laws or in violation of any franchise, license, permit, judgment, decree or order, or in violation of any material statute, rule or regulation.  Neither the execution and delivery of the Offering Materials nor the issuance and sale or delivery of the Securities, nor the consummation of any of the transactions contemplated in the Offering Materials nor the compliance by the Company with the terms and provisions hereof or thereof, has conflicted with or will conflict with, or has resulted in or will result in a breach of, any of the terms and provisions of, or has constituted or will constitute a default under, or has resulted in or will result in the creation or imposition of any lien, cha rge or encumbrance upon any property or assets of the Company or pursuant to the terms of any indenture, mortgage, deed of trust, note, loan or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company may be bound or to which any of the property or assets of the Company is subject except (a) where such default, lien, charge or encumbrance would not have a material adverse effect on the Company and (b) as described in the Offering Materials; nor will such action result in any violation of the provisions of the charter or the by-laws of the Company or, assuming the due performance by the Placement Agent of its obligations hereunder, any material statute or any material order, rule or regulation applicable to the Company of any court or of any foreign, federal, state or other regulatory authority or other government body having jurisdiction over the Company.

(ix)

Subsequent to the dates as of which information is given in the Offering Materials, and except as may otherwise be indicated or contemplated herein or therein and the securities offered pursuant to the Securities Purchase Agreement dated the date hereof, the Company has not (a) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, or (b) entered into any transaction other than in the ordinary course of business, or (c) declared or paid any dividend or made any other distribution on or in respect of its capital stock.  Except as described in the Offering Materials, the Company has no outstanding obligations to any officer or director of the Company.

(x)

There are no claims for services in the nature of a finder’s or origination fee with respect to the sale of the Common Stock or any other arrangements, agreements or understandings that may affect the Placement Agent's compensation, as determined by the National Association of Securities Dealers, Inc.

(xi)

The Company owns or possesses, free and clear of all liens or encumbrances and rights thereto or therein by third parties, the requisite licenses or other rights to use all trademarks, service marks, copyrights, service names, trade names, patents, patent applications and licenses necessary to conduct its business (including, without limitation, any such licenses or rights described in the Offering Materials as being owned or possessed by the Company) and, except as set forth in the Offering Materials, there is no claim or action by any person pertaining to, or proceeding, pending or threatened, which challenges the exclusive rights of the Company with respect to any trademarks, service marks, copyrights, service names, trade names, patents, patent applications and licenses used in the conduct of the Company’s businesses (including, without limitation, any such li censes or rights described in the Offering Materials as being owned or possessed by the Company) except any claim or action that would

not have a material adverse effect on the Company; the Company’s current products, services or processes do not infringe or will not infringe on the patents currently held by any third party.

(xii)

Except as described in the Offering Materials, the Company is not under any obligation to pay royalties or fees of any kind whatsoever to any third party with respect to any trademarks, service marks, copyrights, service names, trade names, patents, patent applications, licenses or technology it has developed, uses, employs or intends to use or employ, other than to their respective licensors.

(xiii)

Subject to the performance by the Placement Agent of its obligations hereunder the offer and sale of the Securities complies, and will continue to comply, in all material respects with the requirements of Rule 506 of Regulation D promulgated by the SEC pursuant to the 1933 Act and any other applicable federal and state laws, rules, regulations and executive orders.  Neither the Offering Materials nor any amendment or supplement thereto nor any documents prepared by the Company in connection with the Offering will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  All statements of material facts in the Offering Materials are true and correct as of the date of the Offering Material s.

(xiv)

All material taxes which are due and payable from the Company have been paid in full or adequate provision has been made for such taxes on the books of the Company, except for those taxes disputed in good faith by the Company  

(xv)

None of the Company nor any of its officers, directors, employees or agents, nor any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who is or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) which (A) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, or (B) if not given in the past, might have had a materially adverse effect on the assets, business or operations of the Company as reflected in any of the financial statements contained in the Offering Materials, or (C) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company in the future.

5.

Representations, Warranties and Covenants of the Investor.

A.

The Investor represents, warrants and covenants as follows:

(i)

The Investor has the necessary power to enter into this Agreement and to consummate the transactions contemplated hereby.

(ii)

The execution and delivery by the Investor of this Agreement and the consummation of the transactions contemplated herein will not result in any violation of, or be in conflict with, or constitute a default under, any agreement or instrument to

which the Investor is a party or by which the Investor or its properties are bound, or any judgment, decree, order or, to the Investor’s knowledge, any statute, rule or regulation applicable to the Investor.  This Agreement when executed and delivered by the Investor, will constitute the legal, valid and binding obligations of the Investor, enforceable in accordance with their respective terms, except to the extent that (a) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, (b) the enforceability hereof or thereof is subject to general principles of equity, or (c) the indemnification provisions hereof or thereof may be held to be in violation of public policy.

(iii)

The Investor will promptly forward copies of any and all due diligence questionnaires compiled by the Investor to the Placement Agent.

(iv)

The Investor is an Accredited Investor (as defined under the 1933 Act).

(v)

The Investor is acquiring the Securities for the Inventor’s own account as principal, not as a nominee or agent, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part and no other person has a direct or indirect beneficial interest in such Securities.  Further, the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities.

(vi)

The Investor acknowledges the Investor’s understanding that the offering and sale of the Securities is intended to be exempt from registration under the 1933 Act by virtue of Section 3(b) of the 1933 Act and the provisions of Regulation D promulgated thereunder (“Regulation D”).  In furtherance thereof, the Investor represents and warrants as follows:

(a)

The Investor has the financial ability to bear the economic risk of the Investor’s investment, has adequate means for providing for the Inventor’s current needs and personal contingencies and has no need for liquidity with respect to the Investor’s investment in the Company; and

(b)

The Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment.  The Inventor also represents it has not been organized for the purpose of acquiring the Securities.

(vii)

The Investor has been given the opportunity for a reasonable time prior to the date hereof to ask questions of, and receive answers from, the Company or its representatives concerning the terms and conditions of the Offering, and other matters pertaining to this investment, and has been given the opportunity for a reasonable time prior to the date hereof to obtain such additional information in connection with the Company in order for the Investor to evaluate the merits and risks of purchase of the Securities, to the extent the Company possesses such information or can acquire it without unreasonable effort or expense.  The Investor is not relying on the Placement Agent or any of its affiliates with respect

to the accuracy or completeness of the Offering Materials or for any economic considerations involved in this investment.

6.

Certain Covenants and Agreements of the Company.

The Company covenants and agrees at its expense and without any expense to the Placement Agent as follows:

A.

To advise the Placement Agent and the Investor of any material adverse change in the Company’s financial condition, prospects or business or of any development materially affecting the Company or rendering untrue or misleading any material statement in the Offering Materials occurring at any time as soon as the Company is either informed or becomes aware thereof.

B.

To use its commercially reasonable efforts to cause the Common Stock issuable in connection with the Equity Line of Credit to be qualified or registered for sale on terms consistent with those stated in the Registration Rights Agreement and under the securities laws of such jurisdictions as the Placement Agent and the Investor shall reasonably request.  Qualification, registration and exemption charges and fees shall be at the sole cost and expense of the Company.

C.

Upon written request, to provide and continue to provide the Placement Agent and the Investor copies of all quarterly financial statements and audited annual financial statements prepared by or on behalf of the Company, other reports prepared by or on behalf of the Company for public disclosure and all documents delivered to the Company’s stockholders.

D.

To deliver, during the registration period of the Standby Equity Distribution Agreement, to the Investor upon the Investor’s request, within forty five (45) days, a statement of its income for each such quarterly period, and its balance sheet and a statement of changes in stockholders’ equity as of the end of such quarterly period, all in reasonable detail, certified by its principal financial or accounting officer; (ii) within ninety (90) days after the close of each fiscal year, its balance sheet as of the close of such fiscal year, together with a statement of income, a statement of changes in stockholders’ equity and a statement of cash flow for such fiscal year, such balance sheet, statement of income, statement of changes in stockholders’ equity and statement of cash flow to be in reasonable detail and accompanied by a copy of the certificate o r report thereon of independent auditors if audited financial statements are prepared; and (iii) a copy of all documents, reports and information furnished to its stockholders at the time that such documents, reports and information are furnished to its stockholders.

E.

To comply with the terms of the Offering Materials.

F.

To ensure that any transactions between or among the Company, or any of its officers, directors and affiliates be on terms and conditions that are no less favorable to the Company, than the terms and conditions that would be available in an “arm’s length” transaction with an independent third party.

7.

Indemnification and Limitation of Liability.

A.

The Company hereby agrees that it will indemnify and hold the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the SEC’s Rules and Regulations promulgated thereunder (the “Rules and Regulations”), harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for a ppearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Placement Agent or such indemnified person of the Placement Agent may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in (a) Section 4 of this Agreement, (b) the Offering Materials (except those written statements relating to the Placement Agent given by the Placement Agent for inclusion therein), (c) any application or other document or written communication executed by the Company or based upon written information furnished by the Company filed in any jurisdiction in order to qualify the Common Stock under the securities laws thereof, or any state securities commission or agency; (ii) the omission or alleged omission from documents described in cl auses (a), (b) or (c) above of a material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) the breach of any representation, warranty, covenant or agreement made by the Company in this Agreement.  The Company further agrees that upon demand by an indemnified person, at any time or from time to time, it will promptly reimburse such indemnified person for any loss, claim, damage, liability, cost or expense actually and reasonably paid by the indemnified person as to which the Company has indemnified such person pursuant hereto.  Notwithstanding the foregoing provisions of this Paragraph 7(A), any such payment or reimbursement by the Company of fees, expenses or disbursements incurred by an indemnified person in any proceeding in which a final judgment by a court of competent jurisdiction (after all appeals or the expiration of time to appeal) is entered against the Placement Agent or such indemnified person based upon specific finding of fact tha t the Placement Agent or such indemnified person’s gross negligence or willful misfeasance will be promptly repaid to the Company.

B.

The Placement Agent hereby agrees that it will indemnify and hold the Company and each officer, director, shareholder, employee or representative of the Company, and each person controlling, controlled by or under common control with the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation o r pretrial proceeding such as a deposition) to which the Company or such indemnified person of the Company may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state

 

law or regulation, common law or otherwise, arising out of or based upon (i) the material breach of any representation, warranty, covenant or agreement made by the Placement Agent in this Agreement, or (ii) any false or misleading information provided to the Company in writing by one of the Placement Agent’s indemnified persons specifically for inclusion in the Offering Materials.

C.

The Investor hereby agrees that it will indemnify and hold the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent, and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry , investigation or pretrial proceeding such as a deposition) to which the Placement Agent or such indemnified person of the Placement Agent may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon (i) the conduct of the Investor or its officers, employees or representatives in its acting as the Investor  for the Offering, (ii) the material breach of any representation, warranty, covenant or agreement made by the Investor in the Offering Materials, or (iii) any false or misleading information provided to the Placement Agent by one of the Investor’s  indemnified persons.

D.

The Placement Agent hereby agrees that it will indemnify and hold the Investor and each officer, director, shareholder, employee or representative of the Investor, and each person controlling, controlled by or under common control with the Investor within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigatio n or pretrial proceeding such as a deposition) to which the Investor or such indemnified person of the Investor may become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon the material breach of any representation, warranty, covenant or agreement made by the Placement Agent in this Agreement.

E.

Promptly after receipt by an indemnified party of notice of commencement of any action covered by Section 7(A), (B), (C) or (D), the party to be indemnified shall, within five (5) business days, notify the indemnifying party of the commencement thereof; the omission by one (1) indemnified party to so notify the indemnifying party shall not relieve the indemnifying party of its obligation to indemnify any other indemnified party that has given such notice and shall not relieve the indemnifying party of any liability outside of this indemnification if not materially prejudiced thereby.  In the event that any

 

action is brought against the indemnified party, the indemnifying party will be entitled to participate therein and, to the extent it may desire, to assume and control the defense thereof with counsel chosen by it which is reasonably acceptable to the indemnified party.  After notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under such Section 7(A), (B), (C), or (D) for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, but the indemnified party may, at its own expense, participate in such defense by counsel chosen by it, without, however, impairing the indemnifying party’s control of the defense.  Subject to the proviso of this sentence and notwithstanding any other statement to t he contrary contained herein, the indemnified party or parties shall have the right to choose its or their own counsel and control the defense of any action, all at the expense of the indemnifying party if (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action at the expense of the indemnifying party, or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying party; provided, however, that the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstance, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties.  No settlement of any action or proceeding against an indemnified party shall be made without the consent of the indemnifying party.

F.

In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 7(A) or 7(B) is due in accordance with its terms but is for any reason held by a court to be unavailable on grounds of policy or otherwise, the Company and the Placement Agent shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with the investigation or defense of same) which the other may incur in such proportion so that the Placement Agent shall be responsible for such percent of the aggregate of such losses, claims, damages and liabilities as shall equal the percentage of the gross proceeds paid to the Placement Agent and the Company shall be responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  For purposes of this Section 7(F), any person controlling, controlled by or under common control with the Placement Agent, or any partner, director, officer, employee, representative or any agent of any thereof, shall have the same rights to contribution as the Placement Agent and each person controlling, controlled by or under common control with the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each officer of the Company and each director of the Company shall have the same rights to contribution as the Company.  Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which

   

a claim for contribution may be made against the other party under this Section 7(D), notify such party from whom contribution may be sought, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any obligation they may have hereunder or otherwise if the party from whom contribution may be sought is not materially prejudiced thereby.  

G.

The indemnity and contribution agreements contained in this Section 7 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified person or any termination of this Agreement.

H.

The Company hereby waives, to the fullest extent permitted by law, any right to or claim of any punitive, exemplary, incidental, indirect, special, consequential or other damages (including, without limitation, loss of profits) against the Placement Agent and each officer, director, shareholder, employee or representative of the placement agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations arising out of any cause whatsoever (whether such cause be based in contract, negligence, strict liability, other tort or otherwise).  Notwithstanding anything to the contrary contained herein, the aggregate liability of the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and Regulations shall not exceed the compensation received by the Placement Agent pursuant to Section 2 hereof.  This limitation of liability shall apply regardless of the cause of action, whether contract, tort (including, without limitation, negligence) or breach of statute or any other legal or equitable obligation.

8.

Payment of Expenses.

The Company hereby agrees to bear all of the expenses in connection with the Offering, including, but not limited to the following: filing fees, printing and duplicating costs, advertisements, postage and mailing expenses with respect to the transmission of Offering Materials, registrar and transfer agent fees, escrow agent fees and expenses, fees of the Company’s counsel and accountants, issue and transfer taxes, if any.

9.

Conditions of Closing.

The Closing shall be held at the offices of the Investor or its counsel.  The obligations of the Placement Agent hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company and the Investor herein as of the date hereof and as of the Date of Closing (the “Closing Date”) with respect to the Company or the Investor, as the case may be, as if it had been made on and as of such Closing Date; the accuracy on and as of the Closing Date of the statements of the officers of the Company made pursuant to the provisions hereof; and the performance by the Company and the Investor on and as of the Closing Date of its covenants and obligations hereunder and to the following further conditions:

A.

Upon the effectiveness of a registration statement covering the Standby Equity Distribution Agreement, the Investor and the Placement Agent shall receive the opinion of Counsel to the Company, dated as of the date thereof, which opinion shall be in form and substance reasonably satisfactory to the Investor, their counsel and the Placement Agent.

B.

At or prior to the Closing, the Investor and the Placement Agent shall have been furnished such documents, certificates and opinions as it may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Agreement and the Offering Materials, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained.

C.

At and prior to the Closing, (i) there shall have been no material adverse change nor development involving a prospective change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Offering Materials; (ii) there shall have been no transaction, not in the ordinary course of business except the transactions pursuant to the Securities Purchase Agreement entered into by the Company on the date hereof which has not been disclosed in the Offering Materials or to the Placement Agent in writing; (iii) except as set forth in the Offering Materials, the Company shall not be in default under any provision of any instrument relating to any outstanding indebtedness for which a waiver or extension has not been otherwise received; (iv) except as set forth in the Offering M aterials, the Company shall not have issued any securities (other than those to be issued as provided in the Offering Materials) or declared or paid any dividend or made any distribution of its capital stock of any class and there shall not have been any change in the indebtedness (long or short term) or liabilities or obligations of the Company (contingent or otherwise)  and trade payable debt; (v) no material amount of the assets of the Company shall have been pledged or mortgaged, except as indicated in the Offering Materials; and (v) no action, suit or proceeding, at law or in equity, against the Company or affecting any of its properties or businesses shall be pending or threatened before or by any court or federal or state commission, board or other administrative agency, domestic or foreign, wherein an unfavorable decision, ruling or finding could materially adversely affect the businesses, prospects or financial condition or income of the Company, except as set forth in the Offering Materials.

D.

If requested at Closing the Investor and the Placement Agent shall receive a certificate of the Company signed by an executive officer and chief financial officer, dated as of the applicable Closing, to the effect that the conditions set forth in subparagraph (C) above have been satisfied and that, as of the applicable closing, the representations and warranties of the Company set forth herein are true and correct.

E.

The Placement Agent shall have no obligation to insure that (x) any check, note, draft or other means of payment for the Common Stock will be honored, paid or enforceable against the Investor in accordance with its terms, or (y) subject to the performance of the Placement Agent’s obligations and the accuracy of the Placement Agent’s representations and warranties hereunder, (1) the Offering is exempt from the registration requirements of the 1933 Act or any applicable state “Blue Sky” law or (2) the  Investor is an Accredited Investor.

10.

Termination.

This Agreement shall be co-terminus with, and terminate upon the same terms and conditions as those set forth in, the Standby Equity Distribution Agreement.  The rights of the Investor and the obligations of the Company under the Registration Rights Agreement, and the

 

rights of the Placement Agent and the obligations of the Company shall survive the termination of this Agreement unabridged.

11.

Miscellaneous.

A.

This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all which shall be deemed to be one and the same instrument.

B.

Any notice required or permitted to be given hereunder shall be given in writing and shall be deemed effective when deposited in the United States mail, postage prepaid, or when received if personally delivered or faxed (upon confirmation of receipt received by the sending party), addressed as follows to such other address of which written notice is given to the others):

If to Placement Agent, to:	Newbridge Securities Corporation
	1451 Cypress Creek Road, Suite 204
	Fort Lauderdale, Florida 33309
	Attention: Doug Aguililla
	Telephone: (954) 334-3450
	Facsimile: (954) 229-9937
If to the Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard – Suite 2000
	Miami, FL 33131-2399
	Attention: Clayton E. Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095
If to the Investor:	Cornell Capital Partners, LP
	101 Hudson Street – Suite 3606
	Jersey City, New Jersey 07302
	Attention: Mark A. Angelo
	Portfolio Manager
	Telephone: (201) 985-8300
	Facsimile: (201) 985-8266
With Copies to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue – Suite 6
	Union, New Jersey 07083
	Attention: David Gonzalez, Esq.

Facsimile:

(908) 810-0973

Butler Gonzalez LLP

C.

This Agreement shall be governed by and construed in all respects under the laws of the State of New Jersey, without reference to its conflict of laws rules or principles.  Any suit, action, proceeding or litigation arising out of or relating to this Agreement shall be brought and prosecuted in such federal or state court or courts located within the State of New Jersey as provided by law.  The parties hereby irrevocably and unconditionally consent to the jurisdiction of each such court or courts located within the State of New Jersey and to service of process by registered or certified mail, return receipt requested, or by any other manner provided by applicable law, and hereby irrevocably and unconditionally waive any right to claim that any suit, action, proceeding or litigation so commenced has been commenced in an inconvenient forum.

D.

This Agreement and the other agreements referenced herein contain the entire understanding between the parties hereto and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought.

E.

If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

COMPANY:

CYOP SYSTEMS INTERNATIONAL INC.

By:  _________________________________

Name:

Mitch White

Title:

President

PLACEMENT AGENT:

NEWBRIDGE SECURITIES CORPORATION

By:  _________________________________

Name:

 Guy S. Amico

Title:

President

INVESTOR:

CORNELL CAPITAL PARTNERS, LP

By:

Yorkville Advisors, LLC

Its:

General Partner

By:  _________________________________

Name:

Mark A. Angelo

Title:

Portfolio Manager

EX-10

EXHIBIT 10.12

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of January ___, 2004 by and between CYOP SYSTEMS INTERNATIONAL INC., a Nevada corporation, with its principal office located at 1090 Homer Street, Suite 390, Vancouver, British Columbia, V6B2W9 (the “Company”), and CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the “Investor”).

WHEREAS:

A.

In connection with the Standby Equity Distribution Agreement by and between the parties hereto of even date herewith (the “Standby Equity Distribution Agreement”), the Company has agreed, upon the terms and subject to the conditions of the Standby Equity Distribution Agreement, to issue and sell to the Investor that number of shares of the Company’s common stock, par value $0.00002 per share (the “Common Stock”), which can be purchased pursuant to the terms of the Equity Line Credit Agreement for an aggregate purchase price of up to Five Million Dollars ($5,000,000).  Capitalized terms not defined herein shall have the meaning ascribed to them in the Standby Equity Distribution Agreement.

B.

To induce the Investor to execute and deliver the Standby Equity Distribution Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable state securities laws.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:

1.

DEFINITIONS.

As used in this Agreement, the following terms shall have the following meanings:

a.

   “Person” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.

b.

“Register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the “SEC”).

c.

“Registrable Securities” means the Investor’s Shares, as defined in the Standby Equity Distribution Agreement and shares of Common Stock issuable to Investors pursuant to the Standby Equity Distribution Agreement.

MI-149948 v2 0950000-102

d.

“Registration Statement” means a registration statement under the 1933 Act which covers the Registrable Securities.

2.

REGISTRATION.

a.

Mandatory Registration.  The Company shall prepare and file with the SEC a Registration Statement on Form S-1, SB-2 or on such other form as is available.  The Company shall cause such Registration Statement to be declared effective by the SEC prior to the first sale to the Investor of the Company’s Common Stock pursuant to the Standby Equity Distribution Agreement.

b.

Sufficient Number of Shares Registered.  In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities which the Investor has purchased pursuant to the Standby Equity Distribution Agreement, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefore, if applicable), or both, so as to cover all of such Registrable Securities which the Investor has purchased pursuant to the Standby Equity Distribution Agreement as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefore arises.  The Company shall use it best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof.  For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed “insufficient to cover all of the Registrable Securities” if at any time the number of Registrable Securities issuable on an Advance Notice Date is greater than the number of shares available for resale under such Registration Statement.

3.

RELATED OBLIGATIONS.

a.

The Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until the date on which the Investor shall have sold all the Registrable Securities covered by such Registration Statement (the “Registration Period”), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.

b.

The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement.  In the case of amendments and supplements to a Registrat ion Statement which are required to be

2

filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company’s filing a report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement.

c.

The Company shall furnish to the Investor without charge, (i) at least one copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.

d.

The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as the Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in conn ection therewith or as a condition thereto to (w) make any change to its certificate of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.  The Company shall promptly notify the Investor of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

e.

As promptly as practicable after becoming aware of such event or development, the Company shall notify the Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor.  The Company shall also promptly notify the Investor in writing (i) when a prospectus or any p rospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment

3

has become effective (notification of such effectiveness shall be delivered to the Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.

f.

The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

g.

At the reasonable request of the Investor, the Company shall furnish to the Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as the Investor may reasonably request (i) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investor.

h.

The Company shall make available for inspection by (i) the Investor and (ii) one firm of accountants or other agents retained by the Investor (collectively, the “Inspectors”) all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree, and the Investor hereby agrees, to hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, u nless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector and the Investor has knowledge.  The Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.

i.

The Company shall hold in confidence and not make any disclosure of information concerning the Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of

4

such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement.  The Company agrees that it shall, upon learning that disclosure of such information concerning the Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Investor and allow the Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

j.

The Company shall use its best efforts either to cause all the Registrable Securities covered by a Registration Statement (i) to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or to secure the inclusion for quotation on the National Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities.  The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(j).

k.

The Company shall cooperate with the Investor to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investor may reasonably request and registered in such names as the Investor may request.

l.

The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

m.

The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of the Registration Statement.

n.

The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.

o.

Within two (2) business days after a Registration Statement which covers Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.

p.

The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to a Registration Statement.

5

4.

OBLIGATIONS OF THE INVESTOR.

The Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) or receipt of notice that no supplement or amendment is required.  Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of the Investor in accordance with the terms of the Standby Equity Distribution Agreement in connection with any sale of Registrable Securities with respect to which the Investor has entered into a co ntract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has not yet settled.

5.

EXPENSES OF REGISTRATION.

All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company.

6.

INDEMNIFICATION.

With respect to Registrable Securities which are included in a Registration Statement under this Agreement:

a.

To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls the Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an ind emnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission o r alleged omission to state therein any material fact necessary to

6

make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”).  The Company shall reimburse the Investor and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(e); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Pe rson.

b.

In connection with a Registration Statement, the Investor agrees to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by the Investor expressly for use in connection with such Registratio n Statement; and, subject to Section 6(d), the Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party.  Notwithstanding anything to the contrary contained herein, the in demnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected and such new prospectus was delivered to the Investor prior to the Investor’s use of the prospectus to which the Claim relates.

7

c.

Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing  interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim.  The indemnifying party shall keep the Indemnified Party or Indemnified Person fully appr ised at all times as to the status of the defense or any settlement negotiations with respect thereto.  No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent.  No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation.  Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for whic h indemnification has been made.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

d.

The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

e.

The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

8

7.

CONTRIBUTION.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that:  (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

8.

REPORTS UNDER THE 1934 ACT.

With a view to making available to the Investor the benefits of Rule 144 promulgated under the 1933 Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (“Rule 144”) the Company agrees to:

a.

make and keep public information available, as those terms are understood and defined in Rule 144;

b.

file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company’s obligations under Section 6.3 of the Standby Equity Distribution Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

c.

furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration.

9.

AMENDMENT OF REGISTRATION RIGHTS.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a written agreement of the Company and the Investor.  Any amendment or waiver effected in accordance with this Section 9 shall be binding upon the Investor and the Company.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

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10.

MISCELLANEOUS.

a.

A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

b.

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard – Suite 2000
	Miami, Florida 33131-2399
	Attention: Clayton Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095
If to the Investor, to:	Cornell Capital Partners, LP
	101 Hudson Street – Suite 3606
	Jersey City, New Jersey 07302
	Attention: Mark Angelo
	Portfolio Manager
	Telephone: (201) 985-8300
	Facsimile: (201) 985-8266
With copy to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue – Suite 6
	Union, New Jersey 07083
	Attention: David Gonzalez, Esq.
	Telephone: (908) 810-8588
	Facsimile: (908) 810-0973

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Any party may change its address by providing written notice to the other parties hereto at least five days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

c.

Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d.

The corporate laws of the State of New Jersey shall govern all issues concerning the relative rights of the Company and the Investor.  All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New Jersey.  Each party hereby irrevocably submits to the non-exclusive jurisdiction of the Superior Courts of the State of New Jersey, sitting in Hudson County, New Jersey and the Federal District Court for the District of New Jersey sitting in Newark, New Jersey, for the adjudication of any dispute hereunder or in conne ction herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

e.

This Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement and the Placement Agent Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein.  This Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement and the

11

 Placement Agent Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

f.

This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

g.

The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

h.

This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

i.

Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

j.

The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

k.

This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written.

COMPANY:

CYOP SYSTEMS INTERNATIONAL INC.

By:

Name:

 Mitch White

Title:

President

INVESTOR:

CORNELL CAPITAL PARTNERS, LP

By:

Yorkville Advisors, LLC

Its:

General Partner

By:

Name:

Mark Angelo

Title:

Portfolio Manager

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EXHIBIT A

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

The Nevada Agency and Trust Company

Suite 880

Bank of America Plaza

50 West Liberty Street

Reno, Nevada, 89501

Re:

CYOP SYSTEMS INTERNATIONAL INC.

Ladies and Gentlemen:

We are counsel to CYOP Systems International Inc., a Nevada corporation (the “Company”), and have represented the Company in connection with that certain Standby Equity Distribution Agreement (the “Standby Equity Distribution Agreement”) entered into by and between the Company and Cornell Capital Partners, LP  (the “Investor”) pursuant to which the Company issued to the Investor shares of its Common Stock, par value $0.00002 per share (the “Common Stock”).  Pursuant to the Standby Equity Distribution Agreement, the Company also has entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreeme nt) under the Securities Act of 1933, as amended (the “1933 Act”).  In connection with the Company’s obligations under the Registration Rights Agreement, on ____________ ____, the Company filed a Registration Statement on Form ________ (File No. 333-_____________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names the Investor as a selling stockholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

Very truly yours,

KIRKPATRICK & LOCKHART LLP

By:                                                                

cc:

Cornell Capital Partners, LP

EX-10

EXHIBIT 10.13

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of January ___ 2004, by and among CYOP SYSTEMS INTERNATIONAL, INC., a Nevada corporation, with headquarters located at 1090 Homer Street, Suite 390, Vancouver, British Columbia, V6B2W9 (the “Company”), and the Buyers listed on Schedule I attached hereto (individually, a “Buyer” or collectively “Buyers”).

WITNESSETH:

WHEREAS, the Company and the Buyer(s) are executing and delivering this Agreement in reliance upon an exemption from securities registration pursuant to Section 4(2) and/or Rule 506 of Regulation D (“Regulation D”) as promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Buyer(s), as provided herein, and the Buyer(s) shall purchase up to One Hundred Twenty Five Thousand Dollars ($125,000) (the “Purchase Price”) of secured convertible debentures (the “Convertible Debentures”), which shall be convertible into shares of the Company’s common stock, par value $0.00002 (the “Common Stock”) (as converted, the “Conversion Shares”) in the respective amounts set forth opposite each Buyer(s) name on Schedule I ( the “Subscription Amount”); and

WHEREAS, the Buyer shall purchase $75,000 of Convertible Debentures on the date hereof and shall purchase an additional $50,000 of Convertible Debentures within three (3) business days of the Company filing a registration statement with the SEC registering the sale of the shares of Common Stock underlying all Convertible Debentures; and

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit A (the “Investor Registration Rights Agreement”) pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated there under, and applicable state securities laws; and

WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures contemplated hereby shall be held in escrow pursuant to the terms of an escrow agreement substantially in the form of the Escrow Agreement attached hereto as Exhibit B.

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering Irrevocable Transfer Agent Instructions substantially in the form attached hereto as Exhibit C (the “Irrevocable Transfer Agent Instructions”).  

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Security Agreement substantially in the form attached hereto as Exhibit D (the “Security Agreement”) pursuant to which the Company has

agreed to provide the Buyer a security interest in Pledged Collateral (as this term is defined in the Security Agreement dated the date hereof) to secure Company’s obligations under the Agreement, the Convertible Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions or the Security Agreement; and

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Buyer(s)hereby agree as follows:

1.

PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

(a)

Purchase of Convertible Debentures.  Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, each Buyer agrees, severally and not jointly, to purchase at Closing (as defined herein below) and the Company agrees to sell and issue to each Buyer, severally and not jointly, at Closing, Convertible Debentures in amounts corresponding with the Subscription Amount set forth opposite each Buyer’s name on Schedule I hereto.  Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription Amount set forth opposite his name on Schedule I in same-day funds or a check payable to “Butler Gonzalez LLP, as Escrow Agent for CYOP Systems International Inc/ Cornell Capital Partners, LP”, which Subscription Amount shall be held in escrow pursuant to the terms of the Escrow Agreement (as hereinafter defined) an d disbursed in accordance therewith.  Notwithstanding the foregoing, a Buyer may withdraw his Subscription Amount and terminate this Agreement as to such Buyer at any time after the execution hereof and prior to Closing (as hereinafter defined).

(b)

Closing Date.  The First Closing of the purchase and sale of the Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on the fifth (5^th) business day following the date hereof, subject to notification of satisfaction of the conditions to the Closing set forth herein and in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Buyer(s)) (the “Closing Date”).  The Closing shall occur on the respective Closing Dates at the offices of Butler Gonzalez, LLP, 1000 Stuyvesant Avenue, Suite 6, Union, NJ  07083 (or such other place as is mutually agreed to by the Company and the Buyer(s)).

(c)

Escrow Arrangements; Form of Payment.  Upon execution hereof by Buyer(s) and pending the Closing, the aggregate proceeds of the sale of the Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in a non-interest bearing escrow account with Butler Gonzalez LLP, as escrow agent (the “Escrow Agent”), pursuant to the terms of an escrow agreement between the Company, the Buyer(s) and the Escrow Agent in the form attached hereto as Exhibit B (the “Escrow Agreement”).  Subject to the satisfaction of the terms and conditions of this Agreement, on the Closing Date, (i) the Escrow Agent shall deliver to the Company in accordance with the terms of the Escrow Agreement such aggregate proceeds for the Convertible Debentures to be issued and sold to such Buyer(s), minus the fees and expenses of the Buyer equal to 10% of the gross proceeds, Butler Gonzalez, LLP of Ten Thousand Dollars ($10,000) shall be paid directly from the gross proceeds of the Closing and the retainer of Kirkpatrick & Lockhart LLP of which Twenty-Five Thousand Dollars ($25,000) shall be paid from the gross proceeds of the Closing by wire transfer of immediately available funds in accordance with the Company’s written wire instructions, and (ii) the Company shall deliver to each Buyer, Convertible Debentures which such Buyer(s) is purchasing in amounts indicated opposite such Buyer’s name on Schedule I, duly executed on behalf of the Company.

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2.

BUYER’S REPRESENTATIONS AND WARRANTIES.

Each Buyer represents and warrants, severally and not jointly, that:

(a)

Investment Purpose.  Each Buyer is acquiring the Convertible Debentures and, upon conversion of Convertible Debentures, the Buyer will acquire the Conversion Shares then issuable, for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Buyer reserves the right to dispose of the Conversion Shares at any time in accordance with or pursuant to an effective registration statement covering such Conversion Shares or an available exemption under the 1933 Act.

(b)

Accredited Investor  Status.  Each Buyer is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of Regulation D.

(c)

Reliance on Exemptions.  Each Buyer understands that the Convertible Debentures are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire such securities.

(d)

Information.  Each Buyer and its advisors (and his or, its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information he deemed material to making an informed investment decision regarding his purchase of the Convertible Debentures and the Conversion Shares, which have been requested by such Buyer.  Each Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management.  Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.  Each Buyer understands that its investment in the Convertible Deb entures and the Conversion Shares involves a high degree of risk.  Each Buyer is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Buyer to obtain information from the Company in order to evaluate the merits and risks of this investment.  Each Buyer has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to its acquisition of the Convertible Debentures and the Conversion Shares.

(e)

No Governmental Review.  Each Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Convertible Debentures or the Conversion Shares, or the fairness or suitability of the investment in the Convertible Debentures or the Conversion

3

Shares, nor have such authorities passed upon or endorsed the merits of the offering of the Convertible Debentures or the Conversion Shares.

(f)

Transfer or Resale.  Each Buyer understands that except as provided in the Investor Registration Rights Agreement: (i) the Convertible Debentures have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, or (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration requirements; (ii) any sale of such securities made in reliance on Rule 144 under the 1933 Act (or a successor rule thereto) (“Rule 144”) may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applic able, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.  The Company reserves the right to place stop transfer instructions against the shares and certificates for the Conversion Shares.

(g)

Legends.  Each Buyer understands that the certificates or other instruments representing the Convertible Debentures and or the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop ­transfer order may be placed against transfer of such stock certificates):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

The legend set forth above shall be removed and the Company within two (2) business days shall issue a certificate without such legend to the holder of the Conversion Shares upon which it is stamped, if, unless otherwise required by state securities laws, (i) in connection with a sale transaction, provided the Conversion Shares are registered under the 1933 Act or (ii) in connection with a sale transaction, after such holder provides the Company with an opinion of counsel, which opinion shall be in form, substance and scope customary for opinions of counsel

4

in comparable transactions, to the effect that a public sale, assignment or transfer of the Conversion Shares may be made without registration under the 1933 Act.

(h)

Authorization, Enforcement.  This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

(i)

Receipt of Documents.  Each Buyer and his or its counsel has received and read in their entirety:  (i) this Agreement and each representation, warranty and covenant set forth herein, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, and the Irrevocable transfer Agent Instructions; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; (iii) the Company’s Form 10-KSB for the fiscal year ended December 31; (iv) the Company’s Form 10-QSB for the fiscal quarters ended March 31, 2003, and September 30, 2003 and (v) answers to all questions each Buyer submitted to the Company regarding an investment in the Company; and each Buyer has relied on the information contained therein and has not been furnished any other docume nts, literature, memorandum or prospectus.

(j)

Due Formation of Corporate and Other Buyers.  If the Buyer(s) is a corporation, trust, partnership or other entity that is not an individual person, it has been formed and validly exists and has not been organized for the specific purpose of purchasing the Convertible Debentures and is not prohibited from doing so.

(k)

No Legal Advice From the Company.  Each Buyer acknowledges, that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors.  Each Buyer is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.  

3.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to each of the Buyers that, except as set forth in the SEC Documents (as defined herein):

(a)

Organization and Qualification.  The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted.  Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole.

5

(b)

Authorization, Enforcement, Compliance with Other Instruments.  (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions, and any related agreements, and to issue the Convertible Debentures and the Conversion Shares in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions (as defined herein) and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Convertible Debentures the Conversion Shares  and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion or exercise thereof, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar l aws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.  The authorized officer of the Company executing this Agreement, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement, the Irrevocable Transfer Agent Instructions and any related agreements knows of no reason why the Company cannot file the registration statement as required under the Investor Registration Rights Agreement or perform any of the Company’s other obligations under such documents.

(c)

Capitalization.  The authorized capital stock of the Company consists of 500,000,000 shares of Common Stock, par value $0.00002 per share.  As of the date hereof the Company has 142,973,410 shares of Common Stock issued and outstanding.  All of such outstanding shares have been validly issued and are fully paid and nonassessable.  Except as disclosed in the SEC Documents (as defined in Section 3(f)), no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company.  Except as disclosed in the SEC Documents, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to the Registration Rights Agreement) and (iv) there are no outstanding registration statements and

6

there are no outstanding comment letters from the SEC or any other regulatory agency.  There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Convertible Debentures as described in this Agreement.  The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto other than stock options issued to employees and consultants.

(d)

Issuance of Securities.  The Convertible Debentures are duly authorized and, upon issuance in accordance with the terms hereof, shall be duly issued, fully paid and nonassessable, are free from all taxes, liens and charges with respect to the issue thereof.  The Conversion Shares issuable upon conversion of the Convertible Debentures have been duly authorized and reserved for issuance.  Upon conversion or exercise in accordance with the Convertible Debentures the Conversion Shares will be duly issued, fully paid and nonassessable.

(e)

No Conflicts.  Except as disclosed in the SEC Documents, the execution, delivery and performance of this Agreement, the Security Agreement, the Investors Registration Rights Agreement, the Escrow Agreement and the Irrevocable Transfer Agent Instructions by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or the By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of The National Association of Securities Dealers Inc.’s OTC Bulletin Board on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected.  Except as disclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries.  The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any material law, ordinance, or regulation of any governmental entity.  Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof.  Except as disclosed in the SEC Documents, all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.  The Company and its subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing.

7

(f)

SEC Documents: Financial Statements.  Since January 1, 2002, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC under of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof or amended after the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “SEC Documents”).  The Company has delivered to the Buyers or their representatives, or made available through the SEC’s website at http://www.sec.gov., true and complete copies of the SEC Documents.  As of their respective dates, the financial statements of the Company disclosed in the SEC Documents (the & #147;Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such Financial Statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalf of the Company to the Buyer which is not included in the SEC Documents, including, without limitation, informati on referred to in this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(g)

10(b)-5.  The SEC Documents do not include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, in light of the circumstances under which they were made, not misleading.

(h)

Absence of Litigation.  Except as disclosed in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a material adverse effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) except as expressly disclosed in the SEC Documents, have a material adverse effect on the business, operations, properties, financial condition or results of operations of the Company and its subsidiaries take n as a whole.

(i)

Acknowledgment Regarding Buyer’s Purchase of the Convertible Debentures.  The Company acknowledges and agrees that the Buyer(s) is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby.  The Company further acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Buyer(s) or

8

any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Buyer’s purchase of the Convertible Debentures or the Conversion Shares.  The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its representatives.

(j)

No General Solicitation.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Convertible Debentures or the Conversion Shares.

(k)

No Integrated Offering.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Convertible Debentures or the Conversion Shares under the 1933 Act or cause this offering of the Convertible Debentures or the Conversion Shares to be integrated with prior offerings by the Company for purposes of the 1933 Act.

(l)

Employee Relations.  Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened.  None of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.

(m)

Intellectual Property Rights.  The Company and its subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted.  The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

(n)

Environmental Laws.  The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.

9

(o)

Title.  Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.

(p)

Insurance.  The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged.  Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.

(q)

Regulatory Permits.  The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

(r)

Internal Accounting Controls.  The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, and (iii) the recorded amounts for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(s)

No Material Adverse Breaches, etc.  Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.  Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company’s officers, has or is expected to have a material adverse effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its su bsidiaries.

(t)

Tax Status.  Except as set forth in the SEC Documents, the Company and each of its subsidiaries has made and filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and

10

other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

(u)

Certain Transactions.  Except as set forth in the SEC Documents, and except for arm’s length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties and other than the grant of stock options disclosed in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in wh ich any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

(v)

Fees and Rights of First Refusal.  The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.

4.

COVENANTS.

(a)

Best Efforts.  Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.

(b)

Form D.  The Company agrees to file a Form D with respect to the Conversion Shares as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing.  The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Conversion Shares, or obtain an exemption for the Conversion Shares for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date.

(c)

Reporting Status.  Until the earlier of (i) the date as of which the Buyer(s) may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and (B) none of the Convertible Debentures are outstanding (the “Registration Period”), the Company shall file in a timely manner all reports required to be filed with the SEC pursuant to the 1934 Act and the regulations of the SEC   thereunder, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination.

11

(d)

Use of Proceeds.  The Company will use the proceeds from the sale of the Convertible Debentures for general corporate and working capital purposes.

(e)

Reservation of Shares.  The Company shall take all action reasonably necessary to at all times have authorized, and reserved for the purpose of issuance, such number of shares of Common Stock as shall be necessary to effect the issuance of the Conversion Shares.  If at any time the Company does not have available such shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Conversion Shares of the Company shall call and hold a special meeting of the shareholders within sixty (60) days of such occurrence, for the sole purpose of increasing the number of shares authorized.  The Company’s management shall recommend to the shareholders to vote in favor of increasing the number of shares of Common Stock authorized.  Management shall also vote all of its shares in favor of increasing the number of authorized shares of Common Stock.

(f)

Listings or Quotation.  The Company shall promptly secure the listing or quotation of the Conversion Shares upon each national securities exchange, automated quotation system or The National Association of Securities Dealers Inc.’s Over-The-Counter Bulletin Board (“OTCBB”) or other market, if any, upon which shares of Common Stock are then listed or quoted (subject to official notice of issuance) and shall use its best efforts to maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable under the terms of this Agreement.  The Company shall maintain the Common Stock’s authorization for quotation on the OTCBB.

(g)

Fees and Expenses.  Each of the Company and the Buyer(s) shall pay all costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution and delivery of this Agreement, the Escrow Agreement, and the Investor Registration Rights Agreement.  The Buyer(s) shall be entitled to a ten percent (10%) discount on the Purchase Price.  

(h)

The costs and expenses of the Buyer(s) and Butler Gonzalez, LLP, which shall be Ten Thousand Dollars ($10,000) and the retainer of Kirkpatrick & Lockhart LLP of Twenty-Five Thousand Dollars ($25,000) shall be paid for by the Company at the Closing directly from the gross proceeds held in escrow.  

(i)

Corporate Existence.  So long as any of the Convertible Debentures remain outstanding, the Company shall not directly or indirectly consummate any merger, reorganization, restructuring, reverse stock split consolidation, sale of all or substantially all of the Company’s assets or any similar transaction or related transactions (each such transaction, an “Organizational Change”) unless, prior to the consummation an Organizational Change, the Company obtains the written consent of each Buyer.  In any such case, the Company will make appropriate provision with respect to such holders’ rights and interests to insure that the provisions of this Section 4(h) will thereafter be applicable to the Convertible Debentures.

(j)

Transactions With Affiliates.  So long as any Convertible Debentures are outstanding, the Company shall not, and shall cause each of its subsidiaries not to, enter into, amend, modify or supplement, or permit any subsidiary to enter into, amend, modify or

12

supplement any agreement, transaction, commitment, or arrangement with any of its or any subsidiary’s officers, directors, person who were officers or directors at any time during the previous two (2) years, stockholders who beneficially own five percent (5%) or more of the Common Stock, or Affiliates (as defined below) or with any individual related by blood, marriage, or adoption to any such individual or with any entity in which any such entity or individual owns a five percent (5%) or more beneficial interest (each a “Related Party”), except for (a) customary employment arrangements and benefit programs on reasonable terms, (b) any investment in an Affiliate of the Company,  (c) any agreement, transaction, commitment, or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a p erson other than such Related Party, (d) any agreement transaction, commitment, or arrangement which is approved by a majority of the disinterested directors of the Company, for purposes hereof, any director who is also an officer of the Company or any subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment, or arrangement.  “Affiliate” for purposes hereof means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity interest in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity.  “Control” or “controls” for purposes hereof means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity.

(k)

Transfer Agent.  The Company covenants and agrees that, in the event that the Company’s agency relationship with the transfer agent should be terminated for any reason prior to a date which is two (2) years after the Closing Date, the Company shall immediately appoint a new transfer agent and shall require that the transfer agent execute and agree to be bound by the terms of the Irrevocable Transfer Agent Instructions (as defined herein) to Transfer Agent.

(l)

Restriction on Issuance of the Capital Stock. So long as any Convertible Debentures are outstanding, the Company shall not, without the prior written consent of the Buyer(s), issue or sell shares of Common Stock or Preferred Stock (i) without consideration or for a consideration per share less than the Bid Price of the Common Stock determined immediately prior to its issuance, (ii) any warrant, option, right, contract, call, or other security instrument granting the holder thereof, the right to acquire Common Stock without consideration or for a consideration less than such Common Stock’s Bid Price value determined immediately prior to it’s issuance, (iii) enter into any security instrument granting the holder a security interest in any and all assets of the Company, or (iv) file any registration statement on Form S-8.

(m)

Buyer’s(s’) Trading Activities .  The Buyer’s(s’) trading activities with respect to the Conversion Shares will be in compliance with all applicable federal and state securities laws, rules and regulations and the rules and regulations of the principal market on which the Company’s Common Stock is listed or traded.  Neither the Buyer(s) nor any of their affiliates has an open short position in the Common Stock of the Company, and each Buyer agrees that it will not, and that it will cause its affiliates not to engage in any short sales (as defined in any applicable SEC rules or rules of the National Association of Securities Dealers) or in any hedging transactions with respect to the Common Stock while the Convertible Debentures and/or the Investor’s warrants (as defined herein) remain issued and outstanding.  

13

5.

TRANSFER AGENT INSTRUCTIONS.

The Company shall issue the Irrevocable Transfer Agent Instructions to its transfer agent irrevocably appointing Butler Gonzalez LLP as its agent for purpose of having certificates issued, registered in the name of the Buyer(s) or its respective nominee(s), for the Conversion Shares representing such amounts of Convertible Debentures as specified from time to time by the Buyer(s) to the Company upon conversion of the Convertible Debentures, for interest owed pursuant to the Convertible Debenture, and for any and all Liquidated Damages (as this term is defined in the Investor Registration Rights Agreement).  Butler Gonzalez LLP shall be paid a cash fee of Fifty Dollars ($50) for every occasion they act pursuant to the Irrevocable Transfer Agent Instructions.  The Company shall not change its transfer agent without the express written consent of the Buyer(s), wh ich may be withheld by the Buyer(s) in its sole discretion.  Prior to registration of the Conversion Shares under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement.  The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares prior to registration of such shares under the 1933 Act) will be given by the Company to its transfer agent and that the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Investor Registration Rights Agreement.  Nothing in this Section 5 shall affect in any way the Buyer’s obligations and agreement to comply with all applicable securities laws upon resale of Conversion Shares.  If the Buyer(s) provides the Company with an opini on of counsel, in form, scope and substance customary for opinions of counsel in comparable transactions to the effect that registration of a resale by the Buyer(s) of any of the Conversion Shares is not required under the 1933 Act, the Company shall within two (2) business days instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Buyer.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyer(s) shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and trans fer, without the necessity of showing economic loss and without any bond or other security being required.

6.

CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

The obligation of the Company hereunder to issue and sell the Convertible Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or before the Closing Dates, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

(a)

Each Buyer shall have executed this Agreement, the Security Agreement, the Escrow Agreement and the Investor Registration Rights Agreement and the Irrevocable Transfer Agent Instructions and delivered the same to the Company.

 

14

(b)

The Buyer(s) shall have delivered to the Escrow Agent the Purchase Price for Convertible Debentures in respective amounts as set forth next to each Buyer as outlined on Schedule I attached hereto and the Escrow Agent shall have delivered the net proceeds to the Company by wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the Company.

(c)

The representations and warranties of the Buyer(s) shall be true and correct in all material respects as of the date when made and as of the Closing Dates as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer(s) shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer(s) at or prior to the Closing Dates.

(d)

The Company shall have filed a form UCC –1 with regard to the Pledged Property and Pledged Collateral as detailed in the Security Agreement dated the date hereof and provided proof of such filing to the Buyer(s).  

7.

CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

The obligation of the Buyer(s) hereunder to purchase the Convertible Debentures at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer(s) at any time in its sole discretion:

(a)

The Company shall have executed this Agreement, the Security Agreement, the Convertible Debenture, the Escrow Agreement, the Irrevocable Transfer Instructions and the Investor Registration Rights Agreement, and delivered the same to the Buyer(s).

(b)

The Common Stock shall be authorized for quotation on the OTCBB, trading in the Common Stock shall not have been suspended for any reason and all of the Conversion Shares issuable upon conversion of the Convertible Debentures shall be approved for listing or quotation on the OTCBB.  

(c)

The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.  If requested by the Buyer, the Buyer shall have received a certificate, executed by the President of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer

15

including, without limitation an update as of the Closing Date regarding the representation contained in Section 3(c) above.

(d)

The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.

(e)

The Buyer(s) shall have received an opinion of counsel from Kirkpatrick & Lockhart, LLP in a form satisfactory to the Buyer(s).

(f)

The Company shall have provided to the Buyer(s) a certificate of good standing from the secretary of state from the state in which the company is incorporated.

(g)

As of the Closing Date, the Company shall have reserved out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Convertible Debentures, shares of Common Stock to effect the conversion of all of the Conversion Shares then outstanding.

(h)

The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s transfer agent.

(i)

The Company shall have provided to the Investor an acknowledgement, to the satisfaction of the Investor, from Moore Stephens Ellis Foster Ltd., as to its ability to provide all consents required in order to file a registration statement in connection with this transaction.

(j)

The Company shall have filed a form UCC–1 with regard to the Pledged Property and Pledged Collateral as detailed in the Security Agreement dated the date hereof and provided proof of such filing to the Buyer(s).

8.

INDEMNIFICATION.

(a)

In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Convertible Debentures and the Conversion Shares hereunder, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Buyer(s) and each other holder of the Convertible Debentures and the Conversion Shares, and all of their officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Buyer Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Buyer Indemnitee is a party to the action for which ind emnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by the Buyer Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Convertible Debentures or the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, or the Investor Registration Rights Agreement or any

16

other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Indemnities, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Convertible Debentures or the status of the Buyer or holder of the Convertible Debentures  the Conversion Shares,  as a Buyer of Convertible Debentures in the Company.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnifie d Liabilities, which is permissible under applicable law.

(b)

In consideration of the Company’s execution and delivery of this Agreement, and in addition to all of the Buyer’s other obligations under this Agreement, the Buyer shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Buyer(s) in this Agreement, , instrument or document contemplated hereby or thereby executed by the Buyer, (b) any breach of any covenant, agreement or obligation of the Buyer(s) contai ned in this Agreement,  the Investor Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Buyer, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on material misrepresentations or due to a material breach and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement, the Investor Registration Rights Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnities.  To the extent that the foregoing undertaking by each Buyer may be unenforceable for any reason, each Buyer shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

9.

GOVERNING LAW: MISCELLANEOUS.

(a)

Governing Law.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of Nevada without regard to the principles of conflict of laws.  The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph.

(b)

Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof.

17

(c)

Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

(d)

Severability.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

(e)

Entire Agreement, Amendments.  This Agreement supersedes all other prior oral or written agreements between the Buyer(s), the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

(f)

Notices.  Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon confirmation of receipt, when sent by facsimile; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard – Suite 2000
	Miami, FL  33131-2399
	Attention: Clayton E. Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095
If to the Transfer Agent, to:
	Attention:
	Telephone:
	Facsimile:

18

With Copy to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue – Suite 6
	Union, NJ 07083
	Attention: David Gonzalez, Esq.
	Telephone: (908) 810-8588
	Facsimile: (908) 810-0973

If to the Buyer(s), to its address and facsimile number on Schedule I, with copies to the Buyer’s counsel as set forth on Schedule I.  Each party shall provide five (5) days’ prior written notice to the other party of any change in address or facsimile number.

(g)

Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.  Neither the Company nor any Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto.

(h)

No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

(i)

Survival.  Unless this Agreement is terminated under Section 9(l), the representations and warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8, shall survive the Closing for a period of two (2) years following the date on which the Convertible Debentures are converted in full.  The Buyer(s) shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

(j)

Publicity.  The Company and the Buyer(s) shall have the right to approve, before issuance any press release or any other public statement with respect to the transactions contemplated hereby made by any party; provided, however, that the Company shall be entitled, without the prior approval of the Buyer(s), to issue any press release or other public disclosure with respect to such transactions required under applicable securities or other laws or regulations (the Company shall use its best efforts to consult the Buyer(s) in connection with any such press release or other public disclosure prior to its release and Buyer(s) shall be provided with a copy thereof upon release thereof).

(k)

Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

(l)

Termination.  In the event that the Closing shall not have occurred with respect to the Buyers on or before five (5) business days from the date hereof due to the Company’s or the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above

19

(and the non-breaching party’s failure to waive such unsatisfied condition(s)), the non-breaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; provided, however, that if this Agreement is terminated by the Company pursuant to this Section 9(l), the Company shall remain obligated to reimburse the Buyer(s) for the fees and expenses of Butler Gonzalez described in Section 4(g) above.

(m)

No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

[REMAINDER PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above.

COMPANY:

CYOP SYSTEMS INTERNATIONAL INC.

By: ___________________________________

Name

Mitch White

Title:

President

21

EXHIBIT A

FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT

EXHIBIT B

FORM OF ESCROW AGREEMENT

EXHIBIT C

TRANSFER AGENT INSTRUCTIONS

SCHEDULE I

SCHEDULE OF BUYERS

Name	Signature	Address/Facsimile Number of Buyer	Amount of Subscription
Cornell Capital Partners, LP	By: Yorkville Advisors, LLC	101 Hudson Street – Suite 3606	$75,000(1)
	Its: General Partner	Jersey City, NJ  07303	$50,000(2)
		Facsimile: (201) 985-8266
	By: ________________________________
	Name: Mark A. Angelo
	Its: Portfolio Manager

(1)

To be invested on the date hereof.

(2)

To be invested upon filing the registration statement as described in the recitals to this Agreement.

EX-10

EXHIBIT 10.14

THIS DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY, THE “SECURITIES”), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.  THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.  FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES M AY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.

SECURED DEBENTURE

CYOP SYSTEMS INTERNATIONAL INC.

5% Convertible Debenture

Due January ___, 2007

No.  ___

         $75,000

This Debenture is issued by CYOP Systems International, Inc., a Nevada corporation (the “Company”), to _______________ (together with its permitted successors and assigns, the “Holder”) pursuant to exemptions from registration under the Securities Act of 1933, as amended.

ARTICLE I.

Section 1.01

Principal and Interest.  For value received, on January ___, 2004, the Company hereby promises to pay to the order of the Holder in lawful money of the United States of America and in immediately available funds the principal sum of Seventy Five Thousand Dollars (U.S. $75,000), together with interest on the unpaid principal of this Debenture at the rate of five percent (5%) per year (computed on the basis of a 365-day year and the actual days elapsed) from the date of this Debenture until paid.  At the Company’s option, the entire principal amount and all accrued interest shall be either (a) paid to the Holder on the third (3^rd) year anniversary from the date hereof or (b) converted in accordance with Section 1.02 herein.

Section 1.02

Optional Conversion.  The Holder is entitled, at its option, to convert, and sell on the same day, at any time and from time to time, until payment in full of this Debenture, all or any part of the principal amount of the Debenture, plus accrued interest, into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.00002 per share (“Common Stock”), at the price per share (the “Conversion Price”) equal to the lesser of (a) an amount equal to one hundred twenty (120%) of the closing bid price of the Common Stock as listed on a Principal Market (as defined herein), as quoted by Bloomberg L.P. (the “Closing Bid Price”) as of the date hereof, or (b) an amount equal to eighty percent (80%) of the lowest Closing Bid Prices of the Common Stock fo r the five (5) trading days immediately preceding the Conversion Date (as defined herein).  Subparagraphs (a) and (b) above are individually referred to as a “Conversion Price”.  As used herein, “Principal Market” shall mean The National Association of Securities Dealers Inc.’s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or American Stock Exchange.  If the Common Stock is not traded on a Principal Market, the Closing Bid Price shall mean, the reported Closing Bid Price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc., for the applicable periods.  No fraction of shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share.  To convert this Debenture, the Holder hereof shall deliver written notice thereof, substantially in the form of Exhibit “A” to this Debenture, with appropria te insertions (the “Conversion Notice”), to the Company at its address as set forth herein.  The date upon which the conversion shall be effective (the “Conversion Date”) shall be deemed to be the date set forth in the Conversion Notice.

Section 1.03

Reservation of Common Stock.  The Company shall reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of this Debenture, such number of shares of Common Stock as shall from time to time be sufficient to effect such conversion, based upon the Conversion Price.  If at any time the Company does not have a sufficient number of Conversion Shares authorized and available, then the Company shall call and hold a special meeting of its stockholders within sixty (60) days of that time for the sole purpose of increasing the number of authorized shares of Common Stock.

Section 1.04

Right of Redemption.  The Company at its option shall have the right to redeem, with three (3) business days advance written notice (the “Redemption Notice”), a portion or all outstanding convertible debenture.  The redemption price shall be one hundred twenty percent (120%) of the amount redeemed plus accrued interest.  

In the event the Company exercises a redemption of either all or a portion the Convertible Debenture, the Holder shall receive a warrant to purchase fifty thousand (50,000) shares of the Company’s Common Stock for every One Hundred Thousand Dollars ($100,000) redeemed, pro rata (the “Warrant”).  The Warrant shall be exercisable on a “cash basis” and have an exercise price of one hundred twenty percent (120%) of the Closing Bid Price of the Company’s Common Stock on the Closing Date.  The Warrant shall have “piggy-back” and demand registration rights and shall survive for two (2) years from the Closing Date.  

Section 1.05

Registration Rights.  The Company is obligated to register the resale of the Conversion Shares under the Securities Act of 1933, as amended, pursuant to the terms of a

2

Registration Rights Agreement, between the Company and the Holder of even date herewith (the “Investor Registration Rights Agreement”).

Section 1.06

Interest Payments.  The interest so payable will be paid at the time of maturity, redemption or conversion to the person in whose name this Debenture is registered.  At the time such interest is payable, the Holder, in its sole discretion, may elect to receive the interest in cash (via wire transfer or certified funds) or in the form of Common Stock.  In the event of default, as described in Article III Section 3.01 hereunder, the Holder may elect that the interest be paid in cash (via wire transfer or certified funds) or in the form of Common Stock.  If paid in the form of Common Stock, the amount of stock to be issued will be calculated as follows: the value of the stock shall be the Closing Bid Price on:  (i) the date the interest payment is due; or (ii) if the interest payment is not made when due, the date the interest payment is made.  A number of shares of Common Stock with a value equal to the amount of interest due shall be issued.  No fractional shares will be issued; therefore, in the event that the value of the Common Stock per share does not equal the total interest due, the Company will pay the balance in cash.

Section 1.07

Paying Agent and Registrar.  Initially, the Company will act as paying agent and registrar.  The Company may change any paying agent, registrar, or Company-registrar by giving the Holder not less than ten (10) business days’ written notice of its election to do so, specifying the name, address, telephone number and facsimile number of the paying agent or registrar.  The Company may act in any such capacity.

Section 1.08

Secured Nature of Debenture.  This Debenture is secured by all of the assets and property of the Company as set forth on Exhibit A to the Security Agreement dated the date hereof between the Company and the Holder (the “Security Agreement”).  As set forth in the Security Agreement, Holder’s security interest shall terminate upon the occurrence of an Expiration Event as defined in the Security Agreement.

ARTICLE II.

Section 2.01

Amendments and Waiver of Default.  The Debenture may not be amended without the consent of the Holder.  Notwithstanding the above, without the consent of the Holder, the Debenture may be amended to cure any ambiguity, defect or inconsistency, to provide for assumption of the Company obligations to the Holder or to make any change that does not adversely affect the rights of the Holder.

ARTICLE III.

Section 3.01

Events of Default.  An Event of Default is defined as follows: (a) failure by the Company to pay amounts due hereunder within fifteen (15) days of the date of maturity of this Debenture; (b) failure by the Company to comply with the terms of the Irrevocable Transfer Agent Instructions attached to the Securities Purchase Agreement; (c) failure by the Company’s transfer agent to issue freely tradable Common Stock to the Holder within five (5) days of the Company’s receipt of the attached Notice of Conversion from Holder; (d) failure by the Company for ten (10) days after notice to it to comply with any of its other agreements in the Debenture; (e) events of bankruptcy or insolvency; (f) a breach by the Company of its obligations under the Securities Purchase Agreement or the Investor Registration Rights

3

Agreement which is not cured by the Company within ten (10) days after receipt of written notice thereof.

Section 3.02

Failure to Issue Unrestricted Common Stock.  As indicated in Article III Section 3.01, a breach by the Company of its obligations under the Investor Registration Rights Agreement shall be deemed an Event of Default, which if not cured within ten (10) days, shall entitle the Holder to accelerate full repayment of all debentures outstanding and accrued interest thereon.  The Company acknowledges that failure to honor a Notice of Conversion shall cause irreparable harm to the Holder.  If at any time, the Company does not have available an amount of authorized and non-issued Common Stock necessary to satisfy full Conversion of the then outstanding amount of the Convertible, the Company shall call and hold a special meeting within 30 days of such occurrence, for the sole purpose of increasing the number of shares of Common Stock a uthorized.  Management of the Company shall recommend to shareholders to vote in favor of increasing the number of Common Stock authorized.  Management shall vote also all of its shares in favor of increasing the number of Common Stock authorized.  

ARTICLE IV.

Section 4.01

Rights and Terms of Conversion.  This Debenture, in whole or in part, may be converted at any time following the date of closing, into shares of Common Stock at a price equal to the Conversion Price as described in Section 1.02 above.

Section 4.02

Re-issuance of Debenture.  When the Holder elects to convert a part of the Debenture, then the Company shall reissue a new Debenture in the same form as this Debenture to reflect the new principal amount.

Section 4.03

Termination of Conversion Rights.  The Holder’s right to convert the Debenture into the Common Stock in accordance with paragraph 4.01 shall terminate on the date that is the third (3^rd) year anniversary from the date hereof and this Debenture shall be automatically converted on that date in accordance with the formula set forth in Section 4.01 hereof, and the appropriate shares of Common Stock and amount of interest shall be issued to the Holder.

ARTICLE V.

Section 5.01

Anti-dilution.  In the event that the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on the outstanding Common Stock, the Conversion Price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock, the Conversion Price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination as the case may be.

Section 5.02

Consent  of Holder to Sell Capital Stock or Grant Security Interests.  Except for the Standby Equity Distribution Agreement dated the date hereof between the Company and Cornell Capital Partners, LP, so long as any of the principal of or interest on this Note remains unpaid and unconverted, the Company shall not, without the prior consent of the

4

Holder, issue or sell (i) any Common Stock or Preferred Stock without consideration or for a consideration per share less than its fair market value determined immediately prior to its issuance, (ii) issue or sell any Preferred Stock, warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than such Common Stock’s fair market value determined immediately prior to its issuance, (iii) enter into any security instrument granting the holder a security interest in any of the assets of the Company, or (iv) file any registration statement on Form S-8.

ARTICLE VI.

Section 6.01

Notice.  Notices regarding this Debenture shall be sent to the parties at the following addresses, unless a party notifies the other parties, in writing, of a change of address:

If to the Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard – Suite 2000
	Miami, FL  33131-2399
	Attention: Clayton E. Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095
If to the Holder:	_______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________
With a copy to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue – Suite 6
	Union, NJ 07083
	Attention: David Gonzalez, Esq.
	Telephone: (908) 810-8588
	Facsimile: (908) 810-0973

Section 6.02

Governing Law.  This Debenture shall be deemed to be made under and shall be construed in accordance with the laws of the State of New Jersey without giving effect to the principals of conflict of laws thereof.  Each of the parties consents to the jurisdiction of the U.S.  District Court sitting in the District of the State of New Jersey or the state courts of the

5

State of New Jersey sitting in Hudson County, New Jersey in connection with any dispute arising under this Debenture and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens to the bringing of any such proceeding in such jurisdictions.

Section 6.03

Severability.  The invalidity of any of the provisions of this Debenture shall not invalidate or otherwise affect any of the other provisions of this Debenture, which shall remain in full force and effect.

Section 6.04

Entire Agreement and Amendments.  This Debenture represents the entire agreement between the parties hereto with respect to the subject matter hereof and there are no representations, warranties or commitments, except as set forth herein.  This Debenture may be amended only by an instrument in writing executed by the parties hereto.

Section 6.05

Counterparts.  This Debenture may be executed in multiple counterparts, each of which shall be an original, but all of which shall be deemed to constitute on instrument.

IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as executed this Debenture as of the date first written above.

CYOP SYSTEMS INTERNATIONAL INC.

By: __________________________________

Name:

Mitch White

Title:

President

6

EXHIBIT “A”

NOTICE OF CONVERSION

(To be executed by the Holder in order to Convert the Note)

TO:

The undersigned hereby irrevocably elects to convert $ ______________________________

 of the principal amount of the above Debenture into Shares of Common Stock of CYOP Systems International Inc., according to the conditions stated therein, as of the Conversion Date written below.

Conversion Date:
Applicable Conversion Price:
Signature:
Name:
Address:
Amount to be converted:	$
Amount of Debenture unconverted:	$
Conversion Price per share:	$
Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the following address:
Issue to:
Authorized Signature:
Name:
Title:
Phone Number:
Broker DTC Participant Code:
Account Number:

A-1

EX-10

EXHIBIT 10.15

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as of January ___, 2004, by and between CYOP SYSTEMS INTERNATIONAL INC., (the “Company”), and the BUYER(s) listed on Schedule I attached to the Securities Purchase Agreement dated the date hereof (the “Secured Party”).

WHEREAS, the Company shall issue and sell to the Secured Party, as provided in the Securities Purchase Agreement dated the date hereof, and the Secured Party shall purchase up to One Hundred Twenty Five Thousand Dollars ($125,000) of five percent (5%) secured convertible debentures  (the “Convertible Debentures”), which shall be convertible into shares of the Company’s common stock, par value $0.00002 (the “Common Stock”) (as converted, the “Conversion Shares”), for a total purchase price of up to One Hundred Twenty Five Thousand  Dollars ($125,000), in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached to the Securities Purchase Agreement;

WHEREAS, to induce the Secured Party to enter into the transaction contemplated by the Securities Purchase Agreement, the Secured Convertible Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent Instructions, and the Escrow Agreement (collectively referred to as the “Transaction Documents”), the Company hereby grants to the Secured Party a security interest in and to the pledged property identified on Exhibit “A” hereto (collectively referred to as the “Pledged Property”) until the satisfaction of the Obligations, as defined herein below.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE 1.

DEFINITIONS AND INTERPRETATIONS

Section 1.1

Recitals.  

The above recitals are true and correct and are incorporated herein, in their entirety, by this reference.

Section 1.2

Interpretations.  

Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof.

MI-150229 v2 0950000-102

Section 1.3

Obligations Secured.

The obligations secured hereby are any and all obligations of the Company to the Secured Party, whether oral or written and whether arising before, on or after the date hereof including, without limitation, those obligations of the Company to the Secured Party under the Securities Purchase Agreement, the Secured Convertible Debenture, the Investor Registration Rights Agreement and Irrevocable Transfer Agent Instructions, in the principal amounts thereof outstanding from time to time, and any other amounts payable by or chargeable to the Company thereunder or hereunder (collectively, the “Obligations.

ARTICLE 2.

PLEDGED COLLATERAL, ADMINISTRATION OF COLLATERAL AND TERMINATION OF SECURITY INTEREST

Section 2.1

Pledged Property.

(a)

Company hereby pledges to the Secured Party, and creates in the Secured Party for its benefit, a security interest such time until the Obligations are paid in full, in and to all of the property of the Company as set forth in Exhibit “A” attached hereto (collectively, the “Pledged Property”):

The Pledged Property, as set forth in Exhibit “A” attached hereto, and the products thereof and the proceeds of all such items are hereinafter collectively referred to as the “Pledged Collateral.”

(b)

Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably requested by the Secured Party to perfect its security interest in the Pledged Property.  Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge and deliver to the Secured Party such documents and instruments, including, without limitation, financing statements, certificates, affidavits and forms as may, in the Secured Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged Property, and the Secured Party shall hold such documents and instruments as secured party, subject to the terms and conditions contained herein.< /P>

Section 2.2

Rights; Interests; Etc.

(a)

So long as no Event of Default (as hereinafter defined) shall have occurred and be continuing:

(i)

the Company shall be entitled to exercise any and all rights pertaining to the Pledged Property or any part thereof for any purpose not inconsistent with the terms hereof; and

2

 

(ii)

the Company shall be entitled to receive and retain any and all payments paid or made in respect of the Pledged Property.

(b)

Upon the occurrence and during the continuance of an Event of Default:

(i)

All rights of the Company to exercise the rights which it would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive payments which it would otherwise be authorized to receive and retain pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights shall thereupon become vested in the Secured Party who shall thereupon have the sole right to exercise such rights and to receive and hold as Pledged Collateral such payments; provided, however, that if the Secured Party shall become entitled and shall elect to exercise its right to realize on the Pledged Collateral pursuant to Article 5 hereof, then all cash sums received by the Secured Party, or held by Company for the benefit of the Secured Party and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any outst anding Obligations; and

(ii)

All interest, dividends, income and other payments and distributions which are received by the Company contrary to the provisions of Section 2.2(b)(i) hereof shall be received in trust for the benefit of the Secured Party, shall be segregated from other property of the Company and shall be forthwith paid over to the Secured Party; or

(iii)

The Secured Party in its sole discretion shall be authorized to sell any or all of the Pledged Property at public or private sale in order to recoup all of the outstanding principal plus accrued interest owed pursuant to the Convertible Debenture as described herein

(c)

Each of the following events shall constitute a default under this Agreement (each an “Event of Default”):

(i)

any default, whether in whole or in part, shall occur in the payment to the Secured Party of principal, interest or other item comprising the Obligations as and when due or with respect to any other debt or obligation of the Company to a party other than the Secured Party;

(ii)

any default, whether in whole or in part, shall occur in the due observance or performance of any obligations or other covenants, terms or provisions to be performed under this Agreement or the Transaction Documents;

(iii)

the Company shall:  (1) make a general assignment for the benefit of its creditors; (2) apply for or consent to the appointment of a receiver, trustee, assignee, custodian, sequestrator, liquidator or similar official for itself or any of its assets and properties; (3) commence a voluntary case for relief as a debtor under the United States Bankruptcy Code; (4) file with or otherwise submit to any governmental authority any petition, answer or other document seeking:  (A) reorganization, (B) an arrangement with creditors or (C) to take advantage of any other present or future applicable law respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief of debtors, dissolution or liquidation; (5) file or otherwise submit any answer or other document admitting or failing to contest the material

3

allegations of a petition or other document filed or otherwise submitted against it in any proceeding under any such applicable law, or (6) be adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or

(iv)

any case, proceeding or other action shall be commenced against the Company for the purpose of effecting, or an order, judgment or decree shall be entered by any court of competent jurisdiction approving (in whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any receiver, trustee, assignee, custodian, sequestrator, liquidator or other official shall be appointed with respect to the Company, or shall be appointed to take or shall otherwise acquire possession or control of all or a substantial part of the assets and properties of the Company, and any of the foregoing shall continue unstayed and in effect for any period of thirty (30) days.

ARTICLE 3.

ATTORNEY-IN-FACT; PERFORMANCE

Section 3.1

Secured Party Appointed Attorney-In-Fact.

Upon the occurrence of an Event of Default, the Company hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Secured Party’s discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement, including, without limitation, to receive and collect all instruments made payable to the Company representing any payments in respect of the Pledged Collateral or any part thereof and to give full discharge for the same.  The Secured Party may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged Property as and when the Secured Party may determine.  To facilitate collection, the Secured Party may notify account debtors and obligors on any Pledged Property or Pledged Collateral to make payments directly to the Secured Party.

Section 3.2

Secured Party May Perform.

If the Company fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby and payable by the Company under Section 8.3.

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES

Section 4.1

Authorization; Enforceability.

Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency,

4

reorganization, moratorium and similar laws affecting creditors’ rights or by the principles governing the availability of equitable remedies.

Section 4.2

Ownership of Pledged Property.

The Company warrants and represents that it is the legal and beneficial owner of the Pledged Property free and clear of any lien, security interest, option or other charge or encumbrance except for the security interests identified on Exhibit A hereto and the security interest created by this Agreement.

ARTICLE 5.

DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

Section 5.1

Default and Remedies.

(a)

If an Event of Default described in Section 2.2(c)(i) and (ii) occurs, then in each such case the Secured Party may declare the Obligations to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration, the Obligations shall become immediately due and payable.  If an Event of Default described in Sections 2.2(c)(iii) or (iv) occurs and is continuing for the period set forth therein, then the Obligations shall automatically become immediately due and payable without declaration or other act on the part of the Secured Party.

(b)

Upon the occurrence of an Event of Default, the Secured Party shall,:  (i) be entitled to receive all distributions with respect to the Pledged Collateral, (ii) to cause the Pledged Property to be transferred into the name of the Secured Party or its nominee, (iii) to dispose of the Pledged Property, and (iv) to realize upon any and all rights in the Pledged Property then held by the Secured Party.

Section 5.2

Method of Realizing Upon the Pledged Property :  Other Remedies.

Upon the occurrence of an Event of Default, in addition to any rights and remedies available at law or in equity, the following provisions shall govern the Secured Party’s right to realize upon the Pledged Property:

(a)

Any item of the Pledged Property may be sold for cash or other value in any number of lots at brokers board, public auction or private sale and may be sold without demand, advertisement or notice (except that the Secured Party shall give the Company ten (10) days’ prior written notice of the time and place or of the time after which a private sale may be made (the “Sale Notice”)), which notice period shall in any event is hereby agreed to be commercially reasonable.  At any sale or sales of the Pledged Property, the Company may bid for and purchase the whole or any part of the Pledged Property and, upon compliance with the terms of such sale, may hold, exploit and dispose of the same without further accountability to the Secured Party.  The Company will execute and deliver, or cause to be executed and delivered, such instrument s, documents, assignments, waivers, certificates, and affidavits and supply or cause to be supplied such further information and take such further action as the Secured Party reasonably shall require in connection with any such sale.

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(b)

Any cash being held by the Secured Party as Pledged Collateral and all cash proceeds received by the Secured Party in respect of, sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied as follows:

(i)

to the payment of all amounts due the Secured Party for the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof;

(ii)

to the payment of the Obligations then due and unpaid.

(iii)

the balance, if any, to the person or persons entitled thereto, including, without limitation, the Company.

(c)

In addition to all of the rights and remedies which the Secured Party may have pursuant to this Agreement, the Secured Party shall have all of the rights and remedies provided by law, including, without limitation, those under the Uniform Commercial Code.

(i)

If the Company fails to pay such amounts due upon the occurrence of an Event of Default which is continuing, then the Secured Party may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of Company, wherever situated.

(ii)

The Company agrees that it shall be liable for any reasonable fees, expenses and costs incurred by the Secured Party in connection with enforcement, collection and preservation of the Transaction Documents, including, without limitation, reasonable legal fees and expenses, and such amounts shall be deemed included as Obligations secured hereby and payable as set forth in Section 8.3 hereof.

Section 5.3

Proofs of Claim.

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the Company or the property of the Company or of such other obligor or its creditors, the Secured Party (irrespective of whether the Obligations shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Secured Party shall have made any demand on the Company for the payment of the Obligations), subject to the rights of Previous Security Holders, shall be entitled and empowered, by intervention in such proceeding or otherwise:s

(i)

to file and prove a claim for the whole amount of the Obligations and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Secured Party (including any claim for the reasonable legal fees and expenses and other expenses paid or incurred by the Secured Party permitted hereunder and of the Secured Party allowed in such judicial proceeding), and

6

(ii)

to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by the Secured Party to make such payments to the Secured Party and, in the event that the Secured Party shall consent to the making of such payments directed to the Secured Party, to pay to the Secured Party any amounts for expenses due it hereunder.

Section 5.4

Duties Regarding Pledged Collateral.

The Secured Party shall have no duty as to the collection or protection of the Pledged Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party’s possession.

ARTICLE 6.

AFFIRMATIVE COVENANTS

The Company covenants and agrees that, from the date hereof and until the Obligations have been fully paid and satisfied, unless the Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof):

Section 6.1

Existence, Properties, Etc.

(a)

The Company shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain Company’s due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as defined below); and (b) the Company shall not do, or cause to be done, any act impairing the Company’s corporate power or authority (i) to carry on the Company’s business as now conducted, and (ii) to execute or deliver this Agreement or any other document delivered in connection herewith, including, without limitation, any UCC-1 Financing Statements required by the Secured Party to which it is or will be a party, or perform any of its obligations hereunder or thereunder.  For purpose of this Agreement, the term “Material Adverse Effect” shall mean any material and adverse affect as determined by Secured Party in its sole discretion, whether individually or in the aggregate, upon (a) the Company’s assets, business, operations, properties or condition, financial or otherwise; (b) the Company’s to make payment as and when due of all or any part of the Obligations; or (c) the Pledged Property.

Section 6.2

Financial Statements and Reports.

The Company shall furnish to the Secured Party such financial data as the Secured Party may reasonably request.  Without limiting the foregoing, the Company shall furnish to the Secured Party (or cause to be furnished to the Secured Party) the following:

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(a)

as soon as practicable and in any event within ninety (90) days after the end of each fiscal year of the Company, the balance sheet of the Company as of the close of such fiscal year, the statement of earnings and retained earnings of the Company as of the close of such fiscal year, and statement of cash flows for the Company for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct and accompanied by a certificate of the chief executive and chief financial officers of the Company, stating that the Company has kept, observed, performed and fulfilled each covenant, term and condition of this Agreement and the other Loan Instruments during such fiscal year and that no Event of Default hereu nder has occurred and is continuing, or if an Event of Default has occurred and is continuing, specifying the nature of same, the period of existence of same and the action the Company proposes to take in connection therewith;

(b)

within thirty (30) days of the end of each calendar month, a balance sheet of the Company as of the close of such month, and statement of earnings and retained earnings of the Company as of the close of such month, all in reasonable detail, and prepared substantially in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct; and

(c)

promptly upon receipt thereof, copies of all accountants' reports and accompanying financial reports submitted to the Company by independent accountants in connection with each annual examination of the Company.

Section 6.3

Accounts and Reports.

The Company shall maintain a standard system of accounting in accordance with generally accepted accounting principles consistently applied and provide, at its sole expense, to the Secured Party the following:

(a)

as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of the Company in excess of $15,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $15,000, including any received from any person acting on behalf of the Secured Party or beneficiary thereof; and

(b)

within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Company, or submitted to or filed by the Company with any governmental authority involving or affecting (i) the Company that could have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Collateral; or (iv) any of the transactions contemplated in this Agreement or the Loan Instruments.

8

Section 6.4

Maintenance of Books and Records; Inspection.

The Company shall maintain its books, accounts and records in accordance with generally accepted accounting principles consistently applied, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time to visit and inspect any of its properties (including but not limited to the collateral security described in the Loan Instruments), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof.

Section 6.5

Maintenance and Insurance.

(a)

The Company shall maintain or cause to be maintained, at its own expense, all of its assets and properties in good working order and condition, making all necessary repairs thereto and renewals and replacements thereof.

(b)

The Company shall maintain or cause to be maintained, at its own expense, insurance in form, substance and amounts (including deductibles), which the Company deems reasonably necessary to the Company’s business, (i) adequate to insure all assets and properties of the Company, which assets and properties are of a character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Company; (iii) as may be required by the Loan Instruments or applicable law and (iv) as may be reasonably requested by Secured Party, all with adequate, financially sound and reputable insurers.

Section 6.6

Contracts and Other Collateral.

The Company shall perform all of its obligations under or with respect to each instrument, receivable, contract and other intangible included in the Pledged Property to which the Company is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement.

Section 6.7

Defense of Collateral, Etc.

The Company shall defend and enforce its right, title and interest in and to any part of:  (a) the Pledged Property; and (b) if not included within the Pledged Property , those assets and properties whose loss could have a Material Adverse Effect, the Company shall defend the Secured Party’s right, title and interest in and to each and every part of the Pledged Property, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law.

Section 6.8

Payment of Debts, Taxes, Etc.

The Company shall pay, or cause to be paid, all of its indebtedness and other liabilities and perform, or cause to be performed, all of its obligations in accordance with the respective terms thereof, and pay and discharge, or cause to be paid or discharged, all taxes, assessments

9

 and other governmental charges and levies imposed upon it, upon any of its assets and properties on or before the last day on which the same may be paid without penalty, as well as pay all other lawful claims (whether for services, labor, materials, supplies or otherwise) as and when due.

Section 6.9

Taxes and Assessments; Tax Indemnity.

The Company shall (a) file all tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (b) pay and discharge all taxes, assessments and governmental charges or levies imposed upon the Company, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that the Company in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto.

Section 6.10

Compliance with Law and Other Agreements.  

The Company shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or by which the Company or any of its properties is bound.  Without limiting the foregoing, the Company shall pay all of its indebtedness promptly in accordance with the terms thereof.

Section 6.11

Notice of Default.  

The Company shall give written notice to the Secured Party of the occurrence of any default or Event of Default under this Agreement, the Transaction Documents or any other Loan Instrument or any other agreement of Company for the payment of money, promptly upon the occurrence thereof.

Section 6.12

Notice of Litigation.

The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $50,000, instituted by any persons against the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved within fifteen (15) days of the commencement thereof, between the Company on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Company.

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ARTICLE 7.

NEGATIVE COVENANTS

The Company covenants and agrees that, from the date hereof until the Obligations have been fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise in writing:

Section 7.1

Indebtedness.

The Company shall not directly or indirectly permit, create, incur, assume, permit to exist, increase, renew or extend on or after the date hereof any indebtedness on its part, including commitments, contingencies and credit availabilities, or apply for or offer or agree to do any of the foregoing.

Section 7.2

Liens and Encumbrances.

The Company shall not directly or indirectly make, create, incur, assume or permit to exist any assignment, transfer, pledge, mortgage, security interest or other lien or encumbrance of any nature in, to or against any part of the Pledged Property or of the Company’s capital stock, or offer or agree to do so, or own or acquire or agree to acquire any asset or property of any character subject to any of the foregoing encumbrances (including any conditional sale contract or other title retention agreement), or assign, pledge or in any way transfer or encumber its right to receive any income or other distribution or proceeds from any part of the Pledged Property or the Company’s capital stock; or enter into any sale-leaseback financing respecting any part of the Pledged Property  as lessee, or cause or assist the inception or continuation of any of the foreg oing.

Section 7.3

Articles, By-Laws, Mergers, Consolidations, Acquisitions and Sales.

Without the prior express written consent of the Secured Party, the Company shall not:  (a) Amend its Articles of Incorporation or By-Laws; (b) issue or sell its stock, stock options, bonds, notes or other corporate securities or obligations; (c) be a party to any merger, consolidation or corporate reorganization, (d) purchase or otherwise acquire all or substantially all of the assets or stock of, or any partnership or joint venture interest in, any other person, firm or entity, (e) sell, transfer, convey, grant a security interest in or lease all or any substantial part of its assets, nor (f) create any subsidiaries nor convey any of its assets to any subsidiary.

Section 7.4

Management, Ownership.

The Company shall not change its ownership, executive staff or management without the prior written consent of the Secured Party.  The ownership, executive staff and management of the Company are material factors in the Secured Party's willingness to institute and maintain a lending relationship with the Company.

11

Section 7.5

Dividends, Etc.

The Company shall not declare or pay any dividend of any kind, in cash or in property, on any class of its capital stock, nor purchase, redeem, retire or otherwise acquire for value any shares of such stock, nor make any distribution of any kind in respect thereof, nor make any return of capital to shareholders, nor make any payments in respect of any pension, profit sharing, retirement, stock option, stock bonus, incentive compensation or similar plan (except as required or permitted hereunder), without the prior written consent of the Secured Party.

Section 7.6

Guaranties; Loans.

The Company shall not guarantee nor be liable in any manner, whether directly or indirectly, or become contingently liable after the date of this Agreement in connection with the obligations or indebtedness of any person or persons, except for (i) the indebtedness currently secured by the liens identified on the Pledged Property identified on Exhibit A hereto and (ii) the endorsement of negotiable instruments payable to the Company for deposit or collection in the ordinary course of business.  The Company shall not make any loan, advance or extension of credit to any person other than in the normal course of its business.

Section 7.7

Debt.

The Company shall not create, incur, assume or suffer to exist any additional indebtedness of any description whatsoever in an aggregate amount in excess of $25,000 (excluding any indebtedness of the Company to the Secured Party, trade accounts payable and accrued expenses incurred in the ordinary course of business and the endorsement of negotiable instruments payable to the Company, respectively for deposit or collection in the ordinary course of business).

Section 7.8

Conduct of Business.

The Company will continue to engage, in an efficient and economical manner, in a business of the same general type as conducted by it on the date of this Agreement.

Section 7.9

Places of Business.

The location of the Company’s chief place of business is 1090 Homer Street, Suite 380, Vancouver, British Columbia, V6B2W9.  The Company shall not change the location of its chief place of business, chief executive office or any place of business disclosed to the Secured Party or move any of the Pledged Property from its current location without thirty (30) days' prior written notice to the Secured Party in each instance.

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ARTICLE 8.

MISCELLANEOUS

Section 8.1

Notices.

All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on:  (a) the date of delivery, if delivered in person, by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by certified mail, return receipt requested to the party entitled to receive the same:

If to the Secured Party:	Cornell Capital Partners, LP
	101 Hudson Street-Suite 3606
	Jersey City, New Jersey 07302
	Attention: Mark Angelo
	Portfolio Manager
	Telephone: (201) 986-8300
	Facsimile: (201) 985-8266
With a copy to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue – Suite 6
	Union, New Jersey  07083
	Attention: David Gonzalez, Esq.
	Telephone: (908) 810-8588
	Facsimile: (908) 810-0973
And if to the Company:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard-Suite 2000
	Miami, Florida  33131-2399
	Attention: Clayton E. Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095

Any party may change its address by giving notice to the other party stating its new address.  Commencing on the tenth (10^th) day after the giving of such notice, such newly designated address shall be such party’s address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement.

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Section 8.2

Severability.

If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.

Section 8.3

Expenses.

In the event of an Event of Default, the Company will pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with:  (i) the custody or preservation of, or the sale, collection from, or other realization upon, any of the Pledged Property; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by the Company to perform or observe any of the provisions hereof.

Section 8.4

Waivers, Amendments, Etc.

The Secured Party’s delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith.  Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type.  None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver , amendment, change or modification and signed by the Secured Party.

Section 8.5

Continuing Security Interest.

This Agreement shall create a continuing security interest in the Pledged Property and shall: (i) remain in full force and effect until payment in full of the Obligations; and (ii) be binding upon the Company and its successors and heirs and (iii) inure to the benefit of the Secured Party and its successors and assigns.  Upon the payment or satisfaction in full of the Obligations, the Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall not have been sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the terms hereof.

Section 8.6

Independent Representation.

Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement.

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Section 8.7

Applicable Law:  Jurisdiction.

This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws.  The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph.

Section 8.8

Waiver of Jury Trial.

AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

Section 8.9

Entire Agreement.

This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understanding among them with respect to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

COMPANY:

CYOP SYSTEMS INTERNATIONAL INC.

By:

Name:

Mitch White

Title:

President

SECURED PARTY:

CORNELL CAPITAL PARTNERS, LP

By:

Yorkville Advisors, LLC

Its:

General Partner

By:

Name:

Mark Angelo

Title:

Portfolio Manager

16

EXHIBIT A
DEFINITION OF PLEDGED PROPERTY

For the purpose of securing prompt and complete payment and performance by the Company of all of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following Pledged Property of the Company:

(a)

all goods of the Company, including, without limitation, machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and description, now or hereafter owned by the Company or in which the Company may have or may hereafter acquire any interest, and all replacements, additions, accessions, substitutions and proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds of insurance and of any tort claims involving any of the foregoing;

(b)

all inventory of the Company, including, but not limited to, all goods, wares, merchandise, parts, supplies, finished products, other tangible personal property, including such inventory as is temporarily out of Company’s custody or possession and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing;

(c)

all contract rights and general intangibles of the Company, including, without limitation, goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture interests, patents and patent applications, copyrights, deposit accounts whether now owned or hereafter created;

(d)

all documents, warehouse receipts, instruments and chattel paper of the Company whether now owned or hereafter created;

(e)

all accounts and other receivables, instruments or other forms of obligations and rights to payment of the Company (herein collectively referred to as “Accounts”), together with the proceeds thereof, all goods represented by such Accounts and all such goods that may be returned by the Company’s customers, and all proceeds of any insurance thereon, and all guarantees, securities and liens which the Company may hold for the payment of any such Accounts including, without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of which the Company represents and warrants will be bona fide and existing obligations of its respective customers, arising out of the sale of goods by the Company in the ordinary course of business;

(f)

to the extent assignable, all of the Company’s rights under all present and future authorizations, permits, licenses and franchises issued or granted in connection with the operations of any of its facilities;

(g)

all products and proceeds (including, without limitation, insurance proceeds) from the above-described Pledged Property.

A-1

EX-10

EXHIBIT 10.16

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (this “Agreement”) is made and entered into as of January ___, 2004, by CYOP SYSTEMS INTERNATIONAL INC., a Nevada corporation (the “Company”); the Buyer(s) listed on the Securities Purchase Agreement, dated the date hereof, (the “Investor(s)”), and BUTLER GONZALEZ, LLP, as Escrow Agent hereunder (the “Escrow Agent”).

BACKGROUND

WHEREAS, the Company and the Investor(s) have entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), dated as of the date hereof, pursuant to which the Company proposes to sell secured convertible debentures (the “Convertible Debentures”) which shall be convertible into the Company’s Common Stock, par value $0.00002 per share (the “Common Stock”), at a price per share equal to the Purchase Price, as that term is defined in the Securities Purchase Agreement.  The Securities Purchase Agreement provides that the Investor(s) shall deposit the purchase amount in a segregated escrow account to be held by Escrow Agent in order to effectuate a disbursement to the Company at a closing to be held as set forth in the Securities Purchase Agreement (the “Closing”).

WHEREAS, the Company intends to sell Convertible Securities (the “Offering”).

WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds deposited with it in accordance with the terms of this Agreement.

WHEREAS, in order to establish the escrow of funds and to effect the provisions of the Securities Purchase Agreement, the parties hereto have entered into this Agreement.

NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as follows:

1.

Definitions.  The following terms shall have the following meanings when used herein:

a.

“Escrow Funds” shall mean the funds deposited with Escrow Agent pursuant to this Agreement.

b.

“Joint Written Direction” shall mean a written direction executed by the Investor(s) and the Company directing Escrow Agent to disburse all or a portion of the Escrow Funds or to take or refrain from taking any action pursuant to this Agreement.

c.

“Escrow Period” shall begin with the commencement of the Offering and shall terminate upon the earlier to occur of the following dates:

(i)

The date upon which Escrow Agent confirms that it has received in the Escrow Account all of the proceeds of the sale of the Convertible Debentures;

(ii)

The expiration of twenty (20) days from the date of commencement of the Offering (unless extended by mutual written agreement between the Company and the Investor(s) with a copy of such extension to Escrow Agent); or

(iii)

The date upon which a determination is made by the Company and the Investor(s) to terminate the Offering prior to the sale of all the Convertible Debentures.

1.

During the Escrow Period, the Company and the Investor(s) are aware that they are not entitled to any funds received into escrow and no amounts deposited in the Escrow Account shall become the property of the Company or the Investor(s) or any other entity, or be subject to the debts of the Company or the Investor(s) or any other entity.

2.

Appointment of and Acceptance by Escrow Agent.  The Investor(s) and the Company hereby appoint Escrow Agent to serve as Escrow Agent hereunder.  Escrow Agent hereby accepts such appointment and, upon receipt by wire transfer of the Escrow Funds in accordance with Section 3 below, agrees to hold, invest and disburse the Escrow Funds in accordance with this Agreement.

a.

The Company hereby acknowledges that the Escrow Agent is counsel to the Investor(s) in connection with the transactions contemplated and referred herein.  The Company agrees that in the event of any dispute arising in connection with this Escrow Agreement or otherwise in connection with any transaction or agreement contemplated and referred herein, the Escrow Agent shall be permitted to continue to represent the Investor(s) and the Company will not seek to disqualify such counsel.   

3.

Creation of Escrow Funds.  On or prior to the date of the commencement of the Offering, the parties shall establish an escrow account with the Escrow Agent, which escrow account shall be entitled as follows:  CYOP Systems International Inc./Cornell Capital Partners, LP Escrow Account for the deposit of the Escrow Funds.  The Investor(s) will instruct subscribers to wire funds to the account of the Escrow Agent as follows:

Bank:	Wachovia, N.A. of New Jersey
Routing #:	031201467
Account #:	2020000659170
Name on Account:	Butler Gonzalez LLP as Escrow Agent
Name on Sub-Account:	CYOP Systems International Inc./Cornell Capital Partners, LP Escrow account

4.

Deposits into the Escrow Account.  The Investor(s) agrees that they shall promptly deliver funds for the payment of the Convertible Debentures to Escrow Agent for deposit in the Escrow Account.

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5.

Disbursements from the Escrow Account.

a.

The Escrow Agent will continue to hold such funds until Cornell Capital Partners, LP on behalf of the Investor(s) and Company execute a Joint Written Direction directing the Escrow Agent to disburse the Escrow Funds pursuant to Joint Written Direction signed by the Company and the Investor(s).  In disbursing such funds, Escrow Agent is authorized to rely upon such Joint Written Direction from the Company and the Investor(s) and may accept any signatory from the Company listed on the signature page to this Agreement and any signature from the Investor(s) that the Escrow Agent already has on file.

b.

In the event Escrow Agent does not receive the amount of the Escrow Funds from the Investor(s), Escrow Agent shall notify the Company and the Investor(s).  Upon receipt of payment instructions from the Company, Escrow Agent shall refund to each subscriber without interest the amount received from each Investor(s), without deduction, penalty, or expense to the subscriber.  The purchase money returned to each subscriber shall be free and clear of any and all claims of the Company, the Investor(s) or any of their creditors.

c.

In the event Escrow Agent does receive the amount of the Escrow Funds prior to expiration of the Escrow Period, in no event will the Escrow Funds be released to the Company until such amount is received by Escrow Agent in collected funds. For purposes of this Agreement, the term “collected funds” shall mean all funds received by Escrow Agent which have cleared normal banking channels and are in the form of cash.

6.

Collection Procedure.  Escrow Agent is hereby authorized to deposit the proceeds of each wire in the Escrow Account.

7.

Suspension of Performance: Disbursement Into Court.  If at any time, there shall exist any dispute between the Company and the Investor(s) with respect to holding or disposition of any portion of the Escrow Funds or any other obligations of Escrow Agent hereunder, or if at any time Escrow Agent is unable to determine, to Escrow Agent’s sole satisfaction, the proper disposition of any portion of the Escrow Funds or Escrow Agent’s proper actions with respect to its obligations hereunder, or if the parties have not within thirty (30) days of the furnishing by Escrow Agent of a notice of resignation pursuant to Section 9 hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent may, in its sole discretion, take either or both of the following actions:

a.

suspend the performance of any of its obligations (including without limitation any disbursement obligations) under this Escrow Agreement until such dispute or uncertainty shall be resolved to the sole satisfaction of Escrow Agent or until a successor Escrow Agent shall be appointed (as the case may be); provided however, Escrow Agent shall continue to invest the Escrow Funds in accordance with Section 8 hereof; and/or

b.

petition (by means of an interpleader action or any other appropriate method) any court of competent jurisdiction in any venue convenient to Escrow Agent, for instructions with respect to such dispute or uncertainty, and to the extent required by law, pay into such court, for holding and disposition in accordance with the instructions of such court, all

3

funds held by it in the Escrow Funds, after deduction and payment to Escrow Agent of all fees and expenses (including court costs and attorneys’ fees) payable to, incurred by, or expected to be incurred by Escrow Agent in connection with performance of its duties and the exercise of its rights hereunder.

c.

Escrow Agent shall have no liability to the Company, the Investor(s), or any person with respect to any such suspension of performance or disbursement into court, specifically including any liability or claimed liability that may arise, or be alleged to have arisen, out of or as a result of any delay in the disbursement of funds held in the Escrow Funds or any delay in with respect to any other action required or requested of Escrow Agent.

8.

Investment of Escrow Funds.  Escrow Agent shall deposit the Escrow Funds in a non-interest bearing account.

If Escrow Agent has not received a Joint Written Direction at any time that an investment decision must be made, Escrow Agent shall maintain the Escrow Funds, or such portion thereof, as to which no Joint Written Direction has been received, in a non-interest bearing account.  

9.

Resignation and Removal of Escrow Agent.  Escrow Agent may resign from the performance of its duties hereunder at any time by giving thirty (30) days’ prior written notice to the parties or may be removed, with or without cause, by the parties, acting jointly, by furnishing a Joint Written Direction to Escrow Agent, at any time by the giving of ten (10) days’ prior written notice to Escrow Agent as provided herein below.  Upon any such notice of resignation or removal, the representatives of the Investor(s) and the Company identified in Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a successor Escrow Agent hereunder, which shall be a commercial bank, trust company or other financial institution with a combined capital and surplus in excess of $10,000,000.00.  Upon the acceptance in writing of any appointment of Escro w Agent hereunder by a successor Escrow Agent, such successor Escrow Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Escrow Agent, and the retiring Escrow Agent shall be discharged from its duties and obligations under this Escrow Agreement, but shall not be discharged from any liability for actions taken as Escrow Agent hereunder prior to such succession.  After any retiring Escrow Agent’s resignation or removal, the provisions of this Escrow Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Escrow Agent under this Escrow Agreement.  The retiring Escrow Agent shall transmit all records pertaining to the Escrow Funds and shall pay all funds held by it in the Escrow Funds to the successor Escrow Agent, after making copies of such records as the retiring Escrow Agent deems advisable and after deduction and payment to the retiring Escrow Agent of all fees and expenses (includ ing court costs and attorneys’ fees) payable to, incurred by, or expected to be incurred by the retiring Escrow Agent in connection with the performance of its duties and the exercise of its rights hereunder.

10.

Liability of Escrow Agent.

a.

Escrow Agent shall have no liability or obligation with respect to the Escrow Funds except for Escrow Agent’s willful misconduct or gross negligence.  Escrow Agent’s sole responsibility shall be for the safekeeping, investment, and disbursement of the

4

Escrow Funds in accordance with the terms of this Agreement.  Escrow Agent shall have no implied duties or obligations and shall not be charged with knowledge or notice or any fact or circumstance not specifically set forth herein.  Escrow Agent may rely upon any instrument, not only as to its due execution, validity and effectiveness, but also as to the truth and accuracy of any information contained herein, which Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by the person or parties purporting to sign the same and conform to the provisions of this Agreement.  In no event shall Escrow Agent be liable for incidental, indirect, special, and consequential or punitive damages.  Escrow Agent shall not be obligated to take any legal action or commence any proceeding in connection with the Escrow Funds, any a ccount in which Escrow Funds are deposited, this Agreement or the Purchase Agreement, or to appear in, prosecute or defend any such legal action or proceeding.  Escrow Agent may consult legal counsel selected by it in any event of any dispute or question as to construction of any of the provisions hereof or of any other agreement or its duties hereunder, or relating to any dispute involving any party hereto, and shall incur no liability and shall be fully indemnified from any liability whatsoever in acting in accordance with the opinion or instructions of such counsel.  The Company and the Investor(s) jointly and severally shall promptly pay, upon demand, the reasonable fees and expenses of any such counsel, and Escrow Agent is hereby authorized to pay such fees and expenses from held in escrow.

b.

Escrow Agent is hereby authorized, in its sole discretion, to comply with orders issued or process entered by any court with respect to the Escrow Funds, without determination by Escrow Agent of such court’s jurisdiction in the matter.  If any portion of the Escrow Funds is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in any case any order judgment or decree shall be made or entered by any court affecting such property or any part thereof, then and in any such event, Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ judgment or decree which it is advised by legal counsel selected by it,  binding upon it, without the need for appeal or other action; and if Escrow Agent complies with any such order, writ, judgment or decree, it shall not be liable to any of the parties hereto or to any other person or entity by reason of such compliance even though such order, writ judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.

11.

Indemnification of Escrow Agent.  From and at all times after the date of this Agreement, the parties jointly and severally, shall, to the fullest extent permitted by law and to the extent provided herein, indemnify and hold harmless Escrow Agent and each director, officer, employee, attorney, agent and affiliate of Escrow Agent (collectively, the “Indemnified Parties”) against any and all actions, claims (whether or not valid), losses, damages, liabilities, costs and expenses of any kind or nature whatsoever (including without limitation reasonable attorney’s fees, costs and expenses) incurred by or asserted against any of the Indemnified Parties from and after the date hereof, whether direct, indirect or consequential, as a result of or arising from or in any way relating to any claim, demand, suit, action, or proceeding (inclu ding any inquiry or investigation) by any person, including without limitation the parties to this Agreement, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any person under any statute or regulation, including, but not limited to, any federal or state securities laws, or under any common law or equitable cause or otherwise, arising from or in connection with the negotiation, preparation, execution, performance or failure of performance of this Agreement or any transaction contemplated herein, whether or not any such Indemnified Party is a party to any such action or proceeding, suit or the target of any such inquiry or investigation; provided, however, that no Indemnified Party shall have the right to be indemnified hereunder for liability finally determined by a court of competent jurisdiction, subject to no further appeal, to have resulted from the gross negligence or willful misconduct of such Indemnified Party.  If any such action or claim shall be brou ght or asserted against any Indemnified Party, such Indemnified Party shall promptly notify the Company and the Investor(s) hereunder in writing, and the Investor(s) and the Company shall assume the defense thereof, including the employment of counsel and the payment of all expenses.  Such Indemnified Party shall, in its sole discretion, have the right to employ separate counsel (who may be selected by such Indemnified Party in its sole discretion) in any such action and to participate and to participate in the defense thereof, and the fees and expenses of such counsel shall be paid by such Indemnified Party, except that the Investor(s) and/or the Company shall be required to pay such fees and expense if (a) the Investor(s) or the Company agree to pay such fees and expenses, or (b) the Investor(s) and/or the Company shall fail to assume the defense of such action or proceeding or shall fail, in the sole discretion of such Indemnified Party, to employ counsel reasonably satisfactory to the Indemnified Pa rty in any such action or proceeding, (c) the Investor(s) and the Company are  the plaintiff in any such action or proceeding or (d) the named or potential parties to any such action or proceeding (including any potentially impleaded parties) include both the Indemnified Party, the Company and/or the Investor(s) and the Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company or the Investor(s).  The Investor(s) and the Company shall be jointly and severally liable to pay fees and expenses of counsel pursuant to the preceding sentence, except that any obligation to pay under clause (a) shall apply only to the party so agreeing.  All such fees and expenses payable by the Company and/or the Investor(s) pursuant to the foregoing sentence shall be paid from time to time as incurred, both in advance of and after the final disposition of such action or claim.  The ob ligations of the parties under this section shall survive any termination of this Agreement, and resignation or removal of the Escrow Agent shall be independent of any obligation of Escrow Agent.

The parties agree that neither payment by the Company or the Investor(s) of any claim by Escrow Agent for indemnification hereunder shall impair, limit, modify, or affect, as between the

5

Investor(s) and the Company, the respective rights and obligations of Investor(s), on the one hand, and the Company, on the other hand, under the Placement Agency Agreement.  

12.

Expenses of Escrow Agent.  Except as set forth in Section 11 the Company shall reimburse Escrow Agent for all of its reasonable out-of-pocket expenses, including attorneys’ fees, travel expenses, telephone and facsimile transmission costs, postage (including express mail and overnight delivery charges), copying charges and the like.  All of the compensation and reimbursement obligations set forth in this Section shall be payable by the Company, upon demand by Escrow Agent.  The obligations of the Company under this Section shall survive any termination of this Agreement and the resignation or removal of Escrow Agent.

13.

Warranties.

a.

The Investor(s) makes the following representations and warranties to Escrow Agent:

(i)

The Investor(s) has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

(ii)

This Agreement has been duly approved by all necessary corporate action of the Investor(s), including any necessary shareholder approval, has been executed by duly authorized officers of the Investor(s), enforceable in accordance with its terms.

(iii)

The execution, delivery, and performance of the Investor(s) of this Agreement will not violate, conflict with, or cause a default under the certificate of incorporation or bylaws of the Investor(s), any applicable law or regulation, any court order or administrative ruling or degree to which the Investor(s) is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement.

(iv)

Mark Angelo has been duly appointed to act as the representative of the Investor(s) hereunder and has full power and authority to execute, deliver, and perform this Escrow Agreement, to execute and deliver any Joint Written Direction, to amend, modify, or waive any provision of this Agreement, and to take any and all other actions as the Investor(s)’s representative under this Agreement, all without further consent or direction form, or notice to, the Investor(s) or any other party.

(v)

No party other than the parties hereto and the Investor(s)s have, or shall have, any lien, claim or security interest in the Escrow Funds or any part thereof.  No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.

(vi)

All of the representations and warranties of the Investor(s) contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement from the Escrow Funds.

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b.

The Company makes the following representations and warranties to the Escrow Agent:

(i)

The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada and has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

(ii)

This Agreement has been duly approved by all necessary corporate action of the Company, including any necessary shareholder approval, has been executed by duly authorized officers of the Company, enforceable in accordance with its terms.

(iii)

The execution, delivery, and performance by the Company of this Agreement is in accordance with the Securities Purchase Agreement and will not violate, conflict with, or cause a default under the certificate of incorporation or bylaws of the Company, any applicable law or regulation, any court order or administrative ruling or decree to which the Company is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement, including without limitation to the Securities Purchase Agreement, to which the Company is a party.

(iv)

Mitch White has been duly appointed to act as the representative of the Company hereunder and has full power and authority to execute, deliver, and perform this Agreement, to execute and deliver any Joint Written Direction, to amend, modify or waive any provision of this Agreement and to take all other actions as the Company’s Representative under this Agreement, all without further consent or direction from, or notice to, the Company or any other party.

(v)

No party other than the parties hereto and the Investor(s)s have, or shall have, any lien, claim or security interest in the Escrow Funds or any part thereof.  No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.

(vi)

All of the representations and warranties of the Company contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement from the Escrow Funds.

14.

Consent to Jurisdiction and Venue.  In the event that any party hereto commences a lawsuit or other proceeding relating to or arising from this Agreement, the parties hereto agree that the United States District Court for the District of New Jersey shall have the sole and exclusive jurisdiction over any such proceeding.  If all such courts lack federal subject matter jurisdiction, the parties agree that the Superior Court Division of New Jersey, Chancery Division of Hudson County shall have sole and exclusive jurisdiction.  Any of these courts shall be proper venue for any such lawsuit or judicial proceeding and the parties hereto waive any objection to such venue.  The parties hereto consent to and agree to submit to the jurisdiction of any of the courts specified herein and agree to accept the service of process to vest personal juris diction over them in any of these courts.

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15.

Notice.  All notices and other communications hereunder shall be in writing and shall be deemed to have been validly served, given or delivered five (5) days after deposit in the United States mails, by certified mail with return receipt requested and postage prepaid, when delivered personally, one (1) day delivered to any overnight courier, or when transmitted by facsimile transmission and upon confirmation of receipt and addressed to the party to be notified as follows:

If to Investor(s), to:	Cornell Capital Partners, LP
	101 Hudson Street – Suite 3606
	Jersey City, NJ  07302
	Attention: Mark Angelo
	Portfolio Manager
	Telephone: (201) 985-8300
	Facsimile: (201) 985-8266
If to Escrow Agent, to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue
	Union, NJ 07083
	Attention: David Gonzalez, Esq.
	Telephone: (908) 810-8588
	Facsimile: (908) 810-0973
If to the Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:
	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard – Suite 2000
	Miami, FL  33131-2399
	Attention: Clayton E. Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095

Or to such other address as each party may designate for itself by like notice.

16.

Amendments or Waiver.  This Agreement may be changed, waived, discharged or terminated only by a writing signed by the parties hereto.  No delay or omission by any party in exercising any right with respect hereto shall operate as waiver.  A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion.

17.

Severability.  To the extent any provision of this Agreement is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such

8

prohibition, or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

18.

Governing Law.  This Agreement shall be construed and interpreted in accordance with the internal laws of the State of New Jersey without giving effect to the conflict of laws principles thereof.

19.

Entire Agreement.  This Agreement constitutes the entire Agreement between the parties relating to the holding, investment, and disbursement of the Escrow Funds and sets forth in their entirety the obligations and duties of the Escrow Agent with respect to the Escrow Funds.

20.

Binding Effect.  All of the terms of this Agreement, as amended from time to time, shall be binding upon, inure to the benefit of and be enforceable by the respective heirs, successors and assigns of the Investor(s), the Company, or the Escrow Agent.

21.

Execution of Counterparts.  This Agreement and any Joint Written Direction may be executed in counter parts, which when so executed shall constitute one and same agreement or direction.

22.

Termination.  Upon the first to occur of the disbursement of all amounts in the Escrow Funds pursuant to Joint Written Directions or the disbursement of all amounts in the Escrow Funds into court pursuant to Section 7 hereof, this Agreement shall terminate and Escrow Agent shall have no further obligation or liability whatsoever with respect to this Agreement or the Escrow Funds.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

9

IN WITNESS WHEREOF the parties have hereunto set their hands and seals the day and year above set forth.

CYOP SYSTEMS INETRNATIONAL  INC.

By: ___________________________________

Name:

Mitch White

Title:

President

CORNELL CAPITAL PARTNERS, LP

By:

Yorkville Advisors, LLC

Its:

General Partner

By: ___________________________________

Name:

Mark Angelo

Title:

Portfolio Manager

BUTLER GONZALEZ LLP

By: ___________________________________

Name:

David Gonzalez, Esq.

Title:

Partner

10

EX-10

EXHIBIT 10.17

INVESTOR REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of January ___, 2004, by and among CYOP SYSTEMS INTERNATIONAL INC., a Nevada corporation, with its principal office located at 1090 Homer Street, Suite 390, Vancouver, British Columbia, V6B2W9 (the “Company”), and the undersigned investors (each, an “Investor” and collectively, the “Investors”).

WHEREAS:

A.

In connection with the Securities Purchase Agreement by and among the parties hereto of even date herewith (the “Securities Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Investors secured convertible debentures (the “Convertible Debentures”) which shall be convertible into that number of shares of the Company’s common stock, par value $0.00002 per share (the “Common Stock”), pursuant to the terms of the Securities Purchase  Agreement for an aggregate purchase price of  up to One Hundred Twenty Five Thousand Dollars ($125,000).  Capitalized terms not defined herein shall have the meaning ascribed to them in the Securities Purchase Agreement.

B.

To induce the Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations there under, or any similar successor statute (collectively, the “1933 Act”), and applicable state securities laws.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investors hereby agree as follows:

1.

DEFINITIONS.

As used in this Agreement, the following terms shall have the following meanings:

(a)

“Person” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.

(b)

“Register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis (“Rule 415”), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange SEC (the “SEC”).

MI-150225 v2 0950000-102

(c)

“Registrable Securities” means the shares of Common Stock issuable to Investors upon conversion of the Convertible Debentures pursuant to the Securities Purchase Agreement.

(d)

“Registration Statement” means a registration statement under the 1933 Act which covers the Registrable Securities.

2.

REGISTRATION.

(a)

Subject to the terms and conditions of this Agreement, the Company shall prepare and file, no later than thirty (30) days from the date hereof (the “Scheduled Filing Deadline”), with the SEC a registration statement on Form S-1 or SB-2 (or, if the Company is then eligible, on Form S-3) under the 1933 Act (the “Initial Registration Statement”) for the registration for the resale by all Investors who purchased Convertible Debentures pursuant to the Securities Purchase Agreement ________________ shares of Common Stock to be issued upon conversion of the Convertible Debentures issued pursuant to the Securities Purchase Agreement. The Company shall cause the Registration Statement to remain effective until all of the Registrable Securities have been sold.  Prior to the filing of the Registration Statement with the SEC, the Company shal l furnish a copy of the Initial Registration Statement to the Investors, and Butler Gonzalez, LLP for their review and comment.  The Investors and Butler Gonzalez LLP shall furnish comments on the Initial Registration Statement to the Company within twenty-four (24) hours of the receipt thereof from the Company.

(b)

Effectiveness of the Initial Registration Statement.  The Company shall use its best efforts (i) to have the Initial Registration Statement declared effective by the SEC no later than ninety (90) days after the date hereof (the “Scheduled Effective Deadline”) and (ii) to insure that the Initial Registration Statement and any subsequent Registration Statement remains in effect until all of the Registrable Securities have been sold, subject to the terms and conditions of this Agreement.  

(c)

Failure to File or Obtain Effectiveness of the  Registration Statement.  In the event the Registration Statement is not filed by the Scheduled Filing Deadline or is not declared effective by the SEC on or before the Scheduled Effective Date, or if after the Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to the Registration Statement (whether because of a failure to keep the Registration Statement effective, failure to disclose such information as is necessary for sales to be made pursuant to the Registration Statement, failure to register sufficient shares of Common Stock or otherwise then as partial relief for the damages to any holder of Registrable Securities by reason of any such delay in or reduction of its ability to sell the underlying shares of Common Stock (which remedy shall not be exclusive of an y other remedies at law or in equity), the Company will pay as liquidated damages (the “Liquidated Damages”) to the holder, at the holder’s option, either a cash amount or shares of the Company’s Common Stock within three (3) business days, after demand therefore, equal to two percent (2%) of the liquidated value of the Convertible Debentures outstanding as Liquidated Damages for each thirty (30) day period after the Scheduled Filing Deadline or the Scheduled Effective Date as the case may be.

2

(d)

Liquidated Damages.  The Company and the Investor hereto acknowledge and agree that the sums payable under subsection 2(c) above shall constitute liquidated damages and not penalties and are in addition to all other rights of the Investor, including the right to call a default.  The parties further acknowledge that (i) the amount of loss or damages likely to be incurred is incapable or is difficult to precisely estimate, (ii) the amounts specified in such subsections bear a reasonable relationship to, and are not plainly or grossly disproportionate to the probable loss likely to be incurred in connection with any failure by the Company to obtain or maintain the effectiveness of a Registration Statement, (iii) one of the reasons for the Company and the Investor reaching an agreement as to such amounts was the uncertainty and cost of litigation regarding the question of actual damages, and (iv) the Company and the Investor are sophisticated business parties and have been represented by sophisticated and able legal counsel and negotiated this Agreement at arm’s length.

3.

RELATED OBLIGATIONS.

(a)

The Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until the date on which the Investor shall have sold all the Registrable Securities covered by such Registration Statement (the “Registration Period”), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.

(b)

The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement.  In the case of amendments and supplements to a Registration St atement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company’s filing a report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall incorporate such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement.

3

(c)

The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) at least one (1) copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.

(d)

The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its certificate of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.  The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

(e)

As promptly as practicable after becoming aware of such event or development, the Company shall notify each Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor.  The Company shall also promptly notify each Investor in writing (i) when a prospectus or any prosp ectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to each Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.

4

(f)

The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

(g)

At the reasonable request of any Investor, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) a letter, dated such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investors.

(h)

The Company shall make available for inspection by (i) any Investor and (ii) one (1) firm of accountants or other agents retained by the Investors (collectively, the “Inspectors”) all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree, and each Investor hereby agrees, to hold in strict confidence and shall not make any disclosure (except to an Investor) or use  any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so not ified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector and the Investor has knowledge.  Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.

(i)

The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement.  The Company agrees that it shall, upon learning that

5

disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

(j)

The Company shall use its best efforts either to cause all the Registrable Securities covered by a Registration Statement (i) to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or (ii) the inclusion for quotation on the National Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities.  The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(j).

(k)

The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request.

(l)

The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

(m)

The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve (12) month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of the Registration Statement.

(n)

The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.

(o)

Within two (2) business days after a Registration Statement which covers Registrable Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.

(p)

The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement.

6

4.

OBLIGATIONS OF THE INVESTORS.

Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e), such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) or receipt of notice that no supplement or amendment is required.  Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has not yet settled.

5.

EXPENSES OF REGISTRATION.

All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company.

6.

INDEMNIFICATION.

With respect to Registrable Securities which are included in a Registration Statement under this Agreement:

(a)

To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnif ied party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to

7

make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”).  The Company shall reimburse the Investors and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Pe rson and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9 hereof.

(b)

In connection with a Registration Statement, each Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers, employees, representatives, or agents and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connecti on with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registr able Securities by the Investors pursuant to Section 9.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was

8

 

corrected and such new prospectus was delivered to each Investor prior to such Investor’s use of the prospectus to which the Claim relates.

(c)

Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one (1) counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing  interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding.  The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim.  The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto.  No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent.  No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation.  Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

(d)

The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

(e)

The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the

9

 

indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

7.

CONTRIBUTION.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that:  (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

8.

REPORTS UNDER THE 1934 ACT.

With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (“Rule 144”) the Company agrees to:

(a)

make and keep public information available, as those terms are understood and defined in Rule 144;

(b)

file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company’s obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents as are  required by the applicable provisions of Rule 144; and

(c)

furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.

9.

AMENDMENT OF REGISTRATION RIGHTS.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who then hold at least two-thirds (2/3) of the Registrable Securities.  Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Investor and the Company.  No such amendment shall be effective to the extent that it applies to fewer than all of the holders of the Registrable Securities.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or

10

modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

10.

MISCELLANEOUS.

(a)

A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from two (2) or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

(b)

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard – Suite 2000
	Miami, FL  33131-2399
	Attention: Clayton E. Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095

If to an Investor, to its address and facsimile number on the Schedule of Investors attached hereto, with copies to such Investor’s representatives as set forth on the Schedule of Investors or to such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally reco gnized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

11

(c)

Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

(d)

The laws of the State of Nevada shall govern all issues concerning the relative rights of the Company and the Investors as its stockholders.  All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New Jersey.  Each party hereby irrevocably submits to the non-exclusive jurisdiction of the Superior Courts of the State of New Jersey, sitting in Hudson County, New Jersey and federal courts for the District of New Jersey sitting Newark, New Jersey, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or en forceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(e)

This Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and related documents including the Convertible Debentures and the Escrow Agreement dated the date hereof by and among the Company, the Investors set forth on the Schedule of Investors attached hereto and Butler Gonzalez LLP (the “Escrow Agreement”) and the Security Agreement dated the date hereof (the “Security Agreement”) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein.  This Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase Agreement and related documents including the Convertible Debentures, the Escrow Agreement and th e Security Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

(f)

This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

12

(g)

The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(h)

This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

(i)

Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

(j)

This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

13

IN WITNESS WHEREOF, the parties have caused this Investor Registration Rights Agreement to be duly executed as of day and year first above written.

COMPANY:

CYOP SYSTEMS INTERNATIONAL INC.

By:

Name:

Mitch White

Title:

President

14

SCHEDULE I

SCHEDULE OF BUYERS

Name	Signature	Address/Facsimile Number of Buyer
Cornell Capital Partners, LP	By: Yorkville Advisors, LLC	101 Hudson Street – Suite 3606
	Its: General Partner	Jersey City, NJ  07303
		Facsimile: (201) 985-8266
	By:
	Name: Mark A. Angelo
	Its: Portfolio Manager

EXHIBIT A

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

The Nevada Agency and Trust Company

Bank America Plaza

50 West Liberty Street – Suite 880

Reno, Nevada 89501

Re:

CYOP SYSTEMS INTERNATIONAL INC.

Ladies and Gentlemen:

We are counsel to CYOP Systems International Inc., a Nevada corporation (the “Company”), and have represented the Company in connection with that certain Securities Purchase Agreement (the “Securities Purchase Agreement”) entered into by and among the Company and the investors named therein (collectively, the “Investors”) pursuant to which the Company issued to the Investors shares of its Common Stock, par value $0.00002 per share (the “Common Stock”).  Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Investors (the “Investor Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act o f 1933, as amended (the “1933 Act”).  In connection with the Company’s obligations under the Registration Rights Agreement, on ____________ ____, the Company filed a Registration Statement on Form ________ (File No. 333-_____________) (the “Registration Statement”) with the Securities and Exchange SEC (the “SEC”) relating to the Registrable Securities which names each of the Investors as a selling stockholder there under.

In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

Very truly yours,

KIRKPATRICK & LOCKHART LLP

By:

cc:

[LIST NAMES OF INVESTORS]

EX-10

EXHIBIT 10.18

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (this “Agreement”) is made and entered into as of January ___, 2004 by CYOP SYSTEMS INTERNATIONAL INC., a Nevada corporation (the “Company”); CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the “Investor”); and BUTLER GONZALEZ LLP (the “Escrow Agent”).

BACKGROUND

WHEREAS, the Company and the Investor have entered into an Standby Equity Distribution Agreement  (the “Standby Equity Distribution Agreement”) dated as of the date hereof, pursuant to which the Investor will purchase the Company’s Common Stock, par value $0.00002 per share (the “Common Stock”), at a price per share equal to the Purchase Price, as that term is defined in the Standby Equity Distribution Agreement, for an aggregate price of up to Five Million Dollars ($5,000,000).  The Standby Equity Distribution Agreement provides that on each Advance Date the Investor, as that term is defined in the Standby Equity Distribution Agreement, shall deposit the Advance pursuant to the Advance Notice in a segregated escrow account to be held by Escrow Agent and the Company shall deposit shares of the Company’s Common Stock, which shall be purchased by the Investor as set forth in the Standby Equity Distribution Agreement, with the Escrow Agent, in order to effectuate a disbursement to the Company of the Advance by the Escrow Agent and a disbursement to the Investor of the shares of the Company’s Common Stock by Escrow Agent at a closing to be held as set forth in the Standby Equity Distribution Agreement (the “Closing”).

WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds and the shares of the Company’s Common Stock deposited with it in accordance with the terms of this Agreement.

WHEREAS, in order to establish the escrow of funds and shares to effect the provisions of the Standby Equity Distribution Agreement, the parties hereto have entered into this Agreement.

NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as follows:

1.

Definitions.  The following terms shall have the following meanings when used herein:

a.

“Escrow Funds” shall mean the Advance funds deposited with the Escrow Agent pursuant to this Agreement.

b.

“Joint Written Direction” shall mean a written direction executed by the Investor and the Company directing Escrow Agent to disburse all or a portion of the Escrow Funds or to take or refrain from taking any action pursuant to this Agreement.

c.

“Common Stock Joint Written Direction” shall mean a written direction executed by the Investor and the Company directing Investor’s Counsel to disburse all or a

portion of the shares of the Company’s Common Stock or to refrain from taking any action pursuant to this Agreement.

2.

Appointment of and Acceptance by Escrow Agent.  

a.

The Investor and the Company hereby appoint Escrow Agent to serve as Escrow Agent hereunder.  Escrow Agent hereby accepts such appointment and, upon receipt by wire transfer of the Escrow Funds in accordance with Section 3 below, agrees to hold, invest and disburse the Escrow Funds in accordance with this Agreement.

b.

The Investor and the Company hereby appoint the Escrow Agent to serve as the holder of the shares of the Company’s Common Stock which shall be purchased by the Investor.  The Escrow Agent hereby accepts such appointment and, upon receipt via D.W.A.C or the certificates representing of the shares of the Company’s Common Stock in accordance with Section 3 below, agrees to hold and disburse the shares of the Company’s Common Stock in accordance with this Agreement.

c.

The Company hereby acknowledges that the Escrow Agent is counsel to the Investor in connection with the transactions contemplated and referenced herein.  The Company agrees that in the event of any dispute arising in connection with this Escrow Agreement or otherwise in connection with any transaction or agreement contemplated and referenced herein, the Escrow Agent shall be permitted to continue to represent the Investor and the Company will not seek to disqualify such counsel.

3.

Creation of Escrow Account/Common Stock Account.

a.

On or prior to the date of this Agreement the Escrow Agent shall establish an escrow account for the deposit of the Escrow Funds entitled as follows: CYOP Systems International Inc/Cornell Capital Partners, LP.  The Investor will wire funds to the account of the Escrow Agent as follows:

Bank:	Wachovia, N.A. of New Jersey
Routing #:	031201467
Account #:	2020000659170
Name on Account:	Butler Gonzalez LLP as Escrow Agent
Name on Sub-Account:	CYOP Systems International Inc/Cornell Capital Partners, LP Escrow account
Reference Sub-Account #:	__________

b.

On or prior to the date of this Agreement the Escrow Agent shall establish an account for the D.W.A.C. of the shares of Common Stock. The Company will D.W.A.C. shares of the Company’s Common Stock to the account of the Escrow Agent as follows:

Brokerage Firm:	Jessup & Lamont
Account #:	LES 023557

2

DTC #:	0030
Name on Account:	Butler Gonzalez LLP Escrow Account

4.

Deposits into the Escrow Account. The Investor agrees that it shall promptly deliver all monies for the payment of the Common Stock to the Escrow Agent for deposit in the Escrow Account.

5.

Disbursements from the Escrow Account.

a.

At such time as Escrow Agent has collected and deposited instruments of payment in the total amount of the Advance and has received such Common Stock via D.W.A.C from the Company which are to be issued to the Investor pursuant to the Standby Equity Distribution Agreement, the Escrow Agent shall notify the Company and the Investor. The Escrow Agent will continue to hold such funds until the Investor and Company execute and deliver a Joint Written Direction directing the Escrow Agent to disburse the Escrow Funds pursuant to Joint Written Direction at which time the Escrow Agent shall wire the Escrow Funds to the Company.  In disbursing such funds, Escrow Agent is authorized to rely upon such Joint Written Direction from Company and may accept any signatory from the Company listed on the signature page to this Agreement and any signature from the Investor that Escrow Agent already has on file.  Simultaneous with delivery of the executed Joint Written Direction to the Escrow Agent the Investor and Company shall execute and deliver a Common Stock Joint Written Direction to the Escrow Agent directing the Escrow Agent to release via D.W.A.C to the Investor the shares of the Company’s Common Stock.  In releasing such shares of Common Stock the Escrow Agent is authorized to rely upon such Common Stock Joint Written Direction from Company and may accept any signatory from the Company listed on the signature page to this Agreement and any signature from the Escrow Agent has on file.

In the event the Escrow Agent does not receive the amount of the Advance from the Investor or the shares of Common Stock to be purchased by the Investor from the Company, the Escrow Agent shall notify the Company and the Investor.  

In the event that the Escrow Agent has not received the Common Stock to be purchased by the Investor from the Company, in no event will the Escrow Funds be released to the Company until such shares are received by the Escrow Agreement. For purposes of this Agreement, the term "Common Stock certificates” shall mean Common Stock certificates to be purchased pursuant to the respective Advance Notice pursuant to the Standby Equity Distribution Agreement.

6.

Deposit of Funds. The Escrow Agent is hereby authorized to deposit the wire transfer proceeds in the Escrow Account.

7.

Suspension of Performance: Disbursement Into Court.

a.

Escrow Agent.  If at any time, there shall exist any dispute between the Company and the Investor with respect to holding or disposition of any portion of the Escrow Funds or the Common Stock or any other obligations of Escrow Agent hereunder, or if at any

3

time Escrow Agent is unable to determine, to Escrow Agent’s sole satisfaction, the proper disposition of any portion of the Escrow Funds or Escrow Agent’s proper actions with respect to its obligations hereunder, or if the parties have not within thirty (30) days of the furnishing by Escrow Agent of a notice of resignation pursuant to Section 9 hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent may, in its sole discretion, take either or both of the following actions:

i.

Suspend the performance of any of its obligations (including without limitation any disbursement obligations) under this Escrow Agreement until such dispute or uncertainty shall be resolved to the sole satisfaction of Escrow Agent or until a successor Escrow Agent shall be appointed (as the case may be); provided however, Escrow Agent shall continue to invest the Escrow Funds in accordance with Section 8 hereof; and/or

ii.

Petition (by means of an interpleader action or any other appropriate method) any court of competent jurisdiction in any venue convenient to Escrow Agent, for instructions with respect to such dispute or uncertainty, and to the extent required by law, pay into such court, for holding and disposition in accordance with the instructions of such court, all funds held by it in the Escrow Funds, after deduction and payment to Escrow Agent of all fees and expenses (including court costs and attorneys’ fees) payable to, incurred by, or expected to be incurred by Escrow Agent in connection with performance of its duties and the exercise of its rights hereunder.

iii.

Escrow Agent shall have no liability to the Company, the Investor, or any person with respect to any such suspension of performance or disbursement into court, specifically including any liability or claimed liability that may arise, or be alleged to have arisen, out of or as a result of any delay in the disbursement of funds held in the Escrow Funds or any delay in with respect to any other action required or requested of Escrow Agent.

8.

Investment of Escrow Funds. The Escrow Agent shall deposit the Escrow Funds in a non-interest bearing money market account.

If Escrow Agent has not received a Joint Written Direction at any time that an investment decision must be made, Escrow Agent may retain the Escrow Fund, or such portion thereof, as to which no Joint Written Direction has been received, in a non-interest bearing money market account.

9.

Resignation and Removal of Escrow Agent.  Escrow Agent may resign from the performance of its duties hereunder at any time by giving thirty (30) days’ prior written notice to the parties or may be removed, with or without cause, by the parties, acting jointly, by furnishing a Joint Written Direction to Escrow Agent, at any time by the giving of ten (10) days’ prior written notice to Escrow Agent as provided herein below.  Upon any such notice of resignation or removal, the representatives of the Investor and the Company identified in Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a successor Escrow Agent hereunder, which shall be a commercial bank, trust company or other financial institution with a combined capital and surplus in excess of $10,000,000.00.  Upon the acceptance in writing of any appointment of Escrow Agent he reunder by a successor Escrow Agent, such successor Escrow Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the

4

retiring Escrow Agent, and the retiring Escrow Agent shall be discharged from its duties and obligations under this Escrow Agreement, but shall not be discharged from any liability for actions taken as Escrow Agent hereunder prior to such succession.  After any retiring Escrow Agent’s resignation or removal, the provisions of this Escrow Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Escrow Agent under this Escrow Agreement.  The retiring Escrow Agent shall transmit all records pertaining to the Escrow Funds and shall pay all funds held by it in the Escrow Funds to the successor Escrow Agent, after making copies of such records as the retiring Escrow Agent deems advisable and after deduction and payment to the retiring Escrow Agent of all fees and expenses (including court costs and attorneys
46; fees) payable to, incurred by, or expected to be incurred by the retiring Escrow Agent in connection with the performance of its duties and the exercise of its rights hereunder.

10.

Liability of Escrow Agent.

a.

Escrow Agent shall have no liability or obligation with respect to the Escrow Funds except for Escrow Agent’s willful misconduct or gross negligence. Escrow Agent’s sole responsibility shall be for the safekeeping, investment, and disbursement of the Escrow Funds in accordance with the terms of this Agreement.  Escrow Agent shall have no implied duties or obligations and shall not be charged with knowledge or notice or any fact or circumstance not specifically set forth herein.  Escrow Agent may rely upon any instrument, not only as to its due execution, validity and effectiveness, but also as to the truth and accuracy of any information contained therein, which Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by the person or parties purporting to sign the same and conform to the provisions of this Agreement.  In no event shall Escrow Agent be liable for incidental, indirect, special, and consequential or punitive damages.  Escrow Agent shall not be obligated to take any legal action or commence any proceeding in connection with the Escrow Funds, any account in which Escrow Funds are deposited, this Agreement or the Standby Equity Distribution Agreement, or to appear in, prosecute or defend any such legal action or proceeding.  Escrow Agent may consult legal counsel selected by it in the event of any dispute or question as to construction of any of the provisions hereof or of any other agreement or its duties hereunder, or relating to any dispute involving any party hereto, and shall incur no liability and shall be fully indemnified from any liability whatsoever in acting in accordance with the opinion or instructions of such counsel.  The Company and the Investor jointly and severally shall promptly pay, upon demand, the reasonable fees and expenses of any such counsel and Escrow Agent is he reby authorized to pay such fees and expenses from funds held in escrow.

b.

The Escrow Agent is hereby authorized, in its sole discretion, to comply with orders issued or process entered by any court with respect to the Escrow Funds, without determination by the Escrow Agent of such court’s jurisdiction in the matter.  If any portion of the Escrow Funds is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in any case any order judgment or decree shall be made or entered by any court affecting such property or any part thereof, then and in any such event, the Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ judgment or decree which it is advised by legal counsel selected by it,  binding upon it, without the need for app eal or other action; and if the Escrow Agent complies with any such

5

order, writ, judgment or decree, it shall not be liable to any of the parties hereto or to any other person or entity by reason of such compliance even though such order, writ judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.  

11.

Indemnification of Escrow Agent.  From and at all times after the date of this Agreement, the parties jointly and severally, shall, to the fullest extent permitted by law and to the extent provided herein, indemnify and hold harmless Escrow Agent and each director, officer, employee, attorney, agent and affiliate of Escrow Agent (collectively, the “Indemnified Parties”) against any and all actions, claims (whether or not valid), losses, damages, liabilities, costs and expenses of any kind or nature whatsoever (including without limitation reasonable attorney’s fees, costs and expenses) incurred by or asserted against any of the Indemnified Parties from and after the date hereof, whether direct, indirect or consequential, as a result of or arising from or in any way relating to any claim, demand, suit, action, or proceeding (includi ng any inquiry or investigation) by any person, including without limitation the parties to this Agreement, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any person under any statute or regulation, including, but not limited to, any federal or state securities laws, or under any common law or equitable cause or otherwise, arising from or in connection with the negotiation, preparation, execution, performance or failure of performance of this Agreement or any transaction contemplated herein, whether or not any such Indemnified Party is a party to any such action or proceeding, suit or the target of any such inquiry or investigation; provided, however, that no Indemnified Party shall have the right to be indemnified hereunder for liability finally determined by a court of competent jurisdiction, subject to no further appeal, to have resulted solely from the gross negligence or willful misconduct of such Indemnified Party.  If any such action or claim shall be brought or asserted against any Indemnified Party, such Indemnified Party shall promptly notify the Company and the Investor hereunder in writing, and the and the Company shall assume the defense thereof, including the employment of counsel and the payment of all expenses.  Such Indemnified Party shall, in its sole discretion, have the right to employ separate counsel (who may be selected by such Indemnified Party in its sole discretion) in any such action and to participate and to participate in the defense thereof, and the fees and expenses of such counsel shall be paid by such Indemnified Party, except that the Investor and/or the Company shall be required to pay such fees and expense if (a) the Investor or the Company agree to pay such fees and expenses, or (b) the Investor and/or the Company shall fail to assume the defense of such action or proceeding or shall fail, in the sole discretion of such Indemnified Party, to employ counsel reasonably satisfactory to the Indemnified Party in any such act ion or proceeding, (c) the Investor and the Company are the plaintiff in any such action or proceeding or (d) the named or potential parties to any such action or proceeding (including any potentially impleaded parties) include both Indemnified Party the Company and/or the Investor and Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the Company or the Investor.  The Investor and the Company shall be jointly and severally liable to pay fees and expenses of counsel pursuant to the preceding sentence, except that any obligation to pay under clause (a) shall apply only to the party so agreeing.  All such fees and expenses payable by the Company and/or the Investor pursuant to the foregoing sentence shall be paid from time to time as incurred, both in advance of and after the final disposition of such action or claim.  The obligations of the parties under this section shall survive any termination of this Agreement, and resignation or removal of the Escrow Agent shall be independent of any obligation of Escrow Agent.

6

12.

Expenses of Escrow Agent.  Except as set forth in Section 11 the Company shall reimburse Escrow Agent for all of its reasonable out-of-pocket expenses, including attorneys’ fees, travel expenses, telephone and facsimile transmission costs, postage (including express mail and overnight delivery charges), copying charges and the like as outlined in Section 12.4 of the Standby Equity Distribution Agreement dated the date hereof.  All of the compensation and reimbursement obligations set forth in this Section shall be payable by the Company, upon demand by Escrow Agent.  The obligations of the Company under this Section shall survive any termination of this Agreement and the resignation or removal of Escrow Agent.

13.

Warranties.

a.

The Investor makes the following representations and warranties to the Escrow Agent and Investor’s Counsel:

i.

The Investor has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

ii.

This Agreement has been duly approved by all necessary action of the Investor, including any necessary approval of the limited partner of the Investor, has been executed by duly authorized officers of the Investor’s general partner, enforceable in accordance with its terms.

iii.

The execution, delivery, and performance of the Investor of this Agreement will not violate, conflict with, or cause a default under the agreement of limited partnership of the Investor, any applicable law or regulation, any court order or administrative ruling or degree to which the Investor is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement.

iv.

Mark A. Angelo has been duly appointed to act as the representative of Investor hereunder and has full power and authority to execute, deliver, and perform this Agreement, to execute and deliver any Joint Written Direction, to amend, modify, or waive any provision of this Agreement, and to take any and all other actions as the Investor’s representative under this Agreement, all without further consent or direction form, or notice to, the Investor or any other party.

v.

No party other than the parties hereto have, or shall have, any lien, claim or security interest in the Escrow Funds or any part thereof.  No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.

vi.

All of the representations and warranties of the Investor contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement from the Escrow Funds.

b.

The Company makes the following representations and warranties to Escrow Agent and, the Investor:

7

i.

The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada, and has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

ii.

This Agreement has been duly approved by all necessary corporate action of the Company, including any necessary shareholder approval, has been executed by duly authorized officers of the Company, enforceable in accordance with its terms.

iii.

The execution, delivery, and performance by the Company of this Escrow Agreement is in accordance with the Standby Equity Distribution Agreement and will not violate, conflict with, or cause a default under the certificate of incorporation or bylaws of the Company, any applicable law or regulation, any court order or administrative ruling or decree to which the Company is a party or any of its property is subject, or any agreement, contract, indenture, or other binding arrangement.

iv.

Mitch White has been duly appointed to act as the representative of the Company hereunder and has full power and authority to execute, deliver, and perform this Agreement, to execute and deliver any Joint Written Direction, to amend, modify or waive any provision of this Agreement and to take all other actions as the Company’s Representative under this Agreement, all without further consent or direction from, or notice to, the Company or any other party.

v.

No party other than the parties hereto shall have, any lien, claim or security interest in the Escrow Funds or any part thereof.  No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Funds or any part thereof.

vi.

All of the representations and warranties of the Company contained herein are true and complete as of the date hereof and will be true and complete at the time of any disbursement from the Escrow Funds.

14.

Consent to Jurisdiction and Venue.  In the event that any party hereto commences a lawsuit or other proceeding relating to or arising from this Agreement, the parties hereto agree that the United States District Court for the District of New Jersey shall have the sole and exclusive jurisdiction over any such proceeding.  If all such courts lack federal subject matter jurisdiction, the parties agree that the Superior Court Division of New Jersey, Chancery Division of Hudson County shall have sole and exclusive jurisdiction.  Any of these courts shall be proper venue for any such lawsuit or judicial proceeding and the parties hereto waive any objection to such venue.  The parties hereto consent to and agree to submit to the jurisdiction of any of the courts specified herein and agree to accept the service of process to vest personal jurisdiction over them in any of these courts.

15.

Notice.  All notices and other communications hereunder shall be in writing and shall be deemed to have been validly served, given or delivered five (5) days after deposit in the United States mail, by certified mail with return receipt requested and postage prepaid, when

8

delivered personally, one (1) day delivery to any overnight courier, or when transmitted by facsimile transmission and addressed to the party to be notified as follows:

If to Investor, to:	Cornell Capital Partners, LP
	101 Hudson Street – Suite 3606
	Jersey City, New Jersey 07302
	Attention: Mark Angelo
	Facsimile: (201) 985-8266
If to Escrow Agent, to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue – Suite 6
	Union, New Jersey 07083
	Attention: David Gonzalez, Esq.
	Facsimile: (908) 810-0973
If to Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Attention: Mitch White
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Boulevard – Suite 2000
	Miami, Florida 33131-2399
	Attention: Clayton E. Parker, Esq.
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095

Or to such other address as each party may designate for itself by like notice.

16.

Amendments or Waiver. This Agreement may be changed, waived, discharged or terminated only by a writing signed by the parties of the Escrow Agent.  No delay or omission by any party in exercising any right with respect hereto shall operate as waiver.  A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion.

17.

Severability.  To the extent any provision of this Agreement is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition, or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

18.

Governing Law.  This Agreement shall be construed and interpreted in accordance with the internal laws of the State of New Jersey without giving effect to the conflict of laws principles thereof.

9

19.

Entire Agreement.  This Agreement constitutes the entire Agreement between the parties relating to the holding, investment, and disbursement of the Escrow Funds and sets forth in their entirety the obligations and duties of the Escrow Agent with respect to the Escrow Funds.

20.

Binding Effect.  All of the terms of this Agreement, as amended from time to time, shall be binding upon, inure to the benefit of and be enforceable by the respective heirs, successors and assigns of the Investor, the Company, or the Escrow Agent.

21.

Execution of Counterparts.  This Agreement and any Joint Written Direction may be executed in counter parts, which when so executed shall constitute one and same agreement or direction.

22.

Termination. Upon the first to occur of the termination of the Standby Equity Distribution Agreement dated the date hereof or the disbursement of all amounts in the Escrow Funds and Common Stock into court pursuant to Section 7 hereof, this Agreement shall terminate and Escrow Agent shall have no further obligation or liability whatsoever with respect to this Agreement or the Escrow Funds or Common Stock.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

10

IN WITNESS WHEREOF the parties have hereunto set their hands and seals the day and year above set forth.

CYOP SYSTEMS INTERNATIONAL INC.

By: _________________________________

Name:

Mitch White

Title:

President

CORNELL CAPITAL PARTNERS, LP

By:

Yorkville Advisors, LLC

Its:

General Partner

By: _________________________________

Name:

Mark A. Angelo

Title:

Portfolio Manager

BUTLER GONZALEZ LLP

By: _________________________________

Name:

David Gonzalez, Esq.

Title:

Partner

11

EX-10

EXHIBIT 10.19

IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

January ___, 2004

The Nevada Agency and Trust Company

Bank America Plaza

50 West Liberty Street – Suite 880

Reno, Nevada 89501

RE:

CYOP SYSTEMS INTERNATIONAL INC.

Ladies and Gentlemen:

Reference is made to that certain Securities Purchase Agreement (the “Securities Purchase Agreement”), dated the date hereof, by and between CYOP Systems International Inc., a Nevada corporation (the “Company”), and the Buyers set forth on Schedule I attached thereto (collectively the “Buyer”), pursuant to which the Company shall sell to the Buyer up to One Hundred Twenty Five Thousand Dollars ($125,000) of the Company’s secured convertible debentures, which shall be convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”).  The shares of Common Stock to be converted thereunder plus interest which may be converted into Common Stock shares of the Company’s Common Stock, in the event the Buyer has elected to have the interest of the Convertible Debenture, pursuant to Section 1.07 of the Convertible Debenture, paid in Common Stock and/or the Buyer has elected to have Liquidated Damages pursuant to Section 2(c) of the Investor Registration Rights Agreement dated the date hereof paid in Common Stock. which may be converted into Common Stock thereunder are referred to herein as the “Conversion Shares.”  This letter shall serve as our irrevocable authorization and direction to you (provided that you are the transfer agent of the Company at such time) to issue the Conversion Shares in shares of the Company’s Common Stock to the Buyer from time to time upon surrender to you of a properly completed and duly executed Conversion Notice, in the form attached hereto as Exhibit I, delivered on behalf of the Company by David Gonzalez, Esq.

Specifically, upon receipt by the Company or David Gonzalez, Esq. of a copy of a Conversion Notice, David Gonzalez, Esq., on behalf of the Company, shall as soon as practicable, but in no event later than one (1) Trading Day (as defined below) after receipt of such Conversion Notice, send, via facsimile, a Conversion Notice, which shall constitute an irrevocable instruction to you to process such Conversion Notice in accordance with the terms of these instructions.  Upon your receipt of a copy of the executed Conversion Notice, you shall use your best efforts to, within three (3) Trading Days following the date of receipt of the Conversion Notice, (A) issue and surrender to a common carrier for overnight delivery to the address as specified in the Conversion Notice, a certificate, registered in the name of the Buyer or its designee, for the number of shares of Comm on Stock to which the Buyer shall be entitled as set forth in the Conversion Notice or (B) provided you are participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Buyer, credit such aggregate number of shares of Common Stock to which the Buyer shall be

MI-150227 v2 0950000-102

entitled to the Buyer’s or its designee’s balance account with DTC through its Deposit Withdrawal At Custodian (“DWAC”) system provided the Buyer causes its bank or broker to initiate the DWAC transaction.  (“Trading Day” shall mean any day on which the Nasdaq Market is open for customary trading.)

The Company hereby confirms to you and the Buyer that certificates representing the Conversion Shares, the Interest Shares, and/or the Liquidated Damages Shares shall not bear any legend restricting transfer of the Conversion Shares thereby and should not be subject to any stop-transfer restrictions and shall otherwise be freely transferable on the books and records of the Company provided that the Company counsel delivers (i) the Notice of Effectiveness set forth in Exhibit II attached hereto and (ii) an opinion of counsel in the form set forth in Exhibit III attached hereto, and that if the Conversion Shares, the Interest Shares, and/or the Liquidated Damages Shares are not registered for sale under the Securities Act of 1933, as amended, then the certificates for the Conversion Shares shall bear the following legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.”

The Company hereby confirms and The Nevada Agency and Trust Company acknowledges that in the event Counsel to the Company does not issue an opinion of counsel as required to issue the Conversion Shares free of legend the Company authorizes and The Nevada Agency and Trust Company will accept an opinion of Counsel from Butler Gonzalez LLP.  

The Company hereby confirms to you and the Buyer that no instructions other than as contemplated herein will be given to you by the Company with respect to the Conversion Shares.  The Company hereby agrees that it shall not replace The Nevada Agency and Trust Company as the Company’s transfer agent without the prior written consent of the Buyer.

Any attempt by you to resign as transfer agent hereunder shall not be effective until such time as the Company provides to you written notice that a suitable replacement has agreed to serve as transfer agent and to be bound by the terms and conditions of these Transfer Agent Instructions.

The Company and The Nevada Agency and Trust Company hereby acknowledge and confirm that complying with the terms of this Agreement does not and shall not prohibit The Nevada Agency and Trust Company from satisfying any and all fiduciary responsibilities and duties it may owe to the Company.

2

The Company and The Nevada Agency and Trust Company acknowledge that the Buyer is relying on the representations and covenants made by the Company The Nevada Agency and Trust Company hereunder and are a material inducement to the Buyer purchasing convertible debentures under the Securities Purchase Agreement.  The Company and The Nevada Agency and Trust Company further acknowledge that without such representations and covenants of the Company and The Nevada Agency and Trust Company made hereunder, the Buyer would not enter into the Securities Purchase Agreement and purchase convertible debentures pursuant thereto.

Each party hereto specifically acknowledges and agrees that in the event of a breach or threatened breach by a party hereto of any provision hereof, the Buyer will be irreparably damaged and that damages at law would be an inadequate remedy if these Irrevocable Transfer Agent Instructions were not specifically enforced.  Therefore, in the event of a breach or threatened breach by a party hereto, including, without limitation, the attempted termination of the agency relationship created by this instrument, the Buyer shall be entitled, in addition to all other rights or remedies, to an injunction restraining such breach, without being required to show any actual damage or to post any bond or other security, and/or to a decree for specific performance of the provisions of these Irrevocable Transfer Agent Instructions.

*     *     *     *     *

3

IN WITNESS WHEREOF, the parties have caused this letter agreement regarding Irrevocable Transfer Agent Instructions to be duly executed and delivered as of the date first written above.

COMPANY:

CYOP SYSTEMS INTERNATIONAL INC.

By:                                                                 

Name:

Title:

David Gonzalez, Esq.

THE NEVADA AGENCY AND TRUST COMPANY

By:                                                                         

Name:                                                                    

Title:                                                                       

4

SCHEDULE I

SCHEDULE OF BUYERS

Name	Signature	Address/Facsimile Number of Buyer
Cornell Capital Partners,  LP	By: Yorkville Advisors, LLC	101 Hudson Street – Suite 3606
	Its: General Partner	Jersey City, NJ  07303
		Facsimile: (201) 985-8266
	By:
	Name: Mark A. Angelo
	Its: Portfolio Manager

SCHEDULE I-1

EXHIBIT I

TO TRANSFER AGENT INSTRUCTIONS

FORM OF CONVERSION NOTICE

Reference is made to the Securities Purchase Agreement (the “Securities Purchase Agreement”) between CYOP Systems International Inc., (the “Company”), and Cornell Capital Partners, LP, dated January ___, 2004.  In accordance with and pursuant to the Securities Purchase Agreement, the undersigned hereby elects to convert convertible debentures into shares of common stock, par value $0.00002 per share (the “Common Stock”), of the Company for the amount indicated below as of the date specified below.

Conversion Date:
Amount to be converted:	$
Conversion Price:	$
Shares of Common Stock Issuable:
Amount of Debenture unconverted:	$
Amount of Interest Converted:	$
Conversion Price of Interest:	$
Shares of Common Stock Issuable:
Amount of Liquidated Damages:	$
Conversion Price of Liquidated Damages:	$
Shares of Common Stock Issuable:
Total Number of shares of Common Stock to be issued:

Please issue the shares of Common Stock in the following name and to the following address:

Issue to:

Authorized Signature:

EXHIBIT I-1

Name:

Title:

Phone #:

Broker DTC Participant Code:

Account Number*:

* Note that receiving broker must initiate transaction on DWAC System.

2

EXHIBIT II

TO IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

January ___, 2004

The Nevada Agency and Trust Company

Bank America Plaza

50 West Liberty Street – Suite 880

Reno, Nevada 89501

RE:

CYOP SYSTEMS INTERNATIONAL INC.

Ladies and Gentlemen:

We are counsel to CYOP Systems International Inc., a Nevada corporation (the “Company”), and have represented the Company in connection with that certain Securities Purchase Agreement, dated as of January ___, 2004 (the “Securities Purchase Agreement”), entered into by and among the Company and the Buyers set forth on Schedule I attached thereto (collectively the “Buyer”) pursuant to which the Company has agreed to sell to the Buyer up to One Hundred Twenty Five Thousand Dollars ($125,000) of secured convertible debentures, which shall be convertible into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.00002 per share (the “Common Stock”), in accordance with the terms of the Securities Purchase Agreement.  Pursuant to the Securities Purchase Agreem ent, the Company also has entered into a Registration Rights Agreement, dated as of January ___, 2004, with the Buyer (the “Investor Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Conversion Shares under the Securities Act of 1933, as amended (the “1933 Act”).  In connection with the Company’s obligations under the Securities Purchase Agreement and the Registration Rights Agreement, on _______, 2003, the Company filed a Registration Statement (File No. ___-_________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the sale of the Conversion Shares.

In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at 5:00 P.M. on __________, 2003 and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Conversion Shares are available for sale under the 1933 Act pursuant to the Registration Statement.

EXHIBIT II-1

The Buyer has confirmed it shall comply with all securities laws and regulations applicable to it including applicable prospectus delivery requirements upon sale of the Conversion Shares.

Very truly yours,

KIRKPATRICK & LOCKHART LLP

By:                                                           

EXHIBIT II-2

EXHIBIT III

TO TRANSFER AGENT INSTRUCTIONS

FORM OF OPINION

________________ 2003

VIA FACSIMILE AND REGULAR MAIL

The Nevada Agency and Trust Company

Bank America Plaza

50 West Liberty Street – Suite 880

Reno, Nevada 89501

RE:

CYOP SYSTEMS INTERNATIONAL INC.

Ladies and Gentlemen:

We have acted as special counsel to CYOP Systems International Inc. (the “Company”), in connection with the registration of ___________shares (the “Shares”) of its common stock with the Securities and Exchange Commission (the “SEC”).  We have not acted as your counsel.  This opinion is given at the request and with the consent of the Company.

In rendering this opinion we have relied on the accuracy of the Company’s Registration Statement on Form SB-2, as amended (the “Registration Statement”), filed by the Company with the SEC on _________ ___, 2003.  The Company filed the Registration Statement on behalf of certain selling stockholders (the “Selling Stockholders”).  This opinion relates solely to the Selling Shareholders listed on Exhibit “A” hereto and number of Shares set forth opposite such Selling Stockholders’ names.  The SEC declared the Registration Statement effective on __________ ___, 2003.

We understand that the Selling Stockholders acquired the Shares in a private offering exempt from registration under the Securities Act of 1933, as amended.  Information regarding the Shares to be sold by the Selling Shareholders is contained under the heading “Selling Stockholders” in the Registration Statement, which information is incorporated herein by reference.  This opinion does not relate to the issuance of the Shares to the Selling Stockholders.  The opinions set forth herein relate solely to the sale or transfer by the Selling Stockholders pursuant to the Registration Statement under the Federal laws of the United States of America.  We do not express any opinion concerning any law of any state or other jurisdiction.

In rendering this opinion we have relied upon the accuracy of the foregoing statements.

Based on the foregoing, it is our opinion that the Shares have been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and that

EXHIBIT III-1

The Nevada Agency Trust Company may remove the restrictive legends contained on the Shares. This opinion relates solely to the number of Shares set forth opposite the Selling Stockholders listed on Exhibit “A” hereto.

This opinion is furnished to you specifically in connection with the issuance of the Shares, and solely for your information and benefit.  This letter may not be relied upon by you in any other connection, and it may not be relied upon by any other person or entity for any purpose without our prior written consent.  This opinion may not be assigned, quoted or used without our prior written consent.  The opinions set forth herein are rendered as of the date hereof and we will not supplement this opinion with respect to changes in the law or factual matters subsequent to the date hereof.

Very truly yours,

KIRKPATRICK & LOCKHART LLP

EXHIBIT III-2

EXHIBIT “A”

(LIST OF SELLING STOCKHOLDERS)

Name: No. of Shares:

EXHIBIT A-1

EX-10

EXHIBIT 10.20

WARRANT

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.

CYOP SYSTEMS INTERNATIONAL INC.

Warrant To Purchase Common Stock

Warrant No.:  _____

Number of Shares: _______

Date of Issuance: __________________

CYOP Systems International Inc, a Nevada corporation (the “Company”), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Cornell Capital Partners LP, a Delaware limited partnership (“Cornell”), the registered holder hereof or its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined herein) ________________ fully paid and nonassessable shares of Common Stock (as defined herein) of the Company (the “Warrant Shares”) at the exercise price per share provided in Section 1(b) below or as subsequently adjusted; provided, ho wever, that in no event shall the holder be entitled to exercise this Warrant for a number of Warrant Shares in excess of that number of Warrant Shares which, upon giving effect to such exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock following such exercise, except within sixty (60) days of the Expiration Date.  For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such proviso is being made,

MI-150232 v2 0950000-102

but shall exclude shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised Warrants beneficially owned by the holder and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by the holder and its affiliates (including, without limitation, any convertible notes or preferred stock) subject to a limitation on conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.  For purposes of this Warrant, in determining the number of outstanding shares of Common Stock a holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written request of any holder, the Company shall promptly, but in no event later than one (1) Business Day following the receipt of such notice, confirm in writing to any such holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the exercise of Warrants (as defined below) by such holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.

Section 1.

(a)

This Warrant is the common stock purchase warrant (the “Warrant”) issued pursuant to a secured convertible debenture of even date herewith by and between the Company and Cornell (the “Convertible Debenture”).

(b)

Definitions.  The following words and terms as used in this Warrant shall have the following meanings:

(i)

“Approved Stock Plan” means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, officer or director for services provided to the Company.

(ii)

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed.

(iii)

“Closing Bid Price” means the closing bid price of Common Stock as quoted on the Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”) through its “Volume at Price” function).

(iv)

“Common Stock” means (i) the Company’s common stock, par value $0.001 per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

(v)

“Excluded Securities” means, provided such security is issued at a price which is greater than or equal to the arithmetic average of the Closing Bid Prices of the

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Common Stock for the ten (10) consecutive trading days immediately preceding the date of issuance, any of the following: (a) any issuance by the Company of securities in connection with a strategic partnership or a joint venture (the primary purpose of which is not to raise equity capital), (b) any issuance by the Company of securities as consideration for a merger or consolidation or the acquisition of a business, product, license, or other assets of another person or entity and (c) options to purchase shares of Common Stock, provided (I) such options are issued after the date of this Warrant to employees of the Company within thirty (30) days of such employee’s starting his employment with the Company, and (II) the exercise price of such options is not less than the Closing Bid Price of the Common Stock on the date of issuance of such option.

(vi)

“Expiration Date” means the date two (2) years from the Issuance Date of this Warrant or, if such date falls on a Saturday, Sunday or other day on which banks are required or authorized to be closed in the City of New York or the State of New York or on which trading does not take place on the Principal Exchange or automated quotation system on which the Common Stock is traded (a “Holiday”), the next date that is not a Holiday.

(vii)

“Issuance Date” means the date hereof.

(viii)

“Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.

(ix)

“Other Securities” means (i) those options and warrants of the Company issued prior to, and outstanding on, the Issuance Date of this Warrant, (ii) the shares of Common Stock issuable on exercise of such options and warrants, provided such options and warrants are not amended after the Issuance Date of this Warrant and (iii) the shares of Common Stock issuable upon exercise of this Warrant.

(x)

“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

(xi)

“Principal Market” means the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, whichever is at the time the principal trading exchange or market for such security, or the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg or, if no bid or sale information is reported for such security by Bloomberg, then the average of the bid prices of each of the market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc.

(xii)

“Securities Act” means the Securities Act of 1933, as amended.  

(xiii)

“Warrant” means this Warrant and all Warrants issued in exchange, transfer or replacement thereof.  

(xiv)

“Warrant Exercise Price” shall be one hundred twenty percent (120%) of the Closing Bid Price (as defined in the Convertible Debenture) of the Company’s

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Common Stock on the Closing Date (as defined in the Convertible Debenture) or as subsequently adjusted as provided in Section 8 hereof.  

(xv)

“Warrant Shares” means the shares of Common Stock issuable at any time upon exercise of this Warrant.  

(c)

Other Definitional Provisions.  

(i)

Except as otherwise specified herein, all references herein (A) to the Company shall be deemed to include the Company’s successors and (B) to any applicable law defined or referred to herein shall be deemed references to such applicable law as the same may have been or may be amended or supplemented from time to time.  

(ii)

When used in this Warrant, the words “herein”, “hereof”, and “hereunder” and words of similar import, shall refer to this Warrant as a whole and not to any provision of this Warrant, and the words “Section”, “Schedule”, and “Exhibit” shall refer to Sections of, and Schedules and Exhibits to, this Warrant unless otherwise specified.  

(iii)

Whenever the context so requires, the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa.  

Section 2.

Exercise of Warrant.  Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, pro rata as hereinafter provided, at any time on any Business Day on or after the opening of business on such Business Day, commencing with the first day after the date hereof, and prior to 11:59 P.M. Eastern Time on the Expiration Date, by (i) delivery of a written notice, in the form of the subscription notice attached as Exhibit A hereto (the “Exercise Notice”), of such holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) payment to the Company of an amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares being purchased, multiplied by the number of Warrant Shares (at the applicable Warrant Exercise Price) as to which this Warrant is being exercised (plus any applicable issue or transfer taxes) (the “Aggregate Exercise Price”) in cash or wire transfer of immediately available funds and (iii) the surrender of this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) to a common carrier for overnight delivery to the Company as soon as practicable following such date.  In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), the Company shall on the fifth (5th) Business Day following the date of receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction) and  the receipt of the representations of the holder specified in Section 6 hereof, if requested by the Company (the “ Exercise Delivery Documents”), and if the Common Stock is DTC eligible credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder’s or its designee’s balance account with The Depository Trust Company; provided, however, if the holder who submitted the Exercise Notice requested physical delivery of any or all of the Warrant Shares, or, if the Common Stock is not DTC eligible  then the Company shall, on or before the fifth (5^th) Business Day following receipt of the Exercise Delivery Documents, issue and surrender to a common carrier for overnight delivery to the address specified in the

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Exercise Notice, a certificate, registered in the name of the holder, for the number of shares of Common Stock to which the holder shall be entitled pursuant to such request.  Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii) above the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised.  In the case of a dispute as to the determination of the Warrant Exercise Price, the Closing Bid Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the holder the number of Warrant Shares that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within one (1) Business Day of receipt of the holder 6;s Exercise Notice.  If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price or arithmetic calculation of the Warrant Shares within one (1) day of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall immediately submit via facsimile (i) the disputed determination of the Warrant Exercise Price or the Closing Bid Price to an independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its independent, outside accountant.  The Company shall cause the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations.  Such investment banking firm’s or accountant’s determination or calculation, as the case may be, shall be deemed conc lusive absent manifest error.

(a)

Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five (5) Business Days after any exercise and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised.

(b)

No fractional Warrant Shares are to be issued upon any pro rata exercise of this Warrant, but rather the number of Warrant Shares issued upon such exercise of this Warrant shall be rounded up or down to the nearest whole number.

(c)

If the Company or its Transfer Agent shall fail for any reason or for no reason to issue to the holder within ten (10) days of receipt of the Exercise Delivery Documents, a certificate for the number of Warrant Shares to which the holder is entitled or to credit the holder’s balance account with The Depository Trust Company for such number of Warrant Shares to which the holder is entitled upon the holder’s exercise of this Warrant, the Company shall, in addition to any other remedies under this Warrant or the Placement Agent Agreement or otherwise available to such holder, pay as additional damages in cash to such holder on each day the issuance of such certificate for Warrant Shares is not timely effected an amount equal to 0.025% of the product of (A) the sum of the number of Warrant Shares not issued to the holder on a timely basis and to which the holder is entitled, and (B) the Closing Bid Price of the Common Stock for the trading day immediately preceding the last possible date which the Company could have issued such Common Stock to the holder without violating this Section 2.

5

(d)

If within ten (10) days after the Company’s receipt of the Exercise Delivery Documents, the Company fails to deliver a new Warrant to the holder for the number of Warrant Shares to which such holder is entitled pursuant to Section 2(b) hereof, then, in addition to any other available remedies under this Warrant or the Placement Agent Agreement, or otherwise available to such holder, the Company shall pay as additional damages in cash to such holder on each day after such tenth (10^th) day that such delivery of such new Warrant is not timely effected in an amount equal to 0.25% of the product of (A) the number of Warrant Shares represented by the portion of this Warrant which is not being exercised and (B) the Closing Bid Price of the Common Stock for the trading day immediately preceding the last possible date which the Comp any could have issued such Warrant to the holder without violating this Section 2.

Section 3.

Covenants as to Common Stock.  The Company hereby covenants and agrees as follows:

(a)

This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued.

(b)

All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.

(c)

During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least one hundred percent (100%) of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price.  If at any time the Company does not have a sufficient number of shares of Common Stock authorized and available, then the Company shall call and hold a special meeting of its stockholders within sixty (60) days of that time for the sole purpose of increasing the number of authorized shares of Common Stock.

(d)

If at any time after the date hereof the Company shall file a registration statement, the Company shall include the Warrant Shares issuable to the holder, pursuant to the terms of this Warrant and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Warrant Shares from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system.

(e)

The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action

6

 

as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant.  The Company will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Warrant Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

(f)

This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets.

Section 4.

Taxes.  The Company shall pay any and all taxes, except any applicable withholding, which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

Section 5.

Warrant Holder Not Deemed a Stockholder.  Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant.  I n addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

Section 6.

Representations of Holder.  The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and the Warrant Shares for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.  The holder of this Warrant further represents, by acceptance hereof, that, as of t his date, such holder is an “accredited investor” as such term is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an “Accredited Investor”).  Upon exercise of this Warrant  the holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant Shares so purchased are being acquired solely for the holder’s own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale

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and that such holder is an Accredited Investor.  If such holder cannot make such representations because they would be factually incorrect, it shall be a condition to such holder’s exercise of this Warrant that the Company receive such other representations as the Company considers reasonably necessary to assure the Company that the issuance of its securities upon exercise of this Warrant shall not violate any United States or state securities laws.

Section 7.

Ownership and Transfer.

(a)

The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee.  The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant.

Section 8.

Adjustment of Warrant Exercise Price and Number of Shares.  The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)

Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock.  If and whenever on or after the Issuance Date of this Warrant, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than (i) Excluded Securities and (ii) shares of Common Stock which are issued or deemed to have been issued by the Company in connection with an Approved Stock Plan or upon exercise or conversion of the Other Securities) for a consideration per share less than a price (the “Applicable Price”) equal to the Warrant Exercise Price in effect immediately prior to such issuance or sale, then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to such consideration per share.  Upon each such adjustment of the War rant Exercise Price hereunder, the number of Warrant Shares issuable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment.

(b)

Effect on Warrant Exercise Price of Certain Events.  For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above, the following shall be applicable:

(i)

Issuance of Options.  If after the date hereof, the Company in any manner grants any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any convertible securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share.  For purposes of this Section 8(b)(i), the lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion or exchange of

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such Convertible Securities shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option or upon conversion or exchange of any convertible security issuable upon exercise of such Option.  No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such convertible securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities.

(ii)

Issuance of Convertible Securities.  If after the date hereof, the Company in any manner issues or sells any convertible securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such convertible securities for such price per share.  For the purposes of this Section 8(b)(ii), the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the convert ible security and upon conversion or exchange of such convertible security.  No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such convertible securities, and if any such issue or sale of such convertible securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale.

(iii)

Change in Option Price or Rate of Conversion.  If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any convertible securities, or the rate at which any convertible securities are convertible into or exchangeable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or convertible securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of Warrant Shares issuable upon exercise of this Warrant shall be correspondingly readjusted.  For purposes of this Section 8(b)(ii i), if the terms of any Option or convertible security that was outstanding as of the Issuance Date of this Warrant are changed in the manner described in the immediately preceding sentence, then such Option or convertible security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change.  No adjustment pursuant to this Section 8(b) shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect.

(c)

Effect on Warrant Exercise Price of Certain Events.  For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b), the following shall be applicable:

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(i)

Calculation of Consideration Received.  If after the date hereof, any Common Stock, Options or convertible securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefore will be deemed to be the net amount received by the Company therefore.  If after the date hereof, any Common Stock, Options or convertible securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company will be the market price of such securities on the date of receipt of such securities.  If any Common Stock, Options or convertible securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefore will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or convertible securities, as the case may be.  The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of Warrants representing at least two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then outstanding.  If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10^th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of W arrants representing at least two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then outstanding.  The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne jointly by the Company and the holders of Warrants.

(ii)

Integrated Transactions.  In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01.

(iii)

Treasury Shares.  The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock.

(iv)

Record Date.  If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in convertible securities or (2) to subscribe for or purchase Common Stock, Options or convertible securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(d)

Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock.  If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, any Warrant

10

 

Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased.  If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, any Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares issuable upon exercise of this Warrant will be proportionately decreased.  Any adjustment under this Section 8(d) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(e)

Distribution of Assets.  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:

(i)

any Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing Sale Price of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing Sale Price of the Common Stock on the trading day immediately preceding such record date; and

(ii)

either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have bee n payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i).

11

(f)

Certain Events.  If any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants; provided, except as set forth in section 8(d),that no such adjustment pursuant to this Section 8(f) will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8.

(g)

Notices.

(i)

Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment.

(ii)

The Company will give written notice to the holder of this Warrant at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.

(iii)

The Company will also give written notice to the holder of this Warrant at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder.

Section 9.

Purchase Rights; Reorganization, Reclassification, Consolidation, Merger or Sale.

(a)

In addition to any adjustments pursuant to Section 8 above, if at any time after the date hereof, the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the g rant, issue or sale of such Purchase Rights.

12

(b)

Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person or other transaction in each case which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an “Organic Change.”  Prior to the consummation of any (i) sale of all or substantially all of the Company’s assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the “Acquiring Entity”) a written ag reement (in form and substance satisfactory to the holders of Warrants representing at least two-thirds (iii) of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of the Warrants (including an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrants without regard to any limitations on exercise, if the value so reflected is less than any Applicable Warrant Exercise Price immediately prior to such consolidation, merger or sale).  Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of Warrants representing a majority of the Warrant Shares issuable upon exercise of the Warrants then outstanding) to insure that each of the holders of the Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the Warrant Shares immediately theretofore issuable and receivable upon the exercise of such holder’s Warrants (without regard to any limitations on exercise), such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of Warrant Shares which would have been issuable and receivable upon the exercise of such holder’s Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exercisability of this Warrant).

Section 10.

Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking (or, in the case of a mutilated Warrant, the Warrant), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.

Section 11.

Notice.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of receipt is received by the sending party transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

13

 

If to Cornell:	Cornell Capital, LP
	101 Hudson Street – Suite 3606
	Jersey City, New Jersey 07302
	Telephone: (201) 985-8300
	Facsimile: (201) 985-8266
	Attention: Mark A. Angelo
With Copy to:	Butler Gonzalez LLP
	1000 Stuyvesant Avenue
	Suite # 6
	Union, NJ  07083
	Telephone: (908) 810-8588
	Facsimile: (908) 810-0873
	Attention: David Gonzalez, Esq.
If to the Company, to:	CYOP Systems International Inc.
	1090 Homer Street – Suite 390
	Vancouver, British Columbia V6B2W9
	Telephone: (604) 685-0696
	Facsimile: (604) 637-8201
	Attention: Mitch White
With a copy to:	Kirkpatrick & Lockhart LLP
	201 South Biscayne Blvd. – Suite 2000
	Miami, Fl 33131
	Telephone: (305) 539-3300
	Facsimile: (305) 358-7095
	Attention: Clayton E. Parker, Esq.

If to a holder of this Warrant, to it at the address and facsimile number set forth on Exhibit C hereto, with copies to such holder’s representatives as set forth on Exhibit C, or at such other address and facsimile as shall be delivered to the Company upon the issuance or transfer of this Warrant.  Each party shall provide five days’ prior written notice to the other party of any change in address or facsimile number.  Written confirmation of receipt (A) given by the recipient of such notice, consent, facsimile, waiver or other communication, (or (B) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

Section 12.

Date.  The date of this Warrant is set forth on page 1 hereof.  This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 8(b) shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant.

14

Section 13.

Amendment and Waiver.  Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of Warrants representing at least two-thirds of the Warrant Shares issuable upon exercise of the Warrants then outstanding; provided that, except for Section 8(d), no such action may increase the Warrant Exercise Price or decrease the number of shares or class of stock obtainable upon exercise of any Warrant without the written consent of the holder of such Warrant.

Section 14.

Descriptive Headings; Governing Law.  The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant.  The corporate laws of the State of Nevada shall govern all issues concerning the relative rights of the Company and its stockholders.  All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New Jersey.  Each party hereby irrevocably submits to the exclusive jurisdiction of the sta te and federal courts sitting in Hudson County and the United States District Court for the District of New Jersey, for the adjudication of any dispute hereunder or in connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve proces s in any manner permitted by law.  

Section 15.

Waiver of Jury Trial.  AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as of the date first set forth above.

CYOP SYSTEMS INTERNATIONAL INC.

By:                                                                             

Name:

Mitch White

Title:

President

15

EXHIBIT A TO WARRANT

EXERCISE NOTICE

TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

CYOP SYSTEMS INTERNATIONAL INC.

The undersigned holder hereby exercises the right to purchase __________ of the shares of Common Stock (“Warrant Shares”) of CYOP Systems International Inc., a Nevada corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.

Form of Warrant Exercise Price.  The Holder intends that payment of the Warrant Exercise Price shall be made as:

____________ a “Cash Exercise” with respect to _________________ Warrant Shares;

2.

Payment of Warrant Exercise Price.  The holder shall pay the sum of $______________ to the Company in accordance with the terms of the Warrant.  

3.

Delivery of Warrant Shares.  The Company shall deliver to the holder _________ Warrant Shares in accordance with the terms of the Warrant.  

Date: _______________ __, ______

Name of Registered Holder

By:                                                                

Name:                                                           

Title:                                                              

A-1

EXHIBIT B TO WARRANT

FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of CYOP Systems International Inc., a Nevada corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation.  The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises.

Dated:
	By:
	Name:
	Title:

C-1

EX-23

EXHIBIT 23.1

MOORE STEPHENS

ELLIS FOSTER LTD.

 CHARTERED ACCOUNTANTS

1650 West 1^st Avenue

Vancouver, BC  Canada   V6J 1G1

Telephone:  (604) 737-8117  Facsimile: (604) 714-5916

Website:   www.ellisfoster.com  

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use of our report dated February 6, 2003, with respect to the financial statements, for the year ended December 31, 2002, included in the filing of the Registration Statement (Form SB-2), dated February 20, 2004, of CYOP Systems International Incorporated.

“MOORE STEPHENS ELLIS FOSTER LTD.”

Vancouver, Canada

Chartered Accountants

February 20, 2004

MSEFA partnership of incorporated professionals

An independently owned and operated member of Moore Stephens North America Inc., a member of Moore Stephens International Limited

- members in principal cities throughout the world