**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 September 30, 2003**                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                      |
| **o****  TRANSITION REPORT PURSUANT TO SECTION  13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.**                                                                                                                                                           |
|                                                                                                                                                                                                                                                                      |
| **For the transition period  from                  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. Employer  Identification No.) |
|                                                                               |   |                                  |
| **7325 Oswego RoadLiverpool, 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 all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 
| Yes   ý | Noo |
|-----------------------------|-----|

 

State the number of sharesoutstanding of each of the issuer’s classes of common equity, as of the latestpracticable date: 17,699,388 shares of Common Stock, $.01 par value, wereoutstanding as of September 30, 2003.

 

Transitional Small BusinessDisclosure Forms (check one):

 
| Yes   o | Noý |
|------------------------|----------|

 

 

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USIP.COM, INC.

INDEX TO FORM 10-QSB

SEPTEMBER 30, 2003

 

 
| PART I                    FINANCIAL INFORMATION |
|------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                           |   |
| ITEM 1.                                                                                                                                        | Financial Statements |
|                                                                                                                                           |   |
|                                                                                                                                           | Consolidated Balance Sheets |
|                                                                                                                                           | At December 31, 2002 and September 30, 2003 |
|                                                                                                                                           |   |
|                                                                                                                                           | Consolidated  Statements of Income and Retained Earnings |
|                                                                                                                                           | For the three months and nine months ended September 30, 2003 and  September 30, 2002 |
|                                                                                                                                           |   |
|                                                                                                                                           | Consolidated Statements of Cash Flows |
|                                                                                                                                           | For the nine months ended September 30,  2003 and September 30, 2002 |
|                                                                                                                                           |   |
|                                                                                                                                           | **Notes  to Consolidated Financial Statements** |
|                                                                                                                                           |   |
| **ITEM  2.**                                                                                                                                   | **Managements  Discussion and Analysis of Financial** |
|                                                                                                                                           | **Condition  and Results of Operation** |
|                                                                                                                                           |   |
| **ITEM  3.**                                                                                                                                   | **Controls  and Procedures** |
|                                                                                                                                           |   |
| 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 |

 

----

 

**PART I.****                FINANCIALINFORMATION**

 

**ITEM1. FINANCIAL STATEMENTS**

 

USIP.COM, INC

CONSOLIDATEDBALANCE SHEET

 
|                                                                                                       |   | **Unaudited**          |    | **Audited**           |    |
|------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|-----------------------|---------|
|                                                                                                       |   | **September 30, 2003** |    | **December 31, 2002** |    |
| ASSETS                                                                                                     |   |                   |    |                  |    |
| CURRENT ASSETS                                                                                             |   |                   |    |                  |    |
| Cash                                                                                                       |   | $                      | 6,968   |                  | 7,021   |   |
| Commissions and Sales Receivable, Net                                                                      |   | 206,888                |    | 125,276               |    |
| Inventory                                                                                                  |   | 50,782                 |    | 50,782                |    |
| Prepaid Expenses                                                                                           |   | 4,598                  |    | 3,932                 |    |
|                                                                                                       |   |                   |    |                  |    |
| TOTAL CURRENT ASSETS                                                                                       |   | 269,236                |    | 187,011               |    |
|                                                                                                       |   |                   |    |                  |    |
| FIXED ASSETS                                                                                               |   |                   |    |                  |    |
| Telephone and Office Equipment                                                                             |   | 1,883,985              |    | 1,899,122             |    |
| Vehicle                                                                                                    |   | 76,367                 |    | 76,367                |    |
|                                                                                                       |   | 1,960,352              |    | 1,975,489             |    |
| Less: Accumulated Depreciation                                                                             |   | (1,305,600             | )       | (1,151,240            | )       |
|                                                                                                       |   |                   |    |                  |    |
| Net Fixed Assets                                                                                           |   | 654,752                |    | 824,249               |    |
|                                                                                                       |   |                   |    |                  |    |
| TOTAL ASSETS                                                                                               |   | $                      | 923,988 |                  | $       | 1,011,260 |   |
|                                                                                                       |   |                   |    |                  |    |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                  |   |                   |    |                  |    |
|                                                                                                       |   |                   |    |                  |    |
| Current Liabilities                                                                                        |   |                   |    |                  |    |
| Accounts Payable                                                                                           |   | $                      | 249,655 |                  | 201,812 |   |
| Line of Credit                                                                                             |   | 444,500                |    | 501,852               |    |
| Accrued Payroll and Payroll Taxes                                                                          |   | 7,709                  |    | 5,896                 |    |
| Accrued State Gross Receipts Taxes                                                                         |   | 5,450                  |    | 9,621                 |    |
| Other Accrued Expenses                                                                                     |   | 56,377                 |    | 28,663                |    |
| Current Portion of Long-Term Debt                                                                          |   | 15,900                 |    | 13,990                |    |
|                                                                                                       |   |                   |    |                  |    |
| TOTAL CURRENT LIABILITIES                                                                                  |   | 779,591                |    | 761,834               |    |
|                                                                                                       |   |                   |    |                  |    |
| LONG-TERM LIABILITIES                                                                                      |   |                   |    |                  |    |
| Long-Term Debt, Less Current Portion                                                                       |   | 130,512                |    | 58,312                |    |
| TOTAL LIABILITIES                                                                                          |   | 910,103                |    | 820,146               |    |
| STOCKHOLDERS’ EQUITY                                                                                  |   |                   |    |                  |    |
| Common Stock, $.01 par value  25,000,000 Shares authorized, 17,699,388  shares issued and outstanding |   | 176,994                |    | 176,994               |    |
|                                                                                                       |   |                   |    |                  |    |
| Additional Paid In Capital                                                                                 |   | 1,442,608              |    | 1,442,608             |    |
|                                                                                                       |   |                   |    |                  |    |
| Retained Earnings                                                                                          |   | (1,605,717             | )       | (1,428,488            | )       |
|                                                                                                       |   |                   |    |                  |    |
| TOTAL STOCKHOLDERS’ EQUITY                                                                            |   | 13,885                 |    | 191,114               |    |
|                                                                                                       |   |                   |    |                  |    |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                            |   | $                      | 923,988 |                  | $       | 1,011,260 |   |

 

See Accountant’s Report and Notes To Financial Statement

 

F-3

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USIP.COM, INC

CONSOLIDATED STATEMENTOF INCOME (LOSS)

Unaudited

 
|                               |   | **Three Months Ended** |   | **Nine Months Ended**  |   |
|------------------------------------|--------|------------------------|--------|------------------------|--------|
|                               |   | **September 30, 2003** |   | **September 30, 2002** |   | **September 30, 2003** |   | **September 30, 2002** |   |
| SALES                              |   |                   |   |                   |   |   |   |   |   |
| Commissions                        |   | $                      | 11,447 |                   | $      | 23,361 |   | $ | 25,693 |   | $ | 67,841 |   |
| Coin Collections                   |   | 46,065                 |   | 77,746                 |   | 143,878 |   | 258,665 |   |
| Dial Around                        |   | 141,970                |   | 48,190                 |   | 264,559 |   | 132,135 |   |
| Phone Card Sales                   |   | 1,020                  |   | 6,035                  |   | 7,402 |   | 30,035 |   |
| Equipment Sales                    |   | 1,340                  |   | 1,984                  |   | 9,027 |   | 8,426 |   |
| Atm Revenue                        |   | —                 |   | 1,797                  |   | — |   | 3,760 |   |
| Service and Repair Sales           |   | 32,620                 |   | 30,364                 |   | 94,064 |   | 90,551 |   |
| Total Sales                        |   | 234,462                |   | 189,477                |   | 544,623 |   | 591,413 |   |
|                               |   |                   |   |                   |   |   |   |   |   |
| COST OF SALES                      |   |                   |   |                   |   |   |   |   |   |
| Telecommunications Costs           |   | 62,958                 |   | 96,310                 |   | 184,295 |   | 313,887 |   |
| Commissions                        |   | 1,343                  |   | 428                    |   | 1,608 |   | 3,004 |   |
| Repairs and Service Supplies       |   | 4,951                  |   | 3,317                  |   | 18,695 |   | 42,145 |   |
| Other Direct Expenses - Travel     |   | 2,826                  |   | 3,198                  |   | 8,459 |   | 7,072 |   |
| Depreciation                       |   | 53,668                 |   | 72,907                 |   | 161,005 |   | 216,354 |   |
| Subcontractors                     |   | 1,612                  |   | 9,852                  |   | 4,837 |   | 44,055 |   |
| Supplies                           |   | —                 |   | —                 |   | — |   |   |   |
| Total Cost of Sales                |   | 127,358                |   | 186,012                |   | 378,899 |   | 626,517 |   |
|                               |   |                   |   |                   |   |   |   |   |   |
| GROSS PROFIT                       |   | 107,104                |   | 3,465                  |   | 165,724 |   | (35,104 | ) |
|                               |   |                   |   |                   |   |   |   |   |   |
| OPERATING EXPENSES                 |   |                   |   |                   |   |   |   |   |   |
| Officers’ Salaries            |   | 17,028                 |   | 16,770                 |   | 50,310 |   | 50,052 |   |
| Salaries and Wages                 |   | 28,145                 |   | 36,938                 |   | 91,820 |   | 118,723 |   |
| Payroll Taxes                      |   | 3,650                  |   | 4,038                  |   | 12,889 |   | 16,808 |   |
| Insurance                          |   | 8,786                  |   | 14,715                 |   | 30,369 |   | 42,020 |   |
| Office Supplies                    |   | 3,040                  |   | 3,826                  |   | 8,053 |   | 10,856 |   |
| Telephone                          |   | 4,003                  |   | 5,934                  |   | 11,762 |   | 18,590 |   |
| Utilities                          |   | 1,623                  |   | 2,163                  |   | 7,086 |   | 5,935 |   |
| Vehicle Expenses                   |   | 890                    |   | 8,946                  |   | — |   | 14,424 |   |
| Rent                               |   | 15,329                 |   | 13,932                 |   | 46,045 |   | 48,395 |   |
| Professional Fees                  |   | 6,358                  |   | 7,245                  |   | 43,492 |   | 90,845 |   |
| Travel & Entertainment         |   | 301                    |   | 2,298                  |   | 2,514 |   | 3,174 |   |
| Outside Services                   |   | 1,657                  |   | 2,247                  |   | 4,834 |   | 11,760 |   |
| Total Operating Expenses           |   | 90,810                 |   | 119,052                |   | 309,174 |   | 431,582 |   |
|                               |   |                   |   |                   |   |   |   |   |   |
| OPERATING INCOME (LOSS)            |   | 16,294                 |   | (115,587               | )      | (143,450 | ) | (466,686 | ) |
|                               |   |                   |   |                   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)             |   |                   |   |                   |   |   |   |   |   |
| Interest Expense                   |   | (12,628                | )      | (10,345                | )      | (36,319 | ) | (23,772 | ) |
| NY State Gross Receipts Tax        |   | (1,600                 | )      | (3,828                 | )      | (3,688 | ) | (9,213 | ) |
| Gain on Sale of Assets             |   | 600                    |   | 5,175                  |   | 6,228 |   | 4,267 |   |
| Interest Income                    |   |                   |   | 17                     |   |   |   | 51 |   |
| Total Other Income                 |   | (13,628                | )      | (8,981                 | )      | (33,779 | ) | (28,667 | ) |
|                               |   |                   |   |                   |   |   |   |   |   |
| NET INCOME (LOSS)                  |   | $                      | 2,666  |                   | $      | (124,568 | ) | $ | (177,229 | ) | $ | (495,353 | ) |
|                               |   |                   |   |                   |   |   |   |   |   |
| Weighted Common Shares Outstanding |   | 17,699,388             |   | 17,699,388             |   | 17,699,388 |   | 17,699,388 |   |
|                               |   |                   |   |                   |   |   |   |   |   |
| Net Income (Loss) per Common Share |   | $                      | — |                   | $      | — |   | $ | — |   | $ | — |   |
|                               |   | x                      |   | x                      |   | x |   | x |   |

 

See Accountant’s Report and Notes To Financial Statement

 

F-4

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USIP.COM, INC

CONSOLIDATED STATEMENT OF CASH FLOWS

 
|                                                                                            |   | **Nine  Months  September 30, 2003** |     | **Nine  Months  September 30, 2002** | ** ** |
|-------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|--------------------------------------|------------|
|                                                                                            |   | **Unaudited**                        |     | **Unaudited**                        | ** ** |
| Cash Flows From Operating Activities:                                                           |   |                                 |     |                                 |       |
| Net (Loss)                                                                                      |   | $                                    | (177,229 | )                                    | $          | (283,865 | ) |
| Adjustments to reconcile net  (loss) to net cash provided (used) by  operating activities: |   |                                 |     |                                 |       |
| Depreciation Expense                                                                            |   | 161,005                              |     | 214,769                              |       |
| (Increase) Decrease in Commissions and  Sales Receivables                                       |   | (81,612                              | )        | 28,167                               |       |
| (Increase) in Inventory                                                                         |   | —                               |     | (14,816                              | )          |
| (Increase) Decrease in Prepaid Expenses                                                         |   | (666                                 | )        | 9,889                                |       |
| Increase in Accounts Payable                                                                    |   | 47,843                               |     | 72,402                               |       |
| Increase (Decrease) in Accrued Expenses  and Wages                                              |   | 29,527                               |     | (7,155                               | )          |
| Increase (Decrease) in Accrued State Gross  Receipts Taxes                                      |   | (4,171                               | )        | 7,985                                |       |
|                                                                                            |   |                                 |     |                                 |       |
| Net cash provided (used) by operating  activities                                               |   | (25,303                              | )        | 27,376                               |       |
|                                                                                            |   |                                 |     |                                 |       |
| Cash Flows From Investing Activities:                                                           |   |                                 |     |                                 |       |
| Acquisition of Equipment                                                                        |   | (1,090                               | )        | (68,814                              | )          |
| Sale of Equipment                                                                               |   | 16,227                               |     |                                 |       |
|                                                                                            |   |                                 |     |                                 |       |
| Net cash provided (used)  by investing activities                                          |   | 15,137                               |     | (68,814                              | )          |
|                                                                                            |   |                                 |     |                                 |       |
| Cash Flows From Financing Activities:                                                           |   |                                 |     |                                 |       |
| Proceeds Received from Line of Credit                                                           |   | 34,200                               |     | 70,000                               |       |
| Principal Payments on Long-term Debt                                                            |   | (24,087                              | )        | (6,801                               | )          |
| Proceeds from Issuance on Notes Payable                                                         |   | —                               |     | 80,945                               |       |
| Proceeds from Issuance of Stock                                                                 |   | —                               |     | 5,500                                |       |
|                                                                                            |   |                                 |     |                                 |       |
| Net cash provided (used) by financing  activities                                               |   | 10,113                               |     | 149,644                              |       |
|                                                                                            |   |                                 |     |                                 |       |
| Net Increase (Decrease) in cash                                                                 |   | (53                                  | )        | 108,206                              |       |
|                                                                                            |   |                                 |     |                                 |       |
| Cash - Beginning of Period                                                                      |   | 7,021                                |     | 9,413                                |       |
|                                                                                            |   |                                 |     |                                 |       |
| Cash - End of Period                                                                            |   | $                                    | 6,968    |                                 | $          | 117,619 |   |
|                                                                                            |   |                                 |     |                                 |       |
|                                                                                            |   |                                 |     | x                                    |       |
| Supplemental Disclosures of Cash Flow  Information:                                             |   |                                 |     |                                 |       |
| Cash Paid During Period The Period For:                                                         |   |                                 |     |                                 |       |
| Interest                                                                                        |   | $                                    | 7,407    |                                 | $          | 9,755 |   |
| Income Taxes                                                                                    |   | $                                    | 7,960    |                                 | $          | — |   |

 

See Accountant’s Report and Notes To Financial Statement

 

F-5

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USIP.COM, INC

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(unaudited)

 

NOTE 1.                                                   SUMMARYINFORMATION

 

Theaccompanying unaudited consolidated financial statements include the accountsof USIP.Com, Inc. and our three wholly owned subsidiaries: Datone, Inc., NBPayphones Ltd., and Platinum Funding Corporation. All significant inter-companyamounts have been eliminated. Our unaudited consolidated financial statementspresented herein, should be read in conjunction with the audited consolidatedfinancial statements of our company contained in our form 10K for the yearended December 31, 2002.

 

In the opinionof management, 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. For purposes of comparability,certain prior year amounts have been reclassified to conform to current yearpresentation.

 

NOTE 2.                                                   COMPANYINFORMATION

 

On January 16,2002 we formed a 100% wholly owed subsidiary corporation, The Platinum FundingCorporation. This company was formed to take advantage of the mortgagebrokering business. As of September 30, 2003, there has been no activity withinthis corporation.

 

NOTE 3.                                                   LINEOF CREDIT

 

We have a lineof credit with Lilly Beter Capital Group, Ltd. in the amount of $500,000 as ofSeptember 30, 2003 we have used $444,500 of this line of credit.

 

NOTE 4.                                                   NOTESPAYABLE

 

On June 4,2003, our line of credit with Key Bank was converted to a fixed note payable at7.5%, payable over a five-year period. As of September 30, 2003 the outstandingamount of this note was $88,351.

 

NOTE 5.                                                   REVENUES

 

We received aone-time settlement payment of approximately $83,000, for underpayment of pastdial-around commissions a result of a class action lawsuit against the longdistance carriers and ordered by the FCC.

 

F-6

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**ITEM 2****.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**FORWARD LOOKINGSTATEMENTS**

 

The followingis a discussion and analysis of the results of operations of our company andshould be read in conjunction with our financial statements and related notescontained in this Form 10-QSB. This Form 10-QSB contains forward-looking statementsthat involve risks and uncertainties. You can identify these statements by theuse of forward-looking words such as “may,” “will,” “expect,” “anticipate,”“estimate,” “believe” “continue,” or other similar words. You should readstatements that contain these words carefully because they discuss our futureexpectations, contain projections of our future results of operations orfinancial condition or state other “forward-looking” information. We believethat it is important to communicate our future expectations to our investors.However, there may be events in the future that we are unable to accuratelypredict or control. Those events as well as any cautionary language in thisQuarterly statement provide examples of risks, uncertainties and events thatmay cause our actual results to differ materially from the expectations wedescribe in our forward-looking statements. You should be aware that theoccurrence of the events described in this Form 10-QSB could have a materialadverse effect on our business, operating results and financial condition.Actual results could differ materially from current expectations. Among thefactors that could effect our actual results and could cause results to differfrom those contained in the forward-looking statements contained herein is ourability to expand our customer base, which will be dependent on business,financial and other factors beyond our control, including, among others,seasonal aspects such as the winter months that tend to reduce the frequency ofoutdoor payphone use on the east coast, ability to increase our size andmarketing area by purchasing payphones and locations from independent telephonecompanies, and whether the public uses our payphones, together with all therisks inherent in the establishment of a new enterprise and the marketing ofnew products.

 

**HISTORYOF USIP.COM, INC.**

 

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. OurCertificate of Incorporation was reinstated on June 18, 1992 by the UtahDepartment 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 our commonstock for their stock. On February 4, 2000 we amended our 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.

 

On August 30,2000 we incorporated Datone, Inc. as a Delaware company. Datone, Inc. is a USIPwholly owned subsidiary. All the revenue generating assets and related expensesthat we received from the Datone Communications Merger were subsequently movedvia an intercompany transfer from USIP into Datone, Inc. Datone, Inc. wascapitalized with $1,017. All of the Datone, Inc. shares were given to USIP. OnOctober 1, 2000 we merged Cointel into Datone, Inc. by way of an intercompanytransaction. In an effort to save money our management decided to combine thesesimilar companies.

 

On December14, 2001 we incorporated The Platinum Funding Corporation (“Platinum”), as aNew York wholly owned subsidiary for the purpose of developing a real estatebased mortgage brokerage business. On January 16, 2002 we issued a pressrelease announcing the formation of Platinum. On July 11, 2002 Platinum signeda Letter of Intent with Elap Solutions, Inc., (“ELAP”), to acquire 100 percentof ELAP’s issued and outstanding shares. On July 25, 2002 we issued a secondpress release announcing the planned acquisition of Elap. On September 4, 2002

 

F-7

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we received formal notificationthat Elap was declining the Letter of Intent due to financial reasons beyondtheir control. Because the acquisition did not occur, Platinum has had noactivity since December 14, 2001.

 

We arecontinuing our efforts to find a suitable candidate that will help us develop areal estate based mortgage brokerage business as originally intended. Webelieve that in time we can service clients in both the residential andcommercial markets throughout the state of New York. We cannot predict when we might locate targetassets or companies, and there is no guarantee that we will be able todevelop this business and generate a profit. We anticipate that the analysis of specific proposals and the selectionof business opportunities could take many months to finalize.

 

The acquisition of abusiness opportunity may be made by purchase, merger, exchange of stock, orotherwise, and may encompass assets or a business entity, such as acorporation, joint venture, or partnership. Because we have limited capital, wemust be very selective about which entity we will do business with. We intendto seek opportunities that demonstrate the potential for long-term growth asopposed to short-term earnings.

 

#### **Basis ofPresentation**

 

Our unauditedconsolidated financial statements of USIP.Com, Inc. (“USIP”, the “Company”,“our”, or “we”), include the accounts of USIP.Com Inc. and its two wholly ownedsubsidiaries: Datone Inc. and NB Payphones Ltd. All significant intercompanyamounts have been eliminated. The unaudited consolidated financial statementsof USIP present herein, should be read in conjunction with the auditedconsolidated financial statements of USIP as of and for the year ended December31, 2002. 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 are notnecessary indicative of results to be expected for the entire year.

 

We prepare ourconsolidated financial statements in accordance with generally acceptedprinciples, which require that management make estimates and assumptions thataffect reported amounts. Actual results could differ from these estimates.

 

Impact of Inflation

 

Inflation is notconsidered a material factor affecting our business. General operating expensessuch as salaries, employee benefits and occupancy costs are, however, subjectto normal inflationary pressures

 

Seasonality

 

Our revenues frompayphone operation are affected by seasonal variations, geographic distributionof payphones and type of location. Because we operate in the northeastern partof the country with many of the payphones located outdoor, weather patternsaffect our revenue streams. Revenues drop off significantly during winter andconversely show an increase in the spring and summer. Revenues are generallylowest in the first quarter and highest in the third quarter.

 

As of September 30, 2003, weowned and operated a network of approximately 581****payphones. Our installed payphone base generates revenue fromthree principle sources: coin-calls and non-coin calls, sales and service ofpayphones and pre-paid phone cards.

 

1. Commission Income.

 

Commission incomeincludes commissions from operator service telecommunications companies andcommissions for toll free calls from all payphones. The commissions foroperator services are paid 45 days in arrears. Dial Around compensation isbilled quarterly and received three and one half months behind the billedquarter.

 

F-8

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2.Coin calls.

 

Coin callsrepresent calls paid for by customers who deposit coins into the payphones.Coin call revenue is recorded as the actual amount of coins collected from thepayphones. Somecoin 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.

 

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

 

We derive income from thesale and repair of a payphone. We can negotiate the sale, of a payphone to asite owner when it becomes cost prohibitive to maintain or if a customer offersto buy the phone at a price that is favorable to our company. The new owner orlessee becomes responsible for the maintenance and operational costs of thepayphone. We sell pre-paid phone cards at some of our payphone locations. Salesand repairs of payphones and the sale of pre-paid phone cards are not subjectto the same collection delays as the other types of operating income.

 

Dial-Around Compensation

 

On September 20, 1996, the FederalCommunications Commission (“FCC”) adopted rules, which became effectiveNovember 7, 1996 (the “1996 Payphone Order”), initially mandating dial-aroundcompensation for both access code calls and 800 subscriber calls at a flat rateof $45.85 per payphone per month (131 calls multiplies by $0.35 per call)Commencing October 7, 1997 and ending October 6, 1998 the $45.85 per payphoneper month rate was to transition to a per-call system at the rate of $0.35 percall. Several parties challenged certain of the FCC regulations including thedial-around compensation rate. On July 1, 1997, a federal court vacated certainportions of the FCC’s 1996 Payphone Order, including the dial-around compensationrate.

 

In accordancewith the court’s mandate, on October 9, 1997, the FCC adopted a second order(the “1997 Payphone Order”), establishing a rate of $0.284 per calls for thefirst two years of per-call compensation (October 7, 1997 through October 6,1999). The IXCs were required to pay this per-call amount to payphone serviceproviders (PPSP’s), beginning October 7, 1997.

 

On May 15,1998, the court again remanded the per-call compensation rate to the FCC forfurther explanation without vacating the $0.284 per call rate. The Courtdetermined that the FCC had failed to explain adequately its derivation of the$0.284 default rate. The Court stated that any resulting overpayment may besubject to refund and directed the FCC to conclude its proceedings within asix-month period from the effective date of the Court’s decision.

 

In response tothe Court’s second remand, the FCC conducted further proceedings and soughtadditional comment from interested parties to address the relevant issues posedby the Court. On February 4, 1999, the FCC released a third order (the “1999Payphone Order”), in which the FCC abandoned its efforts to derive a “marketbased” default dial-around compensation rate and instead adopted a “cost based”rate of $0.24 per dial-around call, which was adjusted to $0.238. This ratebecame effective on April 21, 1999 and will serve as a default rate throughJanuary 31, 2002.

 

In a decision releasedJanuary 31, 2002 (the “2002 Payphone Order”) the FCC partially addressed theremaining issues concerning interim and intermediate period compensation. TheFCC adjusted the per-call to $0.229, for the interim period only, to reflect adifferent method of calculating the delay in IXC payments to PSPs.  The 2002 Payphone Order deferred to a later,as yet unreleased, order its determination of the allocation of this totalcompensation rate among the various carriers required to pay compensation forthe interim period. In addition to addressing the rate level for dial aroundcompensation, the FCC has also addressed the issue of carrier responsibilitywith respect to dial around compensation payments.

 

On August 2, 2002 andSeptember 2, 2002 respectively, the APCC and the RBOCs filed petitions with theFCC to revisit and increase the dial around compensation rate level. On October23, 2002, the FCC released its Fifth Order on Reconsideration on Remand (the“Interim Order”), which resolved all remaining issues surrounding the interimand intermediate period true-up and specifically addressed how flat rate monthlyper-phone compensation owed to PSPs would be allocated among the relevant dialaround carriers.

 

F-9

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Costs Related to our operation.

 

The principlecosts related to the ongoing operation of our payphones include telephonecharges, commissions, service, maintenance and network costs. Telephone chargesconsist of payments we make to LEC or competitive local exchange carriersand long distance carrier 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 costrepresent the cost of servicing and maintaining the payphones on an ongoingbasis

 

**THREEMONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,2002**

 

**Revenues**

 

Our totalrevenue increased by $44,985 or approximately 23.74%, from $189,477 in thethree months ended September 30, 2002 to $234,462 in the three months endedSeptember 30, 2003. This increase was primarily attributable to receiving forthe 3rd quarter of 2003 a one-time settlement of approximately$83,000 resulting from the Federal Communications Commission (FCC) Order on theCompensation True-up.

 

Ourcommissions decreased by $11,914 or approximately 51%, from $23,361 in thethree months ended September 30, 2002 to $11,447 in the three months endedSeptember 30, 2003. This decrease was a result of our reduction in payphones,fewer operator assisted calls, and the increased competition from wirelesscommunications.

 

Our coin callrevenues decreased by $31,681 or approximately 40.75% from $77,746 in threemonths ended September 30, 2002 to $46,065 in the year ended September 30,2003. The decrease in coin call revenue was primarily attributable to areduction from 772 payphones in 2002 to 581 payphones in 2003 as well asreduced call volumes on our payphones due to increased competition fromwireless communication services.

 

Our non-coincall revenue, which is comprised primarily of dial-around revenue and operatorservice revenue increased by $93,780 or approximately 194.5% from $48,190 inthe three months ended September 30, 2002 to $141,970 in the three months endedSeptember 30, 2003. Approximately $83,000 of this increase is attributable to aone-time settlement by the FCC’s Order on the Compensation True-up. This orderresolved a hosts of open dial-around compensation “issues” and mostimportantly, setting forth the terms for a “true-up” of past dial-aroundpayments for the so-called “interim” and “intermediate” time periods. The orderreconciles prior FCC and Court decisions regarding dial around compensationpayments and basically brings all prior payments in line with the 24 cents percall rate (the current and ongoing rate). The remaining increase of $10,780 wasprimarily attributable to World Com, Inc. filing chapter 11 bankruptcy on July21, 2002 reducing our non-coin revenue for 2002.

 

Our service & repair sales increased by$2,256 when compared to the same period in 2002. Our equipment sales decreasedby $644, from $1,984 in the three months ending September 30, 2002 to $1,340 inthe three months ending September 30, 2003. Our phone card sales and ATMrevenue decreased by $6,812 when compared to the same period in 2002. Thisdecrease is due to increased competition from other phone card vendors alongwith loss of various site locations. The increased competition and decreasedsite locations forced us to reduce our phone card sites by approximately 42% inaddition to losing our ATM sites.

 

Cost of Sales

 

Our overall cost of salesdecreased for the three months ending September 30, 2003 by $58,654 orapproximately 31.53% from the three months ending September 30, 2002.Telecommunication costs decreased by $33,352, the cost of providing telephoneservice to 581 payphones in 2003 as compared to 772 payphones in 2002.  Once a low revenue payphone is identified,we offer the site owner an opportunity to purchase the equipment. If the site ownerdoes not purchase the payphone, we remove it from the site. Our installedpayphone base generates revenue through coin calls (local and long-distance),non-coin calls (calling card, credit card, collect, and third party billedcalls using our pre-selected operator service).

 

F-10

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Ourcontractor’s fee decreased by $8,240 this decrease is due to the elimination ofcontractors and the re-organization of routes to manage them more efficiently.Our commission payable increased by $915 when compared to 2002. These arecommission paid to the site owners where our payphones and phone card machinesare located.  Depreciation expensedecreased $19,239 when compared to the same period in 2002. This decrease isdue to certain assets being fully depreciated and our on going strategy ofidentifying unprofitable payphones, and selling them to the site owners. Once apayphone is sold to the site owner it is removed from our assets anddepreciation schedules.  We own telephoneequipment and motor vehicles, which provide a service for a number of years.The term of service is commonly referred to as the “useful life” of the asset.Because an asset such as telephone equipment or motor vehicle is expected toprovide service for many years, it is recorded as an asset, rather than anexpense, in the year acquired. A portion of the cost of the long-lived asset isreported as an expense during the cost of an asset to expense over its life ina rational and systematic manner.

 

Our cost of sales for repairs, service, travel,and supplies increased by $1,262 a result of using employees instead ofindependent contractors to service routes.

 

Operation and Administrative Expenses

 

Our operating expensesdecreased by $28,242 or approximately 23.73% over the same period in 2002.  This decrease in operating expense is adirect result of our management diligently working to cut expenses and run ourcompany as efficient as possible. Salaries and related payroll taxes werereduced by $8,923 when compared to the same expenses for 2002. This decrease isdue to the elimination of three employees, one technician and two clericalassistants. Our insurance expense decreased by $5,929 when compared to thefiscal year 2002. This decrease is primarily attributable to the decrease inpayroll. Our rent increased by $1,397 when compared to 2002.  Professional fees decreased by $887 over2002. These are fees we pay to accountants, attorneys and other professionalsthroughout the year for various task. Our expenses for outside servicesdecreased by $590 over 2002.  Ourtelephone, utilities, office, vehicle and travel & entertainment expenses,together account for a decreased of $13,310 when compared to the same periodending September 30, 2002. This decrease is primarily attributable to ourmanagement diligently working to cut expenses and the replacement of oldervehicles with new vehicles that require less maintenance.

 

**NINEMONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,2002**

 

**Revenues**

 

Our totalrevenue decreased by $46,790 or approximately 7.91%, from $591,413 in the ninemonths ended September 30, 2002 to $544,623 in the nine months ended September30, 2003. This decrease was primarily attributable to removal of unprofitablephone locations, lower call volumes on our payphones resulting from the growthin wireless and other public communication services and changes in calltraffic.

 

Ourcommissions decreased by $42,148 or approximately 62.1%, from $67,841 in thenine months ended September 30, 2002 to $25,693 in the nine months endedSeptember 30, 2003. This decrease was a result of our reduction in payphones,fewer operator assisted calls, and the increased competition from wirelesscommunications.

 

Our coin callrevenues decreased by $114,787 or approximately 44.36%, from $258,665 in ninemonths ended September 30, 2002 to $143,878 in the year ended September 30,2003. The decrease in coin call revenue is primarily attributable to an ongoingstrategy of removing unprofitable phones as well as a reduction in call volumeson our payphones due to increased competition from wireless and other publiccommunication services.

 

Our non-coincall revenue, which is comprised primarily of dial-around revenue and operatorservice revenue increased  $132,424 orapproximately 100.22% from 132,135 in the nine months ended September 30, 2002to $264,559 in the nine months ended September 30, 2003. Approximately $83,000of this increase is attributable to a one-time class action settlement forunder payment of past dial-around commissions against the long distancecarriers.  The remaining increase of$49,424 was primarily attributable to World Com, Inc. filing chapter 11bankruptcy on July 21, 2002 reducing our non-coin revenue for 2002.

 

F-11

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Our service & repair sales increased by$3,513 when compared to the same period in 2002. Equipment sales increased by$601, from $8,426 in the nine months ending September 30, 2002 to $9,027 in thenine months ending September 30, 2003. This increase in sales is attributableto selling low revenue payphones to site owners.  Our phone card sales and ATM revenue decreased by $26,393 whencompared to the same period in 2002. This decrease is due to increased competitionfrom other phone card vendors along with loss of various site locations whencompanies go out of business. The increased competition and decreased sitelocation forced us to reduce our phone card sites by approximately 42% inaddition to losing our ATM sites.

 

Cost of Sales

 

Our overall cost of salesdecreased for the nine months ending September 30, 2003 by $247,618 orapproximately 39.53% from the nine months ending September 30, 2002.Telecommunication costs decreased by $129,592, the cost of providing telephoneservice to 581 payphones in 2003 as compared to 772 payphones in 2002.  Once 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. Our installedpayphone base generates revenue through coin calls (local and long-distance),non-coin calls (calling card, credit card, collect, and third party billedcalls using our pre-selected operator service).

 

Ourcommissions payable decreased by $1,396 due to a decrease in payphone usage, adirect response to an increased use of cellular phones and pre-paid phonecards. Contractor’s fees decreased by $39,218, this decrease is due to theelimination of contractors and the re-organization of routes to manage themmore efficiently.  Depreciation expensedecreased $55,349 when compare to the same period in 2002. This decrease is dueto certain assets being fully depreciated and our on going strategy ofidentifying unprofitable payphones and selling them to the site owners. We owntelephone equipment and motor vehicles, which provide a service for a number ofyears.  The term of service is commonlyreferred to as the “useful life” of the asset. Because an asset such astelephone equipment or motor vehicle is expected to provide service for manyyears, it is recorded as an asset, rather than an expense, in the yearacquired. A portion of the cost of the long-lived asset is reported as anexpense during the cost of an asset to expense over its life in a rational andsystematic manner.

 

Our cost of sales for repairs, service,travel, and supplies decreased by $22,063 a result of our management team’songoing efforts to reduce cost.

 

Operation and Administrative Expenses

 

Our operating expensesdecreased by $122,408 or approximately 28.36% over the same period in2002.  Salaries and related payrolltaxes were reduced by $30,564 when compared to the same expenses for 2002. Thisdecrease is due to the elimination of three employees, one technician and twoclerical assistants. Insurance expense decreased by $11,651 when compared tothe fiscal year 2002. Rent decreased by $2,350 when compared to 2002.  Professional fees decreased by $47,353 over2002. These are fees we pay to accountants, attorneys and other professionalsthroughout the year for various task. Our expenses for outside servicesdecreased by $6,926 over 2002.  Ourtelephone, utilities, office, vehicle and travel & entertainment expenses,together account for a decreased of $23,564 when compared to the same periodending September 30, 2002. This decrease is primarily attributable to ourmanagement diligently working to cut expenses, and the replacement of oldervehicles with new vehicles that require less maintenance.

 

GOING CONCERN QUALIFICATION

 

In his IndependentAuditor’s Report for the fiscal year ending December 31, 2002, CE Forse &Co. Ltd. states that we have incurred annual losses since inception raisingsubstantial doubt about our ability to continue as a going concern.

 

F-12

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LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flow

 

Our primary sources ofliquidity have been cash from operations and borrowing from various creditfacilities. As of September 30, 2003, we have a note payable to Key Bank in theamount of $88,351. We have an additional line of credit with Lilly BeterCapital Group, Ltd. in the amount of $500,000 as of September 30, 2003 we haveused $444,500.

 

**ITEM3****.  CONTROLS ANDPROCEDURES**

 

a)  As of a date within 90 days of the filing date of this quarterlyreport, an evaluation of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures was performed under thesupervision and with the participation of the Company’s President andController, pursuant to Exchange Act Rule 13a-14(c). Based upon thatevaluation, the Company’s President and Controller have concluded that theCompany’s disclosure controls and procedures are effective for the purpose ofensuring that material information required to be in this quarterly report ismade known to them by others on a timely basis.

 

b) There have been no changesin the Company’s internal controls or in other factors that could significantlyaffect these controls subsequent to the date of their evaluation.

 

**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 2001 through 2002, and the losses are projected to continue in 2003. Our net losses were $544,645 and $872,178 for fiscal years ended 2001, 2002 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 

 

F-13

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market entrants will likelyoccur in the future. An increase in competitive pressures in our market or ourfailure to compete effectively may result in pricing reductions, reduced grossmargins and loss of market share. Many of our current or potential competitorshave longer operating histories, greater name recognition, larger customerbases and significantly greater financial, technical, marketing and otherresources than we do. In addition, our current and potential competitors mayestablish cooperative relationships among themselves or with third parties thatmay further enhance their resources. As a result, they may be able to adapt morequickly to new technologies and customer needs, devote greater resources to thepromotion or sale of their products and services, initiate or withstandsubstantial price competition, take advantage of acquisition or otheropportunities more readily or develop and expand their product and serviceofferings more quickly. In addition, our competitors may bundle products thatcompete with ours. If these companies were to use their greater financial,technical and marketing resources in our target markets, it could adverselyaffect 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 toincur debt or issue equity securities in future acquisitions. The issuance ofequity securities would dilute our existing stockholders.

 

**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 customer expectations.To manage growth of our operations, we must:

 

•                  improve existingoperational, financial and management information controls, reporting systemsand 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.

 

F-14

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**WE MAY BEUNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR MAY BE SUED BY THIRDPARTIES FOR 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:

 

•                  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 OUR OFFICERS AND DIRECTORS AREINDEMNIFIED AGAINST CERTAIN LOSSES, WE MAY BE EXPOSED TO COSTS ASSOCIATED WITHLITIGATION.**

 

If our directors or officers becomeexposed to liabilities invoking the indemnification provisions, we could beexposed to additional unreimbursable costs, including legal fees. Our articlesof incorporation and bylaws provide that our directors and officers will not beliable to us or to any shareholder and will be indemnified and held harmlessfor any consequences of any act or omission by the directors and officersunless the act or omission constitutes gross negligence or willful misconduct.Extended or protracted litigation could have a material adverse effect on ourcash flow.

 

**OUR STOCK PRICE MAY BE VOLATILE.**

 

The market price of our common stock willlikely fluctuate significantly in response to the following factors, some ofwhich are beyond our control:

 

•                   Variations in our quarterly operating results;

•                  Changes in financial estimates of our revenues and operatingresults by securities analysts;

•                  Changes in market valuations of telecommunications equipmentcompanies;

•                  Announcements by us of significant contracts, acquisitions,strategic partnerships, joint ventures or capital commitments;

•                  Additions or departures of key personnel;

•                  Future sales of our common stock;

•                  Stock market price and volume fluctuations attributable toinconsistent trading volume levels of our stock;

•                  Commencement of or involvement in litigation.

 

F-15

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In addition, the equity markets haveexperienced volatility that has particularly effected the market prices ofequity securities issued by technology companies and that often has beenunrelated or disproportionate to the operating results of those companies.These broad market fluctuations may adversely effect the market price of ourcommon stock.

 

**WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS ON OURCOMMON STOCK.**

 

We have not paid any dividends on ourCommon Stock since inception and do not anticipate paying any dividends on ourCommon Stock in the foreseeable future. Instead, we intend to retain any futureearnings for use in the operation and expansion of our business.

 

**PART II****OTHER INFORMATION.**

 

**ITEM 1.  LEGAL PROCEEDINGS**

Notapplicable.

 

**ITEM 2.  CHANGES IN SECURITIES AND USE OFPROCEEDS.**

Not applicable

 

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.**

Notapplicable.

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS.**

Notapplicable.

 

**ITEM 5.  OTHER INFORMATION**

Notapplicable.

 

**ITEM 6. EXHIBITS AND REPORTSON FORM 8-K**

 

(a)                                  Exhibits

 
| **EXHIBIT  NO.** |   | **DESCRIPTION**                                                                                                                         |
|------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                    |
| 3                |   | Articles of Incorporation  (incorporated by reference to Exhibit 3 of the Company’s Form 10-SB) filed on  July 28, 2000.           |
| 3.1              |   | Amended Articles of  Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Form  10-SB) filed on July 28, 2000. |
| 3.2              |   | Amended Articles of  Incorporation (incorporated by reference to Exhibit 3.2 of the Company’s Form  10-SB) filed on July 28, 2000. |
| 3.3              |   | Bylaws (incorporated by reference  to Exhibit 4 of the Company’s Form 10-SB) filed on July 28, 2000.                               |
| 4                |   | Specimen Stock Certificate  (incorporated by reference to Exhibit 5 of the Company’s Form 10-SB). filed  on July 28, 2000.         |
| 31.1             |   | Sarbanes-Oxley Act of 2002  Section 302 Certification for Craig Burton                                                                  |
| 31.2             |   | Sarbanes-Oxley Act of 2002  Section 302 Certification for Kathy Christopher                                                             |
| 32.1             |   | Sarbanes-Oxley Act of 2002  Section 906 Certification for Craig Burton                                                                  |
| 32.2             |   | Sarbanes-Oxley Act of 2002  Section 906 Certification for Kathy Christopher                                                             |

 

(b)                                 Reports on Form 8K

 

No reports on Form 8-K were filed in the secondquarter of 2003.

 

F-16

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**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.

 

 
|   |              |   | USIP.Com,  Inc.        |
|--------|-------------------|--------|------------------------|
|   |              |   |                   |
|   |              |   | (Registrant)           |
|   |              |   |                   |
| Dated: | November 10, 2003 |   | /s/ CRAIG BURTON       |   |
|   |              |   | Craig Burton           |
|   |              |   | President              |
|   |              |   |                   |
| Dated: | November 10, 2003 |   | /s/ KATHY  CHRISTOPHER |   |
|   |              |   | Kathy  Christopher     |
|   |              |   | Controller             |
|        |                   |        |                        |  |  |

 

F-17

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