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 JUNE 30, 2001
Commission file Number: 333-35762
CYOP SYSTEMS INTERNATIONAL INCORPORATED
(Exact name of small business issuer as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
98-0222927
(I.R.S. Employer Identification Number)
Suite 300
1286 Homer Street
Vancouver, British Columbia
V6B 2Y5
(Address of principal executive offices)
(604)647-6400
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 28,439,975 common shares as at June
30, 2001
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
CYOP SYSTEMS INTERNATIONAL INCORORATED
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of December 31, 2000 and June 30, 2001
Statement of Operations for the period ended
June 30, 2001
Consolidated Statements of Cash Flows for the period ended
June 30, 2001
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
Item 2 Plan of Operation
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8K
SIGNATURES
CYOP SYSTEMS INTERNATIONAL
INCORPORATED & SUBSIDIARIES
(A development stage company)
Consolidated Financial Statements
(EXPRESSED IN U.S. DOLLARS)
June 30, 2001
(Unaudited)
INDEX
-----
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements 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 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 737-8117 Facsimile: (604) 714-5916
E-Mail: generaldelivery@ellisfoster.bc.ca
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
CYOP SYSTEMS INTERNATIONAL INCORPORATED
(A development stage company)
We have reviewed the accompanying consolidated balance sheet of CYOP Systems
International Incorporated ("the Company") and subsidiaries as of June 30, 2001,
the related consolidated statements of stockholders' equity for the six-month
period then ended, and the consolidated statements of operations and cash flows
for the three-month and the six-month periods then ended and the cumulative
period from October 1, 1999 (commencement) to June 30, 2001. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles in the United States.
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.
We have previously audited, in accordance with generally accepted auditing
standards in the United States, the consolidated balance sheet as at December
31, 2000 and the related consolidated statements of operations, shareholders'
equity and its cash flows for the cumulative period and the year then ended (not
presented herein) and in our report dated June 4, 2001, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as at
December 31, 2000 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD."
September 18, 2001 Chartered Accountants
--------------------------------------------------------------------------------
[LOGO]
An independently owned and operated member of Moore Stephens North America Inc.
Member in principal cities throughout North America. Moore Stephens North
America Inc. is a member of Moore Stephens International Limited, members in
principal cities throughout the world
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Balance Sheets
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
===========================================================================================================
June 30 December 31
2001 2000
-----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 4,751 $ 29,480
Deposits (Note 4) 27,006 1,333
Other receivable 20,035 --
Refundable tax credits 11,785 16,808
Demand loans, interest at 12% per annum and unsecured 115,704 --
Prepaid expenses 39,506 49,659
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 218,787 97,280
FIXED ASSETS (NOTE 5) 166,745 236,246
SOFTWARE DEVELOPMENT COSTS (NOTE 6) 100 100
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 385,632 $ 333,626
===========================================================================================================
LIABILITIES
CURRENT
Bank overdraft 16,816 $ --
Demand loans (Note 7a and 8e) 1,474,217 1,177,805
Accounts payable and accrued liabilities (Note 8a) 751,401 433,062
Short-term loan (Note 7b) 226,388 --
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,468,822 1,610,867
-----------------------------------------------------------------------------------------------------------
NATURE AND CONTINUANCE OF OPERATIONS (NOTE 1)
COMMITMENTS (NOTE 9)
STOCKHOLDERS' (DEFICIENCY)
SHARE CAPITAL
Authorized:
100,000,000 shares of common stock with a par value
of $0.0001 per share
Issued, allotted and outstanding:
28,439,975 shares of common stock (2000 - 28,382,975) 2,844 2,838
ADDITIONAL PAID-IN CAPITAL 211,431 149,237
ACCUMULATED OTHER COMPREHENSIVE INCOME 16,649 14,801
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (2,314,114) (1,444,117)
-----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' (DEFICIENCY) (2,083,190) (1,277,241)
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) 385,632 $ 333,626
===========================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
On behalf of the Board:
/s/Mitch White, Director
Mitch White, Director
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Statements of Stockholders' Deficiency
Six-Month Period Ended June 30, 2001
(Unaudited) Page 1 of 2
(Expressed in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Compre- other
Common Stock Additional hensive compre-
--------------------- paid-in income Deficit hensive
Shares Amount capital (loss) accumulated income
------------------------------------------------------------------------------------------------------------------------------------
Recapitalization as a result of reverse
acquisition (Note 3) -- $ -- $ 69 $ (67,863) $ (66,465) $ (1,398)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (67,863)
===========
BALANCE, December 31, 1999 -- -- 69 (66,465) (1,398)
Shares issued for cash on
February 29, 2000 10,020,500 1,002 1,448 -- --
Shares issued for services on
February 29, 2000 9,202,500 920 1,330 -- --
Deficit accumulated as at November 3, 2000 -- -- -- (14,401) --
Recapitalization adjustment (Note 3) -- (2,968) 14,401 --
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AFTER RECAPITALIZATION ADJUSTMENT 19,223,000 1,922 (121) (66,465) (1,398)
Shares allotted for equity of shell
in stock acquisition (Note 3) 9,000,000 900 (10,601) -- -- --
Shares allotted for cash on December 13, 2000 159,975 16 159,959 -- -- --
Other comprehensive income
- foreign currency translation adjustment -- -- -- 16,199 -- 16,199
Comprehensive income
- net (loss) for the period -- -- -- (1,377,652) (1,377,652) --
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $(1,361,453)
===========
BALANCE, December 31, 2000 28,382,975 2,838 149,237 (1,444,117) $ 14,801
------------------------------------------------------------------------------------------------------------------------------------
Total
Stock-
holders'
(deficiency)
Recapitalization as a result of reverse
acquisition (Note 3) $ (67,794)
---------------------------------------------------------------
Comprehensive income (loss)
BALANCE, December 31, 1999 (67,794)
Shares issued for cash on
February 29, 2000 2,450
Shares issued for services on
February 29, 2000 2,250
Deficit accumulated as at November 3, 2000 (14,401)
Recapitalization adjustment (Note 3) 11,433
---------------------------------------------------------------
BALANCE AFTER RECAPITALIZATION ADJUSTMENT (66,062)
Shares allotted for equity of shell
in stock acquisition (Note 3) (9,701)
Shares allotted for cash on December 13, 2000 159,975
Other comprehensive income
- foreign currency translation adjustment 16,199
Comprehensive income
- net (loss) for the period (1,377,652)
---------------------------------------------------------------
Comprehensive income (loss)
BALANCE, December 31, 2000 $(1,277,241)
---------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Statements of Stockholders' Deficiency
Six-month Period Ended June 30, 2001
(Unaudited) Page 2 of 2
(Expressed in U.S. Dollars)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Compre- other Total
Common Stock Additional hensive compre- Stock-
------------------ paid-in income Deficit hensive holders'
Shares Amount capital (loss) accumulated income (deficiency)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2000 28,382,975 2,838 149,237 (1,444,117) 14,801 (1,277,241)
Shares allotted for cash at $1.00 per share 44,000 5 43,995 -- -- 44,000
Shares allotted for cash at $1.40 per share 13,000 1 18,199 -- -- 18,200
Other comprehensive income
- foreign currency translation adjustment -- -- -- $ 1,848 -- 1,848 1,848
Comprehensive income
- net (loss) for the period -- (869,997) (869,997) -- (869,997)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (868,149)
==========
Balance, June 30, 2001 28,439,975 $2,844 $211,431 $(2,314,114) $16,649 $(2,083,190)
============================================================================= ======================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Statements of Operations
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
===============================================================================================================
Three Months Six Months Cumulative from
Ended Ended October 1, 1999
June 30 June 30 to June 30
2001 2001 2001
---------------------------------------------------------------------------------------------------------------
EXPENSES
Accounting and audit $ 10,938 $ 25,084 $ 89,482
Advertising and promotion 11,457 100,615 176,402
Automobile 15,735 29,656 63,260
Bank charges and interest (Note 8c) 41,785 67,696 121,997
Depreciation of fixed assets 2,036 3,690 11,095
Legal and other professional fees 43,287 73,852 193,572
Office and miscellaneous 20,363 46,459 110,099
Rent 17,873 34,659 63,127
Salaries and benefits 42,935 74,711 249,749
Software development costs (Note 6) 71,621 358,859 1,137,107
Telephone and bandwidth 4,159 6,544 22,780
Travel 5,133 6,903 21,241
Foreign exchange (gain) loss (40,983) 9,216 22,150
---------------------------------------------------------------------------------------------------------------
OPERATING LOSS (246,339) (837,944) (2,282,061)
Leasehold improvements write off 31,725 31,725 31,725
Loss on disposal of fixed assets 328 328 328
---------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (278,392) $ (869,997) $(2,314,114)
===============================================================================================================
LOSS PER SHARE
Basic and diluted $ (0.01) $ (0.03)
===============================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted 28,437,213 28,426,776
===============================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
====================================================================================================================================
Three Months Six Months Cumulative from
Ended Ended October 1, 1999
June 30 June 30 to June 30
2001 2001 2001
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net (loss) for the period $ (278,392) $ (869,997) $(2,314,114)
Adjustments to reconcile net loss to net cash
used in operating activities:
- depreciation of fixed assets 17,200 33,739 76,471
- fixed assets write off 31,725 31,725 31,725
- loss on disposal of fixed assets 328 328 328
- exchange (gain) loss on fixed assets (8,149) 3,089 3,089
-------------------------------------------------------------------------------------------------------------------------------
(237,288) (801,116) (2,202,501)
Changes in assets and liabilities:
- deposits (1,085) (25,673) (25,673)
- other receivable (20,035) (20,035) (20,035)
- refundable tax credits 10,579 5,023 (11,785)
- demand loans (115,704) (115,704) (115,704)
- prepaid expenses (6,565) 10,153 (40,839)
- accounts payable and accrued liabilities 158,961 318,339 743,432
-------------------------------------------------------------------------------------------------------------------------------
(211,137) (629,013) (1,673,105)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capitalized software development costs -- -- (100)
Disposal of fixed assets 6,806 6,806 6,806
Purchase of fixed assets -- (6,186) (285,164)
-------------------------------------------------------------------------------------------------------------------------------
6,806 620 (278,458)
-------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Shares allotted for cash 11,300 82,200 242,244
Cancellation of shares allotted (20,000) (20,000) (20,000)
Proceeds from demand loans 68,880 296,412 1,474,217
Proceeds from short-term loans 226,388 226,388 226,388
-------------------------------------------------------------------------------------------------------------------------------
286,568 585,000 1,922,849
-------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE ON FOREIGN CURRENCY TRANSLATION (85,487) 1,848 16,649
-------------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,250) (41,545) (12,065)
CASH AND CASH EQUIVALENTS (DEFICIENCY),
beginning of period (8,815) 29,480 --
-------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS (DEFICIENCY), end of period $ (12,065) $ (12,065) $ (12,065)
===============================================================================================================================
CASH AND CASH EQUIVALENTS (DEFICIENCY)
REPRESENTED BY:
Cash $ 4,751 $ 4,751 $ 4,751
Bank overdraft (16,816) (16,816) (16,816)
-------------------------------------------------------------------------------------------------------------------------------
$ (12,065) $ (12,065) $ (12,065)
===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(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 (see Note 3). The efforts of the Company have been
devoted to sales and marketing of multimedia transactional technology
solutions and services on internet for the entertainment industry. In
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 7 "Accounting and Reporting by Development Stage Companies", the
Company is deemed to be in the Development Stage.
CYOP Barbados was incorporated under the laws of Barbados on June 20,
2000. CYOP Barbados is in the business of developing personal computer
and console entertainment software designed to provide interactive
online games, and development of multimedia transactional technology
solutions and services on internet for the entertainment industry. On
August 31, 2000, CYOP Barbados acquired 100% of the issued and
outstanding shares of Moshpit Entertainment Inc., Canada ("Moshpit"), a
company in the business of developing software for interactive online
games incorporated under the laws of British Columbia, Canada. Both
CYOP Barbados and Moshpit are considered to be in the development
stage.
These consolidated financial statements have been prepared using the
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The
Company has suffered recurring losses from operations and has a net
capital deficiency. The ability of the Company to continue as a going
concern is dependent upon many factors, including the ability of the
Company to obtain financing to fund working capital requirements, the
degree of competition encountered by the Company, technology risks,
government regulation and general economic conditions. The Management's
plan in this regard are to raise equity financing as required and keep
abreast of the multimedia technology. These financial statements do not
include any adjustments that might result from this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
These interim consolidated financial statements, prepared in
accordance with accounting principles generally accepted in
the United States of America, include the accounts of the
Company and its subsidiaries CYOP Barbados and Moshpit.
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Basis of Consolidation (continued)
The consolidated balance sheets, as at June 30, 2001 and
December 31, 2000 include the assets and liabilities of the
Company, CYOP Barbados and Moshpit. The consolidated
statements of operations for the three-month and the six-month
periods ended June 30, 2001 and the cumulative period from
October 1, 1999 (commencement) to June 30, 2001 include the
operating results of the Company, CYOP Barbados and Moshpit
for the periods and cumulative period then ended. Significant
inter-company accounts and transactions have been eliminated.
(b) Basis of Presentation
These interim consolidated financial statements have been
prepared using the same accounting policies and methods of
their application as the most recent annual consolidated
financial statements of the Company. These interim
consolidated financial statements do not include all
disclosures normally provided in the annual consolidated
financial statements and should be read in conjunction with
the Company's audited consolidated financial statements for
the year ended December 31, 2000. In management's opinion, all
adjustments necessary for fair presentation have been included
in these interim consolidated financial statements. Interim
results are not necessary indicative of the results expected
for the fiscal year. Certain comparative figures have been
reclassified to conform to the current period's presentation.
(c) Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the
period. Actual results may differ from those estimates.
(d) Cash Equivalents
Cash equivalents usually consist of highly liquid investments
which are readily convertible into cash with maturities of
three months or less when purchased. As at June 30, 2001 and
December 31, 2000, cash and cash equivalents consist of cash
only.
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Fixed Assets
Fixed assets are recorded at historical cost. Depreciation is
charged to earnings in amounts sufficient to allocate the
costs over their estimated useful lives, as follows:
Audio and visual equipment 20% declining-balance basis
Computer hardware 30% declining-balance basis
Computer software 100% declining-balance basis
Office furniture and equipment 20% declining-balance basis
Leasehold improvements 20% straight-line basis
(f) Software Development Costs
Software development costs are charged to expenses as
incurred.
(g) Advertising and Promotion
The Company expenses advertising and promotion costs as
incurred. Total advertising and promotion costs charged to
expenses for the six months ended June 30, 2001 amounted to
$100,615.
(h) Foreign Currency Transactions
The Company and CYOP Barbados maintain their accounting
records in their functional currency (i.e., US dollars).
Foreign currency transactions are translated into their
functional currency in the following manner.
At the transaction date, each asset, liability, revenue and
expense is translated into the functional currency by the use
of the exchange rate in effect at that date. At the period
end, monetary assets and liabilities are translated into the
functional currency by using the exchange rate in effect at
that date. The resulting foreign exchange gains and losses are
included in operations.
(i) Foreign Currency Translations
Assets and liabilities of Moshpit, whose functional currency
is Canadian dollars, are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Revenues
and expenses are translated at the average exchange rate. Gain
and losses from such translations are included in
stockholders' equity, as a component of other comprehensive
income.
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(j) Income Taxes
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which requires the Company to recognize deferred tax
liabilities and assets for the expected future tax
consequences of events that have been recognized in the
Company's financial statements or tax returns using the
liability method. Under this method, deferred tax liabilities
and assets are determined based on the temporary differences
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. The effect on
deferred income tax assets and liabilities of a change in
income tax rates is included in the period that includes the
enactment date.
(k) Impairment
Certain long-term assets of the Company are reviewed when
changes in circumstances require as to whether their carrying
value has become impaired, pursuant to guidance established in
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". Management considers
assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations. If impairment is
deemed to exist, the assets will be written down to fair
value.
(l) Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display
of comprehensive income, its components and accumulated
balances. The Company is disclosing this information on its
consolidated Statement of Stockholders' Equity. Comprehensive
income comprises equity except those resulting from
investments by owners and distributions to owners. SFAS NO.
130 did not change the current accounting treatments for
components of comprehensive income.
(m) Financial Instruments and Concentration of Risks
Fair value of financial instruments are made at a specific
point in time, based on relevant information about financial
markets and specific financial instruments. As these estimates
are subjective in nature, involving uncertainties and matters
of significant judgement, they cannot be determined with
precision. Changes in assumptions can significantly affect
estimated fair values.
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) Financial Instruments and Concentration of Risks (continued)
The carrying value of cash and cash equivalents, deposits,
other receivable, refundable tax credits, demand loans
receivable, bank overdraft, demand loans payable, accounts
payable and accrued liabilities and short-term loans
approximate their fair values because of the short-term
maturity of these instruments.
Moshpit is operating in Canada, which may give rise to
significant foreign currency risks from fluctuations and the
degree of volatility of foreign exchange rates between U.S.
dollars and the Canadian dollars.
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash, the
balances of which are stated on the balance sheet. The Company
places its cash in high credit quality financial institutions.
The Company does not require collateral or other security to
support financial instruments subject to credit risk.
(n) Reporting on Costs of Start-Up Activities
The Company has adopted the Statement of Position 98-5 ("SOP
98-5") "Reporting on the Costs of Start-Up Activities" issued
by the American Institute of Certified Public Accountants on
the financial reporting of start-up costs and organization
costs. It requires costs to be expensed as incurred.
The Company charged all start-up costs to expenses as
incurred.
(o) Accounting for Derivative Instruments and Hedging Activities
The Company has adopted SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" issued by the
Financial Accounting Standards Board. SFAS No. 133 requires
companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them
at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in
the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning
after June 15, 2000.
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) Net Income (Loss) Per Share
Basic net income (loss) per share are computed using the
weighted-average number of shares of common stock outstanding
during the period. Diluted net income (loss) per share
incorporate the incremental shares issuable upon the assumed
exercise of stock options and other dilutive securities.
Convertible loan and option to purchase 45,000 shares of
common stock outstanding during the three-month and six-month
period ended June 30, 2001 were not included in the net income
(loss) per share computation, as the effect of including them
would be anti-dilutive.
(q) Stock-based Compensation
The Company has adopted the disclosure-only provisions of SFAS
No. 123, "Accounting for Stock-based Compensation". SFAS 123
encourages, but does not require, companies to adopt a fair
value based method for determining expense related to
stock-based compensation. The Company accounts for stock-based
compensation issued to employees and directors using the
intrinsic value method as prescribed under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations.
3. ACQUISITION OF CYOP SYSTEMS INC., BARBADOS
On November 3, 2000, the Company acquired 100% of the issued and
outstanding common shares of CYOP Barbados. As the Company was a
non-operating shell company, the transaction resulted in the management
of CYOP Barbados having effective operating control of the combined
company, with the shareholders of the Company continuing only as
passive investors. Accounting principles applicable to reverse
acquisition recapitalization have been applied to record this
transaction. Under this basis of accounting, CYOP Barbados has been
identified as the acquirer and, accordingly, the combined company is
considered to be a continuation of the operations of CYOP Barbados with
the net liabilities of the Company deemed to have been assumed by CYOP
Barbados.
The net liabilities of the Company assumed by CYOP Barbados are
summarized as follows:
---------------------------------------------------
Current assets $ 2,399
Current liabilities (12,100)
---------------------------------------------------
Net liabilities assumed $ (9,701)
===================================================
4. DEPOSITS
The deposits are interest bearing at 4.2% per annum, and are
hypothecated for merchant visa accounts.
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
5. FIXED ASSETS
-----------------------------------------------------------------------
June 30, 2001
-----------------------------------------------------------------------
Accumulated Net book
Cost depreciation Value
-----------------------------------------------------------------------
Audio and visual equipment $ 22,207 $ 4,222 $ 17,985
Computer hardware 199,861 60,371 139,490
Computer software 3,251 2,240 1,011
Office furniture and equipment 9,891 1,632 8,259
-----------------------------------------------------------------------
Total $235,210 $ 68,465 $166,745
=======================================================================
-----------------------------------------------------------------------
December 31, 2000
-----------------------------------------------------------------------
Accumulated Net book
Cost depreciation Value
-----------------------------------------------------------------------
Audio and visual equipment $ 22,411 $ 2,241 $ 20,170
Computer hardware 204,682 33,549 171,133
Computer software 3,280 1,640 1,640
Office furniture and equipment 9,982 1,043 8,939
Leasehold improvements 38,182 3,818 34,364
-----------------------------------------------------------------------
Total $ 278,537 $ 42,291 $236,246
-----------------------------------------------------------------------
-----------------------------------------------------------------------
For the six months ended June 30, 2001, depreciation expenses of
$33,739 were charged to expenses.
6. Software Development Costs
-----------------------------------------------------------------------
June 30 December 31
2001 2000
-----------------------------------------------------------------------
Balance, beginning of period $ 100 $ 100
Salaries and benefits 387,453 715,198
Depreciation on fixed assets 30,049 33,622
Expense recoveries (58,643) --
-----------------------------------------------------------------------
358,959 748,920
Software development costs charged to expenses (358,859) (748,820)
-----------------------------------------------------------------------
Balance, end of period $ 100 $ 100
-----------------------------------------------------------------------
-----------------------------------------------------------------------
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
7. LOANS
(a) Demand loans
--------------------------------------------------------------------------------------------------------
June 30 December 31
2001 2000
--------------------------------------------------------------------------------------------------------
i. Interest at the Bank of Montreal's prime lending
rate of 6.0% plus 1.5% per annum and unsecured:
- Mitchell White - director: Cdn$1,122,493 $ 725,054 $ 428,642
(2000:Cdn$643,048)
- Greenday Inc. - shareholder 296,487 296,487
- Cyber Roads Inc. 178,519 178,519
- Tapijkabouter BV 99,157 99,157
--------------------------------------------------------------------------------------------------------
1,299,217 1,002,805
ii. Interest at the Hongkong Bank of Canada's
prime lending rate of 6.0% plus 1% per annum and
unsecured:
- Ameera Group Inc. 75,000 75,000
iii. Non-interest bearing and unsecured:
- Tapijkabouter BV 100,000 100,000
--------------------------------------------------------------------------------------------------------
$ 1,474,217 $ 1,177,805
========================================================================================================
(b) Short-term loan
--------------------------------------------------------------------------------------------------------
June 30 December 31
2001 2000
--------------------------------------------------------------------------------------------------------
i. Interest at 40% per annum, due on July 25, 2001,
convertible to 20,000 shares of common stock of the
Company at due date:
- Kornfeld MacOff (Cdn$25,000) $ 16,513 $ --
ii. Interest at 10% per annum, due on June 1, 2002:
- RedRuth Ventures 209,875 --
--------------------------------------------------------------------------------------------------------
$ 226,388 $ --
========================================================================================================
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the consolidated
financial statements are as follows:
(a) Accounts payable and accrued liabilities include $73,342
interest accrued to a director and a shareholder of the
Company.
(b) Accounting fees of $10,338 were paid to a company controlled
by individuals related to a director of the Company and were
charged to expenses.
(c) Interest expenses of $33,059 were accrued to a director and a
shareholder of the Company and were charged to expenses.
(d) Professional fees of $5,000 were paid to an individual related
to a director of the Company and were charged to expenses.
(e) Demand loans include $1,021,541 due to a director and a
shareholder of the Company. These demand loans bear interests
at the Bank of Montreal's prime lending rate of 6.0% plus 1.5%
per annum and are unsecured (see Note 7ai).
9. COMMITMENTS
(a) Moshpit has entered into lease contracts for automobiles and
computer equipment with minimum lease payments for the year
ending December 31st, as follows:
-------------------------------------
2001 $ 35,135
2002 92,938
2003 81,759
2004 20,351
-------------------------------------
Total $ 230,183
=====================================
(b) The Company has entered into contracts with service providers
to pay for the services received partly by cash and partly by
issuance of common stock of the Company when the common stock
are freely trading in the equity market. As at June 30, 2001,
33,705 shares of common stock of the Company are to be issued
for services received.
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
10. INCOME TAXES
(a) A reconciliation of the statutory income tax to the Company's
effective income tax rate is as follows:
----------------------------------------------
Statutory income tax rate 15%
Tax losses not benefited (15%)
----------------------------------------------
Effective income tax rate --
==============================================
(b) The tax effect of temporary differences that give rise to the
Company's deferred tax assets (liabilities) are as follows:
-----------------------------------------------------------------------------------------
Undepreciated capital cost of capital assets over their net book value $ 20,000
Estimated tax loss carryforwards 969,000
Less: valuation allowance (989,000)
-----------------------------------------------------------------------------------------
$ --
=========================================================================================
The valuation allowance reflects the Company's estimate that
the tax assets, more likely than not, will not be realized.
As at June 30, 2001, the Company has non-capital losses of
approximately $2,176,000 which can be carried forward for tax
purposes and are available to reduce taxable income of future
years. The non-capital losses expire commencing in 2006
through 2008.
11. STOCK OPTION
On May 8, 2001, the Company granted a stock option to a service
provider to acquire 25,000 shares of common stock at a price of US$1
per share. The stock option expires on May 9, 2004.
MOORE STEPHENS ELLIS FOSTER LTD.
CYOP SYSTEMS INTERNATIONAL INCORPORATED
& SUBSIDIARIES
(A development stage company)
Notes to Consolidated Financial Statements
June 30, 2001
(Unaudited)
(EXPRESSED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
12. SEGMENTED INFORMATION
(a) Industry Information
The Company operates in one reportable operating segment,
being in the developing and providing multimedia transactional
technology solutions and services on internet for the
entertainment industry.
(b) Geographic Information
All the Company's operations and fixed assets are located in
Canada.
13. SUBSEQUENT EVENTS
The short-term loan of $16,513 (Cdn$25,000) due on July 25, 2001 was
extended to January 25, 2002 with interest rate at 40% per annum,
convertible to 20,000 shares of common stock of the Company at due date
(Note 7bi).
14. COMPARATIVE FIGURES
Certain 2000 comparative figures have been reclassified to conform with
the financial statement presentation adopted for 2001.
MOORE STEPHENS ELLIS FOSTER LTD.
PLAN OF OPERATIONS
The following discussion of the plan of operations of the Company should be read
in conjunction with the financial statements and the related notes thereto
included elsewhere in this quarterly report for the six months ended June 30,
2001. This quarterly report contains certain forward-looking statements and the
Company's future operation results could differ materially from those discussed
herein.
In the three months ended June 30, 2001, we earned revenue of US$58,643 from
website development. This is not our core business. We have been primarily
focused on developing our product for market launch. Management has financed our
operations to date. Management will continue to fund our operations through
shareholders loans for the next 12 months or until such time as we are able to
raise equity or debt financing privately, through a public listing, or until we
have positive cash flow. We can satisfy our cash requirements solely from funds
loaned by management for approximately 12 months. However, management is not
under any contractual obligation to provide continued funding. We will spend
approximately $2 million in additional capital in the next 12 months to maintain
current operations at our current expenditure rate. Additional funds in the
amount of $500,000 will be required for a complete launch of the Bloodmoney
Universe including a full marketing budget.
We anticipate maintaining our staff of 19 persons during the next 12 months. We
do not expect to acquire any material physical assets or significant equipment
in the next 12 months. We will not be performing any significant research and
development in the next 12 months as our pay for play software is complete and
tested.
We launched our first pay-for-play online video game, Urban Mercenary in
February, 2001. In March, 2001, the Company secured the Canadian Imperial Bank
of Commerce as the Company's merchant account processor. Also in March, 2001,
the Company hosted a trade booth at the Computer Gamers and Developers
Conference (CDGC) in California. The Company signed seven letters of intent with
game developers as a result of its exposure at the CDGC conference.
In June, 2001, we signed a licensing contract with Bingo.com. This contract
calls for our company to provide front end game development and site management.
It is also a licensing agreement under which Bingo.com will use our pay for play
transaction software. Bingo.com has approximately 700,000 members playing bingo
online. Bingo.com has devised a new format for bingo which is a skill based game
and not a game of chance. The Bingo.com site will begin using CYOP's pay for
play transaction software commencing in October, 2001.
The Company's agreement with Bingo.com generated revenue of US$58,643 for the
fiscal quarter ended June 30, 2001. This revenue was from web site development
which will be a sporadic source of revenue for the Company. This revenue has
been treated as a software development cost expense recovery in the Company's
June 30, 2001 financial statements. This treatment has been applied because the
revenue received by the Company in the quarter ended June 30, 2001 was not
considered revenue from the Company's core business. The Company's online video
game Urban Mercenary is completely developed as is our pay for play transaction
software. Our agreement with Bingo.com is the first which will demonstrate the
effectiveness of our e-commerce pay for play platform with third party
licensees.
Management will continue to fund the Company through shareholders' loans until
such time as the Company is financially self supporting. Management of the
Company will be aggressively
seeking private financing to launch an aggressive marketing campaign for our pay
for play network and our flagship video game Urban Mercenary.
In order for our Company to expand it's operations and realize profits from pay
for play online video gaming a number of additional steps must be taken. We must
continue to maintain and upgrade our software programs and our website. This is
an ongoing month to month responsibility which is handled by our current staff
members. Funds for this ongoing software maintenance have been budgeted and are
covered by funds which are being loaned to our Company by management. In the
future, the funds required for ongoing software maintenance will come from
revenue from licensing fees or system maintenance fees from pay for play video
gaming. Secondly, to increase our Company's exposure and attract players to our
website we will be required to complete a full marketing launch of our
Bloodmoney Universe. We anticipate that this marketing launch will cost
approximately $500,000. Until we complete a marketing launch we cannot expect
large volumes of players for our online pay for play video game. Revenues will
be derived from licensing fees from third parties. We will also continue to
pursue our pending patent applications in the United States. Patent protection
will improve our competitive position in the online pay for play video gaming
industry. We anticipate spending up to an additional $25,000 for costs
associated with our patent applications. We anticipate it may take up to one
year for our current patent applications to be granted.
"CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters,
the matters discussed in this Form 10-QSB are forward-looking statements based
on current expectations and involve risks and uncertainties. Forward-looking
statements include, but are not limited to, statements under the following
heading: "Managements Discussion And Analysis Or Plan Of Operations" the timing
and expected profitable results of sales and the need for no additional
financing.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5 OTHER INFORMATION
None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
We filed a Form 8-K on June 13, 2001 changing our
fiscal year end from October 31 to December 31.
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: October 16, 2001 Per: /s/Mitch White
------------------------------------
Mitch White, President and Director