UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
Commission file Number: 0-32355
CYOP SYSTEMS INTERNATIONAL INCORPORATED
(Exact name of small business issuer as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
98-0222927
(I.R.S. Employer Identification Number)
Suite 406
1040 Hamilton Street
Vancouver, British Columbia
V6B 2R9
(Address of principal executive offices)
(604)688-8864
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 28,439,975 common shares as at March 31, 2002
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
CYOP SYSTEMS INTERNATIONAL INCORORATED
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of December 31, 2001 and March 31, 2002
Statement of Operations for the period ended March 31, 2002
Consolidated Statements of Cash Flows for the period ended March 31, 2002
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
Item 2. Management Discussion and Analysis
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8K
SIGNATURES
CYOP SYSTEMS INTERNATIONAL
INCORPORATED & SUBSIDIARIES
Consolidated Financial Statements
(Expressed in U.S. Dollars)
March 31, 2002
(Unaudited)
Index
Consolidated Balance Sheets
Consolidated Statement of Stockholders' Deficiency
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
CYOP SYSTEMS INTERNATIONAL INCORPORATED | |||||||
& SUBSIDIARIES |
Consolidated Balance Sheets |
(Unaudited) | ||||||||||
(Expressed in U.S. Dollars) |
March 31 | December31 | |||||
2002 | 2001 | |||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents | $ 10,963 | $ 1,852 |
Accounts receivable | 261,855 | 178,910 | ||||||||
Demand loan, interest at 12% per annum and unsecured | 64,215 | 14,472 | ||||||||
Due from director, non interest bearing and unsecured | - | 105,738 | ||||||||
Prepaid expenses and deposit | 28,689 | 49,191 | ||||||||
Total current assets | 365,722 | 350,163 | ||||||||
Note receivable related party (Note 8) | 1,565,452 | 1,565,452 | ||||||||
Fixed assets (Note 4) | 212,112 | 222,646 | ||||||||
Total assets | $ | 2,143,286 | $ | 2,138,261 | ||||||
LIABILITIES | ||||||||||
Current | ||||||||||
Bank overdraft | $ | - | $ | 18,604 | ||||||
Demand loans (Note 6) | 452,676 | 452,676 | ||||||||
Demand loans related party (Note 6) | 50,000 | 50,000 | ||||||||
Accounts payable and accrued liabilities | 608,790 | 586,139 | ||||||||
Payroll deductions payable (Note 7) | 371,731 | 362,115 | ||||||||
Due to director, non interest bearing and unsecured | 12,912 | - | ||||||||
Short-term loan (Note 6) | 228,407 | 228,421 | ||||||||
Investor deposit | 20,000 | 10,000 | ||||||||
Total current liabilities | 1,744,516 | 1,707,955 | ||||||||
Deferred revenue (Note 8) | 2,270,394 | 2,270,394 | ||||||||
Total Liabilities | 4,014,910 | 3,978,349 | ||||||||
Nature and continuance of operations (Note 1) | ||||||||||
Commitments (Note 11) | ||||||||||
STOCKHOLDERS' (DEFICIENCY) | ||||||||||
Share capital | ||||||||||
Authorized: | ||||||||||
100,000,000 | shares of common stock with a par value | |||||||||
of $0.0001 per share | ||||||||||
Issued, allotted and outstanding: | ||||||||||
28,439,975 | shares of common stock | 2,844 | 2,844 | |||||||
Additional paid-in capital | 220,377 | 219,127 | ||||||||
Accumulated other comprehensive income | 135,450 | 133,194 | ||||||||
Deficit accumulated | (2,230,295) | (2,195,253) | ||||||||
Total stockholders' (deficiency) | (1,871,624) | (1,840,088) | ||||||||
Total liabilities and stockholders' (deficiency) | $ | 2,143,286 | $ | 2,138,261 | ||||||
The accompanying notes are an integral part of these financial statements. |
CYOP SYSTEMS INTERNATIONAL INCORPORATED | ||||||||||||||||||||||||||
& SUBSIDIARIES | ||||||||||||||||||||||||||
Consolidated Statement of Stockholders' Deficiency |
Three Months Ended March 31, 2002 | |||||||||||||||||
(Unaudited) | |||||||||||||||||
(Expressed in U.S. Dollars) | |||||||||||||||||
Accumulated | |||||||||||||||||
Compre- | other | Total | |||||||||||||||
Additional | hensive | compre- | Stock- | ||||||||||||||
Common stock | paid-in | income | Deficit | hensive | holders' | ||||||||||||
Shares | Amount | capital | (loss) | accumulated | income | (deficiency) | |||||||||||
Balance, December 31, 2001 | 28,439,975 | $ | 2,844 | $ | 219,127 | $ | (2,195,253) | $ | 133,194 | $ | (1,840,088) | ||||||
Imputed interest on loan due to a related party | - | - | 1,250 | - | - | 1,250 | |||||||||||
Other comprehensive income | |||||||||||||||||
- foreign currency translation adjustment | - | - | - | 2,256 | - | 2,256 | 2,256 | ||||||||||
Comprehensive income | |||||||||||||||||
- net (loss) for the period | - | - | - | (35,042) | (35,042) | - | (35,042) | ||||||||||
Comprehensive income (loss) | $ | (32,786) | |||||||||||||||
Balance, March 31, 2002 | 28,439,975 | 2,844 | 220,377 | (2,230,295) | $ | 135,450 | $ | (1,871,624) | |||||||||
The accompanying notes are an integral part of these financial statements. |
CYOP SYSTEMS INTERNATIONAL INCORPORATED | ||||
& SUBSIDIARIES | ||||
Consolidated Statements of Operations | ||||
(Unaudited) | ||||
(Expressed in U.S. Dollars) | ||||
Three Months | Three Months | |||
Ended | Ended | |||
March 31 | March 31 | |||
2002 | 2001 | |||
Revenue | ||||
Sales related party | $ | 257,852 | $ | - |
Sales | 15,210 | - | ||
273,062 | - | |||
Cost of sales | 138,904 | - | ||
Gross profit | 134,158 | - | ||
Advertising and promotion expenses | (11,733) | (90,928) | ||
Software development costs | (94,368) | (287,238) | ||
Loan interest expenses | (13,359) | (25,911) | ||
General and administrative expenses | ||||
Accounting and audit | - | (14,146) | ||
Automobile | (9,399) | (13,921) | ||
Depreciation of fixed assets | (622) | (1,654) | ||
Foreign exchange (gain) loss | 2,597 | (50,199) | ||
Legal and other professional fees | (2,929) | (30,565) | ||
Office and miscellaneous | (165) | (26,096) | ||
Rent | (4,277) | (16,786) | ||
Salaries and benefits | (34,599) | (31,776) | ||
Telephone and bandwidth | (346) | (2,385) | ||
Net loss for the year | $ | (35,042) | $ | (591,605) |
Loss per share | ||||
Basic and diluted | $ | (0.00) | (0.02) | |
Weighted average number of | ||||
common shares outstanding | ||||
Basic and diluted | 28,439,975 | 28,395,109 | ||
The accompanying notes are an integral part of these financial statements. |
CYOP SYSTEMS INTERNATIONAL INCORPORATED | ||||
& SUBSIDIARIES | ||||
Consolidated Statements of Cash Flows | ||||
(Unaudited) | ||||
(Expressed in U.S. Dollars) | ||||
Three Months | Three Months | |||
Ended | Ended | |||
December 31 | December 31 | |||
2002 | 2001 | |||
Cash flows from (used in) operating activities | ||||
Net loss for the year | $ | (35,042) | $ | (591,605) |
Adjustments to reconcile net loss to net cash | ||||
used in operating activities: | ||||
- depreciation of fixed assets | 10,409 | 16,539 | ||
- imputed interest on related party loan | 1,250 | - | ||
(23,383) | (575,066) | |||
Changes in assets and liabilities: | ||||
- accounts receivable | (82,945) | (30,144) | ||
- prepaid expenses and deposit | 20,502 | 16,718 | ||
- accounts payable and accrued liabilities | 27,341 | 75,719 | ||
- payroll deductions payable | 12,486 | 103,149 | ||
(45,999) | (409,624) | |||
Cash flows used in investing activities | ||||
Increase in demand loan receivable | (49,743) | - | ||
Purchase of fixed assets | - | (6,186) | ||
(49,743) | (6,186) | |||
Cash flows from financing activities | ||||
Shares issued for cash | - | 70,900 | ||
Advances from director | 118,650 | - | ||
Proceeds from investor deposit | 10,000 | - | ||
Proceeds from demand loans | - | 273,013 | ||
128,650 | 343,913 | |||
Foreign exchange gain (loss) on cash held in | ||||
foreign currency | (5,193) | 7,317 | ||
Increase (decrease) in cash and cash equivalents | 27,715 | (64,580) | ||
Cash and cash equivalents (deficiency), beginning of year | (16,752) | 55,765 | ||
Cash and cash equivalents (deficiency), end of year | $ | 10,963 | $ | (8,815) |
Cash and cash equivalents (deficiency) represented by: | ||||
Cash | $ | 10,963 | $ | 4,046 |
Bank overdraft | - | (12,861) | ||
$ | 10,963 | $ | (8,815) | |
The accompanying notes are an integral part of these financial statements. |
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
1. Nature and Continuance of Operations
The Company was incorporated on October 29, 1999 in the name of Triple 8 Development Corporation under the laws of the State of Nevada to engage in any lawful business or activity for which corporations may be organized under the laws of the State of Nevada. The Company changed its name to CYOP Systems International Incorporated on October 30, 2000. On November 3, 2000, the Company acquired 100% of the issued and outstanding shares of CYOP Systems Inc., Barbados ("CYOP Barbados"). This transaction was accounted for as a reverse acquisition recapitalization (see Note 3).
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 of British Columbia, Canada.
The Company, and its subsidiaries, is a developer and 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 subsidiaries CYOP Barbados and Moshpit. Significant inter-company accounts and transactions have been eliminated.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
2. Significant Accounting Policies (continued)
(b) Basis of Presentation
These interim consolidated financial statements have been prepared using the same accounting policies and methods of their application as the most recent annual consolidated financial statements of the Company. These interim consolidated financial statements do not include all disclosures normally provided in the annual consolidated financial statements and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2001. In management's opinion, all adjustments necessary for fair presentation have been included in these interim consolidated financial statements. Interim results are not necessary indicative of the results expected for the fiscal year.
Certain comparative figures have been reclassified to conform to the current period's presentation.
(c) Accounting Estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from those estimates.
(d) Cash Equivalents
Cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturity of three months or less when purchased.
(e) Fixed Assets
Fixed assets are recorded at historical cost. Depreciation is charged to earnings in amounts sufficient to allocate the costs over their estimated useful lives, as follows:
Audio and visual equipment | 20% declining-balance basis |
Computer hardware | 30% declining-balance basis |
Computer software | 100% declining-balance basis |
Office furniture and equipment | 20% declining-balance basis |
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
2. Significant Accounting Policies (continued)
(f) 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.
(g) Software Development Costs
Software development costs incurred prior to the establishment of technological feasibility are charged to expenses as incurred.
(h) Advertising and Promotion
The Company expenses advertising and promotion costs as incurred. Total advertising and promotion costs charged to expenses for the three months ended March 31, 2002 amounted to $11,733 (March 31, 2001 - $90,928).
(i) Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its consolidated Statement of Stockholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. SFAS No. 130 did not change the current accounting treatments for components of comprehensive income.
(j) 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, accounts receivable, demand loan receivable, note receivable, demand loans payable, accounts payable and accrued liabilities, payroll deductions payable, amount due to director and short-term loans approximate their fair values because of the short-term maturity of these instruments.
Moshpit is operating in Canada, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between U.S. dollars and the Canadian dollars.
Financial instruments that potentially subject the Company to concentration of credit risk consist of accounts receivable, demand note receivable and note receivable, the balances of which are stated on the balance sheet. The Company performs ongoing credit evaluations of its customers and 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.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
2. Significant Accounting Policies (continued)
(k) Net Income (Loss) Per Share
Basic net income (loss) per share are computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share incorporate the incremental shares issuable upon the assumed exercise of stock options and other dilutive securities. Convertible loan and option to purchase 45,000 shares of common stock outstanding as at March 31, 2002 are not included in the net income (loss) per share computation, as the effect of including them would be anti-dilutive.
(l) Stock-based Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-based Compensation". SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations.
3. Acquisition of CYOP Systems Inc., Barbados
On November 3, 2000, the Company acquired 100% of the issued and outstanding common shares of CYOP Barbados by issuing 9,000,000 shares which are presented as outstanding for all periods presented. As the Company was a non-operating shell company, the transaction resulted in the management of CYOP Barbados having effective operating control of the combined company, with the shareholders of the Company continuing only as passive investors. Accounting principles applicable to reverse acquisition recapitalization have been applied to record this transaction. Under this basis of accounting, CYOP Barbados has been identified as the acquirer and, accordingly, the combined company is considered to be a continuation of the operations of CYOP Barbados with the net liabilities of the Company deemed to have been assumed by CYOP Barbados. Statements of operations present primarily the operations of Barbados. Pro-forma information is not presented as the transaction is not considered a business combination.
The net liabilities of the Company assumed by CYOP Barbados are summarized as follows:
Current assets | $ 2,399 |
Current liabilities | (12,100) |
Net liabilities assumed | $ (9,701) |
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
4. Fixed assets
March 31, 2002 | |||
Cost | Accumulated depreciation | Net book Value | |
Audio and visual equipment | $ 21,558 | $ 7,063 | $ 14,495 |
Computer hardware | 284,359 | 91,940 | 192,419 |
Computer software | 3,088 | 3,088 | - |
Office furniture and equipment | 9,393 | 4,195 | 5,198 |
Total | $ 318,398 | $106,286 | $ 212,112 |
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 | $ 222,646 |
For the three months ended March 31, 2002, depreciation expenses charged to software development costs and general and administrative expenses were $9,787 (2001 - $14,885), and $622 (2001 - $1,654) respectively.
5. Software Development Costs
March 31, 2002 | December 31, 2001 | |
Balance, beginning of period | $ - | $ 100 |
Salaries and benefits | 84,581 | 454,840 |
Depreciation on fixed assets | 9,787 | 40,118 |
94,368 | 495,058 | |
Costs charged to expenses | (94,368) | - |
Costs charged to sale of software | - | (495,058) |
Balance, end of period | $ - | $ - |
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
6. Loans
(a) Demand Loans
March 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
$ 178,519
- Tapijkabouter BV
99,157
99,157
277,676
277,676
ii. Interest at the Hongkong Bank of Canada's prime lending rate of 6.0% plus 1% per annum and unsecured:
- Ameera Group Inc.
75,000
75,000
iii. Non-interest bearing and unsecured:
- Tapijkabouter BV
100,000
100,000
Total
$ 452,676
$ 452,676
(a) Demand Loans Related Party
March 31 2002 | December 31 2001 | |
ii. Non-interest bearing and unsecured: - Jack Carley related to a director | 50,000 | 50,000 |
Total | $ 50,000 | $ 50,000 |
(b) Short-term Loan
March 31, 2002 | December 31 2001 | |
. Interest at 40% per annum, due on January 25, 2002, convertible to 20,000 shares of common stock of the Company at due date: | ||
- Kornfeld MacOff (Cdn$25,000) | $ 15,682 | $ 15,696 |
ii. Interest at 10% per annum, due on June 1, 2002: | ||
- RedRuth Ventures | 212,725 | 212,725 |
Total | $ 228,407 | $ 228,421 |
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
7. Payroll Deductions Payable
Payroll deductions payable of $371,731 (December 31, 2001 - $362,115) represents personal income taxes and other payroll related deductions withheld from employees. They are owed to Canada Customs and Revenue Agency by the Company's subsidiary in Canada.
8. 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 shareholder 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. As at December 31, 2001, the present value of the promissory note is $1,565,452, with discount rate at 7% per annum.
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 Creditplay 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 | $ | 2,270,394 |
The deferred gain of $2,270,394 will be amortized in proportion to the licensing fees payable over the term of the agreement.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
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.
During the three months ended March 31, 2002, total revenue of $257,852 were accrued from the serviced company.
As at March 31, 2002, $231,241 related to these services was still unpaid and included in accounts receivable.
10. Related Party Transactions
Related party transactions not disclosed elsewhere in the consolidated financial statements are as follows:
Imputed interest of $1,250 (March 31, 2001 - $Nil) at an interest rate of 10% per annum was accrued on interest free loan of $50,000 from an individual related to a director of the Company.
Accounting fees of $Nil (March 31, 2001 - $7,962) were paid to a company controlled by individuals related to a director of the Company and were charged to expenses.
Interest expenses of $Nil (March 31, 2001 - $16,756) were paid to a director and a shareholder of the Company and were charged to expenses.
11. Commitments
(a) The Company has entered into lease contracts for automobiles and computer equipment with minimum lease payments for the year ending December 31st, as follows:
2002 | $ | 45,837 |
2003 | 45,837 | |
2004 | 19,345 | |
Total | $ | 111,019 |
(b) The Company has entered into contracts with service providers to pay for the services partly by cash and partly by issuance of common stock of the Company when the common stock are freely trading in the equity market. As at March 31, 2002, 156,343 shares of common stock of the Company are to be issued for services received.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDARIES
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2002
(Unaudited)
(Expressed in US Dollars)
12. Stock Option
The following is a summary of the stock option outstanding as at March 31, 2002:
Shares | Weighted Average Exercise Price | |
Options outstanding at December 31, 2001 | 25,000 | $ 1.00 |
Granted | - | - |
Options outstanding at March 31, 2002 | 25,000 | $ 1.00 |
Options Outstanding and Exercisable | |||
Range of Exercise Prices | Number Outstanding and Exercisable | Weighted Average Remaining Contractual Life |
|
$1.00 | 25,000 | 2.12 | $1.00 |
13. Comparative Figures
Certain 2001 comparative figures have been reclassified to conform with the financial statement presentation adopted for 2002.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis of the Company should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this quarterly report for the three months ended March 31, 2002. This quarterly report contains certain forward-looking statements and the Company's future operation results could differ materially from those discussed herein.
We were incorporated on October 29, 1999 under the laws of the State of Nevada as Triple 8 Development Corporation to engage in any lawful corporate purpose. We changed our name to CYOP Systems International Incorporated on November 2, 2000.
We have not been involved in any bankruptcy, receivership or similar proceedings.
CYOP Systems International Incorporated is the parent company in our corporate structure. We own 100% of the common shares of CYOP Systems Inc., a Barbados company, which in turn owns 100% of the issued common shares of Moshpit Entertainment Inc. Moshpit Entertainment Inc. is a British Columbia company, which conducts all of our product development. Moshpit is a developer and provider of multimedia transactional technology solutions and services for the entertainment industry. Moshpit'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
The quarter has been a trying one for the Company. Commitments for funding that went unfulfilled resulted in the need to reconfigure operations, reducing staff levels from 19 to 11. Limited capital availability due to the downturn in the Internet and technology sectors meant that the Company was forced to reduce its staff to core personnel in order to continue to operate
We anticipate maintaining our staff of 11 persons during the next 12 months. We do not expect to acquire any material physical assets or significant equipment in the next 12 months. We will not be performing any significant research and development in the next 12 months as our pay for play software is complete and tested.
Management will continue to fund the Company through shareholders' loans until such time as the Company is financially self-supporting. Management of the Company will be aggressively seeking private financing to launch an aggressive marketing campaign for our pay for play network and our flagship video game Urban Mercenary.
In order for our Company to expand it's operations and realize profits from pay for play online video gaming a number of additional steps must be taken. We must continue to maintain and upgrade our software programs and our website. This is an ongoing month-to-month responsibility, which is handled by our current staff members. Funds for this ongoing software maintenance have been budgeted and are covered by funds, which are being loaned to our Company by management. In the future, the funds required for ongoing software maintenance will come from revenue from licensing fees or system maintenance fees from pay for play video gaming. Secondly, to increase our Company's exposure and attract players to our website we will be required to complete a full marketing launch. 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 that already have an established community and significant traffics to their web sites. We will also continue to pursue our pending patent applications in the United States. Patent protection will improve our competitive position in the online pay for play video gaming industry. We anticipate spending up to an additional $25,000
for costs associated with our patent applications. We anticipate it may take up to one year for our current patent applications to be granted.
Liquidity and Capital Resources
At March 31, 2002 the Company had a working capital deficit of ($1,378,794) compared to a working capital deficit of ($1,925,366) to satisfy requirements for operations for the same period ending March 31, 2001. Although this is a material improvement for the same period ending March 31, 2001 no assurances can be given that the Company will successful in realizing sufficient funding to continue operations. Based on the cost reduction plan the Company has been successful in significantly reducing operating costs period over period beginning with the third quarter end in 2001. While development of the Crediplay system is complete and operational very little cash is available to begin the process of marketing and promoting the Crediplay system.
Deterioration of funding sources for internet based businesses has continued into the calendar year 2002 creating financial stresses for the Company. Operations have continued with funding from management. The Company plans to raise capital during the second quarter of 2002.
The Company's consolidated financial statements have been prepared on a continuing operation basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
Management recognizes that the Company must generate additional investment in a timely manner to maintain operations. The Company plans to seek private placements of equity capital to fund its operations but has no commitments at date of this report for funding.
As of March 31, 2002, there were no material commitments for capital expenditures.
Results of operations for the quarter ended March 31, 2002 as compared to the quarter ended March 31, 2001.
During the quarter ended March 31, 2002 the Company generated revenue of $273,062 primarily from the development contract with Bingo.com. Although $15,210 is directly related to the Crediplay system and Network Maintenance Fees. The same period ending March 31, 2001 generated no revenues as the Crediplay system was still in development stages. The majority of the above revenues, $258,000 is a result of a development contract with Bingo.com and the company does not consider that the associated web development service is their core business. The Company had general and administrative expenses of $169,200 in 2002 compared with $590,905 in 2000, inclusive of software development costs of $94,368 and $287,238 respectively. The company's main expense during these periods is software development costs.
The Company incurred a loss on operations of ($35,042) in 2002 compared to ($590,905) in 2001, or ($0.00) per share and ($0.03) per share respectively. The improved loss position is a result of a decrease of total expenses and no revenue in 2000.
"CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters, the matters discussed in this Form 10-QSB are forward-looking statements based on current expectations and involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements under the following heading: "Managements Discussion And Analysis Or Plan Of Operations" the timing and expected profitable results of sales and the need for no additional financing.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
Dated: June 6, 2002 Per: /s/Mitch White
Mitch White, President, C.F.O. and Director