**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 

| **(Mark One)** |   |   |
|----------------|--------|--------|

 

|       |   |                                                                                           |
|------------|--------|------------------------------------------------------------------------------------------------|
| **ý** |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934.**  |
|       |   |                                                                                           |
|       |   | **For  the quarterly period ended June 30, 2002**                                              |
| **o**      |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES EXCHANGE ACT OF 1934.** |

 

**For thetransition period from           to           **

 

**CommissionFile 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. Employer Identification 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) |

 

Checkwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

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

 

 

Statethe number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date: 17,699,388 shares of Common Stock,$.01 par value, were outstanding as of June 30, 2002.

 

TransitionalSmall Business Disclosure Forms (check one):

 

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

 

 

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USIP.COM, INC.

INDEX TO FORM 10-QSB

June 30, 2002

 
| PART I   FINANCIAL INFORMATION |
|------------------------------------------|
|                                     |
| ITEM 1.                                  | Financial Statements |
|                                     |   |
|                                     | Consolidated Balance Sheets At June 30, 2002 and December 31, 2001 |
|                                     |   |
|                                     | Consolidated  Statements of Income and Retained EarningsFor the three months and six months  ended June 30, 2001 and June 30, 2002 |
|                                     |   |
|                                     | Consolidated  Statements of Cash Flows  For the six months ended June 30, 2001 and June 30, 2002 |
|                                     |   |
|                                     | **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 Securities |
|                                     |   |
| 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 |

 

 

----

 

PARTI.     FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

USIP.COM, INC

CONSOLIDATED BALANCE SHEET

 
|                                             |   | **June 30,  2002** |      | **December  31, 2001** |    |
|--------------------------------------------------|--------|--------------------|-----------|------------------------|---------|
|                                             |   | **Unaudited**      |      | **Audited**            |    |
| ASSETS                                           |   |               |      |                   |    |
| CURRENT ASSETS                                   |   |               |      |                   |    |
| Cash                                             |   | $                  | 6,451     |                   | 10,825  |   |
| Commissions and  Sales Receivable, Net           |   | 104,243            |      | 144,772                |    |
| Inventory                                        |   | 50,782             |      | 46,410                 |    |
| Prepaid Expenses                                 |   | 5,229              |      | 2,866                  |    |
|                                             |   |               |      |                   |    |
| TOTAL CURRENT ASSETS                             |   | 166,705            |      | 204,873                |    |
|                                             |   |               |      |                   |    |
| FIXED ASSETS                                     |   |               |      |                   |    |
| Telephone and  Office Equipment                  |   | 1,899,145          |      | 1,922,887              |    |
| Vehicle                                          |   | 74,542             |      | 74,542                 |    |
|                                             |   | 1,973,687          |      | 1,997,429              |    |
| Less:  Accumulated Depreciation                  |   | (745,934           | )         | (609,882               | )       |
|                                             |   |               |      |                   |    |
| Net Fixed Assets                                 |   | 1,227,753          |      | 1,387,547              |    |
|                                             |   |               |      |                   |    |
| TOTAL ASSETS                                     |   | $                  | 1,394,458 |                   | $       | 1,592,420 |   |
|                                             |   |               |      |                   |    |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY       |   |               |      |                   |    |
|                                             |   |               |      |                   |    |
| Current  Liabilities                             |   |               |      |                   |    |
| Accounts Payable                                 |   | $                  | 238,153   |                   | 294,605 |   |
| Line of Credit                                   |   | 373,852            |      | 212,952                |    |
| Accrued Payroll  and Payroll Taxes               |   | 5,488              |      | 5,622                  |    |
| Accrued State  Gross Receipts Taxes              |   | 5,295              |      | 13,036                 |    |
| Other Accrued  Expenses                          |   | 13,929             |      | 23,149                 |    |
| Current Portion  of Long-Term Debt               |   | 4,800              |      | 10,291                 |    |
|                                             |   |               |      |                   |    |
| TOTAL CURRENT  LIABILITIES                       |   | 641,517            |      | 559,655                |    |
|                                             |   |               |      |                   |    |
| LONG-TERM  LIABILITIES                           |   |               |      |                   |    |
| Long-Term Debt,  Less Current Portion            |   | 29,684             |      | 30,523                 |    |
| TOTAL LIABILITIES                                |   | 671,201            |      | 590,178                |    |
| STOCKHOLDERS’  EQUITY                       |   |               |      |                   |    |
| Common Stock,  $.01 par value  25,000,000   |   | 176,994            |      | 176,194                |    |
| Shares  authorized, 17,699,388 shares            |   |               |      |                   |    |
| issued and  outstanding                          |   |               |      |                   |    |
|                                             |   |               |      |                   |    |
| Additional Paid  In Capital                      |   | 1,473,358          |      | 1,382,358              |    |
|                                             |   |               |      |                   |    |
| Retained  Earnings                               |   | (927,095           | )         | (556,310               | )       |
|                                             |   |               |      |                   |    |
| TOTAL  STOCKHOLDERS’ EQUITY                 |   | 723,257            |      | 1,002,242              |    |
|                                             |   |               |      |                   |    |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY |   | $                  | 1,394,458 |                   | $       | 1,592,420 |   |

 

See Accountant'sReport and Notes To Financial Statement

 

 

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USIP.COM, INC

CONSOLIDATED STATEMENT OFINCOME (LOSS)

Unaudited

 
|                                |   | **Three  Months Ended** |     | **Six Months  Ended** |   |
|-------------------------------------|--------|-------------------------|----------|-----------------------|--------|
|                                |   | **June 30,  2001**      |     | **June 30,  2002**    |   | **June 30,  2001** |   | **June 30,  2002** |   |
| SALES                               |   |                    |     |                  |   |   |   |   |   |
| Commissions                         |   | $                       | 113,384  |                  | $      | 22,775 |   | $ | 162,415 |   | $ | 44,393 |   |
| Coin Collections                    |   | 118,600                 |     | 87,365                |   | 237,188 |   | 180,919 |   |
| Dial Around                         |   | 15,688                  |     | 33,671                |   | 90,932 |   | 83,945 |   |
| Phone Card Sales                    |   | 16,487                  |     | 10,690                |   | 41,483 |   | 24,000 |   |
| Equipment Sales                     |   | 4,143                   |     | 1,768                 |   | 14,620 |   | 6,443 |   |
| Atm Revenue                         |   | 4,605                   |     | (745                  | )      | 4,605 |   | 1,964 |   |
| Service and  Repair Sales           |   | 19,862                  |     | 37,758                |   | 38,520 |   | 60,275 |   |
| Total Sales                         |   | 292,769                 |     | 193,282               |   | 589,763 |   | 401,939 |   |
|                                |   |                    |     |                  |   |   |   |   |   |
| COST OF SALES                       |   |                    |     |                  |   |   |   |   |   |
| Telecommunications  Costs           |   | 156,853                 |     | 109,427               |   | 347,926 |   | 223,363 |   |
| Commissions                         |   | 1,533                   |     | —                |   | 10,595 |   | 2,575 |   |
| Repairs and  Service Supplies       |   | 6,005                   |     | 14,488                |   | 5,546 |   | 32,953 |   |
| Other Direct  Expenses - Travel     |   | 4,662                   |     | 2,569                 |   | 8,971 |   | 3,873 |   |
| Depreciation                        |   | 72,106                  |     | 71,724                |   | 143,870 |   | 143,447 |   |
| Subcontractors                      |   | 20,684                  |     | 16,966                |   | 39,681 |   | 34,202 |   |
| Supplies                            |   | 2,252                   |     | 90                    |   | 1,803 |   | 90 |   |
| Total Cost of  Sales                |   | 264,095                 |     | 215,264               |   | 558,392 |   | 440,503 |   |
|                                |   |                    |     |                  |   |   |   |   |   |
| GROSS PROFIT                        |   | 28,674                  |     | (21,982               | )      | 31,371 |   | (38,564 | ) |
|                                |   |                    |     |                  |   |   |   |   |   |
| OPERATING  EXPENSES                 |   |                    |     |                  |   |   |   |   |   |
| Officers’  Salaries            |   | 20,570                  |     | 16,770                |   | 35,330 |   | 33,282 |   |
| Salaries and  Wages                 |   | 32,431                  |     | 43,108                |   | 81,717 |   | 81,785 |   |
| Payroll Taxes                       |   | 6,389                   |     | 4,955                 |   | 13,831 |   | 12,770 |   |
| Insurance                           |   | 17,710                  |     | 14,616                |   | 32,565 |   | 27,305 |   |
| Office Supplies                     |   | 4,328                   |     | 2,972                 |   | 14,260 |   | 7,030 |   |
| Telephone                           |   | 4,803                   |     | 6,486                 |   | 13,285 |   | 12,656 |   |
| Utilities                           |   | 2,746                   |     | 2,181                 |   | 6,242 |   | 3,772 |   |
| Vehicle Expenses                    |   | 8,159                   |     | 3,708                 |   | 15,317 |   | 5,478 |   |
| Rent                                |   | 18,443                  |     | 16,601                |   | 36,681 |   | 34,464 |   |
| Professional  Fees                  |   | 21,500                  |     | 24,300                |   | 26,500 |   | 83,600 |   |
| Travel &  Entertainment         |   | 1,420                   |     | —                |   | 3,324 |   | 876 |   |
| Outside Services                    |   | 7,396                   |     | 1,774                 |   | 10,821 |   | 9,515 |   |
| Total Operating  Expenses           |   | 145,895                 |     | 137,471               |   | 289,873 |   | 312,533 |   |
|                                |   |                    |     |                  |   |   |   |   |   |
| OPERATING INCOME (LOSS)             |   | (117,221                | )        | (159,453              | )      | (258,502 | ) | (351,097 | ) |
|                                |   |                    |     |                  |   |   |   |   |   |
| OTHER INCOME  (EXPENSE)             |   |                    |     |                  |   |   |   |   |   |
| Interest Expense                    |   | (5,104                  | )        | (7,992                | )      | (7,206 | ) | (13,427 | ) |
| Gain/Loss Sale  Of Fixed Assets     |   |                    |     | (907                  | )      |   |   | (907 | ) |
| NY State Gross  Receipts Tax        |   |                    |     | (5,295                | )      | (425 | ) | (5,385 | ) |
| Interest Income                     |   | 40                      |     | 12                    |   | 242 |   | 34 |   |
| Total Other  Income                 |   | (5,064                  | )        | (14,182               | )      | (7,389 | ) | (19,685 | ) |
|                                |   |                    |     |                  |   |   |   |   |   |
| NET INCOME (LOSS)                   |   | $                       | (122,285 | )                     | $      | (173,635 | ) | $ | (265,891 | ) | $ | (370,782 | ) |
|                                |   |                    |     |                  |   |   |   |   |   |
| Weighted Common  Shares Outstanding |   | 17,619,388              |     | 17,699,388            |   | 17,619,388 |   | 17,699,388 |   |
|                                |   |                    |     |                  |   |   |   |   |   |
| Net Loss per  Common Share          |   | $                       | —   |                  | $      | — |   | $ | — |   | $ | — |   |
|                                |   | x                       |     | x                     |   | x |   | x |   |

 

See Accountant'sReport and Notes To Financial Statement

 

 

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USIP.COM, INC

CONSOLIDATED STATEMENT OF CASH FLOWS

 
|                                                       |   | **Six Months********June 30,  2002** |     | **Six Months********June 30,  2001** |   |
|------------------------------------------------------------|--------|--------------------------------------|----------|--------------------------------------|--------|
|                                                       |   | **Unaudited**                        |     | **Unaudited**                        |   |
| Cash Flows From  Operating Activities:                     |   |                                 |     |                                 |   |
| Net (Loss)                                                 |   | $                                    | (370,782 | )                                    | $      | (265,891 | ) |
| Adjustments to  reconcile net  (loss) to net          |   |                                 |     |                                 |   |
| cash provided  (used) by operating activities:             |   |                                 |     |                                 |   |
| Depreciation Expense                                       |   | 143,447                              |     | 143,870                              |   |
| (Increase) Decrease in  Commissions and Sales Receivables  |   | 40,528                               |     | (20,051                              | )      |
| (Increase) in Inventory                                    |   | (4,372                               | )        | 5,559                                |   |
| (Increase) Decrease in  Prepaid Expenses                   |   | (2,363                               | )        | (2,547                               | )      |
| Increase (Decrease) in  Accounts Payable                   |   | (56,452                              | )        | 49,845                               |   |
| Increase (Decrease) in  Accrued Expenses and Wages         |   | (9,354                               | )        | 2,456                                |   |
| Increase (Decrease) in  Accrued State Gross Receipts Taxes |   | (7,741                               | )        | (4,181                               | )      |
|                                                       |   |                                 |     |                                 |   |
| Net cash  provided (used) by operating activities          |   | (267,089                             | )        | (90,940                              | )      |
|                                                       |   |                                 |     |                                 |   |
| Cash Flows From  Investing Activities:                     |   |                                 |     |                                 |   |
| Acquisition of  Equipment                                  |   | —                               |     | (80,979                              | )      |
| Sale of Equipment                                          |   | 16,345                               |     | —                               |   |
|                                                       |   |                                 |     |                                 |   |
| Net cash  provided (used)  by investing  activities   |   | 16,345                               |     | (80,979                              | )      |
|                                                       |   |                                 |     |                                 |   |
| Cash Flows From  Financing Activities:                     |   |                                 |     |                                 |   |
| Proceeds Received from  Line of Credit                     |   | 166,300                              |     | 79,266                               |   |
| Principal Payments on  Long-term Debt                      |   | (11,730                              | )        | (6,413                               | )      |
| Proceeds from Issuance  of Stock                           |   | 91,800                               |     | —                               |   |
|                                                       |   |                                 |     |                                 |   |
| Net cash  provided (used) by financing activities          |   | 246,370                              |     | 72,853                               |   |
|                                                       |   |                                 |     |                                 |   |
| Net Increase  (Decrease) in cash                           |   | (4,374                               | )        | (99,066                              | )      |
|                                                       |   |                                 |     |                                 |   |
| Cash - Beginning  of Period, December 31 2001 & 2000   |   | 10,825                               |     | 112,059                              |   |
|                                                       |   |                                 |     |                                 |   |
| Cash - End of  Period                                      |   | $                                    | 6,451    |                                 | $      | 12,993 |   |
|                                                       |   |                                 |     |                                 |   |
|                                                       |   |                                 |     |                                 |   |
| Supplemental  Disclosures of Cash Flow Information:        |   |                                 |     |                                 |   |
| Cash Paid During  Period The Period For:                   |   |                                 |     |                                 |   |
| Interest                                                   |   | $                                    | —   |                                 | $      | — |   |
| Income Taxes                                               |   | $                                    | —   |                                 | $      | — |   |

 

See Accountant'sReport and Notes To Financial Statement

 

 

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USIP.COM, INC

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

June 30, 2002

(Unaudited)

 

NOTE 1. SUMMARY INFORMATION

 

The accompanying unaudited consolidated financial statements includethe accounts of USIP.Com, Inc. and our three wholly owned subsidiaries: Datone,Inc., NB Payphones Ltd., and The Platinum Funding Corporation. All significantinter-company amounts have been eliminated. Our unaudited consolidatedfinancial statements presented herein, should be read in conjunction with theaudited consolidated financial statements contained in our company’s form10-KSB for the year ended December 31, 2001.

 

In the opinion of management, the unaudited consolidated financialstatements presented herein reflect all adjustments (consisting only of normalrecurring adjustments), necessary for fair presentation. Interim results arenot necessarily indicative of results to be expected for the entire year. Forpurposes of comparability, certain prior year amounts have been reclassified toconform to current year presentation.

 

NOTE 2. COMPANY FORMATION

 

On January 16, 2002, we formed The Platinum Funding Corporation as a100% wholly owned New York subsidiary. This company was formed to takeadvantage of the mortgage brokering business. As of June 30, 2002 there hasbeen no significant activity within The Platinum Funding Corporation.

 

NOTE 3. NOTES PAYABLE

 

For additional capital requirements, the company has increased theborrowings on its line of credit by $76,300, increasing our liability to about$374,000. We intend to use the additional funding for our continued expansion.

 

NOTE 4. COMMISSIONS RECEIVABLE

 

The Company had to write down its dial around commissions by about$15,000, to reflect the notice of WorldCom’s bankruptcy filing in federalcourt.

 

NOTE 5. STOCKHOLDERS EQUITY

 

We issued sixty thousand shares of common stock in June 2002 in lieu ofdebt owed. These shares were issued under Section 4(2) of the Securities Act of1933, as amended.

 

 

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**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF        OPERATIONS**

 

**FORWARDLOOKING STATEMENTS**

 

The following is a discussion and analysis of theresults of operations of our company and should be read in conjunction with ourfinancial statements and related notes contained in this Form 10-QSB. This Form10-QSB contains forward-looking statements that involve risks anduncertainties. You can identify these statements by the use of forward-lookingwords such as “may,” “will,” “expect,” “anticipate,” “estimate,” “believe”“continue,” or other similar words. You should read statements that containthese words carefully because they discuss our future expectations, containprojections of our future results of operations or financial condition or stateother “forward-looking” information. We believe that it is important tocommunicate our future expectations to our investors. However, there may beevents in the future that we are unable to accurately predict or control. Thoseevents as well as any cautionary language in this registration statementprovide examples of risks, uncertainties and events that may cause our actualresults to differ materially from the expectations we describe in ourforward-looking statements. You should be aware that the occurrence of theevents described in this Form 10-QSB could have a material adverse effect onour business, operating results and financial condition. Actual results coulddiffer materially from current expectations. Among the factors that couldeffect our actual results and could cause results to differ from thosecontained in the forward-looking statements contained herein is our ability toexpand our customer base, which will be dependent on business, financial andother factors beyond our control, including, among others, seasonal aspectssuch as the winter months that tend to reduce the frequency of outdoor payphoneuse on the east coast, ability to increase our size and marketing area by purchasingpayphones and locations from independent telephone companies, and whether thepublic uses our payphones, together with all the risks inherent in theestablishment of a new enterprise and the marketing of new products.

 

**PLAN OF OPERATION**

 

USIP.Com, Inc. (“USIP,” the“Company,” “we,” “our” or “us”), was incorporated under the laws of the Stateof Utah on April 6, 1978 as Derby Farms, Inc. On January 19, 1982 our Articlesof Incorporation were amended and the name of our company was changed toCommerce Oil of Kentucky, Inc. On December 31, 1983 our Certificate ofIncorporation was suspended for failure to file an annual report. On December20, 1984 we filed a petition for relief under Chapter Eleven of the UnitedStates Bankruptcy Code. The case was filed in The United States BankruptcyCourt, Middle District of Tennessee. The case was converted to Chapter Seven onJuly 1, 1986. On September 1, 1992 the court signed a Final Decree, and thecase was closed. Our Certificate of Incorporation was reinstated on June 18,1992 by the Utah Department of Commerce, Division of Corporations.

 

On January 31, 2000, DatoneCommunications, Inc. (“Datone”), a New York corporation and an independentpayphone provider (“IPP”) merged into our company. All the Datone shares wereretired. Datone shareholders received 7,268,388 restricted shares of commonstock for their stock. On February 4, 2000 we amended the Articles ofIncorporation and changed our name to USIP.Com, Inc.

 

On April 29, 2000 wepurchased all the shares of NB Payphones, Ltd., (“NB”), the owner of 466****payphones in Pennsylvania and CointelLeasing, Inc. (“Cointel”), the owner of 45 payphones in Syracuse, NewYork, from Riviera Bay Holding Trust, a Gibraltar Trust, for 8,750,000restricted shares of our common stock. NB is a USIP wholly owned subsidiary. OnApril 29, 2000 we entered into a two hundred thousand dollar ($200,000),unsecured line of credit with Lilly Beter Capital Group, Ltd. with interest atthe rate of ten percent per annum. These funds will be used to purchase andupgrade telephones that will be placed at new locations.

 

On August 30, 2000 we incorporated Datone, Inc. as aDelaware company. Datone, Inc. is a USIP wholly owned subsidiary. All therevenue generating assets and related expenses that we received from the DatoneCommunications Merger were subsequently moved via an intercompany transfer fromUSIP into Datone, Inc. Datone, Inc. was capitalized with $1,017. All of theDatone, Inc. shares were given to USIP. On October 1, 2000 we merged Cointelinto Datone, Inc. by way of an inner company transaction. Management decidedthat it would not benefit our company to have two companies that are in thesame business and location; we therefore combined the two in an effort to savemoney.

 

 

----

 

On January 16, 2002 we incorporated The PlatinumFunding Corporation as a New York wholly owned subsidiary. We intend to developa real estate based mortgage brokerage business. We believe that in time we canservice clients in both the residential and commercial markets throughout thestate of New York. There is no guarantee that we will be able to develop thisbusiness and generate a profit. We are exploring the market in an effort todevelop our business plan further.

 

As of June 30, 2002, we ownedand operated a network of****approximately914 payphones in three states. Our installed payphone base generatesrevenue through coin calls (local and long-distance), non-coin calls (callingcard, credit card, collect, and third-party billed calls using our pre-selectedoperator services providers such as Qwest and ILD Telecommunications), anddial-around calls (utilizing a 1-800, 1010XXX or similar “toll free” dialingmethod to select a carrier other than our pre-selected carrier).

 

We enter into site leasing agreements with variousbusiness sites that are open to the public. Some of the businesses include butare not limited to retail stores, convenience stores, bars, restaurants, gasstations, colleges and hospitals. The agreements allow us to install ourpayphones in areas that are accessible to the public. We provide the payphones,install them, and pay all maintenance and operational costs for the term ofeach lease. We also sell payphones to some of the site owners. We derive incomefrom the sale as well as any commission split that we negotiate with the buyer.

 

**PLANS FORFISCAL YEAR 2002.**

 

Our plans of operation for the remainder ofour 2002 fiscal year will consist of the following activities:

 

•                  Continueto evaluate the acquisition of more payphones and new site leasing arrangementsthat will enhance our business plan;

•                  Evaluatepotential acquisitions of non-telecommunications businesses that will enhanceand bring value to our company;

•                  Expand our customer base in existing areas;

•                  Develop a marketing plan and infrastructurethat can help us grow into the next year, and

•                  Work towards developing a successful realestate based mortgage brokerage business.

 

**RESULTS OFOPERATIONS**

 

Thefollowing is a discussion and analysis of our results of operations and shouldbe read in conjunction with the financial statements and related notescontained in this Form 10-QSB.

 

Our revenue is derived from the following threegeneral sources.

 

1. Commission Income.

 

Commission income includes commissions from operatorservice telecommunications companies and commissions for toll free calls fromall payphones. The commissions for operator services are paid 45 days inarrears. Dial around compensation is billed quarterly and received three andone half months behind the billed quarter.

 

2. Coin calls.

 

Coin calls representcalls paid for by customers who deposit coins into the payphones. Coin callrevenue is recorded as the actual amount of coins collected from the payphones. Some coincollections are made on a daily basis and others more often if the particularpayphone has significant usage. The coins are counted in house and depositedweekly.

 

3. Payphone sales, repairs and pre-paid phone cards sales.

 

We derive income from the sale and repair of apayphone. We can negotiate the sale of a payphone to a site owner when itbecomes cost prohibitive to maintain or if a customer offers to buy the phoneat a price that is favorable to our company. The new 

 

 

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owner or lessee becomes responsible for the maintenance and operationalcosts of the payphone. We sell pre-paid phone cards at some of our payphonelocations. Sales and repairs of payphones and the sale of pre-paid phone cardsare not subject to the same collection delays as the other types of operatingincome.

 

Types of costs related to our operation.

 

The principle costs related to the ongoing operationof our Company’s payphones include telephone charges, commissions, service,maintenance and network costs. Telephone charges consist of payments made byour Company to LEC or competitive local exchange carriers,and long distance carriers for access to and use of their telecommunicationsnetworks. Commission expense represents payments to owners or operators of thepremises at which a payphone is located. Service, maintenance and network costsrepresent the cost of servicing and maintaining our payphones.

 

**THREE MONTHS ENDED JUNE 30, 2002COMPARED TO THREE MONTHS ENDED JUNE 30, 2001**

 

**Revenues**

 

Total revenue decreased by $99,487 or 33.96% from$292,769 in the three months ended June 30, 2001 to $193,282 in the threemonths ended June 30, 2002. This decrease was primarily attributable to removalof unprofitable phone locations, lower call volumes on our payphones resultingfrom the growth in wireless and other public communication services and changesin call traffic.

 

Commissions decreased by $90,609 or 79.91% from$113,384 in the three months ended June 30, 2001 to $22,775 in the three monthsended June 30, 2002. This decrease is primarily attributable to a one-timebonus commission of $73,800 received in 2001 from Pacific TelemanagementServices in addition to lower commissionable revenues resulting from a reducednumber of our payphones. We are actively reviewing our strategies related tocontract renewals in order to maintain our competitive position while retainingour customer base.

 

Coin call revenues decreased by $31,235 or 26.3% from$118,600 in the three months ended June 30, 2001 to $87,365 in the year endedJune 30, 2002. The decrease in coin call revenue was a result of our ongoingstrategy of removing unprofitable phones, as well as a decrease in call volumeson our payphones because of increased competition from wireless and otherpublic communication services.

 

Non-coin call revenue, which is comprised primarily ofdial-around revenue and operator service revenue increased by  $17,983 or 114% from $15,688 in the threemonths ended June 30, 2001 to $33,671 in the three months ended June 30, 2002.This increase was primarily the result of working closely with our providers toinsure correct and timely information in order to eliminate underpayments.

 

Service and Repair Sales increased by $17,896 whencompared to the same period in 2001. Equipment sales decreased by $2,375 from$4,143 in the three months ending June 30, 2001 to $1,768 in the three monthsending June 30, 2002. Phone card sales and ATM revenue decreased by $5,797 and$5,350 respectively when compared to the same period in 2001.

 

Cost of Sales

 

Our overall cost of salesdecreased for the three months ending June 30, 2002 by $48,831 or 18.49% fromthe three months ending June 30, 2001. Telecommunication costs decreased by$47,426. This decrease in costs occurred because we are providing telephoneservice to 914 payphones in 2002 compared to 1,630 payphones in 2001. Once a lowrevenue payphone is identified, we offer the site owner an opportunity topurchase the equipment.  If the siteowner does not purchase the payphone, we remove it from the site.

 

Commissions payable decreased by $1,533 due to adecrease in payphone usage. We believe that this is a direct response to theincreased use of cellular phones and pre-paid phone cards. Some site owners areno longer receiving commissions, and in most cases they are being invoicedmonthly for payphone services. Contractor’s fees decreased by $3,718 because weused one less 

 

 

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independent contractor this quarter. Depreciation expense decreased by$382 when compare to the some period in 2001. This decrease is due to certainassets being fully depreciated.   We owntelephone equipment and motor vehicles, which provide a service for a number ofyears. The term of service is commonly referred to as the “useful life” of theasset. Because an asset such as telephone equipment or a motor vehicle isexpected to provide service for many years, it is recorded as an asset ratherthan an expense in the year acquired. A portion of the cost of the long-livedasset is reported as an expense during the cost of an asset to expense over itslife in a rational and systematic manner.

 

Cost of sales for repairs and service suppliesincreased by $8,483. This cost was incurred because of repairs and services weperformed on payphones that we sold to some of our customers. Travel, ATMparts, and supplies decreased by $4,255.

 

Operation and Administrative Expenses

 

Operating expensesdecreased by $8,424 or 5.8% over the same period in 2001. This decrease inoperating expense is a direct result of our management diligently working tocut expenses and run our company as efficiently as possible. Salaries and relatedpayroll taxes increased by $5,443 when compared to the same expenses for2001.  Insurance expense decreased by$3,094 when compared to the fiscal year 2001. Rent decreased by $1,842 whencompared to 2001. Telephone, utilities, office, and other miscellaneousexpenses, together account for a decrease of $1,658 when compared to the sameperiod ending June 30, 2001. Professional fees increased by $2,800 over2001.  These are fees we pay toaccountants and attorneys throughout the year for various legal and accountingcorporate requirements. Expenses for outside services decreased by $5,622 over2001. We believe this decrease occurred because we hired a full time employeeinstead of contracting for temporary staffing. Vehicle expense decreased by$4,451 in 2002 when compared to 2001.

 

**SIX MONTHS ENDED JUNE 30, 2002COMPARED TO SIX MONTHS ENDED JUNE 30, 2001**

 

**Revenues**

 

Total revenue decreased by $187,824 or 31.8% from$589,763 in the six months ended June 30, 2001 to $401,939 in the six monthsended June 30, 2002. This decrease was primarily attributable to the removal ofunprofitable phone locations, and lower call volumes on our payphones.

 

Commissions decreased by $118,022 or 72.7%, from$162,415 in the six months ended June 30, 2001 to $44,393 in the six monthsended June 30, 2002. This decrease is primarily attributable to a one-timebonus commission of $73,800 received in 2001 from Pacific TelemanagementServices in addition to lower commissionable revenues because of the reducednumber of our payphones. We are actively reviewing our strategies related tocontract renewals in order to maintain our competitive position while retainingour customer base.

 

Coin call revenues decreased by $56,269 or 23.7% from$237,188 in the six months ended June 30, 2001 to $180,919 in the six months****ended June 30, 2002. The decrease incoin call revenue was primarily attributable to an ongoing strategy of removingunprofitable phones.

 

Non-coin call revenue decreased by $6,987 or 7.62%from $90,932 in the six months ended June 30, 2001 to $83,945 in the six monthsended June 30, 2002. Non-coin call revenue is comprised primarily ofdial-around revenue and operator service revenue.

 

Service and Repair Sales increased by $21,755when compared to the same period in 2001. Equipment sales decreased by $8,177from $14,620 in the six months ending June 30 2001 to $6,443 in the six monthsending June 30, 2002. Phone card sales and ATM revenue decreased by $17,483 and$2,641 respectfully when compared to the same period in 2001.

 

 

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Cost of Sales

 

Our overall cost of salesdecreased for the six months ending June 30, 2002 by $117,889 or 21.1% from thesix months ending June 30, 2001. Telecommunication costs decreased by $124,563.This was the cost of providing telephone service to 914 payphones in 2002 ascompared to 1,630 payphones in 2001. When a low revenue payphone is identified,we offer the site owner an opportunity to purchase the equipment. If the siteowner does not purchase the payphone, we remove it from the site.

 

Commissions payable decreased by $8,020 due to adecrease in payphone usage. We believe that this was a direct result of theincreased use of cellular phones, and pre-paid phone cards. Some site ownersare no longer receiving commissions, and in most cases are being invoicedmonthly for payphone services. Contractor’s fees decreased by $5,479.Depreciation expense decreased by $423 when compare to the same period in 2001.This decrease occurred because we fully depreciated some assets.

 

Cost of sales for repairs and service suppliesincreased by $27,407. This cost was incurred because of repairs and services weperformed on payphones that we sold to some of our customers Travel, ATM parts,and supplies decreased by $6,811.

 

Operation and Administrative Expenses

 

Operating expensesincreased by $22,660 or 7.8% over the same period in 2001. Salaries and relatedpayroll taxes were reduced by $3,041 when compared to the same expenses for2001. Insurance expense decreased by $5,260 when compared to the fiscal year2001. Rent decreased by $2,217 when compared to 2001. Telephone, utilities,office, and other miscellaneous expenses, together account for a decrease of$12,777 when compared to the same period ending June 30, 2001. Professionalfees increased by $57,100 over 2001. These are fees we pay to accountants andattorneys throughout the year for various legal and accounting corporaterequirements. Expenses for outside services decreased by $1,306 over 2001.Vehicle expense decreased by $9,839 in 2002 when compared to 2001.

 

**CONSEQUENCES OF WORLD COM, INC. CHAPTER 11BANKRUPTCY FILING**

 

On Sunday, July 21, 2002 WorldCom, Inc. andsubstantially all of its active U.S. subsidiaries filed voluntary petitions forreorganization under chapter 11 of the United States Bankruptcy Code in theUnited States Bankruptcy Court for the Southern District of New York. Theimpact of this event on our financial statements is in the area of dial-aroundcompensation accrued for the 2nd quarter of 2002. WorldCom, Inc.makes up approximately 30% of our dial-around receivables.

 

As a result, we had to write down our dial aroundcommissions by approximately $15,000 to reflect WorldCom’s Bankruptcy filing.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Cash Flow

 

Our primary sources ofliquidity have been cash from operations and borrowing from various creditfacilities. As of June 30, 2002 we have a note payable to Key Bank in theamount of $97,552. We have had an unsecured $200,000 line of credit with LillyBeter Capital Group, Ltd. On April 30, 2002 we entered into an additional$300,000 line of credit with Lilly Beter Capital Group, Ltd. for a total of$500,000. As of June 30, 2002 we have borrowed $276,300 from the line ofcredit.

 

**COMPETITION**

 

We compete for payphonelocations directly with Regional Bell Operating Companies (RBOCs), such asVerizon Communications, Local Exchange Companies (LECs), such as CitizensCommunications and Alltel Corporation, and other Independent Payphone Providers(IPPs), such as Davel Communications. We also compete, indirectly, withlong-distance companies,

 

 

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which can offer Location Owners commissions onlong-distance calls made from LEC-owned payphones. Most LEC’s, long-distancecompanies and some IPPs may have substantially greater financial, marketing andother resources than our company.

 

We believe that our principal competition is fromproviders of wireless communications services for both local and long distancetraffic. Certain providers of wireless communication services have introducedrate plans that are competitively priced with certain of the products offeredby us and have negatively impacted the usage of payphones throughout thenation.

 

We believe that thecompetitive factors among payphone providers are (1) the commission payments toa Location Owner, (2) the ability to serve accounts with locations in severalLocal Access Transport Areas (LATAs), or states, (3) the quality of service andthe availability of specialized services provided to a Location Owner andpayphone users, and (4) responsiveness to customer service needs. We believethat we are currently competitive in each of these areas.

 

Additionally, a number of domestic IPPs continue toexperience financial difficulties from various competitive and regulatoryfactors impacting the pay telephone industry generally, which may impair theirability to compete prospectively. While no assurances can be given, we believethat these circumstances create an opportunity for us to obtain new locationagreements and reduced site commissions going forward.

 

We compete withlong-distance carriers that provide dial-around services that can be accessedthrough our payphones. Certain national long-distance operator serviceproviders and prepaid calling card providers have implemented extensiveadvertising promotions and distribution schemes which have increaseddial-around activity on payphones owned by LECs and IPPs, including ourcompany, thereby reducing traffic to our primary providers of long-distanceservice. While we do receive compensation for dial-around calls placed from ourpayphones, regulatory efforts are underway to improve the collection system andprovide us with the ability to collect that portion of dial-around calls thatcurrently owe.

 

**SEASONALASPECTS**

 

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.

 

**RISKSASSOCIATED WITH OUR BUSINESS**

 

In addition to the otherinformation in this report, the following risks should be considered carefullyin evaluating our business and prospects:

 

**UNLESS WE CAN REVERSE OUR HISTORY OF LOSSES, WE MAY HAVE TO DISCONTINUE OPERATIONS.**

 

If we are unable to achieve or sustain profitability, or if operating losses increase in the future, we may not be able to remain a viable company and may have to discontinue operations. Our expenses have historically exceeded our revenues and we have had losses in all fiscal years of operation, including those in fiscal years 2000 through 2001, and the losses are projected to continue in 2002. Our net losses were $11,665 and $556,310 for fiscal years ended 2000, 2001 respectively. We have been concentrating on the development of our products, services and business plan. Our management believes that we can be profitable and that our business plan will be successful; however, there is no assurance that we will be successful in implementing our business plan or that we will be profitable now or in the future.

 

 

 

**WE MAY NOTSUCCEED OR BECOME PROFITABLE.**

 

We will need to generatesignificant revenues to achieve profitability and we may be unable to do so.Even if we do achieve profitability, we may not be able to sustain or increaseprofitability in the future. We expect that our expenses will continue toincrease and there is no guarantee that we will not experience operating lossesand negative cash flow from operations for this fiscal year or for theforeseeable future. If we do not achieve or sustain profitability, then we maybe unable to continue our operations.

 

**WE WILL NEEDADDITIONAL CAPITAL FINANCING IN THE FUTURE.**

 

We may be required to seekadditional financing in the future to respond to increased expenses orshortfalls in anticipated revenues, accelerate product development anddeployment, respond to competitive pressures, develop new or enhanced products,or take advantage of unanticipated acquisition opportunities. We cannot becertain we will be able to find such additional financing on reasonable terms,or at all. If we are unable to obtain additional financing from Lilly BeterCapital Group, Ltd. or Key Bank when needed, we could be required to modify ourbusiness plan in accordance with the extent of available financing.

 

**IF WE AREUNABLE TO COMPETE SUCCESSFULLY IN THIS HIGHLY COMPETITIVE MARKET, OUR BUSINESSWILL FAIL.**

 

The market for payphones isworldwide and highly competitive and we expect competition to intensify in thefuture. There are few substantial barriers to entry, and additional competitionfrom existing competitors and new market entrants will likely occur in thefuture. An increase in competitive pressures in our market or our failure tocompete effectively may result in pricing reductions, reduced gross margins andloss of market share. Many of our current or potential competitors have longeroperating histories, greater name recognition, larger customer bases and significantlygreater financial, technical, marketing and other resources than we do. Inaddition, our current and potential competitors may establish cooperativerelationships among themselves or with third parties that may further enhancetheir resources. As a result, they may be able to adapt more quickly to newtechnologies and customer needs, devote greater resources to the promotion orsale of their products and services, initiate or withstand substantial pricecompetition, take advantage of acquisition or other opportunities more readilyor develop and expand their product and service offerings more quickly. Inaddition, our competitors may bundle products that compete with ours. If thesecompanies were to use their greater financial, technical and marketingresources in our target markets, it could adversely affect our business.

 

**WEMAY FAIL TO ENGAGE IN STRATEGIC ACQUISITIONS, WHICH COULD LIMIT OUR FUTUREGROWTH.**

 

One of our strategies forgrowth is to engage in selective strategic acquisitions of key products,technologies or companies. Our ability to conduct such acquisitions is limitedby our ability to identify potential acquisition candidates, obtain necessaryfinancing and consummate the acquisitions. In the event we are unable toidentify and take advantage of these opportunities, we may experiencedifficulties in growing our business. In addition, pursuing acquisitionopportunities could divert our management’s attention from our ongoing businessoperations and result in decreased operating performance.

 

**IF WE ENGAGEIN ACQUISITIONS, WE MAY EXPERIENCE SIGNIFICANT COSTS AND DIFFICULTYASSIMILATING THE OPERATIONS OR PERSONNEL OF THE ACQUIRED COMPANIES, WHICH COULDTHREATEN OUR FUTURE GROWTH.**

 

If we make any acquisitions,we could have difficulty assimilating the operations, technologies and productsacquired or integrating or retaining personnel of acquired companies. Inaddition, acquisitions may involve entering markets in which we have no orlimited direct prior experience. The occurrence of any one or more of thesefactors could disrupt our ongoing business, distract our management andemployees and increase our expenses. In addition, pursuing acquisitionopportunities could divert our management’s attention from our ongoing businessoperations and result in decreased operating performance. Moreover, ourprofitability may suffer because of acquisition-related costs or amortizationof acquired goodwill and other intangible assets. Furthermore, we may have

 

 

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to incur debt or issue equity securities infuture acquisitions. The issuance of equity securities would dilute ourexisting stockholders.

 

**IF WE DO NOT INCREASE OUR BRAND AND NAMERECOGNITION, OUR ABILITY TO SELL OUR PRODUCTS WILL BE REDUCED AND OUR BUSINESSAND OPERATING RESULTS WILL SUFFER.**

 

Most of our target customersare small and medium-sized businesses. We believe that establishing andmaintaining recognition in the payphone business is critical for attracting andexpanding this targeted customer base because we believe these targeted customersgenerally prefer to do business with established companies. We also believethat the importance to us of name recognition and reputation will increase ascompetition in our market increases. Promotion and enhancement of our currentor future acquired products will depend on the effectiveness of our marketingand advertising efforts and on our ability to continue providing high-qualityproducts and services. We may not be successful in either regard. If we are notsuccessful, our ability to generate revenue will be limited.

 

**IF WE CANNOT ATTRACT, RETAIN,MOTIVATE AND INTEGRATE ADDITIONAL SKILLED PERSONNEL, OUR ABILITY TO COMPETEWILL BE IMPAIRED.**

 

Many of our current andpotential competitors have more employees than we do. Our success depends inlarge part on our ability to attract, retain and motivate highly qualifiedmanagement and technical personnel. We face intense competition for qualifiedpersonnel. The industry in which we compete has a high level of employeemobility and aggressive recruiting of skilled personnel. If we are unable tocontinue to employ our key personnel or to attract and retain qualifiedpersonnel in the future, our ability to successfully execute our business planwill be jeopardized and our growth will be inhibited.

 

**OUR FAILURE TO MANAGE PLANNED GROWTH COULDADVERSELY AFFECT OUR ABILITY TO INCREASE REVENUES AND BECOME PROFITABLE.**

 

Ifwe do not effectively manage our planned growth, our ability to significantlyincrease revenues and become profitable will be limited. Our growth hasstrained and will continue to strain our management, financial controls,operations systems, personnel and other resources. If we do not manage ourplanned future growth effectively, our efforts to increase our customer baseand product and service offerings may not be successful. In addition, ourplanned growth could adversely affect our ability to provide services andtechnical support in a timely manner and in accordance with customerexpectations. To manage growth of our operations, we must:

 

•                  improveexisting operational, financial and management information controls, reportingsystems and procedures;

 

•                  hire, train and manage additional qualifiedpersonnel; and

 

•                  effectively manage multiple relationships withour customers, vendors and other third parties.

 

We may not be able to install managementinformation and control systems in an efficient and timely manner, and ourcurrent or planned personnel, systems, procedures and controls may not beadequate to support our future operations.

 

**WE MAY BE UNABLETO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR MAY BE SUED BY THIRD PARTIESFOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS.**

 

The telecommunicationsindustry is characterized by the existence of a large number of patents andfrequent litigation based on allegations of trade secret, copyright or patentinfringement. We may inadvertently infringe a patent of which we are unaware.In addition, because patent applications can take many years to issue, theremay be a patent application now pending of which we are unaware that will causeus to be infringing when it is issued in the future. If we make anyacquisitions, we could have similar problems in those industries. Although weare not currently involved in any intellectual property litigation, we may be aparty to litigation in the future to protect our intellectual property or as aresult of our alleged infringement of another’s intellectual property, forcingus to do one or more of the following:

 

 

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•                  Cease selling, incorporating or using productsor services that incorporate the challenged intellectual property;

•                  Obtain from the holder of the infringedintellectual property right a license to sell or use the relevant technology,which license may not be available on reasonable terms; or

•                  Redesign those products or services thatincorporate such technology.

 

A successful claim ofinfringement against us, and our failure to license the same or similartechnology, could adversely affect our business, asset value or stock value.Infringement claims, with or without merit, would be expensive to litigate orsettle, and would divert management resources.

 

Our employees may be bound byconfidentiality and other nondisclosure agreements regarding the trade secretsof their former employers. As a result, our employees or we could be subject toallegations of trade secret violations and other similar violations if claimsare made that they breached these agreements.

 

**BECAUSE OUROFFICERS AND DIRECTORS ARE INDEMNIFIED AGAINST CERTAIN LOSSES, WE MAY BEEXPOSED TO COSTS ASSOCIATED WITH LITIGATION.**

 

If ourdirectors or officers become exposed to liabilities invoking theindemnification provisions, we could be exposed to additional unreimbursablecosts, including legal fees. Our articles of incorporation and bylaws providethat our directors and officers will not be liable to us or to any shareholderand will be indemnified and held harmless for any consequences of any act oromission by the directors and officers unless the act or omission constitutesgross negligence or willful misconduct. Extended or protracted litigation couldhave a material adverse effect on our cash flow.

 

**WEWILL DEPEND ON OUTSIDE MANUFACTURING SOURCES AND SUPPLIERS.**

 

We may contract with thirdparty manufacturers to produce our products and we will depend on third partysuppliers to obtain the raw materials necessary for the production of ourproducts. We do not know what type of contracts we will have with such thirdparty manufacturers and suppliers. In the event we outsource the manufacture ofour products, we will have limited control over the actual production process.Moreover, difficulties encountered by any one of our third party manufacturers,which result in product defects, delayed or reduced product shipments, costoverruns or our inability to fill orders on a timely basis, could have anadverse impact on our business. Even a short-term disruption in ourrelationship with third party manufacturers or suppliers could have a materialadverse effect on our operations. We do not intend to maintain an inventory ofsufficient size to protect ourselves for any significant period of time againstsupply interruptions, particularly if we are required to obtain alternativesources of supply.

 

**OUR STOCKPRICE MAY BE VOLATILE.**

 

Themarket price of our common stock will likely fluctuate significantly inresponse to the following factors, some of which are beyond our control:

 

•                  Variations in our quarterlyoperating results;

•                  Changes in financial estimatesof our revenues and operating results by securities analysts;

•                  Changes in market valuations oftelecommunications equipment companies;

•                  Announcements by us ofsignificant contracts, acquisitions, strategic partnerships, joint ventures orcapital commitments;

•                  Additions or departures of keypersonnel;

•                  Future sales of our commonstock;

•                  Stock market price and volumefluctuations attributable to inconsistent trading volume levels of our stock;

•                  Commencement of or involvementin litigation.

 

 

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Inaddition, the equity markets have experienced volatility that has particularlyeffected the market prices of equity securities issued by technology companiesand that often has been unrelated or disproportionate to the operating resultsof those companies. These broad market fluctuations may adversely effect themarket price of our common stock.

 

**WE DO NOTANTICIPATE PAYING ANY DIVIDENDS ON OUR COMMON STOCK.**

 

We havenot paid any dividends on our Common Stock since inception and do notanticipate paying any dividends on our Common Stock in the foreseeable future.Instead, we intend to retain any future earnings for use in the operation andexpansion of our business.

 

**IF WE ARESUBJECT TO SEC REGULATIONS RELATING TO LOW-PRICED STOCKS, THE MARKET FOR OURCOMMON STOCK COULD BE ADVERSELY AFFECTED.**

 

TheSecurities and Exchange Commission has adopted regulations concerninglow-priced (or “penny”) stocks. The regulations generally define “penny stock”to be any equity security that has a market price less than $5.00 per share,subject to certain exceptions. If our shares are offered at a market price lessthan $5.00 per share, and do not qualify for any exemption from the penny stockregulations, our shares may become subject to these additional regulationsrelating to low-priced stocks.

 

Thepenny stock regulations require that broker-dealers who recommend penny stocksto persons other than institutional accredited investors make a specialsuitability determination for the purchaser, receive the purchaser’s writtenagreement to the transaction prior to the sale and provide the purchaser withrisk disclosure documents that identify risks associated with investing inpenny stocks. Furthermore, the broker-dealer must obtain a signed and datedacknowledgment from the purchaser demonstrating that the purchaser has actuallyreceived the required risk disclosure document before effecting a transactionin penny stock. These requirements have historically resulted in reducing thelevel of trading activity in securities that become subject to the penny stockrules.

 

Theadditional burdens imposed upon broker-dealers by these penny stockrequirements may discourage broker-dealers from effecting transactions in thecommon stock, which could severely limit the market liquidity of our commonstock and our shareholders’ ability to sell our common stock in the secondarymarket.

 

 

**PART IIOTHER INFORMATION.**

 

 

ITEM 1     Legal Proceedings.

Notapplicable.

 

ITEM 2.    Changes in Securities and Use of Proceeds.

 

Duringthe second quarter ended June 30, 2002, we issued sixty thousand shares of commonstock in lieu of debt owed. Theseshares were issued under Section 4(2) of the Securities Actof 1933, as amended. All common shares issued above are restricted subject toRule 144.

 

ITEM 3     Defaults Upon Senior Securities.

Notapplicable.

 

ITEM 4.    Submission of Matters to a Vote of SecurityHolders.

Notapplicable.

 

ITEM 5.    Other Information.

Notapplicable.

 

 

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ITEM 6.  Exhibits and Reports on Form 8-K.

(a)                                  Exhibits.

 

The following exhibitsrequired by Item 601 of Regulation S-B are attached.

 

There were no Exhibitsfiled with this report.

 

(b)           Reports on Form 8-K.

 

None

 

SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

Dated:    August 14, 2002

 
|   | USIP.Com, Inc.               |
|--------|------------------------------|
|   |                         |
|   | (Registrant)                 |
|   |                         |
|   |                         |
|   | /s/ Craig Burton             |   |
|   |                         |
|   | President                    |
|   |                         |
|   |                         |
|   |                         |
|   |                         |
|   |  /s/ Kathy  Christopher |   |
|   |                         |
|   |  Controller             |
|   |                         |

 

 

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