---

**UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION**
  Washington, D.C. 20549

FORM 10-QSB

ý QUARTERLY REPORT
  UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
  FOR THE QUARTERLY PERIOD ENDED June 30, 2005

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)

**Unit A
  149 South Reeves Drive
  Beverly Hills, California90212**
  (Address of principal executive offices)**(310) 248-4860**
  (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: 333,498,160 common shares as at June 30, 2005

Transitional Small Business Disclosure Format (check one):
  Yes  ̈ No x

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CYOP SYSTEMS INTERNATIONAL INCORORATED

INDEX

|PART 1.  | FINANCIAL
        INFORMATION | 3.                                                                                                       
|-------- | ----------------------------- | ---------------------------------------------------------------------------------------------------------
|         |                               |                                                                                                          
|         | Item 1.                       | Financial Statements                                                                                     
|         |                               |                                                                                                          
|         |                               | Consolidated Balance
        Sheets as of June 30, 2005 and December 31, 2004                            
|         |                               |                                                                                                          
|         |                               | Consolidated Statements
        of Changes in Stockholders' Equity for the six months ended June 30, 2005
|         |                               |                                                                                                          
|         |                               | Consolidated Statements
        of Operations for the six and three months ended June 30, 2005 and 2004  
|         |                               |                                                                                                          
|         |                               | Consolidated Statements
        of Cash Flows for the six months ended June 30, 2005 and 2004            
|         |                               |                                                                                                          
|         |                               | Notes to the Consolidated
        Financial Statements                                                   
|         |                               |                                                                                                          
|         | Item 2.                       | Management Discussion
        and Analysis                                                               
|         |                               |                                                                                                          
|         | Item 3.                       | Controls and Procedures                                                                                  
|         |                               |                                                                                                          
|PART II. | OTHER INFORMATION             | 30.                                                                                                      
|         |                               |                                                                                                          
|         | 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                    | 30.                                                                                                      

2

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| | CYOP SYSTEMS INTERNATIONAL
        INCORPORATED
      Consolidated Financial Statements(Expressed in U.S. Dollars)
      June 30, 2005
      Index
      Consolidated Balance Sheets as of June 30, 2005 and
        December 31, 2004
      Consolidated Statements of Operations for the six and
        three months ended June 30, 2005 and 2004
      Consolidated Statements of Cash Flows for the six months
        ended June 30, 2005 and 2004
      Consolidated Statement of Changes in Stockholders' Equity
        for the six months ended June 30, 2005
      Notes to the Consolidated Financial Statements
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDConsolidated Balance Sheets
  Unaudited(Expressed in U.S. Dollars)

|                                                              |   | June 30,2005 |   |   | December, 31, 2004 |  
|------------------------------------------------------------- | - | ------------ | - | - | ------------------ | -
|ASSETS                                                        |   |              |   |   |                    |  
|Current                                                       |   |              |   |   |                    |  
|Cash and cash equivalents                                     | $ | 22,843       |   | $ | 7,337              |  
|Accounts receivable                                           |   | 140,507      |   |   | 50,058             |  
|Prepaid
      expenses and deposit                            |   | 18,954       |   |   | 2,440              |  
|Total current assets                                          |   | 182,304      |   |   | 59,835             |  
|Fixed assets, net                                             |   | 84,835       |   |   | 54,568             |  
|Investment in equity – method investee                        |   | 1,637,446    |   |   | 1,668,285          |  
|Intangible assets, net                                        |   | 43,375       |   |   | 57,833             |  
|Total assets                                                  | $ | 1,947,960    |   | $ | 1,840,521          |  
|LIABILITIES                                                   |   |              |   |   |                    |  
|Current                                                       |   |              |   |   |                    |  
|Demand loans related party                                    | $ | 1,337,946    |   | $ | 1,289,620          |  
|Accounts payable and accrued
      liabilities                |   | 262,304      |   |   | 288,785            |  
|Convertible debenture                                         |   | -            |   |   | 70,000             |  
|Player funds on deposit                                       |   | 45,024       |   |   | 44,158             |  
|Short-term loan                                               |   | 212,725      |   |   | 212,725            |  
|Promissory note                                               |   | 140,000      |   |   | 100,000            |  
|Total current liabilities                                     |   | 1,997,999    |   |   | 2,005,288          |  
|Deferred revenue                                              |   | 2,173,449    |   |   | 2,173,822          |  
|Total Liabilities                                             |   | 4,171,448    |   |   | 4,179,110          |  
|                                                              |   |              |   |   |                    |  
|Nature and continuance of operations                          |   |              |   |   |                    |  
|                                                              |   |              |   |   |                    |  
|STOCKHOLDERS' DEFICIENCY                                      |   |              |   |   |                    |  
|Share capital                                                 |   |              |   |   |                    |  
|Authorized:                                                   |   |              |   |   |                    |  
|500,000,000
      shares of common stock with a par value     |   |              |   |   |                    |  
|of $0.00002 per share                                         |   |              |   |   |                    |  
|Issued, allotted and outstanding:                             |   |              |   |   |                    |  
|333,429,702
      shares of common stock (2004 - 181,103,355) |   | 6,669        |   |   | 3,623              |  
|Additional paid-in capital                                    |   | 2,605,103    |   |   | 1,062,970          |  
|Deficit accumulated                                           |   | (4,835,260   | ) |   | (3,405,182         | )
|Total stockholders' deficiency                                |   | (2,223,488   | ) |   | (2,338,589         | )
|Total liabilities and stockholders' deficiency                | $ | 1,947,960    |   | $ | 1,840,521          |  

4

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|Consolidated Statements of Stockholders' Deficiency
      Six Months ended June 30, 2005
      (Unaudited) | Page 1of 1
|---------------------------------------------------------------------------------------------------------- | ----------

|(Expressed in U.S. Dollars)      |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|-------------------------------- | ------------ |  | - | ------- |  | - | ---------- |  | - | ----------- | - | - | ------------ | -
|                                 |              |  |   |         |  |   |            |  |   |             |   |   | Total        |  
|                                 |              |  |   |         |  |   | Additional |  |   |             |   |   | Stock-       |  
|                                 | Common stock |  |   | paid-in |  |   | Deficit    |  |   | Holders'    |  
|                                 | Shares       |  |   | Amount  |  |   | Capital    |  |   | accumulated |   |   | (deficiency) |  
|                                 |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|Balance, December 31, 2004       | 181,103,355  |  |   | 3,623   |  |   | 1,062,970  |  |   | (3,405,182  | ) |   | (2,338,589   | )
|                                 |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|Common Stock issued for cash     | 107,326,347  |  |   | 2,146   |  |   | 760,033    |  |   |             |   |   | 762,179      |  
|                                 |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|Common Stock issued for services | 45,000,000   |  |   | 900     |  |   | 782,100    |  |   |             |   |   | 783,000      |  
|                                 |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|Net loss for the period          |              |  |   |         |  |   |            |  |   | (1,430,078  | ) |   | (1,430,078   | )
|                                 |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|                                 |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|                                 |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|                                 |              |  |   |         |  |   |            |  |   |             |   |   |              |  
|Balance, June 30, 2005           | 333,429,702  |  | $ | 6,669   |  | $ | 2,605,103  |  | $ | (4,835,260  | ) | $ | (2,223,488   | )

5

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|(Expressed in U.S. Dollars)                                                      |                            |   |                    |   |             |   |             |  
|-------------------------------------------------------------------------------- | -------------------------- | - | ------------------ | - | ----------- | - | ----------- | -
|                                                                                 | For the Three Months Ended |   | For the Six Months |  
|                                                                                 | June 30                    |   | Ended June 30      |  
|                                                                                 | 2005                       |   | 2004               |   | 2005        |   | 2004        |  
|Revenues                                                                         |                            |   |                    |   |             |   |             |  
|Service fees                                                                     | 1,876                      |   | 2,785              |   | 4,309       |   | 10,122      |  
|Sale – Crediplay –
      related party (Note 6)                                  | 238                        |   | 1,540              |   | 373         |   | 5,600       |  
|Banking fees                                                                     | 249                        |   | 79                 |   | 351         |   | 272         |  
|Total Revenues                                                                   | 2,363                      |   | 4,404              |   | 5,033       |   | 15,994      |  
|Cost of sales                                                                    | (28,330                    | ) | (49,564            | ) | (36,405     | ) | (62,678     | )
|                                                                                 |                            |   |                    |   |             |   |             |  
|Gross profit (loss)                                                              | (25,967                    | ) | (45,160            | ) | (31,372     | ) | (46,684     | )
|                                                                                 |                            |   |                    |   |             |   |             |  
|                                                                                 |                            |   |                    |   |             |   |             |  
|Sales and Marketing expenses                                                     | -                          |   | (5,050             | ) | (56,460     | ) | -           |  
|Consultants fees                                                                 | (126,500                   | ) | (113,072           | ) | (1,003,232  | ) | (201,072    | )
|Corporate finance fees                                                           | (849                       | ) | -                  |   | (142,156    | ) | (262,500    | )
|General and admin fees                                                           | (42,553                    | ) | (70,809            | ) | (112,957    | ) | (153,774    | )
|                                                                                 |                            |   |                    |   |             |   |             |  
|                                                                                 |                            |   |                    |   |             |   |             |  
|Operating Loss                                                                   | (195,869                   | ) | (234,091           | ) | (1,346,177  | ) | (664,030    | )
|                                                                                 |                            |   |                    |   |             |   |             |  
|Other income (loss)                                                              |                            |   |                    |   |             |   |             |  
|Interest income related party                                                    |                            |   | 25,413             |   | -           |   | 53,364      |  
|Interest expense                                                                 | (19,720                    | ) | (23,002            | ) | (53,062     | ) | (47,441     | )
|Equity in losses of equity-method investee                                       | (15,880                    | ) | -                  |   | (30,839     | ) | -           |  
|                                                                                 |                            |   |                    |   |             |   | -           |  
|Net loss for the period                                                          | (231,469                   | ) | (231,680           | ) | (1,430,078  | ) | (658,107    | )
|                                                                                 |                            |   |                    |   |             |   |             |  
|Loss per share– basic and diluted                                                |                            |   |                    |   |             |   |             |  
|Loss from operations                                                             | (0.001                     | ) | (0.00              | ) | (0.005      | ) | (0.000      | )
|                                                                                 |                            |   |                    |   |             |   |             |  
|Net loss                                                                         | (0.001                     | ) | (0.00              | ) | (0.005      | ) | (0.000      | )
|Weighted average number of                                                       |                            |   |                    |   |             |   |             |  
|common shares outstanding                                                        | 326,236,871                |   | 150,998,160        |   | 282,055,526 |   | 150,998,160 |  
|The accompanying notes are an integral part of
      these financial statements. |                            |   |                    |   |            

6

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|(Expressed in U.S. Dollars)                                                      |                      |          |                    |   |         
|-------------------------------------------------------------------------------- | -------------------- | -------- | ------------------ | - | --------
|                                                                                 | For the Three Months |          | For the Six Months |  
|                                                                                 | Ended June 30,       |          | Ended June 30,     |  
|                                                                                 |                      |          |                    |   |         
|                                                                                 | 2005                 |          | 2004               |   | 2005    
|                                                                                 |                      |          |                    |   |         
|Cash flows from (used in) operating activities                                   |                      |          |                    |   |         
|Net loss for the period                                                          |                      | (231,469 | )                  |   | (231,680
|Adjustments to reconcile net
      loss to net cash                              |                      |          |                    |   |         
|Used
      in operating activities:                                              |                      |          |                    |   |         
|-
      amortization of intangible assets                                        |                      | 7,229    |                    |   | 7,229   
|-
      depreciation of fixed assets                                             |                      | 5,020    |                    |   | 4,813   
|-
      imputed interest on related party loan                                   |                      | -        |                    |   | 23,002  
|-
      share issuance for services                                              |                      | -        |                    |   | -       
|-
      investment in equity interest                                            |                      | 15,881   |                    |   | -       
|-
      accredited to convertible debenture                                      |                      | -        |                    |   | 1,284   
|Changes in assets and liabilities:                                               |                      | -        |                    |   | -       
|-
      accounts receivable                                                      |                      | (140,271 | )                  |   | (98     
|-
      interest receivable                                                      |                      | -        |                    |   | (17,055 
|-
      note receivable related party                                            |                      | -        |                    |   | (5,574  
|-
      prepaid expenses                                                         |                      | (16,512  | )                  |   | (2,500  
|-
      accounts payable and accrued liabilities                                 |                      | 1,475    |                    |   | 30,260  
|-
      player funds on deposit                                                  |                      | 685      |                    |   | 710     
|-
      deferred revenue                                                         |                      | 238      |                    |   | (1,540  
|                                                                                 |                      | (357,724 | )                  |   | (191,149
|Cash flows from (used in) investing activities                                   |                      |          |                    |   |         
|Increase in due from a director                                                  |                      | 48,205   |                    |   | 153,811 
|Purchase
      of fixed assets                                                   |                      | (39,115  | )                  |   | -       
|                                                                                 |                      | 9,090    |                    |   | 153,811 
|Cash flows from financing activities                                             |                      |          |                    |   |         
|Shares issued                                                                    |                      | 69,800   |                    |   | -       
|Proceeds from promissory note                                                    |                      | 140,000  |                    |   | 50,000  
|Proceeds
      from convertible debenture                                        |                      | -        |                    |   | -       
|                                                                                 |                      | 209,800  |                    |   | 50,000  
|Foreign exchange gain (loss) on cash held in                                     |                      | 18,212   |                    |   | -       
|foreign
      currency                                                           |                      |          |                    |   |         
|Increase (decrease) in cash and cash equivalents                                 |                      | (120,622 | )                  |   | 12,662  
|                                                                                 |                      |          |                    |   |         
|Cash,beginning of period                                                         |                      | 143,465  |                    |   | 8,526   
|Cash (deficiency), end of period                                                 | $                    | 22,843   |                    | $ | 21,188  
|                                                                                 |                      |          |                    |   |         
|Cash represented by:                                                             |                      |          |                    |   |         
|Cash on hand                                                                     | $                    | 19,000   |                    | $ | 21,188  
|Cash
      with processors                                                       |                      | 3,843    |                    |   |         
|                                                                                 | $                    | 22,843   |                    | $ | 21,188  
|The 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.

7

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(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. On April 29, 2005 the Company incorporated Red
        Felt Software under the laws of the United Kingdom.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | The Company, and its subsidiaries, is
        a provider of multimedia transactional technology solutions and services
        for the entertainment industry. The Company’s range of products
        and services include financial transaction platforms for on-line video
        games and integrated e-commerce transaction technology for on-line merchants.
        These services are considered as one segment only based on internal organizational
        structure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   | These consolidated financial statements
        have been prepared using the generally accepted accounting principles
        applicable to a going concern which contemplates the realization of assets
        and the satisfaction of liabilities and commitments in the normal course
        of business. The Company has suffered recurring losses from operations
        and has a net capital deficiency. The ability of the Company to continue
        as a going concern is dependent upon many factors, including the ability
        of the Company to obtain financing to fund working capital requirements,
        the degree of competition encountered by the Company, technology risks,
        government regulation and general economic conditions. The Management’s
        plan in this regard is to raise equity financing as required and keep
        abreast with the multimedia technology. These consolidated financial statements
        do not include any adjustments that might result from this uncertainty.
|  
|2. | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

8

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|2. | Significant Accounting Policies(continued)
|-- | ------------------------------------------
|  
|   | (b)                                       
|  
|   |                                           
|  
|   | (c)                                       
|  
|   |                                           
|  
|   | (d)                                       
|  
|   |                                           
|  
|   | (e)                                       
|  
|   |                                           

| | Audio and visual equipment     | 20% declining-balance basis
| | ------------------------------ | ---------------------------
| | Computer hardware              | 30% declining-balance basis
| | Computer software              | 50% declining-balance basis
| | Office furniture and equipment | 20% declining-balance basis
| | Leasehold improvements         | 20% straight-line basis    

9

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|2. | Significant Accounting Policies(continued)
|-- | ------------------------------------------
|  
|   | (f)                                       
|  
|   |                                           
|  
|   | (g)                                       
|  
|   |                                           
|  
|   | (h)                                       
|  
|   |                                           
|  
|   | (i)                                       
|  
|   |                                           
|  
|   | (j)                                       
|  
|   |                                           

10

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|2. | Significant Accounting Policies(continued)
|-- | ------------------------------------------
|  
|   | (k)                                       
|  
|   |                                           
|  
|   | (l)                                       
|  
|   |                                           
|  
|   |                                           
|  
|   |                                           
|  
|   | (m)                                       
|  
|   |                                           

11

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|2. | Significant Accounting Policies(continued)
|-- | ------------------------------------------
|  
|   |                                           
|  
|   | (n)                                       
|  
|   |                                           
|  
|   | (o)                                       
|  
|   |                                           
|  
|   | (p)                                       
|  
|   |                                           

12

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|2. | Significant Accounting Policies(continued)
|-- | ------------------------------------------
|  
|   | (q)                                       
|  
|   |                                           
|  
|   |                                           
|  
|   |                                           
|  
|   |                                           

13

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|2. | Significant Accounting Policies(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|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:                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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.
        During the period January 1, 2005 to June 30, 2005 the Company recorded
        a further loss of $30,838 reducing the carrying value to $1,637,446.

14

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|4. | Fixed assets                                                                                                                                                                                                      |                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------
|   |                                                                                                                                                                                                                   | June 30, 2005    
|   |                                                                                                                                                                                                                   |                  
|   |                                                                                                                                                                                                                   |                  
|   |                                                                                                                                                                                                                   |                  
|   | Audio and visual equipment                                                                                                                                                                                        | $                
|   | Computer hardware                                                                                                                                                                                                 |                  
|   | Computer software                                                                                                                                                                                                 |                  
|   | Office furniture and equipment                                                                                                                                                                                    |                  
|   | Total                                                                                                                                                                                                             | $                
|   |                                                                                                                                                                                                                   |                  
|   |                                                                                                                                                                                                                   |                  
|   |                                                                                                                                                                                                                   | December 31, 2004
|   |                                                                                                                                                                                                                   |                  
|   |                                                                                                                                                                                                                   |                  
|   |                                                                                                                                                                                                                   |                  
|   | Audio and visual equipment                                                                                                                                                                                        | $                
|   | Computer hardware                                                                                                                                                                                                 |                  
|   | Computer software                                                                                                                                                                                                 |                  
|   | Office furniture and equipment                                                                                                                                                                                    |                  
|   | Total                                                                                                                                                                                                             | $                
|   |                                                                                                                                                                                                                  
|   | For the six months ended June
        30, 2005, depreciation expenses charged to cost of service, software development
        costs and general and administrative expenses were $5,020 (2004 -
        $3,827).

|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.                                                                                                                                                                                        

15

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|5. | Intangible Assets (continued)
      the Skill-Bingo game software
        the website located at http://www.bigrbingo.comthe trademark “BiG’rBingo”
        the BiG’rBingo customer deposits
      The changes in the carrying amount of intellectual property as follows:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                            |   | 2005     |   |   | 2004    |  
| | -------------------------- | - | -------- | - | - | ------- | -
| |                            |   |          |   |   |         |  
| | Balance, beginning of year | $ | 57,833   |   | $ | 86,749  |  
| |                            |   |          |   |   |         |  
| | Accumulated amortization   |   | ( 14,458 | ) |   | (28,916 | )
| |                            |   |          |   |   |         |  
| | Balance, end of period     | $ | 43,375   |   | $ | 57,833  |  

|6. | Loans
|-- | -----
|   |      
|   | (a)  

| |                                                    |                                            |   | June 30   |  |   | December 31 | 
| | -------------------------------------------------- | ------------------------------------------ | - | --------- |  | - | ----------- | 
| |                                                    |                                            |   | 2005      |  |   | 2004        | 
| | i. Interest bearing and unsecured at 5% per annum: |                                            |   |           |  |   |            
| |                                                    | - Andrea Carley – an officer               | $ | 50,561    |  | $ | 25,156      | 
| |                                                    | - Mitch White – a director and stockholder |   | 1,067,357 |  |   | 1,054,726   | 
| |                                                    | - Gordon Samson – a director               |   | 87,876    |  |   | 104,457     | 
| |                                                    | - Patrick Smyth – a director               |   | 87,527    |  |   | 60,656      | 
| | Total                                              |                                            | $ | 1,293,321 |  | $ | 1,244,995   | 

| | (b) | Short term Loan
| | --- | ---------------

| |                                       |                                                       | June 30 |        |   | December 31 |       
| | ------------------------------------- | ----------------------------------------------------- | ------- | ------ | - | ----------- | ------
| | i. Non-Interest bearing and unsecured |                                                       | 2005    |        |   | 2004        |       
| |                                       | - Jack Carley – related to a director and stockholder | $       | 44,625 |   | $           | 44,625
| | Total                                 | $                                                     | 44,625  |        | $ | 44,625      |       

| | (c) | Short-term Loan Related Party
| | --- | -----------------------------

| |                               |                    | June 30, |         |   | December 31 |        
| | ----------------------------- | ------------------ | -------- | ------- | - | ----------- | -------
| |                               |                    | 2005     |         |   | 2003        |        
| | i. Interest at 10% per annum: |                    |          |         |   |             |        
| |                               | - RedRuth Ventures |          | 212,725 |   |             | 212,725
| | Total                         | $                  | 212,725  |         | $ | 212,725     |        

16

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CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

| | (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 June 30, 2005 is $0.00                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (e) | Promissory Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     | Both notes (the “Note”) and (the “Note
        2”) were retired as at March 31, 2005. During the period new notes
        (the “Note 3”) for $125,000 and (the “Note 4”)
        for $250,000 were executed and funds advanced from Cornell Capital,
        LP. Both notes (Note 3 and Note 4) were also retired as at June 30, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     | On May 4, 2005 the Company executed a new note for
        $200,000 with Cornell Capital,LP. On execution $60,000 was advanced
        and $140,000 recorded as a receivable to be advanced on filing a new
        SB-2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     | As at June 30, 2005 outstanding amounts on (the
        “Note 5”) was $140,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

17

---

CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|7. | Sale and License-back
        of Computer Software
|-- | --------------------------------------------------
|   |                                                   
|   |                                                   
|   |                                                   
|   |                                                   

| | 2002         | Gross Earnings x 20%
| | ------------ | --------------------
| | 2003         | Gross Earnings x 17%
| | 2004         | Gross Earnings x 15%
| | 2005 to 2017 | Gross 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

18

---

CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

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

| | Sales price                                       |   |           |  
| | ------------------------------------------------- | - | --------- | -
| | Retirement of loan due to the
      purchaser     | $ | 1,200,000 |  
| | Present value of $1,800,000
      promissory note |   |           |  
| | discounted at 7% per annum                        |   | 1,565,452 |  
| |                                                   |   | 2,765,452 |  
| | Software development costs incurred in 2001       |   | (495,058  | )
| | Deferred gain 2001                                | $ | 2,270,394 |  
| | Recognized gain                                   |   | (71,842   | )
| | Deferred gain 2002                                | $ | 2,198,552 |  
| | Recognized gain in 2003                           |   | (16,040   | )
| | Deferred gain in 2003                             | $ | 2,182,512 |  
| | Recognized gain in 2004                           |   | (8,690    | )
| | Deferred gain 2004                                |   | 2,173,822 |  
| | Recognized gain in 2005                           |   | (373      | )
| | Deferred gain 2005                                |   | 2,173,449 |  

| | 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)                           
|  
|   |                               

19

---

CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|8. | Stockholders’ Equity (Deficit)(continued)                                                                                                                                                                                                                                                                                                             
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | (b)                                                                                                                                                                                                                                                                                                                                                   
|  
|   |                                                                                                                                                                                                                                                                                                                                                       
|  
|   |                                                                                                                                                                                                                                                                                                                                                       
|  
|   | (c)                                                                                                                                                                                                                                                                                                                                                   
|  
|   |                                                                                                                                                                                                                                                                                                                                                       
|  
|9. | Income Taxes                                                                                                                                                                                                                                                                                                                                          
|  
|   | As at June 30, 2005 the Company has non-capital
        losses and undepreciated capital cost of approximately $3,400,000
        and $80,000, 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)                                                                                                                                                                                                                                                                                                                                                   
|  
|   | assets are as follows:                                                                                                                                                                                                                                                                                                                                
|  

| |                                              |   | 2005       |   |   | 2004     |  
| | -------------------------------------------- | - | ---------- | - | - | -------- | -
| | Undepreciated capital cost of capital assets |   |            |   |   |          |  
| | over their net book value                    | $ | 30,000     |   | $ | 19,000   |  
| | Estimated tax loss carryforward              |   | 1,000,000  |   |   | 715,000  |  
| | Less: valuation allowance                    |   | (1,030,000 | ) |   | (734,000 | )
| |                                              |   | -          |   |   | -        |  

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

20

---

CYOP SYSTEMS INTERNATIONAL INCORPORATEDNotes to Consolidated Financial Statements
  For the six months ended June 30, 2005 and 2004(Expressed in U.S. dollars)

|10. | Related Party Transactions                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------
|   
|    | Related party transactions not disclosed
        elsewhere in the consolidated financial statements are as follows:
|   
|    | (a)                                                                                                                
|   
|    | (b)                                                                                                                
|   
|    |                                                                                                                    
|   
|11. | Geographic Information                                                                                             
|   
|    | All the Company’s operations and
        fixed assets are located in the United States.                            

21

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|Item 2. | 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 and
  six months ended June 30, 2005. 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.

The Company, and its subsidiaries, 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, licensed online gaming software and integrated
  e-commerce transaction technology for on-line merchants.

In 2005 the Company embarked on an aggressive strategy to
  build up its services and productions capabilities by embarking on a number
  of new ventures. These “business centres” are all subsidiaries of
  the Company and join the existing divisions of the Company. They are as follows:

CrediPlay Transaction Software

The company has licensed a proprietary technology called CrediPlay,
  which essentially combines online games of skill to a database platform that
  allows players to compete against each other for money. It also houses a transaction
  platform, not unlike a virtual bank, which allows players to deposit money using
  their credit cards, pay for the games and ask to withdraw any winnings instantly
  in real time. This software is utilized as the ecommerce backend for the Company’s
  games and websites.

SkillArcade.com

www.skillarcade.com is CYOP’s central games portal;
  an online games destination where people play popular skill games against other
  players and compete in tournaments to win real money prizes. Games on the site
  include over the Internet, including Puzzle, Board, Trivia, Learning games,
  Action Games, Strategy, & Role Play games. Online skill games are games
  that have been formatted so that the rules of the game eliminate elements of
  luck, without changing the fundamental nature of what makes the game enjoyable
  and appealing. Players win cash and/or prizes based on one or more skills including;
  hand-eye coordination, reaction time, dexterity, spatial memory, long-term memory,
  pattern recognition, organizational skills, strategic planning, game play knowledge,
  general knowledge and intelligence.

Each contestant pays an entry fee to enter a tournament and
  the winner collects all the entry fees paid minus a tournament maintenance fee
  to CYOP Systems for providing the games, online tournament software and ecommerce
  banking.

The fee’s collected by CYOP range between $0.25
  cents to $2.00 per game per player. This system of micro-payments is based
  on users playing multiple games over a user-session online. Tournaments generally
  run no longer than five minutes and involve five people on average. CYOP’s
  current

22

---

hardware configuration can currently operate 10,000 tournaments
  consecutively at any given time, and the Company has the ability to increase
  that to 100,000 tournaments consecutively in the close future.

The Company also allows players to play on SkillArcade.com
  for free, and is planning to monetize these customers by placement of advertising
  on the website and by converting the free-player database into cash-players
  through aggressive interactive marketing strategies. SkillArcade.com currently
  has about 250,000 members.

CrediPlay.com Network

The games found on SkillArcade.com are available to third
  party operators whereby the third party operator pays a set up fee, and an ongoing
  percentage of the net revenues to CYOP. The third party operator is responsible
  for marketing the licensed website and for driving traffic that may be converted
  into cash play. Licensing in this manner builds brand awareness quickly and
  is commonplace throughout the online gaming industry.

CrediPlay.cn

The Company reached an agreement to feature CYOP's licensed
  pool and poker games on an exclusive basis with SINA.com Online, the North American
  subsidiary of SINA Corporation; a leading online media company and value-added
  information service provider for China and for global Chinese communities.

The executed joint marketing agreement provides exclusivity
  to CYOP to be the provider of online poker and online billiards type games on
  Game Channel pages throughout the SINA’s network sites, including mainland
  China, United States, Hong Kong and Taiwan. The expected launch date is targeted
  for the third quarter of 2005 on SINA’s network.

SINA Corporation is the leading online media company and value-added
  information service provider for China and for Chinese communities worldwide
  and has more than 100 million registered users. With the most recognized Internet
  brand in China, SINA has established a network of localized Web sites that target
  Greater China and overseas Chinese communities. SINA is a publicly traded company
  on the NASDAQ has close to 2,000 employees in its offices in six cities throughout
  Asia and the U.S. and maintains a network of four localized Web sites. At December
  31, 2004 SINA generated annual net revenue of $200.0 million.

The games on the site are “Play-for-Free” meaning
  that customers may play the games and enter tournament for free after joining
  the site and providing personal data about themselves.

The Company intends to monetize the site by selling advertising
  on the site and within the games, by selling sponsorship opportunities and by
  renting out the player database to third party advertisers.

Red Felt Software

The Company launched www.redfeltsoftware.comthrough
  a newly formed United Kingdom Company, Red Felt Software Ltd., which has been
  organized as a wholly owned subsidiary of CYOP Systems International Inc.

With Red Felt Software Ltd. the Company will pursue in the
  iGaming market place turnkey licensing opportunities for enterprises wishing
  to enter and capitalize in this market space. The United Kingdom

23

---

is being recognized as a jurisdiction embracing and regulating
  this sector. The first products are online Poker and online Bingo.

Online gaming will continue to be an explosive cash generator.
  Gaming consultants Christian Capital forecast that gaming revenue will rise
  to $22.7 billion (US) by 2009, from $8.2 billion in 2004, a growth of
  22 percent. Online gaming is also expected grab an 8.1% share of the worldwide
  global gaming market.

Red Felt Software is a simple non-download gaming system that
  can be easily deployed by any webmaster or administrator. The Company also provides
  the necessary management experience and support to its licensees and their customers.

Red Felt Software Inc. provides the following to licensees
  who pay an upfront set up fee, a percentage of the net and a monthly hosting
  fee for:

- Fully built gaming site
- Non-Download gaming software
- Real Time live reporting
- Hosting & Server monitoring
- Credit Card Processing

TenseatPoker.com

The TenSeatPoker.com site will be the flagship play-for-cash
  poker site featuring the Company’s licensed poker games, and will be marketed
  with the goal of establishing brand recognition and driving revenues from targeted
  audience areas. Operated through its subsidiary, Red Felt Software, the Company
  has launched in Beta and expects to launch the full cash site in Q3.

The Company has negotiated with a number of payment processors
  to ensure global payments including the ability to leverage Check 21, laws regulating
  paper drafts, and new technologies to provide the optimal online payment processing.
  This also includes direct debit from banking institutions, major credit cards
  and multiple currencies.

More than 200 online poker sites collectively are generating
  about $3 billion a year in revenues, equal to 60% of last year's $5
  billion in gambling revenues from all of the Las Vegas “Strip”.
  An estimated 1.7 million players are active online; meaning they've played Internet
  poker in the past six months. And about 150,000 people play on an average day,
  according to PokerPulse.com.

The Company plans to derive revenues from a percentage of
  the rake and through processing fees. Rake is the percentage of the pot that
  the house collects as compensation for hosting the game. The maximum rake in
  ring games is $3, with a minimum pot size needed for any rake. Tournament
  style games do not have a rake, but have an entry fee.

TenSeatPoker.com Chinese

The Company will be localizing the Company’s TenSeatPoker.com
  cash play site into Traditional and Simplified Chinese.

The TensSeatPoker.com site will be translated, leveraging
  our tournament sponsorship and advertising model with the design to convert
  players from third-party portals in Asia to a cash play gaming site.

24

---

The Company is continuing to seek out new partners in Asia
  who have large vertical portals and who are looking to add content and functionality
  to their web properties.

Even with its minimal penetration rate, China already ranks
  second in the world in total Internet users. According to eMarketer, during
  the 2004-2008 period, the US Internet population will grow at a 2.6% annual
  rate. In contrast, China's Internet population will grow during the 2004-2008
  period by over 14.3% on an annual basis.

The Company plans to derive revenues from a percentage of
  the rake and through processing fees. Rake is the percentage of the pot that
  the house collects as compensation for hosting the game. The maximum rake in
  ring games is $3, with a minimum pot size needed for any rake. Tournament
  style games do not have a rake, but have an entry fee.

BingoBurst.com

The BingoBurst.com site will be the flagship play-for-cash
  Bingo site featuring the Company’s licensed multiplayer bingo games, and
  will be marketed with the goal of establishing brand recognition and driving
  revenues from targeted audience areas. Operated through its subsidiary, Red
  Felt Software, the Company expects to launch the full cash site in Q3.

Bingo is the largest and most socially accepted method of
  gambling throughout the world, and the current Internet bingo market is estimated
  to be more than $800 million with a 400% annual growth rate. Currently,
  between $70 and $90 billion USD is wagered at land based bingo halls
  each year around the world and there are approximately 60 million bingo players
  worldwide.

An estimated $10 billion is wagered each year at nearly
  50,000 bingo halls in North America alone. This represents per capital spending
  of approximately $30 on bingo games.

The Company plans to derive revenues from a percentage of
  the Net Loss from customers who sign up, deposit and wager on the site and through
  processing fees. Net Loss is defined as the amount wagered by players minus
  payouts.

Red Felt Studios

The Company will be opening a game studio this Fall in Central
  Europe to capitalize on the growth of online casino gaming technologies.

CYOP intends to develop “Next Generation” 3D casino
  games, which will be made for cross platform integration. These games will be
  available for mobile gaming, console gaming and Internet PC applications. Variations
  of popular games such as Blackjack, Roulette, Pai Gow, Slots, Video Poker will
  be constructed for license to third-party operators, and game hardware suppliers.

The studio will be a wholly owned subsidiary of CYOP Systems
  International Inc., and will be centrally located in Slovakia. After weighing
  the pros and cons of a number of countries, it was decided that Slovakia’s
  business-friendly government policies that have helped facilitate a foreign
  investment boom made it an excellent choice. Slovakia's economic growth exceeded
  expectations in 2001-04, despite the general European slowdown. And their labour
  market liberalization and a 19% flat tax are also appealing.

The Slovak Republic joined the OECD, a group of 30 of the
  most developed countries in the world, in the year 2000 and is also a member
  of the European Union and NATO.

25

---

US video game sales totalled almost $10 billion in 2004,
  and will rise to $16 billion by 2007, an increase of 61%. Software sales
  totalled $6.3 billion in 2004, and will rise to $8.0 billion in 2008.

CYOP is looking to increase its presence in Europe, and build
  a global infrastructure. The Company feels that the growth opportunities in
  Europe are better given that the locals have not reached the saturation point
  s of the North American marketplaces. The Company also believes that the capital
  and labour market opportunities are better, and that attitudes towards online
  gaming are friendlier.

The Company intends to derive revenues from third party game
  licensors and also intends to market the games on its proprietary websites.

CrediPlay M Games

The Company has begun preliminary talks with mobile developers
  into launching mobile games. The Company has long realized the potential for
  wireless gaming and in now doing due diligence on and meeting with mobile platform
  developers. While games have been provided as a value added service so far,
  there is a move towards gearing up both subscription and pay for play skill
  based wireless apps. CYOP intends to be the leader in pay for play skill wireless
  gaming, and is actively working with strategic partners to exploit this niche
  over the next 12 months.

Carriers are rolling out packages that place emphasis on games,
  and value added services such as SMS, stock quotes and email. The growth of
  wireless gaming is the next step in the evolution of the video game industry.
  While Japan was the leader in wireless gaming technology, Europe has been getting
  a good reputation in developing SMS, MMS and Java games for a variety of Wireless
  ASP’s looking to develop their content. Now the US market is heating up,
  and both carriers and developers are determining how they may profit by the
  explosion of SMS and MMS technology in the North American marketplace. While
  games have been provided, as a value added service so far, there is a move towards
  gearing up both subscription and casino based wireless apps.

Gaming on mobile phones and wireless devices is set to generate
  revenues of US$19.3bn by 2009, according to a new report from Juniper Research,
  and in the short term the report said 2005 would see total mobile gambling revenues
  pass the US$2bn mark. The Asia-Pacific region is expected to contribute
  the largest share of total gross revenues with 39% of the market and Europe
  follows closely behind with a 37% market share, with the US making up the majority
  of the remainder.

The Yankee Group says there are already 27 million U.S. users
  playing games on their handsets, and CYOP intends to introduce its skill gaming
  model to this growing segment.

The Company intends to monetize it M-games through licensing
  to third parties and from marketing to mobile players through its proprietary
  gaming portals.

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. 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 and from ad-serving.

26

---

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 with regulatory clearance of the SB-2 registration
  statement granted with the August 12, 2004 filing of the SB-2/A.

The Company had cash and cash equivalents of $22,843 at
  June 30, 2005 and a working capital deficit of $(1,815,695) with the deficiency
  arising primarily from $1,550,671 in loans from directors and accrued compensation
  for executives, compared to a working capital deficit of ($1,574,699) at
  June 30, 2004 to satisfy requirements for operations for the same period ending
  June 30, 2004. This reflects the continued commitment by management with an
  increase of advancing shareholder loans to cover the cost of operations.

Net cash provided by financing activities for the six month
  period ending June 30, 2005 was $584,800 for the period originating from
  common shares purchased by Cornell Capital, LP, a further promissory note from
  Cornell Capital, LP and settlement of their convertible debenture which compares
  to $175,000 in net cash provided to the Company for the same period in 2004.

During the six month period ended June 30, 2005, the Company
  used cash of $608,833 in operating activities compared to using $383,020
  in the prior period ended June 30, 2004. This is a reflection of primarily three
  things; significant legal expenses and corporate finance fees incurred in connection
  with the equity financing being undertaken and consulting fees issued with common
  stock.

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 have
  sufficient cash and cash equivalents on hand to conduct our operations through
  the third quarter of 2005.

As disclosed herein the Company concluded an underwriting
  in the first quarter of 2004 with Cornell Capital LLP and the associated SB-2
  was filed on March 1, 2004 and as amended on May 6, 2004, June 22, 2004, and
  August 5, 11, 12 and 16, 2004 on Edgar.

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 six months ended June 31,
  2005 as compared to the six months ended June 31, 2004.

Revenue

For the six months ended June 30, 2005 the Company generated
  revenue of $5,033, from operations. The same six month period ending June
  30, 2004 generated revenues of $15,994. The reduction in revenues for the
  comparable periods primarily is a reflection of the decrease in marketing efforts.

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General and Administrative expenses

General and administrative expenses consist primarily of,
  legal and audit professional fees, insurance and other general corporate and
  office expenses, for the six-month period ending June 30, 2005 of $112,957.
  General and administrative expenses decreased by $40,817 for the six-month
  period ended June 30, 2004 from $153,774. This decrease is primarily due
  to cost cutting measures related to overhead.

Consultants Fees

Consultant fees consist of the company’s contract labour
  primarily hi-tech services and management. Of the total $1,003,232 expense
  $783,000 is on account of stock issued as compensation. The balance $220,232
  is actual cash expenses that have been paid or accrued. For the same six month
  period ended June 30, 2004 the expense was $201,072 in cash and accrued
  compensation.

Interest Expense

Interest expense increased by $5,621 from $47,441
  for the six months ended June 30, 2004 to $53,063 for the six months ended
  June 30, 2005 primarily due to interest amounts on shareholder loans being accrued
  rather than forgiven.

Equity Method Investment

During the six months ended June 30, 2005 the Company recorded
  $30,839 of losses from it’s investment in equity securities accounted
  for by the equity method. The Company acquired the investment in December 2004.

Results of operations for the quarter ended June 31, 2005
  as compared to the quarter ended June 31, 2004.

Revenue

For the quarter ended June 31, 2005 the Company generated
  revenue of $2,363, from operations. The same quarter period ending June
  30, 2004 generated revenues of $4,404. Current revenues are now from a wide
  variety of affiliates and the company’s proprietary URL.

Cost of Sales

Cost of Sales for the three-month period ended June 30, 2005
  was $28,330 and for the same three-month period ended June 30, 2004 $49,564
  all with various third parties marketing companies. This cost of sales is primarily
  sales and marketing expenses for 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 and translation costs. There can be no assurances
  that these expenditures will result in increased traffic or significant new
  revenue sources.

28

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General and Administrative expenses

General and administrative expenses consist primarily of,
  legal and audit professional fees, insurance and other general corporate and
  office expenses, for the three-month period ending June 30, 2005 of $42,553.
  General and administrative expenses decreased by $28,256 for the three-month
  period ended June 30, 2004 from $70,809. This decrease is primarily due
  to cost cutting measures related to overhead.

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.

Consultants Fees

Consultant fees consist of the company’s contract labour
  primarily hi-tech services and management. Of the total $126,500 expense
  in the period $44,500 was accrued compensation and $81,500 was an actual
  cash expense.

Interest Expenses

Interest expenses of $19,720 is a reflection of accrued
  interest on shareholder and related party loans. The imputed amount for the
  same quarter in 2004 was $23,002. This is a reflection of interest expense
  being accrued on shareholder loans and related party loans at a market rate.

"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 additional financing.

|Item 3. | Controls and Procedures
|------- | -----------------------

The company’s management, under the supervision and with
  the participation of the Chief Executive Officer and the Chief Financial Officer,
  evaluated the effectiveness of the company’s disclosure controls and procedures
  (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
  amended) as of June 30, 2005. Based on this evaluation, the Chief Executive
  Officer and Chief Financial Officer concluded that, as of June 30, 2005, the
  company’s disclosure controls and procedures were effective.

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.

There were no changes in the company’s internal controls
  over financial reporting that occurred during the quarter ended June 30, 2005,
  that have materially affected, or are reasonably likely to materially affect,
  the company’s internal controls over financial reporting.

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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)                                                
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    
|        | (b)                                                
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    
|        |                                                    

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:  July 20, 2005 | By:                                    
|                      |                                        
|                      | Title:                                 
|                      |                                        

30

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