----

----

**SECURITIES AND EXCHANGECOMMISSION****Washington, D.C. 20549**

**FORM 10-QSB**

**(MarkOne)**
| **ý**                                       | **QUARTERLY REPORT  PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**  |
|--------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                             |                                                                                           |
| **For the quarterly period ended June 30, 2001** |
|                                             |
| **o**                                            | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.** |

** **

**For the transition periodfrom ____________ to ____________**

**Commission File Number 0-31193**

| **USIP.COM, INC.**                                                                  |
|-------------------------------------------------------------------------------------|
| ****                                                                                |
| (Exact  name of small business issuer as specified in its charter)                  |
|                                                                                |
| **Utah**                                                                            | **16-1583162** |
| ****                                                                                | **** |
| (State  or other jurisdiction of  incorporation or organization)                    | (I.R.S.  EmployerIdentification  No.) |
|                                                                                |
| **7325 Oswego Road****Liverpool,  New York 13090**                                  |
| ****                                                                                |
| (Address  of principal executive offices)                                           |
|                                                                                |
| **(315) 451-7515  (Issuer's telephone number)**                                     |
| ****                                                                                |
| (Former  name, former address and former fiscal year  if changed since last report) |

Check whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

| Yes  ý | No  o |
|-------------|-------|

State the number of shares outstanding of eachof the issuer's classes of common equity, as of the latest practicable date:17,619,388 shares of Common Stock, $.01 par value, were outstanding as ofAugust 13, 2001.

Transitional Small Business Disclosure Forms(check one):

| Yes  o | No  ý |
|--------|------------|

 

----

----

USIP.COM, INC.INDEX TO FORM 10-QSBJune30, 2001

| PART I     FINANCIAL INFORMATION |
|------------------------------------------------------|
|                                                 |
| ITEM 1.                                              | Financial Statements |   |
|                                                 |   |   |
|                                                 | Consolidated Balance Sheets At June 30, 2001 and December 31,2000 |   |
|                                                 |   |   |
|                                                 | Consolidated  Statements of Income and Retained Earnings For the three months and six  months ended June 30, 2000 and June 30, 2001 |   |
|                                                 |   |   |
|                                                 | Consolidated  Statements of Cash FlowsFor the six  months ended June 30, 2000 and June 30, 2001 |   |
|                                                 |   |   |
|                                                 | Notes to  Consolidated Financial Statements |   |
|                                                 |   |   |
| ITEM  2.                                             | Managements  Discussion and Analysis of Financial Condition and Results of Operation |   |
|                                                 |   |   |
| PART II     OTHER INFORMATION    |
|                                                 |
| ITEM 1.                                              | Legal Proceedings |   |
|                                                 |   |   |
| ITEM  2.                                             | Changes  in Securities and Use of Proceeds |   |
|                                                 |   |   |
| ITEM  3.                                             | Defaults  Upon Senior Security |   |
|                                                 |   |   |
| ITEM  4.                                             | Submission  of Matters to a Vote of Security Holders |   |
|                                                 |   |   |
| ITEM 5.                                              | Other  Information |   |
|                                                 |   |   |
| ITEM  6.                                             | Exhibits  and Reports on Form 8-K |   |
|                                                 |   |   |
|                                                 | Signatures |   |

 

PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

USIP.COM, INC.CONSOLIDATED BALANCE SHEET

 

|                                 | June 30, 2001                                                |      | December 31, 2000 |      |
|--------------------------------------|--------------------------------------------------------------|-----------|-------------------|-----------|
|                                 |                                                              |      |                   |      |
|                                 | Unaudited                                                    |      | Audited           |      |
| ASSETS                               |                                                         |      |              |      |
| CURRENT ASSETS                       |                                                         |      |              |      |
|                                 | Cash                                                         | $         | 12,993            |      | $ | 117,619 |   |
|                                 | Commissions and Sales  Receivable, Net                       | 185,634   |              | 166,033   |   |
|                                 | Inventory                                                    | 35,620    |              | 36,250    |   |
|                                 | Prepaid Insurance                                            | 2,546     |              | -         |   |
|                                 |                                                              |      |                   |      |
|                                 | TOTAL CURRENT ASSETS                                         | 236,793   |              | 319,902   |   |
|                                 |                                                              |      |                   |      |
| FIXED ASSETS                         |                                                         |      |              |      |
|                                 | Telephone and Office Equipment                               | 1,922,836 |              | 1,846,572 |   |
|                                 | Vehicle                                                      | 74,542    |              | 74,542    |   |
|                                 |                                                         |           |              |           |   |
|                                 |                                                         | 1,997,378 |              | 1,921,114 |   |
|                                 | Less: Accumulated Depreciation                               | (362,276  | )                 | (310,711  | ) |
|                                 |                                                              |      |                   |      |
|                                 | Net Fixed Assets                                             | 1,635,102 |              | 1,610,403 |   |
|                                 |                                                              |      |                   |      |
|                                 | TOTAL ASSETS                                                 | $         | 1,871,895         |      | $ | 1,930,305 |   |
|                                 |                                                              |      |                   |      |
| LIABILITIES AND STOCKHOLDERS' EQUITY |                                                         |      |              |      |
|                                 |                                                         |      |              |      |
| Current Liabilities                  |                                                         |      |              |      |
|                                 | Accounts Payable                                             | $         | 253,346           |      | $ | 203,809 |   |
|                                 | Line of Credit                                               | 178,152   |              | 98,886    |   |
|                                 | Accrued Payroll and Payroll  Taxes                           | 5,423     |              | 5,345     |   |
|                                 | Accrued State Gross Receipts  Taxes                          | 4,348     |              | 20,642    |   |
|                                 | Other Accrued Expenses                                       | 21,233    |              | 1,508     |   |
|                                 | Current Portion of Long-Term  Debt                           | 4,200     |              | 13,990    |   |
|                                 |                                                              |      |                   |      |
|                                 | TOTAL CURRENT LIABILITIES                                    | 466,702   |              | 344,180   |   |
|                                 |                                                              |      |                   |      |
| LONG-TERM LIABILITIES                |                                                         |      |              |      |
|                                 | Long-Term Debt, Less Current  Portion                        | 42,615    |              | 39,238    |   |
|                                 |                                                              |      |                   |      |
|                                 | TOTAL LIABILITIES                                            | 509,317   |              | 383,418   |   |
|                                 |                                                              |      |                   |      |
| STOCKHOLDERS' EQUITY                 |                                                         |      |              |      |
|                                 | Common Stock, $.01 par  value  25,000,000               | 176,194   |              | 176,194   |   |
|                                 | Shares authorized, 17,619,388  shares issued and outstanding |      |         |      |   |
|                                 |                                                         |      |              |      |
|                                 | Additional Paid In Capital                                   | 1,378,673 |              | 1,382,358 |   |
|                                 |                                                         |      |              |      |
|                                 | Retained Earnings                                            | (192,289  | )                 | (11,665   | ) |
|                                 |                                                              |      |                   |      |
|                                 | TOTAL STOCKHOLDERS' EQUITY                                   | 1,362,578 |              | 1,546,887 |   |
|                                 |                                                         |           |              |           |   |
|                                 | TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY                  | $         | 1,871,895         |      | $ | 1,930,305 |   |
|                                 |                                                              |      |                   |      |
|                                      |                                                              |           |                   |           |  |  |  |  |  |

SeeNotes To Financial Statement

 

USIP.COM, INC.CONSOLIDATED STATEMENT OF INCOME (LOSS)Unaudited

 

|                               | Three Months Ended             |    | Six Months Ended |    |
|------------------------------------|--------------------------------|---------|------------------|---------|
|                               | June 30, 2001                  |    | June 30, 2000    |    | June 30, 2001 |   | June 30, 2000 |   |
|                               |                                |    |                  |    |  |   |  |   |
| SALES                              |                           |    |             |    |   |   |   |   |
|                               | Commissions                    | $       | 113,384          |    | $ | 72,599 |   | $ | 196,137 |   | $ | 118,880 |   |
|                               | Coin Collections               | 118,600 |             | 157,244 |   | 237,188 |   | 251,844 |   |
|                               | Dial Around                    | 33,062  |             | 90,487  |   | 90,932 |   | 148,487 |   |
|                               | Phone Card Sales               | 16,487  |             | 7,771   |   | 41,483 |   | 21,965 |   |
|                               | Equipment Sales                | 4,143   |             | 56,490  |   | 14,620 |   | 69,700 |   |
|                               | Atm Revenue                    | 4,605   |             | -       |   | 4,605 |   | - |   |
|                               | Service and Repair Sales       | 2,588   |             | 10,128  |   | 4,898 |   | 11,543 |   |
|                               |                                |    |                  |    |  |   |  |   |
|                               | Total Sales                    | 292,869 |             | 394,719 |   | 589,863 |   | 622,419 |   |
|                               |                                |    |                  |    |  |   |  |   |
| COST OF SALES                      |                           |    |             |    |   |   |   |   |
|                               | Telecommunications Costs       | 161,862 |             | 123,188 |   | 347,915 |   | 231,806 |   |
|                               | Commissions                    | 1,533   |             | 9,689   |   | 10,595 |   | 33,446 |   |
|                               | Repairs and Service Supplies   | 2,186   |             | 306     |   | 5,546 |   | 7,370 |   |
|                               | Other Direct Expenses - Travel | 4,662   |             | 12,235  |   | 8,971 |   | 22,191 |   |
|                               | Depreciation                   | 29,920  |             | 52,040  |   | 56,281 |   | 65,355 |   |
|                               | Subcontractors                 | 20,684  |             | -       |   | 39,681 |   | 13,773 |   |
|                               | Supplies                       | 1,049   |             | 5,767   |   | 1,803 |   | 5,767 |   |
|                               |                                |    |                  |    |  |   |  |   |
|                               | Total Cost of Sales            | 221,896 |             | 203,225 |   | 470,792 |   | 379,708 |   |
|                               |                                |    |                  |    |  |   |  |   |
|                               | GROSS PROFIT                   | 70,973  |             | 191,494 |   | 119,071 |   | 242,711 |   |
|                               |                                |    |                  |    |  |   |  |   |
| OPERATING EXPENSES                 |                           |    |             |    |   |   |   |   |
|                               | Officers' Salaries             | 20,570  |             | -       |   | 35,330 |   | 14,649 |   |
|                               | Salaries and Wages             | 32,431  |             | 88,534  |   | 81,717 |   | 121,076 |   |
|                               | Payroll Taxes                  | 6,389   |             | 8,122   |   | 13,831 |   | 13,647 |   |
|                               | Insurance                      | 17,710  |             | 12,544  |   | 32,565 |   | 12,544 |   |
|                               | Office Supplies                | 4,605   |             | 9,773   |   | 14,260 |   | 11,929 |   |
|                               | Telephone                      | 4,903   |             | 89,183  |   | 13,385 |   | 89,183 |   |
|                               | Utilities                      | 2,746   |             | 3,180   |   | 6,242 |   | 4,211 |   |
|                               | Vehicle Expenses               | 8,159   |             | 6,041   |   | 15,317 |   | 12,917 |   |
|                               | Rent                           | 18,443  |             | 19,372  |   | 36,681 |   | 34,551 |   |
|                               | Professional Fees              | 21,500  |             | 6,584   |   | 26,500 |   | 6,720 |   |
|                               | Travel & Entertainment     | 1,420   |             | -       |   | 3,324 |   | - |   |
|                               | Outside Services               | 7,120   |             | -       |   | 10,821 |   | 17,479 |   |
|                               |                                |    |                  |    |  |   |  |   |
|                               | Total Operating Expenses       | 145,996 |             | 243,333 |   | 289,973 |   | 338,906 |   |
|                               |                                |    |                  |    |  |   |  |   |
|                               | OPERATING INCOME (LOSS)        | (75,023 | )                | (51,839 | ) | (170,902 | ) | (96,195 | ) |
|                               |                                |    |                  |    |  |   |  |   |
| OTHER INCOME (EXPENSE)             |                           |    |             |    |   |   |   |   |
|                               | Interest Expense               | (5,104  | )                | -       |   | (7,206 | ) | (786 | ) |
|                               | NY State Gross Receipts Tax    | -       |             | -       |   | (425 | ) | - |   |
|                               | Interest Income                | 28      |             | 1,277   |   | 242 |   | 4,838 |   |
|                               |                                |    |                  |    |  |   |  |   |
|                               | Total Other Income             | (5,076  | )                | 1,277   |   | (7,389 | ) | 4,052 |   |
|                               |                                |    |                  |    |  |   |  |   |
|                               | NET INCOME (LOSS)              | $       | (80,099          | )       | $ | (50,562 | ) | $ | (178,291 | ) | $ | (92,143 | ) |
|                               |                                |    |                  |    |  |   |  |   |
| Weighted Common Shares Outstanding | 17,619,388                     |    | 17,613,888       |    | 17,619,388 |   | 17,619,388 |   |
|                               |                           |    |             |    |   |   |   |   |
| Net Loss per Common Share          | $                              | -       |             | $       | - |   | $ | - |   | $ | - |   |
|                               |                                |    |                  |    |  |   |  |   |
|                                    |                                |         |                  |         |  |  |  |  |  |  |  |  |  |  |  |

SeeNote to Financial Statement

 

USIP.COM, INC.CONSOLIDATED STATEMENT OF CASH FLOWS

 

|                                               | Six Months                                                                                       |    | Six Months    |    |
|----------------------------------------------------|--------------------------------------------------------------------------------------------------|---------|---------------|---------|
|                                               | June 30, 2001                                                                                    |    | June 30, 2000 |    |
|                                               | Unaudited                                                                                        |    | Unaudited     |    |
|                                               |                                                                                                  |    |               |    |
| Cash Flows From Operating Activities:              |                                                                                             |    |          |    |
|                                               | Net (Loss)                                                                                       | $       | (178,291      | )       | $ | (50,562 | ) |
|                                               | Adjustments to reconcile  net  (loss) to net cash provided  (used) by operating activities: |    |          |    |   |
|                                               | Depreciation Expense                                                                             | 56,281  |          | 52,040  |   |
|                                               | (Increase) Decrease in  Commissions and Sales Receivables                                        | (20,151 | )             | (2,154  | ) |
|                                               | (Increase) in Inventory                                                                          | -       |          | -       |   |
|                                               | (Increase) Decrease in Prepaid  Insurance                                                        | (2,547  | )             | 178     |   |
|                                               | Increase in Sales Tax Payable                                                                    | -       |          | 119     |   |
|                                               | Decrease in Due From Related  Parties                                                            | -       |          | -       |   |
|                                               | Increase in Accounts Payable                                                                     | 49,932  |          | 5,000   |   |
|                                               | Increase (Decrease) in Accrued  Expenses and Wages                                               | 14,569  |          | -       |   |
|                                               | Increase (Decrease) in Accrued  State Gross Receipts Taxes                                       | (16,294 | )             | -       |   |
|                                               |                                                                                                  |    |               |    |
|                                               | Net cash provided (used) by  operating activities                                                | (96,501 | )             | 4,621   |   |
|                                               |                                                                                                  |    |               |    |
| Cash Flows From Investing Activities:              |                                                                                             |    |          |    |
|                                               | Acquisition of Equipment                                                                         | (80,979 | )             | (66,000 | ) |
|                                               | Stockholder Capital  Contributions                                                               | -       |          | -       |   |
|                                               |                                                                                                  |    |               |    |
|                                               | Net cash provided (used)  by investing activities                                           | (80,979 | )             | (66,000 | ) |
|                                               |                                                                                                  |    |               |    |
| Cash Flows From Financing Activities:              |                                                                                             |    |          |    |
|                                               | Proceeds Received from Line of  Credit                                                           | 79,267  |          | 70,000  |   |
|                                               | Repayments on Line Of Credit  Borrowings                                                         | -       |          | (3,102  | ) |
|                                               | Principal Payments on  Long-term Debt                                                            | (6,413  | )             | -       |   |
|                                               | Proceeds from Issuance on  Notes Payable                                                         | -       |          | -       |   |
|                                               | Proceeds from Issuance of  Stock                                                                 | -       |          | -       |   |
|                                               |                                                                                                  |    |               |    |
|                                               | Net cash provided (used) by  financing activities                                                | 72,854  |          | 66,898  |   |
|                                               |                                                                                                  |    |               |    |
| Net Increase in cash                               | (104,626                                                                                         | )       | 5,519         |    |
|                                               |                                                                                             |    |          |    |
| Cash - Beginning of Period                         | 117,619                                                                                          |    | 48,838        |    |
|                                               |                                                                                                  |    |               |    |
| Cash - End of Period                               | $                                                                                                | 12,993  |          | $       | 54,357 |   |
|                                               |                                                                                                  |    |               |    |
|                                               |                                                                                             |    |          |    |
| Supplemental Disclosures of Cash Flow Information: |                                                                                             |    |          |    |
|                                               | Cash Paid During Period The  Period For:                                                         |    |          |    |   |
|                                               | Interest                                                                                         | $       | 7,206         |    | - |   |
|                                               | Income Taxes                                                                                     | -       |          | -       |   |
|                                                    |                                                                                                  |         |               |         |  |  |  |  |  |

SeeNotes To Financial Statement

USIP.COM, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTSJune 30, 2001(unaudited)

 

NOTE 1.            SUMMARYINFORMATION

             Theaccompanying unaudited consolidated financial statements include the accountsof USIP.Com, Inc. and our two wholly owned subsidiaries: Datone Inc. and NBPayphones Ltd. All significant inter-company amounts have been eliminated. Ourunaudited consolidated financial statements present herein, should be read inconjunction with the audited consolidated financial statements of our companyas of and for the year ended December 31, 2000. In the opinion of ourmanagement, the unaudited consolidated financial statements presented hereinreflect all adjustments (consisting only of normal recurring adjustments)necessary for fair presentation. Interim results are not necessarily indicativeof results to be expected for the entire year.

             Weprepare our consolidated financial statements in accordance with generallyaccepted accounting principles, which require that management make estimatesand assumptions that affect reported amounts. Actual results could differ fromthese estimates.

NOTE 2.            ASSETALLOCATION

             OnJune 1, 2001, we purchased 61 payphones and associated equipment of Dunkirk& Fredonia Telephone Company for the sum of $24,400.

             Asof June 30, 2001, we own and operate a network of approximately 1,630 payphonesin three states. Our installed payphone base generates revenue through coincalls (local and long-distance), and non-coin calls (calling card, credit card,collect and third party billed calls using our preselected operator services,Qwest and Pacific Telemanagement Services).

NOTE 3.            NOTESPAYABLE

             Inthe second quarter of 2001, we drew on our bank line of credit in the amount of$60,000 increasing our liability to $108,152. We have an additional, unsecuredline of credit with Lilly Beter Capital Group, Ltd. in the amount of $200,000.As of this date $70,000 has been used in part to fund the purchase of thepayphone routes. We intend to use the remaining monies for our continuedexpansion.

 

| ITEM  2. | MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|----------|----------------------------------------------------------------------------------------|

FORWARD LOOKINGSTATEMENTS

             Thefollowing is a discussion and analysis of the results of operations of ourcompany and should be read in conjunction with our financial statements andrelated notes contained in this Form 10-QSB. This Form 10-QSB containsforward-looking statements that involve risks and uncertainties. You canidentify these statements by the use of forward-looking words such as “may,”“will,” “expect,” “anticipate,” “estimate,” “believe” “continue,” or othersimilar words. You should read statements that contain these words carefullybecause they discuss our future expectations contain projections of our futureresults of operations or financial condition or state other “forward-looking”information. We believe that it is important to communicate our futureexpectations to our investors. However there may be events in the future thatwe are unable to accurately predict or control. Those events as well as anycautionary language in this registration statement provide examples of risks,uncertainties and events that may cause our actual results to differ materiallyfrom the expectations we describe in our forward-looking statements. You shouldbe aware that the occurrence of the events described in this Form 10-QSB couldhave a material adverse effect on our business, operating results and financialcondition. Actual results could differ materially from current expectations.Among the factors that could effect our actual results and could cause resultsto differ from those contained in the forward-looking statements containedherein is our ability to expand our customer base, which will be dependent onbusiness, financial and other factors beyond our control, including, amongothers, seasonal aspects such as the winter months that tend to reduce thefrequency of outdoor payphone use in the east coast, ability to increase oursize and marketing area by purchasing payphones and locations from independenttelephone companies, and whether the public uses our payphones, together withall the risks inherent in the establishment of a new enterprise and themarketing of new products.

PLAN OF OPERATION

             USIP.Com,Inc., (the “Company,” “Our,” “USIP” or “We”), was incorporated under the lawsof the State of Utah on April 6, 1978 as Derby Farms, Inc. On January 19, 1982,the Articles of Incorporation were amended and the name of the company waschanged to Commerce Oil of Kentucky, Inc. On February 4, 2000 the Articles ofIncorporation were amended and the name of our company was changed to USIP.Com,Inc.

             Weown, operate and manage privately owned public payphones in New York,Pennsylvania and Massachusetts. Our revenue comes from commissions that wereceive from long distance carrier’s operator services and toll free calls. Italso comes from the coins that we collect from the payphones that we own aswell as from sales, service of payphones and prepaid phone cards that we sellat various locations throughout these states. We enter into site leasingagreements with various business sites that are open to the public. Some of thebusinesses include but are not limited to retail stores, convenience stores,bars, restaurants, gas stations, colleges and hospitals. The agreements allowus to install our payphones in areas that are accessible to the public. Weprovide the payphones, install them, and pay all maintenance and operationalcosts for the term of each lease. We also sell payphones to some of the siteowners. We derive income from the sale as well as any commission split that wenegotiate with the buyer.

PLANS FOR FISCALYEAR 2001.

Our plans ofoperation for the remainder of our 2001 fiscal year will consist of thefollowing activities:

|   | • | continue  to evaluate the acquisition of more payphones and new site leasing  arrangements that will enhance our business plan; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|   | • | expand our customer base in existing areas;  and                                                                                |
|   | • | develope a marketing plan and infrastructure  that can help us grow into the next year.                                         |

 

RESULTS OFOPERATIONS

             Thefollowing discussion is based in part on our unauditedFinancial Statements for the three monthsended June 30, 2001 and the unaudited Financial Statements for the three monthsended June 30, 2000. Our revenue is derived from the following three generalsources.

1. Commission Income.

             Commissionincome includes commissions from long distance carriers operator services andcommissions for toll free calls from all payphones. The commissions foroperator services are paid 45 days in arrears. Compensation for toll free callsis billed quarterly and received three and one half months behind the billedquarter.

2. Payphone sales, repairs and pre-paidphone cards.

             Wederive income from the sale and repair of a payphone. We can negotiate the saleof a payphone to a site owner when it becomes cost prohibitive to maintain orif a customer offers to buy the phone at a price that is favorable to ourcompany. The new owner or lessee becomes responsible for the maintenance andoperational costs of the payphone. We sell pre-paid phone cards at some of ourpayphone locations. We also derive a profit from any commission split that isnegotiated between the parties as a result of a sale or lease of a payphone.Sales and repairs of payphones and the sale of pre-paid phone cards are notsubject to the same collection delays as the other types of operating income.

3. Coin calls.

             Coincalls represent calls paid for by customers who deposit coins into thepayphones. Coin call revenue is recorded as the actual amount of coinscollected from the payphones.Some coin collections are made on a daily basis and others more often if theparticular payphone has significant usage. The coins are counted in house anddeposited weekly.

THREE MONTHS ENDED JUNE 30, 2001 COMPAREDTO THREE MONTHS ENDED JUNE 30, 2000

REVENUES

             Thefollowing discussion is based in part on our unaudited Financial Statements forthe three months ended June 30, 2001. Our overall revenue decreased for themonths ending June 30, 2001 by $101,850 or 25.8% when compared to the threemonths ending June 30, 2000. The components making up this decrease are asfollows: Commission revenue increased by $40,785; Coin collection decreased by$38,644, this decrease is due to an increase usage of toll free calling such as1- (800,888,877,866). If a customer makes a toll free call, our payphone doesnot receive the coins that would normally be inserted for the call, however, wedo receive twenty-four cents per call as dial-around compensation. Dial Aroundrevenue decreased by $57,425, when compared to the same period in 2000. Thereason for this decrease is due to the failure of some of the interexchangecarriers (IXC’s) to timely report the dial around revenue that was earned byour company. Equipment sales decreased by $52,347, this decrease is due to alarge one-time sale of $52,040 to an urban hospital in the second quarter of2000. Phone card sales, repairs and service, and ATM revenue added $5,781 toour revenue streams when compared to the period ending June 30, 2000.

COST OF SALES

             Ourcost of sales increased during the second quarter by $18,671 or 9.1%. Wepurchased approximately sixty-one payphones and locations, which increased ourcosts of sales. Telecommunication costs increased by $38,674 because weprovided telephone service to 1,630 payphones in 2001 as compared to 1495payphones in 2000. Commissions payable decreased by $8,156 due to a decrease inpayphone usage. We believe that this decrease is a result of the increased useof cellular phones and pre-paid phone cards. Some site owners are no longerreceiving commissions because those locations are not producing enough revenue.These locations are being invoiced monthly for payphone services. Contractors’fees increased by $20,684 this quarter. We hired three independent contractorsto handle the additional territories. Cost of sales for repairs and service,travel, deprecation and supplies decreased by $32,531. We believe that thisdecrease occurred because we did not have to upgrade, and repair as many phonesas in the second quarter of 2000.

OPERATING AND ADMINISTRATIVE EXPENSES

             Operatingexpenses decreased by $97,337 over the same period in 2000. We believe thatthis decrease is a result of our continuing efforts at trying to reduce ourcosts. Salaries, payroll taxes, telephone, professional fees, utilities andoffice expenses decreased by $111,798 when compared to the first three monthsof 2000. Insurance, utilities, vehicle expense, rent, outside services, andtravel and entertainment added $14,461 to the operating expenses when comparedto second quarter of 2000.

SIX MONTHS ENDED JUNE 30, 2001 COMPAREDTO SIX MONTHS ENDED JUNE 30, 2000

REVENUES

             Ouroverall revenue decreased for the months ending June 30, 2001 by $32,556 or5.2% when compared to the six months ending June 30, 2000. The componentsmaking up this decrease are as follows: Commission revenue increased by$77,257, this increase can be attributed to the purchase of new routes fromsmall independent phone companies as well as increased payphone installation inexisting areas. Coin collection decreased by $14,656; Dial Around revenuedecreased by $57,555, when compared to the same period in 2000. Our equipmentsales decreased by $55,080 when compared to 2000. Phone card sales, repairs andservice, and ATM revenue added $17,478 to our revenue streams when compared tothe period ending June 30, 2000.

COST OF SALES

             Ourcost of sales increased during the first six months of 2001 by $91,084 or 24%from $379,708 in 2000 to $470,792 in 2001. Telecommunication costs increased by$116,109 over the same period of 2000. Commissions payable decreased by $22,851due to a decrease in payphone usage. We believe that this decrease is a resultof the increased use of cellular phones and pre-paid phone cards. Contractors’fees increased by $25,908 because we hired some independent contractors on anas needed basis to service some of the newly acquired payphones and routes.Repairs, travel, depreciation, and supplies were reduced by $28,082 whencompared to the same six months of 2000.

OPERATING AND ADMINISTRATIVE EXPENSES

             Operatingexpenses decreased overall by $48,933 from the first six months of 2000 to thefirst six months of 2001. This decrease is a result of our continuing effortsto reduce costs overall.

LIQUIDITY AND CAPITAL RESOURCES

             Ourprimary sources of liquidity have been cash from operations and borrowing undervarious credit facilities. On April 2000, we entered into an agreement withLilly Beter Capital Group, Ltd. to obtain a revolving line of credit. This lineof credit has a maximum borrowing of $200,000 of which $70,000 was outstandingon June 30, 2001.

             Capitalexpenditures for the three months ended June 30, 2001 were $24,400. Theseexpenditures were for the purchase of payphone assets from Dunkirk &Fredonia Telephone Company, an Independent Telephone Operating Company (ITOC).

FEDERALREGULATION OF LOCAL COIN AND DIAL-AROUND CALLS

             TheTelephone Operator Consumer Services Improvement Act of 1990("TOCSIA") established various requirements for companies thatprovide operator services and for call aggregators, including PSPs, who sendcalls to those OSPs. The requirements of TOCSIA as implemented by the FCCincluded call branding, information posting, rate quotations, the filing ofinformational tariffs and the right of payphone users to access any OSP to makenon-coin calls. TOCSIA also required the FCC to take action to limit theexposure of payphone companies to undue risk of fraud upon providing this"open access" to carriers.
             TOCSIA further directed the FCC toconsider the need to provide compensation for IPPs for dial-around calls.Accordingly, the FCC ruled in May 1992 that IPPs were entitled to dial-aroundcompensation. Because of the complexity of establishing an accounting systemfor determining per call compensation for these calls, and for other reasons,the FCC temporarily set this compensation at $6.00 per payphone per month basedon an assumed average of 15 interstate carrier access code dial-around callsper month and a rate of $0.40 per call. The failure by the FCC to providecompensation for 800 "toll free" dial-around calls was challenged bythe IPPs, and a federal court subsequently ruled that the FCC should haveprovided compensation for these toll free calls.

             In1996, recognizing that IPPs had been at a severe competitive disadvantage underthe existing system of regulation and had experienced substantial increases indial-around calls without a corresponding adjustment in compensation, Congressenacted Section 276 to promote both competition among payphone serviceproviders and the widespread deployment of payphones throughout the nation.Section 276 directed the FCC to implement rules by November 1996 that would:
 •create a standard regulatory scheme for all  public payphone service providers; •establish a per call compensation plan to  ensure that all payphone service providers are fairly compensated for each  and every completed intrastate and interstate call, except for 911 emergency  and telecommunications relay service calls; •terminate subsidies for LEC payphones from LEC  regulated rate-base operations; •prescribe, at a minimum, nonstructural safeguards  to eliminate discrimination between LECs and IPPs and remove the LEC  payphones from the LEC's regulated asset base; •provide for the RBOCs to have the same rights  that IPPs have to negotiate with Location Owners over the selection of  interLATA carrier services, subject to the FCC's determination that the  selection right is in the public interest and subject to existing contracts  between the Location Owners and interLATA carriers; •provide for the right of all PSPs to choose  the local, intraLATA and interLATA carriers subject to the requirements of,  and contractual rights negotiated with, Location Owners and other valid state  regulatory requirements; •evaluate the requirement for payphones which  would not normally be installed under competitive conditions but which might  be desirable as a matter of public policy, and establish how to provide for  and maintain such payphones if it is determined they are required; and •preempt any state requirements which are  inconsistent with the FCC's regulations implementing Section 276.
             InSeptember and November 1996, the FCC issued its rulings implementing Section276 (the "1996 Payphone Order"). In the 1996 Payphone Order, the FCCdetermined that the best way to ensure fair compensation to independent and LECPSPs for each and every call was to deregulate, to the maximum extent possible,the price of all calls originating from payphones. For local coin calls, theFCC mandated that deregulation of the local coin rate would not occur untilOctober 1997 in order to provide a period of orderly transition from theprevious system of state regulation.

             Toachieve fair compensation for dial-around calls through deregulation andcompetition, the FCC in the 1996 Payphone Order directed a two-phase transitionfrom a regulated market. In the first phase, November 1996 to October 1997, theFCC prescribed flat-rate compensation payable to the PSPs by the interexchangecarriers ("IXCs") in the amount of $45.85 per month per payphone.This rate was arrived at by determining that the deregulated local coin ratewas a valid market-based surrogate for dial-around calls. The FCC applied amarket-based, deregulated coin rate of $0.35 per call to a finding from therecord that there was a monthly average of 131 compensable dial-around callsper payphone. This total included both carrier access code calls dialed for thepurpose of reaching a long distance company other than the one designated bythe PSP as well as 800 "toll free" calls. The monthly, per phoneflat-rate compensation of $45.85 was to be assessed only against IXCs withannual toll-call revenues in excess of $100 million and allocated among suchIXCs in proportion to their gross long-distance revenues. During the secondphase of the transition to deregulation and market-based compensation(initially from October 1997 to October 1998, but subsequently extended in alater order by one year to October 1999), the FCCdirected the IXCs to pay the PSPs on a per-call basis for dial-around calls atthe assumed deregulated coin rate of $0.35 per call. At the conclusion of thesecond phase, the FCC set the market-based local coin rate, determined on apayphone-by-payphone basis, as the default per-call compensation rate in theabsence of a negotiated agreement between the PSP and the IXC. To facilitateper-call compensation, the FCC required the PSPs to transmit payphone-specificcoding digits, which would identify each call as originating from a payphone,and required the LECs to make such coding available to the PSPs as a tariffeditem included in the local access line service.
             InJuly 1997, a federal court (the "Court") responded to an appeal ofthe 1996 Payphone Order, finding that the FCC erred in (1) setting the defaultper-call rate at $0.35 without considering the differences in underlying costsbetween dial-around calls and local coin calls, (2) assessing the flat-ratecompensation against only the carriers with annual toll-call revenues in excessof $100 million, and (3) allocating the assessment of the flat-rate compensationbased on gross revenues rather than on a factor more directly related to thenumber of dial-around calls processed by the carrier. The Court also assignederror to other aspects of the 1996 Payphone Order concerning inmate payphonesand the accounting treatment of payphones transferred by an RBOC to a separateaffiliate.

             In response to the Court's remand,the FCC issued its modified ruling implementing Section 276 (the "1997Payphone Order") in October of 1997. The FCC determined that distinct andseverable costs of $0.066 were attributable to coin calls that did not apply tothe costs incurred by the PSPs in providing access for dial-around calls.Accordingly, the FCC adjusted the per call rate during the second phase ofinterim compensation to $0.284 (which is $0.35 less $0.066). While the FCCtentatively concluded that the $0.284 default rate should be utilized indetermining compensation during the first phase and reiterated that PSPs wereentitled to compensation for each and every call during the first phase, itdeferred a decision on the precise method of allocating the initial interimperiod (November 1996 through October 1997) flat-rate payment obligation amongthe IXCs and the number of calls to be used in determining the total amount of thepayment obligation.

             OnMarch 9, 1998, the FCC issued a Memorandum Opinion and Order, FCC 98-481, whichextended and waived certain requirements concerning the provision by the LECsof payphone-specific coding digits that identify a call as originating from a payphone. Without thetransmission of payphone-specific coding digits, some of the IXCs have claimedthey are unable to identify a call as a payphone call eligible for dial-aroundcompensation. With the stated purpose of ensuring the continued payment ofdial-around compensation, the FCCs Memorandum and Order issued on April 3, 1998left in place the requirement for payment of per-call compensation forpayphones on lines that do not transmit the requisite payphone-specific codingdigits but gave the IXCs a choice for computing the amount of compensation forpayphones on LEC lines not transmitting the payphone-specific coding digits ofeither accurately computing per-call compensation from their databases orpaying per-phone, flat-rate compensation computed by multiplying the $0.284 percall rate by the nationwide average number of 800 subscriber and access codecalls placed from RBOC payphones for corresponding payment periods. Accuratepayments made at the flat rate are not subject to subsequent adjustment foractual call counts from the applicable payphone.

             On May 15, 1998, the Court againremanded the per-call compensation rate to the FCC for further explanationwithout vacating the $0.284 per call rate. The Court opined that the FCC hadfailed to explain adequately its derivation of the $0.284 default rate. TheCourt stated that any resulting overpayment would be subject to refund anddirected the FCC to conclude its proceedings within a six-month period from theeffective date of the Court's decision.

             Inresponse to the Court's second remand, the FCC conducted further proceedingsand sought additional comment from interested parties to address the relevantissues posed by the Court. On February 4, 1999, the FCC released the ThirdReport and Order and Order on Reconsideration of the Second Report and Order(the "1999 Payphone Order"), in which the FCC abandoned its effortsto derive a "market-based" default dial-around compensation rate andinstead adopted a "cost-based" rate of $0.24 per dial-around call.Both PSPs and IXCs petitioned the Court for review of the 1999 Payphone Order'sdetermination of the dial-around compensation rate. On June 16, 2000, the Courtaffirmed the 1999 Payphone Order setting a 24-cent dial-around compensationrate. On all the issues, including those raised by the IXCs and the payphoneproviders, the Court applied the "arbitrary and capricious" standardof review, and found that the FCC's rulings were lawful and sustainable underthat standard. As a result of the Court's June 16, 2000 decision, the 24-centdial-around compensation rate is likely to remain in place until at least theend of 2001, when the FCC has stated its intention to complete a third-yearreview of the rate. With respect to the Petition for Reconsideration of the1999 Payphone Order filed with the FCC by the IPPs, this Petition is stillpending and has yet to be ruled on by the FCC. In view of the Court'saffirmation of the 1999 Payphone Order, it is unlikely that the FCC will adoptmaterial changes to the key components of the Order pursuant to the pendingReconsideration Petition, although no assurances can be given.
             On April 5, 2001, the FCC releasedan order that is expected to have a significant impact on the obligations oftelecommunications carriers to pay dial-around compensation to PSPs. The effectof the decision is to clarify thatthe first carrier tohandle a dial-around call originating from a pay telephone has the obligationto track and pay compensation on the call, regardless of whether other carriersmay subsequently transport or complete the call. Under the FCC ruling,implementation of this system modification is scheduled to occur on November27, 2001. We believe that this modification to the dial-around compensationsystem will result in a significant increase to the number of calls upon whichwe are able to collect such compensation. Because, however, the FCC ruling ispotentially subject to administrative reconsideration or judicial appeal andthe system modification is as yet untested, no assurances can be given as tothe precise timing or magnitude of revenue impact that will flow from thedecision.

             Thenew 24-cent rate became effective April 21, 1999, and will serve as the defaultrate through January 31, 2002. The new rate will also be applied retroactivelyto the period beginning on October 7, 1997, less a $0.002 amount to account forFLEX ANI payphone tracking costs, for a net compensation of $0.238. The 1999 Payphone Order deferred afinal ruling on the interim period (November 7, 1996 to October 6, 1997)treatment to a later, as yet unreleased, order. Upon establishment of theinterim period rate, the FCC has further ruled that a true-up may be made forall payments or credits (with applicable interest) due and owing between the IXCsand the PSPs, including USIP, for the payment period commencing on November 7,1996 through the effective date of the new $0.24 per call rate. It is possiblethat the final implementation of the 1999 Payphone Order, including resolutionof this retroactive adjustment and the outcome of any related administrative orjudicial review, could have a material adverse effect on our Company.

COMPETITION

             We compete for payphone locationsdirectly with Regional Bell Operating Companies (RBOCs), such as Verizon Communications,Local Exchange Companies (LECs) such as Citizens Communications and AlltelCorporation, and other Independent Payphone Providers (IPPs) such as DavelCommunications. We also compete, indirectly, with long-distance companies,which can offer Location Owners commissions on long-distance calls made fromLEC-owned payphones. Most LEC long-distance companies and some IPPs may havesubstantially greater financial, marketing and other resources than ourcompany.

             Webelieve that our principal competition is from providers of wirelesscommunications services for both local and long distance traffic. Certainproviders of wireless communication services have introduced rate plans thatare competitively priced with certain of the products offered by us and havenegatively impacted the usage of payphones throughout the nation.

             We believe that the competitivefactors among payphone providers are (1) the commission payments to a LocationOwner, (2) the ability to serve accounts with locations in several Local AccessTransport Areas (LATAs) or states, (3) the quality of service and theavailability of specialized services provided to a Location Owner and payphoneusers, and (4) responsiveness to customer service needs. We believe that we arecurrently competitive in each of these areas.

             Additionally,a number of domestic IPPs continue to experience financial difficulties fromvarious competitive and regulatory factors impacting the pay telephone industrygenerally, which may impair their ability to compete prospectively. While noassurances can be given, we believe that these circumstances create anopportunity for us to obtain new location agreements and reduced sitecommissions going forward.

             We compete with long-distancecarriers that provide dial-around services that can be accessed through ourpayphones. Certain national long-distance operator service providers andprepaid calling card providers have implemented extensive advertisingpromotions and distribution schemes which have increased dial-around activityon payphones owned by LECs and IPPs, including our Company, thereby reducingtraffic to our primary providers of long-distance service. While we do receivecompensation for dial-around calls placed from our payphones, regulatoryefforts are underway to improve the collection system and provide us with theability to collect that portion of dial-around calls that are currently owing.
             Weather conditions affect ourrevenue stream because we operate in the Northeastern part of the country.Revenues drop off significantly during the winter because most of our phonesare outdoors. The spring and summer periods show an increase in payphone usage.Revenue and income are generally lowest in the first quarter and highest in thethird quarter.

PARTII  OTHER INFORMATION.
 Item  1.Legal Proceedings.  Not applicable.    Item 2.Changes in Securities and Use of  Proceeds.  Not applicable.    Item 3Defaults Upon Senior Securities.  Not applicable.    Item. 4.Submission of Matters to a Vote of  Security Holders.  Not applicable.    Item  5.Other Information.  Not applicable.    Item 6.Exhibits and Reports on Form 8-K.  (a)Exhibits.     The  following exhibits required by Item 601 of Regulation S-B are attached.   There  were no Exhibits filed with this report.    (b)  Reports  on Form 8-K.      None
 

SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
 Dated:August 13, 2001    USIP.Com,  Inc.       (Registrant)       /s/ Craig Burton            President