UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB



[xx]

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004



[   ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____



Commission file Number:  000-32355



CYOP SYSTEMS INTERNATIONAL INCORPORATED

(Name of small business issuer in its charter)

Nevada

(State or other jurisdiction of incorporation or organization)



98-0222927

(I.R.S. Employer Identification Number)



Unit A

149 South Reeves Drive

Beverly Hills, California

90212

(Address of principal executive offices)

(310) 248-4860

(Issuer's telephone number)



Securities registered under Section 12(b) of the Exchange Act:

None



Securities registered under Section 12(g) of the Exchange Act:

Common Shares



Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [ X ] Yes  [   ] No



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.

[ X ]



The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $2,000,000 based on the closing trade reported on the OTC BB. Shares of common stock held by each officer and director and by each person who owns five percent or more of the outstanding common stock have been excluded from this calculation as such person may be considered to be affiliated with the Company. As of February 28, 2005, the number of shares outstanding of the registrant's Common Stock was 318,498,160.



Transitional Small Business Disclosure Format (Check one):  Yes ____; No __X__







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TABLE OF CONTENTS



PART I
   
   3Item 1.
   Business
   3Item 2.
   Properties
   9Item 3.
   Legal Proceedings
   9Item 4.
   Submission of Matters to a Vote of Security Holders
   10PART II
   
   10Item 5.
   Market for Registrants Equity and Related Stockholder Matters snd Issuer Purchases ofEquity Securities
   10Item 6.
   Selected Financial Data
   10Item 7.
   Managements discussion and analysis of Financial Condition and Results of
    Operations
   11Item 7A.
   Quantitative and Qualitative Disclosures about market risk
   14Item 8.
   Financial Statements
   14Item 9.
   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
   21Item 9A.
   Controls and Procedures
   21PART III
   
   21Item 10.
   Directors and Executive Officers of the Registrant
   21Item 11.
   Executive Compensation
   24Item 12.
   Security Ownership of Certain Beneficial owners and Management
   25Item 13.
   Certain Relationships and Related Transactions
   26Item 14.
   Principal Accounting Fees and Services
   26PART IV
   
   26Item 15.
   Exhibits, List and Reports on Form 8-K.
   26








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PART I



Item 1.  Business



CYOP Systems develops and distributes financial transaction platforms.  The branded platform is CrediPlay.  The Company licenses the software to gaming communities and portals to offer additional revenue sources through pay-for-play tournaments of skill and markets the company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.



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.



1.

CYOP also owns and operate 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. CYOP provides games from such publishers as ATARI.



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 the Company, game developers and game server operators.  Tournaments may only last ten minutes.  Thousands of members playing hundreds of tournaments can generate significant revenues through the Network Maintenance Fee.



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



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.  The Company also licenses gaming software on an  annual fee basis, and only pays a percentage to these types of game developers at pre-determined thresholds of revenue generated.



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.



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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.



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:



1.

Hand-eye coordination

2.

Reaction time

3.

Dexterity

4.

Spatial memory

5.

Long-term memory

6.

Pattern recognition

7.

Organizational skills

8.

Strategic planning

9.

Game play knowledge, general knowledge and intelligence



Legality



To ensure that the company 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 have been likened to Peer-to-Peer wagering in that the Player is not 'wagering' against the house for a prize.  This is not all together true, and a better example follows. Think of it like this...four buddies play 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.



The company does not profit from the size of a players wager on his or her own skills. The company 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 the company 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, the company 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 two core revenue streams: 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.  A breakdown of our revenue to date by core revenue stream is provided below.



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Credit Card Processing Fees



Our transaction network receives credit card processing fees for every deposit of cash into a member's financial account.  This e-commerce transactional network is also the backbone for additional ventures, which stem from the crediplay network.



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.  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.   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. Those are our primary targets.  The company is targeting potential licensees because:



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



1.

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

2.

Existing databases  these sites have developed large databases of members with sophisticated information

3.

Software built in English  CrediPlay has been designed in English, so integration is immediate

4.

Proximity for business development

5.

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

6.

The portals need new revenue sources.



Asia/Europe



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.  Europe continues to increase in online numbers and the Company has recently localized the software into German, French and Italian. Furthermore, the Company has partner with Vertical Portals in Europe to increase its exposure.



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 will build global portals is as follows:



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1.

Higher share of Network Maintenance Fees through JV agreements

2.

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

3.

Relative ease and low cost of marketing  as compared to the Americas

4.

Long-term revenues  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.



Video games have often been dismissed as a rudimentary form of entertainment - lacking the glitz and glamour of Hollywood and prime time television.  But, over the past few years, the games industry has been growing faster than any other part of the entertainment business.  In terms of revenues, it is now running neck-and-neck with the movie box office. Movies still make much more money once television sales, videos and licensing deals are included.



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.



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 will transform the entertainment industry.  The report outlines three evolutionary changes in technology that will create pervasive gaming:



1.

Platforms will connect to the Internet and control TVs.

2.

Pipes will deliver content at the speed of Broadband.

3.

People will seamlessly switch from playing games to watching TV.



These changes will force new business models within the industry such as subscription and pay-per-use revenue streams.  Advertising revenue will also increase substantially as interactive media advances technologically.  Estimates of retail, hardware, subscription/pay-per-use, advertising and product placement sales put total games revenue at near 30 billion dollars by 2005.



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.  Microsoft has entered the console market with its Xbox and along with Sony, has  become the dominant player in the next few years.





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Publishers/Game Developers



Electronic Arts, headquartered in Redwood City, California, is the world's leading interactive entertainment software company. Founded in 1982, Electronic Arts posted revenues of more than $1.2 billion for fiscal 1999. The company 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, the company 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., the company 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 Blank.



CYOP Systems and the Video Game Industry



CYOP Systems is positioning itself as an asset to all industry players through its integrated transaction technology.



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.



As of the date of this annual report, 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



The Company is capitalizing on its experience in the On-Line Gaming Industry by leveraging its experience and contacts in this, the most profitable sector of the Global Digital Economy.  With the ability to integrate with popular online games like Bingo, the company 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.  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.



Risk factors



You should carefully consider the risks described below and the other information in this disclosure and any other filings we make with the SEC in the future before investing in our common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed.



Operations



While we do have a history of revenues we also have a history of losses since our inception. If we are unable to generate enough revenue and become profitable, our company will fail.



Management



While our management has signed agreements they are under no contractual obligation to remain with us and their departure could cause our business to fail. Our directors and our officers have varied business interests and are working for other companies from time to time. Members of management have signed written employment agreements with us only as at January 1, 2003 and have deferred fees as we have not been able to afford to pay management members.  As at January 2004, these fees will be accrued or paid out to ensure management devotes necessary time and energy to the Company.



Competition



Our competitive position in the on-line pay for play video gaming industry is dependent on our ability to market our system and acquire traffic and affiliates. Even though we believe our system is world class for delivering pay for play games online, it is possible we could receive intense competition from better financed companies with in-house software development capabilities who are able to offer online pay for play video games.



Financing



We are highly dependent upon our management for financing our software development and ongoing operations. We were cleared by the Securities exchange Commission (SEC) and National Association of Securities Dealers (NASD) in September 2002 to have our securities quoted in the OTC BB. We have just begun earning revenues (NMF) through the use of our pay for play software. While we have been and continue to be dependent upon management for loans to our company to fund our operations. The Company in December 2003 negotiated a financing with Cornell Capital LP of up to five million dollars ($5,000,000). The financing is based on a draw-down and the purchase price is set at 98% of the Market Price. This is completed in the fall of 2004. Online pay for play video gaming is attracting the interest of large well financed potential competitors. Our common shares are quoted on the OTC BB. Persons who acquire our common shares have limited liquidity or opportunity to sell their shares and may not be able to recover any funds, which have been invested in our common shares. Our common shares fall within the definition of a penny stock. All transactions involving our shares will be subject to special rules established by the Securities and Exchange Commission which require brokers and dealers to complete due diligence on penny stocks being acquired on behalf of clients. These requirements are onerous and may make an investment in penny stocks less appealing to certain investors, which could affect your ability to sell our common shares.





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Stock Price Volatility



The market price of CYOPs common stock has fluctuated significantly in the past, and is likely to continue to be highly volatile. The Company cannot provide assurance that the sales price of its common stock will not fluctuate or decline significantly in the future. In addition the U.S. equity markets have from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the stocks of technology companies. These broad market fluctuations may materially adversely affect the market price of CYOPs common stock in the future. Such fluctuations and variations may be the result of changes in CYOPs business, operations or prospects, announcements of technological innovations and new products by competitors, CYOP or its competitors entering into new contractual relationships with strategic partners, proposed acquisitions by CYOP or its competitors, financial results that fail to meet public market analyst expectations of performance, regulatory considerations and general market and economic conditions in the U.S. and throughout the world.



Dilutive Effect of Future Sales of Securities



Future sales of substantial amounts of CYOPs Common stock in the public market could adversely affect the market price of the Common stock and shareholders could experience dilution in their stock ownership of the Company and in the value of their shares. Dilution is a reduction in the value of the holders investment measured by the difference between the purchase price of the shares of the Common stock and the net tangible book value of the shares after the purchase takes place. As at December 31, 2004 there were 231,103,355 shares of Common stock issued, 181,103,355 outstanding.



Experience



We have significant experience operating online pay for play video games and processing online financial transactions. We have tested our operating system and believe it will accommodate the expected commercial traffic at our website however, without operating high volumes of traffic our system could result in a breakdown slowing our operations with the resultant lack of business and revenue.



Future Capital Needs



CYOP has capital requirements for such applications as geographical expansion, marketing and advertising, development of new applications, expansion and upgrading of infrastructure and completing joint venture agreements with potential European and Asian partners. CYOP may not be successful in generating sufficient cash from operations for those purposes and will need to utilize additional equity capital. Failure to generate sufficient cash flows may require CYOP to revise, delay or abandon some or all of its development and expansion plans or otherwise forego market opportunities and may make it difficult to respond to competitive pressures, any of which could have a material adverse effect on CYOPs business, results of operations and financial condition.





Item 2.  Properties



At December 31, 2004 we maintained an office at Unit A , 149 South Reeves Drive, Beverly Hills, California.  This is office space is provided free of charge by one of our Directors. Monthly lease payments on this office space are zero. These facilities are temporary until our revenue exceeds our expenses. All our infrastructure and equipment is located in the Westin Building in Seattle, Washington on a co-location agreement for $1,500.00 per month.



Item 3.  Legal Proceedings



We are not a party to any legal proceedings. Management is not aware of any legal proceedings proposed to be initiated against the Company. However, from time to time, the Company may become subject to claims and litigation generally associated with any business venture.



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Item 4.  Submission of Matters to a Vote of Security Holders



The Company's 2004 annual general meeting is scheduled to be held Thursday June 30, 2005, at Unit A 149 South Reeves Drive, Beverly Hills, California at 10:00 a.m.  The Company's security holders will be requested to confirm directors, to appoint the Company's auditors for the 2004/2005 fiscal years and to ratify all actions taken by the officers and directors of the Company of the preceding year.  No other business is expected to be brought before the Company's shareholders at the 2004 annual general meeting.  The Company's notice of annual general meeting, Schedule 14A proxy statement and proxy are being filed separately and are incorporated herein by reference.



PART II



Item 5.  Market for Registrants Equity and Related Stockholder Matters snd Issuer Purchases of Equity Securities



CYOPs common stock is traded on the Over-the-Counter Bulletin Board under the symbol CYOS. 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 | 
| | -------------------------------- | -------- | ------- | 
| | 2004                             |          |         | 
| | Quarter Ended March 31, 2004     | $0.050   | $0.025  | 
| | Quarter Ended June 30, 2004      | $0.038   | $0.018  | 
| | Quarter Ended September 30, 2004 | $0.018   | $0.002  | 
| | Quarter Ended December 31, 2004  | $0.005   | $0.001  | 
| | 2003                             |          |         | 
| | Quarter Ended March 31, 2003     | $0.07    | $0.01   | 
| | Quarter Ended June 30, 2003      | $0.01    | $0.01   | 
| | Quarter Ended September 30, 2003 | $0.07    | $0.01   | 
| | Quarter Ended December 31, 2003  | $0.10    | $0.03   | 



Holders Of Common Equity

At December 31, 2004 there were approximately 175 registered shareholders holding 231,103,355 of record of our issued common shares. There are no warrants and 25,000 options to purchase additional common shares of the Company.



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.



Item 6.  Selected Financial Data



The following selected consolidated financial data should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in Item 8, with Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and with other financial data included elsewhere in this Form 10-KSB. The consolidated statement of operations data for the year ended December 31, 2004 and the year ended December 31, 2003 and the consolidated balance sheet data as of December 31, 2004 and 2003 are derived from our audited consolidated financial statements included in Item 8 of this report, which have been audited by  De Leon & Company, Public Accountants and Moore Stephens Ellis Foster Ltd., Chartered Accountants.



The independent auditors report appearing elsewhere in this document contain disclosures that the Companys losses and negative cash flows from operations raise concern about our ability to continue as a going concern. The consolidated financial statements and the selected financial data do not include any adjustments that might result from the outcome of that uncertainty.



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Year Ended December 31

20042003CONSOLIDATED STATEMENT OF OPERATIONS DATA:Revenue$     24,781$     46,133Cost of revenue95,69787,226---------------------------------------------------------Gross profit(70,916)(41,093)Operating expenses(929,961)(809,885)Interest expense123,65724,379---------------------------------------------------------Net loss$   (1,049,505)$   (764,405)=================================Basic and diluted loss per share$        (0.007)$         (0.05)---------------------------------------------------------Weighted average common shares outstanding154,426,228142,463,870=================================CONSOLIDATED BALANCE SHEET DATA:Cash and cash equivalents$                7,337$                9,057Working capital (deficit)(1,945,453)(1,241,078)Total assets1,840,5211,777,794Total liabilities4,179,1103,435,147Total stockholders equity(2,338,589)(1,657,353)---------------------------------------------------------




Item 7.  Managements discussion and analysis of Financial Condition and Results of Operations



The information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operation contains "forward looking statements." Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual future results will not be materially different from the expectations expressed in this Annual Report. The following discussion should be read in conjunction with the audited Consolidated Financial Statements and related Notes thereto included in Item 8, with "Item 6. Selected Financial Data," with the Risk Factors section of Item 1, and with the Special Note regarding forward-looking statements included elsewhere in this report.



Overview



We have been primarily focused on developing channel partners and exploiting opportunities to drive traffic to our site.  Management has financed most of our operations to date along with Cornell Capital Partners LLP.  However, management is not under any contractual obligation to provide continued funding.  We will spend approximately $1 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. Executive and key personnel have executed management contracts; however fees and salaries have been accrued by the Company. To ensure retention of executive and key personnel the Company will again be paying fees and salaries or accruing them as necessary for 2005.



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We anticipate contracting additional 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.  Recently we have begun distributing downloadable and streaming games from Atari thru an agreement with Atari Asia Pacific Pty. Ltd. (NASDAQ:ATAR). Merchant processing is done by Banner Bank.



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. Our proprietary site www.skillarcade.com as at December 31, 2004 has about 275,000 members, 250 affiliate sites and has processed since inception approximately 3.5 million transactions.



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, and are being loaned to our Company by management.  In the future, the funds required for ongoing software maintenance will come from our equity financing or 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.



Results of Operations



Revenue



Revenue decreased to $24,781 in 2004. This decrease is a result of limited marketing and the management time expended in closing the SEDA (Standby Equity Distribution Agreement) with Cornell Capital Partners LLP.



Cost of Revenue



The Company recorded cost of revenue of $95,697 during the year ended December 31, 2004 and $87,226 during the year ended December 31, 2003. This increase is reflective of a number of things including a decrease in games licensing costs, coupled with a material expenditure in excess of $50,000 in game development costs and site translation costs.



Sales and Marketing expenses



Sales and marketing expenses decreased to $0.00 for the year ended December 31, 2004 from $129,804 for the year ended December 31, 2003. This is a result of a management decision to try various methods of driving traffic to the proprietary site www.skillarcade.com without significant expenditures in third party advertising campaigns. 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 again increase 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 the Company's office, legal and audit professional fees, insurance and other general corporate and office expenses, including $317,392 in corporate finance fees to Cornell Capital Partners LLP. This fee was settled with issuance of the Companys stock. General and administrative expenses decreased to $201,695 for the year ended December 31, 2004 from $298,762 for the year ended December 31, 2003. General and administrative expenses decreased primarily from the limiting of operations and focus on the SEDA financing and the non-cash expense to Cornell Capital Partners LLP. General and admin costs also included a significant increase in associated legal fees from clearing the SB-2 and a non-cash expense increase in imputed interest attributed to management loans to the company. Unpaid Management fees of $306,693 have been accrued.



We expect to continue to incur general and administrative expenses to support the business, and there can be no assurances that the Company will be able to generate sufficient revenue to cover these expenses. The Company will be relying on the equity financing to support the business.



Interest expense



Imputed interest expense decreased to $72,257 in 2004 from $74,925 in 2003 from demand loans from related parties. This is a result of loans to the Company from shareholders and directors accruing interest at 5% per annum as at October 1, 2004. Bank charges and interest increased, reflecting the interest costs of a convertible debenture and promissory note from Cornell Capital Partners LLP and the above mentioned loans. Interest expense increased to $123,657 in 2004.



Loss per share and net loss



The Company ended the year with a net loss of ($1,049,505) in 2004, compared to ($764,405) in 2003. The net loss position for 2003 includes a non cash expense of $300,000 in forgiven management fees and reflects a ($0.05) per share loss compared to the 2004 per share loss of ($0.07).



Liquidity and capital resources



While the Company now has access to a source of financing, management has utilized the SEDA only when necessary to fund operations. There can be no assurances that the Company will in the future achieve a consistent and reliable revenue stream adequate to support continued operations.



The Company had cash and cash equivalents of $7,337 and a working capital deficiency of ($1,945,453) at December 31, 2004. This compares to cash and cash equivalents of $9,057 and working capital deficiency of ($1,241,078) at December 31, 2003. This reflects the continued commitment by management with an increase of advancing shareholder loans and initial funding from Cornell Capital LLP in the form of promissory notes and a convertible debenture to cover the cost of operations.



During the year ended December 31, 2004, the Company used cash of $601,301 in operating activities compared to using $302,087 in the prior year. The 2004 use is adjusted for a note assignment for the discounted value of $1,605,986 in consideration of $1,800,000 in restricted stock of an affiliated company.  (see Form 8-k filed December 13, 2004).



Net cash provided by financing activities was $638,564 in 2004, which compares to $306,891 in 2003. During the year ended December 31, 2004, $100,000 in promissory notes were granted by Cornell Capital Partners LLP and a $125,000 convertible debenture of which $70,000.00 remained outstanding at December 31, 2004.



Our future capital requirements will depend on a number of factors, including costs associated with development of our Web portal, the success and acceptance of our new games and the possible acquisition of complementary businesses, products and technologies. We do not have sufficient cash and cash equivalents on hand to conduct our operations through the first quarter of 2005, and are substantially dependent on the equity financing and interim funding from our Chairman and CEO to continue operations.



---



As disclosed herein the Company concluded an underwriting in the first quarter with Cornell Capital LLP and the associated SB-2 was filed on March 1, 2004 on Edgar and cleared on August 8, 2004. Management believes with this financing and some material contracts executed in the first quarter of 2005 that the Company is in a position to positively impact fledgling revenues for 2005 and 2006. As there have been only minor revenues for 2004 and 2003 due to the lack of capitalization of the Company, the Promissory Note for $1.8 million (the note) (discounted to $1,605,739)  that was additionally  guaranteed by the shareholder loan of Mitch White was assigned to an affiliated company. The original marketing and licensing and exploitation agreement (Filed on Form 8-K on April 15, 2002) anticipated the promissory note to be paid down from generated revenues. To date this has not occurred due to lack of revenues. Consequently an agreement was reached exchanging the note for 25 million shares of Gaming Transactions Inc (GGTS) a pink sheet issuer at a deemed price of $0.075 per share. As at December 2004 this stock was thinly traded.



The auditors' report on the Company's December 31, 2004 consolidated financial statements contains an explanatory paragraph that states that the Company has suffered losses and negative cash flows from operations that raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



Item 7A. Quantitative and Qualitative Disclosures about market risk



The Company has no financial instruments for trading purposes, or derivative or other financial instruments with off balance sheet risk. The fair value of all financial instruments at December 31, 2004 is not materially different from their carrying value.



To December 31, 2004, substantially all revenues are incurred In United States dollars and cash costs have been realized in both United States dollars and in Canadian dollars and as such, are subject to material foreign currency exchange rate risk. To date, the Company has not entered into foreign currency contracts to hedge against foreign currency risks between the Canadian dollar or other foreign currencies and our reporting currency, the United States dollar.



Item 8.  Financial Statements



The financial statements of the Company and related schedules described under Item 15. Financial Statements and Financial Statement Schedules are included following this page.











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CYOP SYSTEMS INTERNATIONAL



INCORPORATED



Consolidated Financial Statements

(Expressed in U.S. Dollars)



December 31, 2004 and 2003



Index



Report of Independent Registered Public Accounting Firms



Consolidated Balance Sheets



Consolidated Statement of Stockholders Deficiency

Consolidated Statements of Operations



Consolidated Statements of Cash Flows



Notes to Consolidated Financial Statements





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DE LEON & COMPANY, P.A.



Report of Independent Registered Public Accounting Firm



We have audited the accompanying consolidated balance sheet of CYOP Systems International Incorporated and Subsidiary as of December 31, 2004, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of CYOP Systems International Incorporated and Subsidiary as of December 31, 2003, were audited by other auditors whose report dated March 12, 2004, expressed an unqualified opinion on those statements and included an explanatory paragraph describing a going concern.



We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2004, and the results of its operations and its cash flows for  the  year ended, in conformity with U.S. generally accepted accounting principles.



The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and 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. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



De Leon & Company, P.A.

Pembroke Pines, Florida

March 25, 2005





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MOORE STEPHENS

ELLIS FOSTER LTD.



CHARTERED ACCOUNTANTS



1650 West 1st Avenue

Vancouver, BC  Canada   V6J 1G1

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









REPORT OF INDEPENDENT RIGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and Stockholders



CYOP SYSTEMS INTERNATIONAL INCORPORATED





We have audited the consolidated balance sheet of CYOP Systems International Incorporated(the Company) as at December 31, 2003, the related consolidated statements of stockholders deficiency and the consolidated statements of operations and cash flows for the year 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 audit.



We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). 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, 2003 and the results of its operations and its cash flows for the year 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



March 12, 2004

Chartered Accountants











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CYOP SYSTEMS INTERNATIONAL INCORPORATEDConsolidated Balance SheetsDecember 31, 2004 and 2003(Expressed in U.S. Dollars)20042003ASSETSCurrentCash and cash equivalents$7,337$9,057Accounts receivable50.058-Prepaid expenses and deposit2,4402,500Total current assets59,83511,557Note receivable related party-1,605,986Fixed assets54,56873,502Investment in equity  method investee1,668,285-Intangible assets57,83386,749Total assets$1,840,521$1,777,794LIABILITIESCurrentDemand loans related party$1,289,620$779,129Accounts payable and accrued liabilities288,785211,714Convertible debenture70,000-Player funds on deposit44,15849,067Short-term loan212,725212,725Promissory note100,000-Total current liabilities2,005,2881,252,635Deferred revenue2,173,8222,182,512Total Liabilities4,179,1103,435,147Nature and continuance of operationsSTOCKHOLDERS' DEFICIENCYShare capitalAuthorized:500,000,000shares of common stock with a par valueof $0.00002 per shareIssued, allotted and outstanding:181,103,355shares of common stock (2003 - 142,973,160)3,6232,860Additional paid-in capital1,062,970695,464Deficit accumulated(3,405,182)(2,355,677)Total stockholders' deficiency(2,338,589)(1,657,353)Total liabilities and stockholders' deficiency$1,840,521$1,777,794The accompanying notes are an integral part of these financial statements.




















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|CYOP SYSTEMS INTERNATIONAL INCORPORATED                                    |              |        |         |            |         | 
|-------------------------------------------------------------------------- | ------------ | ------ | ------- | ---------- | ------- | 
|                                                                           |              |        |         |            |         | 
|Consolidated Statement of Stockholders' Deficiency                         |              |        |         |            |         | 
|Years ended December 31, 2004 and 2003                                     |              |        |         |            |         | 
|(Expressed in U.S. Dollars)                                                |              |        |         |            |         | 
|                                                                           |              |        |         |            |         | 
|                                                                           |              |        |         |            |         | 
|                                                                           |              |        |         | Additional |         | 
|                                                                           | Common stock |        | paid-in |            |         | 
|                                                                           | Shares       | Amount |         | Capital    |         | 
|                                                                           |              |        |         |            |         | 
|                                                                           |              |        |         |            |         | 
|Balance, December 31, 2002                                                 | 142,373,410  |        | 2,848   |            | 284,551 | 
|                                                                           |              |        |         |            |         | 
|Shares issued for capital equipment at $0.06 per                           |              |        |         |            |         | 
|share on September 30, 2003                                                | 600,000      |        | 12      |            | 35,988  | 
|                                                                           |              |        |         |            |         | 
|Imputed interest on loan due to a related party                            | -            |        | -       |            | 74,925  | 
|                                                                           |              |        |         |            |         | 
|Management fees forgiven                                                   |              |        |         |            | 300,000 | 
|                                                                           |              |        |         |            |         | 
|Components of comprehensive income                                         |              |        |         |            |         | 
|- foreign currency translation adjustment                                  | -            |        | -       |            | -       | 
|                                                                           |              |        |         |            |         | 
|- net income for the year                                                  | -            |        | -       |            | -       | 
|                                                                           |              |        |         |            |         | 
|Comprehensive income (loss)                                                |              |        |         |            |         | 
|                                                                           |              |        |         |            |         | 
|Balance, December 31, 2003                                                 | 142,973,410  | $      | 2,860   | $          | 695,464 | 
|                                                                           |              |        |         |            |         | 
|The accompanying notes are an integral part of these financial statements. |              |        |        





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|CYOP SYSTEMS INTERNATIONAL INCORPORATED                                    |              |        |         |            |           | 
|-------------------------------------------------------------------------- | ------------ | ------ | ------- | ---------- | --------- | 
|                                                                           |              |        |         |            |           | 
|Consolidated Statement of Stockholders' Deficiency                         |              |        |         |            |           | 
|Years ended December 31, 2004 and 2003                                     |              |        |         |            |           | 
|(Expressed in U.S. Dollars)                                                |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         | Additional |           | 
|                                                                           | Common stock |        | paid-in |            |           | 
|                                                                           | Shares       | Amount |         | capital    |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Balance, December 31, 2003                                                 | 142,973,160  |        | 2,860   |            | 695,464   | 
|                                                                           |              |        |         |            |           | 
|Shares issued for legal services at $0.03995 per share                     | 212,500      |        | 4       |            | 7,434     | 
|on January 27, 2004                                                        |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Shares issued for corporate finance fees at $0.032 per                     | 7,500,000    |        | 150     |            | 262,350   | 
|share on January 27, 2004                                                  |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Shares issued for escrow agent services at $0.032 per                      | 312,500      |        | 6       |            | 10,931    | 
|share on January 27, 2004                                                  |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Shares issued to Cornell Capital at $0.0032  per share                     | 3,125,000    |        | 63      |            | 12,437    | 
|on September 9, 2004                                                       |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Shares issued to Cornell Capital at $0.0011 per share                      | 4,545,454    |        | 91      |            | 11,273    | 
|on November 5, 2004                                                        |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Shares issued to Cornell Capital at $0.0015 per share                      | 3,333,333    |        | 67      |            | 7,266     | 
|on November 10, 2004                                                       |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Shares issued to Cornell Capital at $0.0013 per share                      | 3,846,154    |        | 77      |            | 8,385     | 
|on November 16, 2004                                                       |              |        |         |            |           | 
|                                                                           | -            |        |         |            |           | 
|Shares issued to Cornell Capital at $0.00185 per share                     | 5,405,405    |        | 108     |            | 16,108    | 
|on November 23, 2004                                                       |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Balance, December 31, 2003                                                 | 171,253,506  | $      | 3,426   | $          | 1,031,648 | 
|                                                                           |              |        |         |            |           | 
|The accompanying notes are an integral part of these financial statements.







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|CYOP SYSTEMS INTERNATIONAL INCORPORATED                                    |              |        |         |            |           | 
|-------------------------------------------------------------------------- | ------------ | ------ | ------- | ---------- | --------- | 
|                                                                           |              |        |         |            |           | 
|Consolidated Statement of Stockholders' Deficiency                         |              |        |         |            |           | 
|Years ended December 31, 2004 and 2003                                     |              |        |         |            |           | 
|(Expressed in U.S. Dollars)                                                |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         | Additional |           | 
|                                                                           | Common stock |        | paid-in |            |           | 
|                                                                           | Shares       | Amount |         | capital    |           | 
|                                                                           |              |        |         |            |           | 
|(continued from page 1)                                                    |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Balance, Forward                                                           | 171,253,506  |        | 3,426   |            | 1,031,648 | 
|                                                                           |              |        |         |            |           | 
|Shares issued to Cornell Capital at $0.00185 per share                     | 5,405,405    |        | 108     |            | 17,189    | 
|on November 30, 2004                                                       |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Shares issued to Cornell Capital at $0.00185 per share                     | 4,444,444    |        | 89      |            | 14,133    | 
|on November 30, 2004                                                       |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|net loss for the year                                                      | -            |        | -       |            | -         | 
|                                                                           |              |        |         |            |           | 
|                                                                           |              |        |         |            |           | 
|Balance, December 31, 2004                                                 | 181,103,355  | $      | 3,623   | $          | 1,062,970 | 
|                                                                           |              |        |         |            |           | 
|The accompanying notes are an integral part of these financial statements. |             













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CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Years Ended December 31, 2004 and 2003

(Expressed in U.S. dollars)





CYOP SYSTEMS INTERNATIONAL INCORPORATEDConsolidated Statements of OperationsYears ended December 31, 2004 and 2003(Expressed in U.S. Dollars)20042003RevenueSales  Crediplay$8,690$16,040Service fees15,70628,989Banking fees3851,104Ad sales--24,78146,133Cost of sales95,69787,226(70,916)(41,093)Sales and marketing expenses-(129,804)Consultants fees(410,874)-Corporate Finance fees(317,392)-General and Admin fees(201,695)(298,762)Salaries and benefits-(381,319)Operating loss(1,000,877)(850,978)Other income (loss)Interest income related party81,717110,952Interest Expense(123,657)(24,379)Equity in losses of equity-method investee(6,688)-Net loss for the year$(1,049,505)$(764,405)Loss per share basic and diluted
Loss from operations
Net loss$
$(0.06)
(0.007)$
$(0.06)
(0.05)Weighted average number of commonshares outstanding -basic and diluted154,426,228142,463,870The accompanying notes are an integral part of these financial statements.


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CYOP SYSTEMS INTERNATIONAL INCORPORATEDConsolidated Statements of Cash FlowsYears Ended December 31, 2004 and 2003(Expressed in U.S. Dollars)20042003Cash flows from (used in) operating activitiesNet loss for the year$(1,049,505)$(764,405)Adjustments to reconcile net loss to net cashUsed in operating activities:- amortization of intangible assets28,91628,916- depreciation of fixed assets18,93421,451- imputed interest on related party loan72,25774,925- shares issuance for services258,490-- forgiveness of debt-300,000- accredited to convertible debenture6,073-Changes in assets and liabilities:- accounts receivable--- note receivable related party-(20,952)- prepaid expenses and deposit60(2,500)- accounts payable and accrued liabilities77,07164,234- player funds on deposit(4,909)12,284- deferred revenue(8,690)(16,040)(601,301)(302,087)Cash flows from (used in) investing activitiesProceeds from disposal of fixed assets--Increase in software development costs--Purchase of investments--Purchase of fixed assets----Cash flows from (used in) financing activitiesShares issued--Increase in due from director468,564306,891Proceeds from promissory note100,000-Proceeds from convertible debenture70,000-638,564306,891Increase in cash and cash equivalents37,2634,804Effect of exchange rate on cash(38,983)-Cash and cash equivalents,beginning of year9,0574,253Cash and cash equivalents, end of year$7,337$9,057Cash and cash equivalents  represented by:Cash$4,186$5,633Cash with processors3,1513,424$7,337$9,057The accompanying notes are an integral part of these financial statements.


SUPPLEMENTAL CASH FLOW INFORMATION



On December 1, 2004 the Company assigned a discounted promissory note  valued at $1,605,986 to a related party company in consideration of 25 million common shares of that company. The common shares acquired are held as an equity interest investment.





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CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Years Ended December 31, 2004 and 2003

(Expressed in U.S. dollars)





1.

Nature and Continuance of Operations

The Company was incorporated on October 29, 1999 in as 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 and a 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.

In fiscal year 2003, the company completed a stock split, which five (5) new shares were exchanged for every one (1) old share. The consolidated financial statements have been restated to reflect the stock split.

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





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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

For purposes of the statement of cash flows cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturity of three months or less when purchased.

(d)

Equity Investments

The Company has certain investment in equity securities. These investments are accounted for using the equity method of accounting if the investment gives the Company the ability to exercise significant influence, but not control, over an investee. Significant influence is deemed to exist if the Company has an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investees Board of Directors and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. The Company records its investment in equity-method investees on the consolidated balance sheet as Investments in equity-method investees and its share of the investees earnings or losses as Equity in losses of equity-method investees.

(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 equipment20% declining-balance basisComputer hardware30% declining-balance basisComputer software50% declining-balance basisOffice furniture and equipment20% declining-balance basisLeasehold improvements20% straight-line basis








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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 year ended December 31, 2004 amounted to $280.00 (not classified as a separate item) and (2003 - $129,804).

(i)

Foreign Currency Transactions

The Company and CYOP Barbados maintain their accounting records in the reporting currency.  Foreign currency transactions are translated into their reporting currency in the following manner. At the transaction date, each asset, liability, revenue and expense is translated into the reporting currency by the use of the exchange rate in effect at that date.  The resulting foreign exchange gains and losses are included in operations. The Company does not have any assets or liabilities in foreign countries or foreign denominations or would created translation income or losses under other comprehensive income.

(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.







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2.

Significant Accounting Policies(continued)



(k)

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



(l)

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.

(m)

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







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2.

Significant Accounting Policies(continued)

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, 2004, the Company has not entered into any derivative contracts either to hedge existing risks or for speculative purposes.

(n)

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, 2003 are not dilutive.

(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 (APB 25), Accounting for Stock Issued to Employees and related interpretations.

(p)

Goodwill and Other Intangible assets

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 occur 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.







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2.

Significant  Accounting Policies(continued)

(q)

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.







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2.

Significant Accounting Policies(continued)



In December 2004, The Financial Accounting Standards Board issued Statement of Financial Accounting Standard number 123r,  Share Based Payments (SFAS 123r) which superseded SFAS 123 and APB No. 25. This statement eliminates the use of the intrinsic method as previously allowed under APB 25 and is effective for small issuers for years ending after December 15, 2005. The Company does not expect adoption of this statement to have an impact on their operations.



In December 2004, The Financial Accounting Standards Board issued Statement of Financial Accounting Standard number 153 Exchanges of Non Monetary Assets  An Amendment of APB No 29. This statement removed the exemption in APB 29 to the use of the fair value method in certain transactions and is effective for years beginning after June 15, 2005. The Company does not expect the adoption of this statement to have an impact on their operations.



3.

Investment in equity method investee



At December 31, 2004, The Companys equity-method investee approximate ownership interest consisted of a 19.99% interest based on the outstanding shares of Gaming Transactions, Inc. (OTC:GGTS). The Company has the ability to significantly influence GGTS. Summarized Balance Sheet and Operations information is as follows:





Balance Sheet2004Current assets$9,281Non current assets$688,783Current Liabilities$2,225Non current liabilities$785,320OperationsNet sales$  -Gross profits$  -Net loss$(33,440)




The Company acquired the investment in December 2004 and valued the investment at $1,674,973. During the month of December 2004 the Company recorded a $6,688 loss based on the proportionate share of the investees loss which resulted in a reduction in the carrying amount to $1,668,285 at December 31, 2004.





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4.

Fixed assets

December 31, 2003CostAccumulated depreciationNet book
ValueAudio and visual equipment$   21,558$     11,576$    9,982Computer hardware96,86436,44160,423Computer software3,0883,088-Office furniture and equipment9,2276,1303,097Total$ 130,737$     57,235$  73,502






December 31, 2004CostAccumulated depreciationNet book
ValueAudio and visual equipment$
  
21,558$
  
13,450$
  
8,108Computer hardware96,86452,92043,944Computer software3,0883,088-Office furniture and equipment9,2276,7112,516Total130,737$   86,169$   54,568




For the year ended December 31, 2004, depreciation expenses charged to cost of service, software development costs and general and administrative expenses were $18,934 (2003 - $21,451).

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:

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

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





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5.

Intangible Assets(continued)

the Skill-Bingo game software

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

the trademark BiGrBingo

the BiGrBingo customer deposits

The changes in the carrying amount of intellectual property as follows:

20042003Balance, beginning of year$86,749$115,665Intangible assets acquired during the period- intellectual property--Impairment of intangible assets during the period-Fair valueAccumulated amortization( 28,916)(28,916)Balance, end of year$57,833$86,749




6.

Loans



(a)

Demand Loans Related Party

December 31 2004December 31 2003i.
Interest bearing and unsecured at 5% per annum:
- Andrea Carley  an officer$   25,156$  --  Mitch White  a director and stockholder1,054,726731,797-  Gordon Samson  a director104,4572,707- Patrick Smyth  a director60,656Total$1,244,995$
  
734,504




(b)

Short term Loan

i.    Non-Interest bearing and unsecuredDecember 31 2004December 31 2003- Jack Carley  related to a director and stockholder$   44,625$    44,625Total$   44,625$    44,625






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6.

Loans  (continued)



(c)       Short-term Loan Related Party

December 31 2004December 31 2003i.
Interest at 10% per annum:- RedRuth Ventures212,725212,725Total$ 212,725$212,725




(d)

Convertible debenture

In connection with the standby equity distribution agreement as filed on March 1, 2004, the Company issued in January 2004 to the Investor $125,000 of convertible debentures that are convertible into shares of common stock at a discounted market price.  The convertible debentures are secured by all of Companys assets, interest bearing at 5% per annum and matured two years from the date of issuance.  The Company has the right to redeem the debenture upon 30 days notice for 120% of the amount plus accrued interest.   Upon such redemption, the Company 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 were redeemed.

Upon the issuance of the notes, the net proceeds ($125,000) received were allocated between the liability and equity components of the notes.  .

The outstanding amount as at December 31, 2004 is $70,000.00 plus accrued interest

(e)

Promissory Note

On April 8, 2004 the Company executed a Promissory Note (the Note) with the Holder, Cornell Capital Partners, LP for $50,000.00. The Note is secured pursuant to the prior Security Agreement dated January 28, 2004 between the Holder and the Company. The Holder is entitled to interest at the rate of twenty four percent (24%) per annum or the highest permitted by applicable law, if lower.

On December 13, 2004 the Company executed a Promissory Note (2) (the Note 2) with the Holder, Cornell Capital Partners, LP for $50,000. An issuance of 50,000,000 common shares was also completed at that time in security. The Holder is entitled to interest at the rate of twelve per cent (12%) per annum.



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



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7.Sale and License-back of Computer Software(continued)

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.  As at December 31, 2003, the present value of the promissory note is $1,605,986 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:

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




As there have been only minor revenues since inception due to the lack of capitalization of the Company, the Promissory Note for $1.8 million (the note) was assigned to an affiliated company, Gaming Transactions Inc., after releasing the   guarantee provided by the shareholder loan of Mitch White in consideration of twenty five (25) million shares of restricted stock of Gaming Transactions Inc., (GGTS) a pink sheet issuer. As at December (Form 8-K filed December 13, 2004) this company was thinly traded and a deemed price of $0.075 per share was used.  As no reductions have been made as contemplated in the agreements executed December 31, 2001 and filed on Edgar by Form 8-K on April 15, 2002 a market asset was exchanged to ensure value to the Company.

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.





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7.        Sale and License-back of Computer Software(continued)

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

Sales priceRetirement of loan due to the purchaser$1,200,000Present value of $1,800,000    promissory note discounted at 7% per annum1,565,4522,765,452Software development costs incurred in 2001(495,058)Deferred gain 2001$2,270,394Recognized gain(71,842)Deferred gain 2002$2,198,552Recognized gain in 2003(16,040)Deferred gain in 2003$2,182,512Recognized gain in 2004(8,690)Deferred gain 20042,173,822




The deferred gain will continue to be amortized in proportion to the licensing fees payable over the term of the agreement.

8.         Stockholders Equity (Deficit)

(a)

Issuance of Common Shares

During the period, the Company issued 88,130,195 shares to Cornell Capital LLP including a corporate finance fee including 312,500 to Newbridge Securities Corp as an escrow agent fee and 50,000,000 in escrow in connection with the Standby equity underwriting agreement for financing as originally filed on the Companys SB-2 on March 1, 2004. .  During the fiscal year 2003 per an S-8 filed on October 29, 2003 for legal services 212,500 shares were issued for legal services at $0.04 per share. Additionally in 2003, the Company issued 600,000 shares of common stock for equipment at $0.06 per share.  The 600,000 shares of common stock were recorded at $36,000 as the fair value of equipment received.

(b)

2003 Consultant Stock Plan

On October 21, 2003, the Board of Directors of the Company approved and adopted 2003 Consultant Stock Plan (2003 Plan).  Pursuant to the 2003 Plan, it is a ten (10) year plan to grant common shares or right to received common shares by consultants (per individual agreement) to a maximum 2,500,000 shares (restated for the companys stock split). The allocated number of shares includes an indeterminate number of additional shares that may be issued to adjust the number of shares issued pursuant to



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8.        Stockholders Equity (Deficit)(continued)

the stock plan described herein as the result of any future stock split, stock dividend or similar adjustment of the registrant's outstanding common stock.

(c)

Stock Option

There were no stock options granted for the period ended December 31, 2004.

9.

Income Taxes

As at December 31, 2004 the Company has non-capital losses and undepreciated capital cost of approximately $2,080,000 and $54,000, 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 2010.

(a)

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

20042003Undepreciated capital cost of capital assets
over their net book value$   19,000$   20,000Estimated tax loss carryforward715,000650,00Less: valuation allowance(734,000)(670,000)--


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





10.

Related Party Transactions

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

(a)

During the fiscal year 2004, the Company accrued imputed interest of $72,257 at an interest rate of 10% per annum on interest-free loan totaling $1,242,575 from directors of the Company to September 30, 2004. At October 1, 2004 these loans started to accrue interest at 5% per annum.

(b)

See Note 6, and 7.

On December 1, 2004 by agreement (Form 8-K December 13, 2004) the discounted promissory note, face value $1,800,000.00 dated December 1, 2001 and maturing December 14, 2010 (the note) was assigned to an affiliated company, Gaming Transactions Inc., (assignee) in consideration of 25 million restricted shares of the assignees common stock. A director and shareholder of the Company is also a major shareholder of the assignee. This has been recorded as an equity investment of $1,674,643.



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11.       Non-cash Activities

During the fiscal year 2003, the Company issued 600,000 shares of common stock for equipment at a $0.06 per share.  The 600,000 shares of common stock were recorded at $36,000 as the fair value of equipment received.

12.

Geographic Information

All the Companys operations and fixed assets are located in the United States.





13.

Subsequent Events

On March 29, 2005 the Company signed and executed an Online Marketing Agreement with SINA.com with SINA offering exclusive promotion on free Pool and Poker games with mainland China, Hong Kong and Taiwan.





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Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure



The Company filed a Current Report on Form 8-K, dated February 16, 2005, to report a change of its auditors.  Such report was filed with the Securities & Exchange Commission on February 18, 2005.



Item9A.  Controls and Procedures



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Securities Exchange Act of 1934 (the Exchange Act) reports is recorded, processed, summarized and reported within the time periods specified in the regulations promulgated by United States Securities and Exchange Commission (the SEC), and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 promulgated by the SEC under the Exchange Act. Based upon the foregoing, our President and our Chief Financial Officer concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2004, that would materially affect or is reasonably likely to materially affect, our internal control over financial reporting.

As of this date, given the small size of the Company and its limited operations and over the last year, the Company utilized a preliminary and basic standard of internal controls and procedures related to its financial reporting for the period covered by this report. Management is in the process of developing and adopting new and more stringent controls and procedures and anticipates such controls and procedures to be in place prior to the end of fiscal year 2005. Management expects to be in compliance with the internal control requirements of Section 404 of the Sarbanes-Oxley Act prior to the required compliance date in 2006.



PART III



Item 10.  Directors and Executive Officers of the Registrant.





The following table contains information regarding the members of the Board of Directors and the Executive of the Company as of the Record Date:



NameAgePosition(s)Mitch White43Chairman, CEO and DirectorPatrick Smyth37President and DirectorGordon A. Samson47CFO and DirectorNorman Mackinnon68Director (Independent)Randy Peterson53Director (Independent)






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All of the officers identified above serve at the discretion of the Board and have consented to act as officers of the Company. The biographies for the above individuals are presented below.



Mr. Mitch White, Chairman and CEO, Vancouver, B.C., Canada



MITCH 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.  During the calendar year ended December 31, 2003, Mr. White dedicated approximately 75% of his time to the business of operating our company.  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.



Mr. Gordon A. Samson, CFO  & Director, Vancouver, B.C., Canada



GORDON SAMSON was appointed to his positions on October 2002. Mr Samson devotes 50% of his time to the Company 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 the company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.



Mr. Patrick Smyth, President & Director, Beverly Hills, California



PATRICK SMYTH was appointed to his positions in October 2002 and devotes 50% of his time to the Company. 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.



Mr. Norman MacKinnon, Director, Vancouver, B.C., Canada



NORMAN MACKINNON, was appointed to his position October 2002 as an independent Director. 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



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production syndicated 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 will also become a disinterested member of the Audit Committee along with Messrs. Peterson and Samson.



Mr. Randy Peterson, Director, Vancouver, B.C., Canada



RANDY PETERSON, was appointed to his position on February 22, 2005 as an independent Director. Mr. Peterson is a retired police detective, with a distinguished reputation and is also a judicially recognized gaming expert.  As a highly respected member of the gaming community, he is also the inventor of a number of games including skill-bingo and skill-poker. Mr. Peterson will also become a disinterested member of the Audit Committee along with Messrs. Mackinnon and Samson.



There are no family relationships among the directors or executive officers of the Company.



No director or executive officer of ours has been a director or executive officer of any business, which has filed a bankruptcy petition, or had a bankruptcy petition filed against it.  No director or executive officer of ours has been convicted of a criminal offence or is the subject of a pending criminal proceeding.  No director or executive officer of ours has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.



No director or officer of ours has been found by a court to have violated a federal or state securities or commodities law.



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 business meetings. Directors are eligible to participate in our stock option plans. 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.  Officers, directors, and management personnel will be reimbursed for any out-of-pocket expenses incurred on our behalf.



Other than as described above, none of our directors or officers receives any other compensation for their services.  The salaries shown in the following table are for the year ending December 31, 2003.



Committees of the Board of Directors



Messrs. Samson, Peterson 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 audit, compliance with our accounting and financial policies and managements procedures and policies relative to the adequacy of our internal accounting controls.



Section 16(a) Beneficial ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission (the "SEC") initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company.



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Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.



To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and representations that no other reports were required during the year ended December 31, 2004, and except as disclosed elsewhere in this document, the Company's officers, directors and greater than ten percent beneficial owners have complied with all Section 16(a) filing requirements in

a timely manner.



Item 11. 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, 2004, 2003 and 2002. 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 CompensationLong-Term CompensationName & 
Principal PositionYearSalaryBonusOther Accrued CompensationRestricted Stock Awards in US$Options/SARsLTIP PayoutsAll Other CompensationMitch White2004--------------2003--------------2002--------------Gordon Samson200418,000------------2003--------------2002--------------




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 was forgiven and 2004 has been deferred other than $18,000.00 paid to Mr. Samson.  CYOP will continue to accrue and/or pay compensation as necessary.





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




If Mitch White or Gordon Samson terminated other than for cause or disability or in violation of the change of control, then Mitch White or Gordon Samson as the case may be shall be entitled to be paid 200% of such base compensation, plus 200% of such annual incentive bonus.



In January 2003, CYOP entered into an employment agreement with Mr. Smyth. The contract provides that Mr. Smyth be employed 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.







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Options/SAR Grants or Exercises and Long Term Incentive Plan



There are no stock option grants, Stock Appreciation Rights (SARs) grants, options/SAR exercises or Long Term Incentive Plans (LTIPs) awarded to the named executive officers in the last three financial years.



Defined benefit of actuarial plan



The Company does not have a defined benefit or actuarial plan in place.



Item 12.  Security Ownership of Certain Beneficial owners and Management



The following table contains information about the beneficial ownership of our common stock as of December 31, 2004, for:



(i)

each person who beneficially owns more than five percent of the 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                           | 
|             | Mitch White                       | Common Stock   | 22,500,000(2)                    | 
|             |                                   |                |                                  | 
|             |                                   |                |                                  | 
|             | Patrick Smyth                     | Common Stock   | 0                                | 
|             |                                   |                |                                  | 
|             |                                   |                |                                  | 
|             | Gordon A. Samson                  | Common Stock   | 0                                | 
|             |                                   |                |                                  | 
|             |                                   |                |                                  | 
|             | Norman MacKinnon                  | Common Stock   | 0                                | 
|             |                                   |                |                                  | 
|             |                                   |                |                                  | 
|             | Officers and directors as a group |                | 22,500,000                       | 
|             |                                   |                |                                  | 
|             | Pacific Rim Consulting            | Common Stock   | 49,100,000                       | 
|             | 3076 Sir Francis Drake Hwy        |                |                                  | 
|             | Box 3463 Road Town                |                |                                  | 
|Tortola, BVI |                                   |                |                                  | 
|             |                                   |                |                                  | 
|             |                                   |                |                                  | 

_______________



*

Less than one percent.

(1)

Applicable percentage of ownership is based on 150,998,160shares 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.





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Item 13.  Certain Relationships and Related Transactions



Our Chairman and Chief Executive Officer, Mr. Mitch White, has been the primary source of funding.   As of the date of this report, Mr. White has directly advanced total proceeds of US$1,039,745. These loans are not secured by any of the assets of our company or its subsidiaries.



We have no policy with respect to entering into transactions with members of management or affiliated companies.  Any non arm's length transaction we consider will be reviewed and voted on by disinterested members of our board of directors.



Item 14.  Principal Accounting Fees and Services



The following table sets forth the fees billed to the Company for professional services rendered by the Company's principal accountant, for the year ended December31, 2004 and December 31, 2003:



Services20032004Audit fees21,00037,291Audit related fees-Tax fees-All other fees3,032-Total fees24,03237,291




Audit fees consist of fees for the audit of the Company's annual financial statements or services that are normally provided in connection with the statutory and regulatory filings.



Tax fees included tax planning and various taxation matters.



Other services provided by the Company's principal accountant, other than audit, audit-related and tax services, included advisory services associated with accounting software applications



Part IV



Item 15.  Exhibits, List and Reports on Form 8-K.



(A)

Exhibits



|Exhibit
Number | Description                                                                                                                                                              
|-------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            | Articles of Incorporation filed October 31, 2000, as filed with the Issuer's Form 10-SB (file no. 000-32355) filed on February 14, 2001 incorporated herein by reference.
|3.3            | Bylaws as filed with the Issuer's Form 10-SB (file no. 000-32355) on February 14, 2001 incorporated herein by reference.                                                 
|               |                                                                                                                                                                          
|               |                                                                                                                                                                          





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(B)

Reports on Form 8-K



1.

On April 15, 2003 the Company filed a Form 8-K relating to the moving of administrative offices.

2.

On October 8, 2003 the Company filed a Form 8-K relating to a 5 for 1 split of common shares

3.

On October 10, 2003 the Company filed a Form 8-K relating to the purchase of equipment for 600,000 common shares at a deemed price of $0.06 per share

4.

On May 25, 2004 the Company filed a Form 8-K relating to the moving of administrative offices.

5.

On December 2, 2004 the Company filed a Form 8-k relating to the moving of administrative offices.

6.

On December 13, 2004 the Company filed a Form 8-k relating to the assignment of a promissory note to an affiliated company.

7.

On February 8, 2005 the Company filed a Form 8-k relating to the change of auditors.

8.

On March 9, 2005 the Company filed a Form 8-k relating to the February appointment as Director of Randy Peterson.







SIGNATURES



In accordance with Section 13 or 15(d) 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:

March 31, 2005

Per:

/s/ Mitch White

____________________________________

Mitch White, Chairman, CEO and Director



In accordance with the Exchange Act, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the dates indicated.



/s/ Mitch White





Mitch White, Chairman, CEO and Director





____________________________________

Date

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Rule 13a  14(a)/15(d)  14(a)



I, Mitch White, certify that:



1. I have reviewed this annual report on Form 10-K of CYOP Systems International Inc.;



2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and



6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date:  March 31, 2005

/s/ Mitch White

Mitch White

Chief Executive Officer











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Rule 13a  14(a)/15(d)  14(a)





I, Gordon Samson, certify that:



1. I have reviewed this annual report on Form 10-K of CYOP Systems International Inc.;



2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;



5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):



a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and



6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date:  March 31, 2005

/s/ Gordon Samson

Gordon Samson

Chief Financial Officer











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Section 1350 Certifications

CERTIFICATE OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. Section 1350

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Mitch White, Chief Executive Officer and  Director of CYOP Systems International Inc., certify that the Annual Report on Form 10-KSB (the "Report") for the period ended December 31, 2004, filed with the Securities and Exchange Commission on the date hereof:

(i)         fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange

Act of 1934, as amended, and



(ii)

the information contained in the Report fairly presents in all material respects, the financial

condition and results of operations of CYOP Systems International Inc.





| | By: | /s/ Mitch White
CEO and a member of the Board of Directors
| | --- | ----------------------------------------------------------





A signed original of this written statement required by Section 906 has been provided to CYOP Systems International Inc., and will be retained by CYOP Systems International Inc., and furnished to the Securities and Exchange Commission or its staff upon request.













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Section 1350 Certifications

CERTIFICATE OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. Section 1350

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Gordon Samson, Chief Financial Officer,  Director and principal accounting officer of CYOP Systems International Inc., certify that the Annual Report on Form 10-KSB (the "Report") for the period ended December 31, 2004, filed with the Securities and Exchange Commission on the date hereof:

(i)         fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange

Act of 1934, as amended, and



(iii)

the information contained in the Report fairly presents in all material respects, the financial

condition and results of operations of CYOP Systems International Inc.







| | By: | /s/ Gordon Samson
CFO and a member of the Board of Directors
(who also performs the function of  principal accounting officer)
| | --- | ------------------------------------------------------------------------------------------------------------------------------



A signed original of this written statement required by Section 906 has been provided to CYOP Systems International Inc., and will be retained by CYOP Systems International Inc., and furnished to the Securities and Exchange Commission or its staff upon request.