UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-QSB





[xx]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004



Commission file Number:  0-32355



CYOP SYSTEMS INTERNATIONAL INCORPORATED

(Exact name of small business issuer as specified in its charter)



Nevada

(State or other jurisdiction of incorporation or organization)



98-0222927

(I.R.S. Employer Identification Number)



Suite 390

1090 Homer Street

Vancouver, British Columbia

V6B 2W9

(Address of principal executive offices)



(604) 685-0696

(Issuer's telephone number)





State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:     
150,998,410 common shares as at March 31, 2004



Transitional Small Business Disclosure Format (check one):  Yes [  ]    No [ X ]









---



CYOP SYSTEMS INTERNATIONAL
INCORPORATED





INDEX



PART 1.

FINANCIAL INFORMATION



Item 1.

Financial Statements



Balance Sheet as of March 31, 2004 and December 31, 2003



Statement of Income for the period ended

March 31, 2004



Consolidated Statements of Cash Flows for the period ended

March 31, 2004



Consolidated Statements of Changes in Stockholders' Equity



Notes to Consolidated Financial Statements



Item 2

Management Discussion and Analysis





PART II.

OTHER INFORMATION



Item 1

Legal Proceedings



Item 2

Changes in Securities



Item 3

Defaults Upon Senior Securities



Item 4

Submission of Matters to a Vote of Security Holders



Item 5

Other Information



Item 6

Exhibits and Reports on Form 8K





SIGNATURES







---





CYOP SYSTEMS INTERNATIONAL

INCORPORATED



Consolidated Financial Statements

(Expressed in U.S. Dollars)



March 31, 2004



Index



Consolidated Balance Sheets



Consolidated Statements of Stockholders Deficiency



Consolidated Statements of Operations



Consolidated Statements of Cash Flows



Notes to Consolidated Financial Statements











---

|CYOP SYSTEMS INTERNATIONAL INCORPORATED                                   
|--------------------------------------------------------------------------
|                                                                          
|Consolidated Balance Sheets                                               
|(Unaudited)                                                               
|(Expressed in U.S. Dollars)                                               
|                                                                          
|ASSETS                                                                    
|Current                                                                   
|Cash and cash equivalents                                                 
|Interest receivable                                                       
|Prepaid expenses and deposit                                              
|Total current assets                                                      
|Note receivable related party(Note 6)                                     
|Equipment(Note 3)                                                         
|Intangible assets(Note 4)                                                 
|Total assets                                                              
|LIABILITIES                                                               
|Current                                                                   
|Demand loans related party (Note 5a)                                      
|Accounts payable and accrued liabilities                                  
|Convertible debenture (Note 5c)                                           
|Player funds on deposit                                                   
|Short-term loan (Note 5b)                                                 
|Total current liabilities                                                 
|Deferred revenue (Note 6)                                                 
|Total Liabilities                                                         
|                                                                          
|Nature and continuance of operations  (Note 1)                            
|                                                                          
|STOCKHOLDERS' (DEFICIENCY)                                                
|Share capital                                                             
|Authorized:                                                               
|500,000,000                                                               
|                                                                          
|Issued, allotted and outstanding:                                         
|150,998,410                                                               
|Additional paid-in capital                                                
|Deficit accumulated                                                       
|Total stockholders' (deficiency)                                          
|Total liabilities and stockholders' (deficiency)                          
|The accompanying notes are an integral part of these financial statements.



---

|CYOP SYSTEMS INTERNATIONAL INCORPORATED                                   
|--------------------------------------------------------------------------
|                                                                          
|Consolidated Statements of Stockholders' Deficiency                       
|Three Months ended March 31, 2004                                         
|(Unaudited)                                                               
|(Expressed in U.S. Dollars)                                               
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Balance, December 31, 2003                                                
|                                                                          
|Shares issued for legal services at $0.04 per                             
|share on January 27, 2004                                                 
|                                                                          
|Shares issued for corporate finance fee at $0.032 per                     
|share on January 27, 2004                                                 
|                                                                          
|Shares issued for escrow agent services at $0.032 per                     
|share on January 27, 2004                                                 
|                                                                          
|Equity component of convertible debenture                                 
|                                                                          
|Imputed interest on loan due to a related party                           
|                                                                          
|Components of comprehensive income                                        
|                                                                          
|- net income (loss) for the year                                          
|                                                                          
|Comprehensive income (loss)                                               
|                                                                          
|Balance, March 31. 2004                                                   
|                                                                          
|The accompanying notes are an integral part of these financial statements.

---

|CYOP SYSTEMS INTERNATIONAL INCORPORATED                                   
|--------------------------------------------------------------------------
|                                                                          
|Consolidated Statements of Operations                                     
|Three months ended March 31, 2004 and 2003                                
|(Unaudited)                                                               
|(Expressed in U.S. Dollars)                                               
|                                                                          
|Revenue                                                                   
|Sale  Crediplay  related party                                          
|Service fees                                                              
|Banking fees                                                              
|                                                                          
|Cost of sales                                                             
|Gross profit (loss)                                                       
|Sales and marketing expenses (recovery)                                   
|General and administrative expenses                                       
|Amortization of intangible assets                                         
|Bad debt                                                                  
|Bank charges and interest                                                 
|Corporate finance fees                                                    
|Depreciation of equipment                                                 
|Filing fees                                                               
|Imputed interest expense  related party                                  
|Legal and other professional fees                                         
|Office and miscellaneous                                                  
|Rent                                                                      
|Consultants fees                                                          
|Salaries and benefits                                                     
|Telephone and bandwidth                                                   
|Travel                                                                    
|Operating loss                                                            
|                                                                          
|Other income (loss)                                                       
|Interest income related party                                             
|Interest expenses                                                         
|Net income (loss) for the year                                            
|Earning (loss) per share basic and diluted                               
|Weighted average number of common                                         
|shares outstanding -basic and diluted                                     
|The accompanying notes are an integral part of these financial statements.

---

|CYOP SYSTEMS INTERNATIONAL INCORPORATED                                    |  
|-------------------------------------------------------------------------- | -
|                                                                           |  
|Consolidated Statements of Cash Flows                                      |  
|Three months ended March 31, 2004 and 2003                                 |  
|(Unaudited)                                                                |  
|(Expressed in U.S. Dollars)                                                |  
|                                                                           |  
|Cash flows from (used in) operating activities                             |  
|Net loss for the year                                                      | $
|Adjustments to reconcile net loss to net cash                              |  
|Used in operating activities:                                              |  
|- amortization of intangible assets                                        |  
|- depreciation of equipment                                                |  
|- imputed interest on related party loan                                   |  
|- shares issuance for services                                             |  
|Changes in assets and liabilities:                                         |  
|- interest receivable                                                      |  
|- loan receivable                                                          |  
|- note receivable related party                                            |  
|- prepaid expenses and deposit                                             |  
|- accounts payable and accrued liabilities                                 |  
|- player funds on deposit                                                  |  
|- deferred revenue                                                         |  
|                                                                           |  
|Cash flows from (used in) financing activities                             |  
|Increase (decrease) in due from director                                   |  
|Proceeds from convertible debenture                                        |  
|                                                                           |  
|Increase in cash and cash equivalents                                      |  
|Cash and cash equivalents,beginning of period                              |  
|Cash and cash equivalents, end of period                                   | $
|The accompanying notes are an integral part of these financial statements. |  

---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)





1.

Nature and Continuance of Operations

The Company was incorporated on October 29, 1999 in the name of Triple 8 Development Corporation under the laws of the State of Nevada to engage in any lawful business or activity for which corporations may be organized under the laws of the State of Nevada.  The Company changed its name to CYOP Systems International Incorporated on October 30, 2000.  On November 3, 2000, the Company acquired 100% of the issued and outstanding shares of CYOP Systems Inc., Barbados (CYOP Barbados). This transaction was accounted for as a reverse acquisition recapitalization.

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

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

These consolidated financial statements have been prepared using the generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  The Company has suffered recurring losses from operations and has a net capital deficiency. The ability of the Company to continue as a going concern is dependent upon many factors, including the ability of the Company to obtain financing to fund working capital requirements, the degree of competition encountered by the Company, technology risks, government regulation and general economic conditions. The Managements plan in this regard is to raise equity financing as required and keep abreast with the multimedia technology. These consolidated financial statements do not include any adjustments that might result from this uncertainty.

In fiscal year 2003, the company had 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.

---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



2.

Significant Accounting Policies

(a)

Basis of Consolidation

These consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, include the accounts of the Company and its subsidiary CYOP Barbados. Significant inter-company accounts and transactions have been eliminated.

(b)

Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period.  Actual results may differ from those estimates.

(c)

Cash Equivalents

Cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturity of three months or less when purchased.  As at March 31, 2004, cash equivalents consist of cash with processors, totaling $7,963 (March 31, 2003 - $3,258).

(d)

Equipment

Equipment is 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 software100% declining-balance basisOffice furniture and equipment20% declining-balance basis


(e)

Revenue recognition

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







---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



2.

Significant Accounting Policies(continued)

(f)

Software Development Costs

Software development costs incurred prior to the establishment of technological feasibility are charged to expenses as incurred.

(g)

Advertising and Promotion

The Company expenses advertising and promotion costs as incurred.  Total advertising and promotion costs charged to expenses for the year ended March 31, 2004 is a credit amounting to $5,050 from the recovery of closed promotional accounts (March 31, 2003 - $62,495).

(h)

Foreign Currency Translations

The Company and CYOP Barbados maintain their accounting records in U.S. dollars.   Foreign currency transactions are translated into their functional currency in the following manner.

At the transaction date, each asset, liability, revenue and expense is translated into the functional currency by the use of the exchange rate in effect at that date.  At the period end, monetary assets and liabilities are translated into the functional currency by using the exchange rate in effect at that date.  The resulting foreign exchange gains and losses are included in operations.

(i)

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.





---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



2.

Significant Accounting Policies(continued)

(j)

Long-Lived Assets Impairment

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows that is expected to result from the use of the asset and its eventual disposition.  The amount of the impairment loss to be recorded is calculated by the excess of the assets carrying value over its fair value.  Fair value is generally determined using a discounted cash flow analysis.

(k)

Intangible Assets

The Company adopted the Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite life are not amortized but rather tested at least annually for impairment.  Intangible assets with a definite life are required to be amortized over its useful life or its estimated useful life.

(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.







---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



2.

Significant Accounting Policies(continued)

(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 hedged asset or liability that are attributable to the hedged risk or (ii) the designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

As at March 31, 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 March 31, 2004 are anti-dilutive.

(o)

Comprehensive Income

The Company has adopted Statement of Financial Accounting Standard No. 130 (SFAS 130), Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances.  The Company is disclosing this information on its Statement of Stockholders Equity.  Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners.

(p)

Stock-based Compensation

The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-based Compensation" and SFAS No. 148 Accounting for Stock-based Compensation  Transition and Disclosure, an amendment to SFAS No. 123.  SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation.  The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations.

---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



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. The Company does not expect the implementation of SFAS No. 149 to have an impact on its 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. The Company does not expect the implementation of SFAS No. 150 to have a material impact on its consolidated financial statements.



---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



2.

Significant Accounting Policies(continued)

(q)

New Accounting Pronouncements (continued)

In December 2003, the FASB issued SFAS No. 132(R), a revision to SFAS No. 132, Employers Disclosure about Pensions and Other Postretirement Benefits. SFAS No. 132(R) requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS No. 132(R) is effective for financial statements with fiscal years ending after December 15, 2003, with the exception of disclosure requirements related to foreign plans and estimated future benefit payments which are effective for fiscal years ending after June 15, 2004. The adoption of SFAS No. 132(R) did not impact our consolidated financial position or results of operations.



In a December 11, 2003 speech at the American Institute of Certified Public Accountants and Securities and Exchange Commission (SEC) expressed the opinion that rate-lock commitments represent written put options, and therefore be valued as a liability.  The SEC expressed that they expect registrants to disclose the effect on the financial statement of recognizing the rate-lock commitments as written put options, for quarters commencing after March 15, 2004.  Additionally, the SEC recently issued Staff Accounting Bulletin (SAB) No. 105. SAB No. 105 clarifies the SECs position that the inclusion of cash flows from servicing or ancillary income in the determination of the fair value of interest rate lock commitments is not appropriate. The Company has not yet determined the impact on the consolidated financial statements of SAB No. 105, which must be implemented for loan commitments entered into on or after April 1, 2004. The Company is currently analyzing the impact of the SECs position and will, if required, account for its loan origination commitments as prescribed.

---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



3.

Equipment

March 31, 2004CostAccumulated depreciationNet book
ValueAudio and visual equipment$   21,558$     12,075$    9,483Computer hardware96,86440,97355,891Computer software3,0883,088-Office furniture and equipment9,2276,2852,942Total$ 130,737$     62,421$  68,316






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




For the period ended March 31, 2004, depreciation expenses charged to general and administrative, were $5,186 (March 31, 2003 - $4,013).





---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



4.

Intangible Assets

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

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

(a)

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

(b)

the Skill-Bingo game software

(c)

the website located athttp://www.bigrbingo.com

(d)

the trademark BiGrBingo

(e)

the BiGrBingo customer deposits

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

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

---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



4.

Intangible Assets   (continued)

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

20042003Balance, beginning of year$86,749$115,665Amortization(7,229)(28,916)Balance, end of year$79,520$86,749




5.

Loans

(a)

Demand Loans Related Party

20042003Non-interest bearing and unsecured:
- Jack Carley  related to a director and stockholder$
44,625$
44,625- Mitch White  a director and stockholder764,816427,613- Gordon Samson  a director21,029-- Patrick Smyth15,000Total$
845,470$
472,238




(b)

Short-term Loan

20042003Interest at 10% per annum, on demand:- RedRuth Ventures$
212,725$212,725




(c)

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.

---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



(c)

Convertible debenture (continued)

Upon the issuance of the notes, the net proceeds ($125,000) received were allocated between the liability and equity components of the notes.  The liability component ($114,153) represents the present value of the notes discounted using the interest rate that would have been applicable to non-convertible debt.  The equity component ($10,847) represents the residual value of proceeds after allocated to the liability component.  Over the terms of the notes, the liability and the interest components are accreted to their face value.  As at March 31, 2004, the convertible debenture was $115,437.

6.

Sale and License-back of Computer Software

On December 14, 2001, the Company sold computer software identified as Crediplay System to the sole director and a major stockholder and creditor of the Company for $3,000,000. The purchase price was settled by retiring $1,200,000 of debt owed to the purchaser and a promissory note for $1,800,000. The promissory note bears interest at 5% per annum with maturity on December 14, 2010.  The promissory note is secured through a first priority lien and security interest in the Crediplay System and amount due to Mr. Mitch White (the Purchaser) totalling $517,613. As at December 31, 2002 the present value of the promissory note was $1,585,034 after calculating at the discount rate of 7% and accruing interest of 5%. Interest receivable was calculated at 1,800,000 X 5% or $90,000.  As at March 31, 2004, the present value of the promissory note was $1,611,560 after calculating at the discount rate of 7% and accruing interest of 5%.

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 for 2003 and 2004 due to the lack of capitalization of the Company, the Promissory Note for $1.8 million (the note) has been further guaranteed by the demand loan of $731,797 as at December 31, 2003 owed to Mitch White (See note 5(a)). This guarantee was executed at December 31, 2003 to ensure the note is further collateralized as the note has not been paid down by revenues as contemplated in the exploitation and marketing agreements executed December 31, 2001 and filed on Edgar by Form 8-K on April 15, 2002.

---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



6.

Sale and License-back of Computer Software (continued)

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

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

Sales 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 as at December 31, 2001$2,270,394Recognized gain in 2002(71,842)Deferred gain as at December 31, 2002$2,198,552Recognized gain in 2003(16,040)Deferred gain as at December 31, 2003$2,182,512Recognized gain in the fist quarter of 2004(4,060)Deferred gain as at March 31, 2004$2,178,452




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





---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



7.

Stockholders Equity (Deficit)

(a)

Issuance of Common Shares

During the period, the Company issued 7,500,000 shares to Cornell Capital LLP as a corporate finance fee and 312,500 to Newbridge Securities Corp as an escrow agent fee in connection with the Standby equity underwriting agreement for financing as originally filed on the Companys SB-2 on March 1, 2004. These shares were issued at $0.032 per share. Additionally 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.

During the fiscal year 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 500,000 shares.  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 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 was no stock options granted for the period ended March 31, 2004.

A summary of the stock option outstanding as at March 31, 2004 is as follows:

SharesWeighted Average
Exercise PriceOptions outstanding at March 31, 200425,000$1.00






Options Outstanding and ExercisableRange of Exercise PricesNumber Outstanding and ExercisableWeighted Average Remaining
Contractual LifeWeighted Average Exercise Price$0 - $1.0025,0002.17$1.00


---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)



8.

Income Taxes

As at March 31, 2004 the Company has non-capital losses and undepreciated capital cost of approximately $2,320,000 and $62,000, 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.

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$   21,000$   20,000Estimated tax loss carryforward789,000650,00Less: valuation allowance(810,000)(670,000)--


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

9.

Related Party Transactions

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

(a)

In the period ending March 31, 2004, the Company recorded an imputed interest of $24,439 (March 31, 2003 - $14,756) at an interest rate of 10% per annum on interest-free loan totaling $977,540 from directors and stockholders of the Company.

(b)

Pursuant to management and consulting agreements effective January 1, 2003, management were to be paid by base fees with certain incentive compensations and bonuses subject to achievement of performance goals and approval by the Compensation Committee.

As of December 31, 2003, consulting and management fees, totaling $300,000, were payable but the management had agreed to forgive the debts without recourse.  No incentive compensations and bonuses were granted and outstanding as of December 31, 2003.

As at March 31, 2004 the related amounts have been recorded as a liability and due to directors.

(c)

See Note 5 and 6.

---

CYOP SYSTEMS INTERNATIONAL INCORPORATED



Notes to Consolidated Financial Statements

Three months ended March 31, 2004 and 2003

(Unaudited)

(Expressed in U.S. dollars)





10.

Non-Cash Activities

(a)

In 2003, the management of the Company forgave $300,000 of the annual base salaries without recourse.  See Note 9 (b).

(b)

See Note 7 (a)

11.

Subsequent events

(a)

Standby Equity Distribution Agreement

An amended SB-2 was filed on May 6, 2004 to clear the standby equity distribution agreement.

The Company signed an agreement in January 2004 to periodically issue and sell to Cornell Capital Partners, LP ( the Investor) shares of common stock for a total purchase price of $5.0 million.

The Company paid the Investor a commitment fee of $240,000 by issuing 7,500,000 shares of common stock (issued). In addition, the Investor will be entitled to retain 4% of each advance under the standby equity distribution agreement.

The investor intends to sell any shares purchased under the standby equity distribution agreement at the then prevailing market price.

A registered broker-dealer was engaged to advise the Company in connection with the standby equity distribution agreement. The broker-dealer was paid a fee of $10,000, payable by the issuance of 312,500 shares of Companys common stock (issued) and is not participating as an underwriter in this offering.

12.

Geographic Information

All the Companys operations and fixed assets are located in the U.S..

















---





MANAGEMENT'S DISCUSSION AND ANALYSIS



The following management's discussion and analysis of the Company should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this quarterly report for the three months ended March 31, 2004.This quarterly report contains certain forward-looking statements and the Company's future operation results could differ materially from those discussed herein.



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



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



We have been primarily focused on developing our product for market launch.  Management has financed most of our operations to date.  Management will continue to fund our operations through shareholders loans until our equity financing is closed. We will satisfy cash requirements solely from funds loaned by management or family and friends or private investors until this time.  However, management is not under any contractual obligation to provide continued funding.  We will spend approximately $1/2 million in the next 12 months to maintain current operations at our current expenditure rate; not including any marketing initiatives or expansion plans. Additional funds in the amount of $1.5 million will be expended for a complete launch of the Crediplay system including a full marketing budget. Executive and key personnel have executed management contracts and to ensure retention of executive and key personnel the Company will be paying fees and salaries or accruing them as necessary for 2004.



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.  In March 2001, the Company secured the Canadian Imperial Bank of Commerce as the Company's merchant account processor. Merchant processors now include 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.  These games are licensed from third-partys and the company continues to talk to and discuss arrangements with third party game developers to ensure leading edge games are available on the proprietary site www.skillarcade.com for our members.



In order for our Company to expand it's operations and realize profits from pay for play online video gaming we are actively signing up affiliate companys and pursuing strategic acquisitions and partnerships that bring internet traffic and more games to be integrated into our existing suite of games. Sina.com as disseminated by news release dated May 4., 2004. Until we increase our Company's exposure and attract players to our website and/or complete strategic acquisitions and partnerships we cannot expect large volumes of players for our online pay for play video game.  Revenues will be derived from licensing fees from third parties that already have an established community and significant traffic to their web sites.

---

Liquidity and Capital Resources



The Company does not yet have an adequate source of reliable, long-term revenue to fund operations. As a result, the Company is reliant on outside sources of capital funding. 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 has secured a source of capital funding, as an equity funding closing subject to the regulatory clearance of the SB-2 registration statement.



The Company had cash and cash equivalents of $8,526 at March 31, 2004 and a working capital deficit of $(1,370,949) with the deficiency arising primarily from $845,470 in loans from directors, compared to a working capital deficit of  ($988,392) at March 31, 2003 to satisfy requirements for operations for the same period ending March 31, 2003. This reflects the continued commitment by management with an increase of advancing shareholder loans to cover the cost of operations.



During the period ended March 31, 2004, the Company used cash of $191,871 in operating activities compared to using $148,579 in the prior period ended March 31, 2003. This is a reflection two things; significant legal expenses and corporate finance fees incurred in connection with the equity financing being undertaken and limited operations as the Company focused its efforts in locating and acquiring a funding source to capitalize the Company.



Net cash provided by financing activities was $191,340 for the period originating from further advances made by directors of the Company and a $125,000 convertible debenture provided by Cornell Capital LLP., which compares to $147,878 in net cash provided to the Company for the same period in 2003.



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 partnerships and/or acquisition of complementary businesses, products and technologies. We do not have sufficient cash and cash equivalents on hand to conduct our operations through the second quarter of 2004, 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 and as amended on May 6, 2004 on Edgar. Management believes with this financing and some material contracts executed as disseminated by News Release that the Company is in a position to positively impact fledgling revenues for 2003 and YTD 2004. As there have been only minor revenues for 2002 and 2003 due to the lack of capitalization of the Company, the Promissory Note for $1.8 million (the note) has been further guaranteed by the shareholder loan of Mitch White. This guarantee was executed at December 31, 2003 to ensure the note is further collateralized 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.



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

---



Results of operations for the quarter ended March 31, 2004 as compared to the quarter ended March 31, 2004.



Revenue



For the quarter ended March 31, 2004 the Company generated revenue of $11,590, from operations. The same period ending March 31, 2003 generated revenues of $14,988. Current revenues are now from a wide variety of affiliates and the companys proprietary URL.



Sales and Marketing Expenses



Sales and marketing expenses for the period ended March 31, 2004 were zero as the Company focused efforts on closing a financing. A credit of $5,050 is a reflection of closed member accounts of granted promotional dollars. The same period ended March 31, 2003 had an expenditure of $62,495 with various third parties marketing companies. These sales and marketing expenses included principally costs for marketing, co-brand advertising and keyword buys for our site and participation in trade shows.



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



General and Administrative expenses



General and administrative expenses consist primarily of contract personnel costs, legal and audit professional fees, insurance and other general corporate and office expenses, including $262,500 in corporate finance fees in connection with the Companys financing. General and administrative expenses increased to $455,064 as a result for the period ended March 31, 2004 from $81,700 for the same period ended March 31, 2004. This is an increase of $373,364 primarily due to costs of the equity financing with Cornell Capital LLP.



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.



"CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.  Except for historical matters, the matters discussed in this Form 10-QSB are forward-looking statements based on current expectations and involve risks and uncertainties.  Forward-looking statements include, but are not limited to, statements under the following heading: "Managements Discussion And Analysis Or Plan Of Operations" the timing and expected profitable results of sales and the need for no additional financing.

Controls and Procedures



The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports required to be filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time

---



periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective.



There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.



PART II

OTHER INFORMATION



Item 1.

LEGAL PROCEEDINGS



None



Item 2

CHANGES IN SECURITIES AND USE OF PROCEEDS



None



Item 3

DEFAULTS UPON SENIOR SECURITIES



None



Item 4

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None



Item 5

OTHER INFORMATION



None



Item 6

EXHIBITS AND REPORTS ON FORM 8-K



(a)

Exhibits



Exhibit 99.1 Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



Exhibit 99.2 Certification Pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



---



(b)

Reports on Form 8-K









SIGNATURES



In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



CYOP SYSTEMS INTERNATIONAL INCORPORATED





Dated:  May 14, 2004

Per:/s/ Mitch White____________



Mitch White CEO, and Director