**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

**(MarkOne)**

 

**ý****  QUARTERLYREPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

**For thequarterly period ended June 30, 2003**

 

**o****  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

**For the transition 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 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)

 

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, 2003.

 

TransitionalSmall Business Disclosure Forms (check one):

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

 

 

----

 

USIP.COM, INC.

INDEX TO FORM 10-QSB

JUNE 30, 2003

 
| PART I    FINANCIAL INFORMATION   |
|---------------------------------------------|
|                                        |   |
| ITEM 1.                                     | Financial Statements |
|                                        |   |
|                                        | Consolidated Balance Sheets  At December 31, 2002 and June 30, 2003 |
|                                        |   |
|                                        | Consolidated Statements of Income and  Retained Earnings  For the three months and six months ended June 30, 2003 and June 30, 2002 |
|                                        |   |
|                                        | Consolidated Statements of Cash Flows  For the six months ended June 30, 2003 and June 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 |

 

2

----

 

**PARTI.     FINANCIAL INFORMATION**

 

**ITEM1. FINANCIAL STATEMENTS**

 

USIP.COM, INC

CONSOLIDATEDBALANCE SHEET

 
|                                                                                                       |   | **Unaudited**      |    | **Audited**            |    |
|------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|------------------------|---------|
|                                                                                                       |   | **June 30,  2003** |    | **December  31, 2002** |    |
| ASSETS                                                                                                     |   |               |    |                   |    |
| CURRENT ASSETS                                                                                             |   |               |    |                   |    |
| Cash                                                                                                       |   | $                  | 3,121   |                   | 7,021   |   |
| Commissions and Sales Receivable, Net                                                                      |   | 132,498            |    | 125,276                |    |
| Inventory                                                                                                  |   | 50,782             |    | 50,782                 |    |
| Prepaid Expenses                                                                                           |   | 4,879              |    | 3,932                  |    |
|                                                                                                       |   |               |    |                   |    |
| TOTAL CURRENT ASSETS                                                                                       |   | 191,280            |    | 187,011                |    |
|                                                                                                       |   |               |    |                   |    |
| FIXED ASSETS                                                                                               |   |               |    |                   |    |
| Telephone and Office Equipment                                                                             |   | 1,887,059          |    | 1,899,122              |    |
| Vehicle                                                                                                    |   | 76,367             |    | 76,367                 |    |
|                                                                                                       |   | 1,963,426          |    | 1,975,489              |    |
| Less: Accumulated Depreciation                                                                             |   | (1,253,206         | )       | (1,151,240             | )       |
|                                                                                                       |   |               |    |                   |    |
| Net Fixed Assets                                                                                           |   | 710,220            |    | 824,249                |    |
|                                                                                                       |   |               |    |                   |    |
| TOTAL ASSETS                                                                                               |   | $                  | 901,500 |                   | $       | 1,011,260 |   |
|                                                                                                       |   |               |    |                   |    |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                  |   |               |    |                   |    |
|                                                                                                       |   |               |    |                   |    |
| Current Liabilities                                                                                        |   |               |    |                   |    |
| Accounts Payable                                                                                           |   | $                  | 237,901 |                   | 201,812 |   |
| Line of Credit                                                                                             |   | 444,500            |    | 501,852                |    |
| Accrued Payroll and Payroll Taxes                                                                          |   | 5,009              |    | 5,896                  |    |
| Accrued State Gross Receipts Taxes                                                                         |   | 3,850              |    | 9,621                  |    |
| Other Accrued Expenses                                                                                     |   | 45,763             |    | 28,663                 |    |
| Current Portion of Long-Term Debt                                                                          |   | 15,200             |    | 13,990                 |    |
|                                                                                                       |   |               |    |                   |    |
| TOTAL CURRENT LIABILITIES                                                                                  |   | 752,223            |    | 761,834                |    |
|                                                                                                       |   |               |    |                   |    |
| LONG-TERM LIABILITIES                                                                                      |   |               |    |                   |    |
| Long-Term Debt, Less Current Portion                                                                       |   | 138,057            |    | 58,312                 |    |
| TOTAL LIABILITIES                                                                                          |   | 890,280            |    | 820,146                |    |
| STOCKHOLDERS’ EQUITY                                                                                  |   |               |    |                   |    |
| Common Stock, $.01 par value   25,000,000 Shares authorized, 17,699,388 shares issued and outstanding |   |               |    |                   |    |
|                                                                                                       |   |               |    |                   |    |
| Additional Paid In Capital                                                                                 |   | 1,442,608          |    | 1,442,608              |    |
|                                                                                                       |   |               |    |                   |    |
| Retained Earnings                                                                                          |   | (1,608,382         | )       | (1,428,488             | )       |
|                                                                                                       |   |               |    |                   |    |
| TOTAL STOCKHOLDERS’ EQUITY                                                                            |   | 11,220             |    | 191,114                |    |
|                                                                                                       |   |               |    |                   |    |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                            |   | $                  | 901,500 |                   | $       | 1,011,260 |   |

 

See Accountant’s Report and Notes To Financial Statement

 

3

----

 

USIP.COM,INC

CONSOLIDATED STATEMENT OFINCOME (LOSS)

Unaudited

 
|                               |   | **Three  Months Ended** |    | **Six Months  Ended** |   |
|------------------------------------|--------|-------------------------|---------|-----------------------|--------|
|                               |   | **June 30,  2003**      |    | **June 30,  2002**    |   | **June 30,  2003** |   | **June 30,  2002** |   |
| SALES                              |   |                    |    |                  |   |   |   |   |   |
| Commissions                        |   | $                       | 7,408   |                  | $      | 22,775 |   | $ | 14,246 |   | $ | 44,393 |   |
| Coin Collections                   |   | 44,755                  |    | 87,365                |   | 97,813 |   | 180,919 |   |
| Dial Around                        |   | 74,343                  |    | 33,671                |   | 122,590 |   | 83,945 |   |
| Phone Card Sales                   |   | 2,015                   |    | 10,690                |   | 6,382 |   | 24,000 |   |
| Equipment Sales                    |   | 7,452                   |    | 1,768                 |   | 7,686 |   | 6,443 |   |
| Atm Revenue                        |   | —                  |    | (745                  | )      | — |   | 1,964 |   |
| Service and Repair Sales           |   | 32,083                  |    | 37,758                |   | 61,444 |   | 60,275 |   |
| Total Sales                        |   | 168,056                 |    | 193,282               |   | 310,161 |   | 401,939 |   |
|                               |   |                    |    |                  |   |   |   |   |   |
| COST OF SALES                      |   |                    |    |                  |   |   |   |   |   |
| Telecommunications Costs           |   | 60,637                  |    | 109,427               |   | 121,336 |   | 223,363 |   |
| Commissions                        |   | —                  |    | —                |   | 265 |   | 2,575 |   |
| Repairs and Service Supplies       |   | 10,235                  |    | 14,488                |   | 13,744 |   | 32,953 |   |
| Other Direct Expenses - Travel     |   | 2,775                   |    | 2,569                 |   | 5,633 |   | 3,873 |   |
| Depreciation                       |   | 53,668                  |    | 71,724                |   | 107,337 |   | 143,447 |   |
| Subcontractors                     |   | 1,926                   |    | 16,966                |   | 3,226 |   | 34,202 |   |
| Supplies                           |   | —                  |    | 90                    |   |   |   | 90 |   |
| Total Cost of Sales                |   | 129,241                 |    | 215,264               |   | 251,541 |   | 440,503 |   |
|                               |   |                    |    |                  |   |   |   |   |   |
| GROSS PROFIT                       |   | 38,815                  |    | (21,982               | )      | 58,620 |   | (38,564 | ) |
|                               |   |                    |    |                  |   |   |   |   |   |
| OPERATING EXPENSES                 |   |                    |    |                  |   |   |   |   |   |
| Officers’ Salaries            |   | 16,770                  |    | 16,770                |   | 33,282 |   | 33,282 |   |
| Salaries and Wages                 |   | 32,633                  |    | 43,108                |   | 63,675 |   | 81,785 |   |
| Payroll Taxes                      |   | 3,317                   |    | 4,955                 |   | 9,239 |   | 12,770 |   |
| Insurance                          |   | 6,867                   |    | 14,616                |   | 21,583 |   | 27,305 |   |
| Office Supplies                    |   | 2,227                   |    | 2,972                 |   | 5,305 |   | 7,030 |   |
| Telephone                          |   | 3,748                   |    | 6,486                 |   | 7,759 |   | 12,656 |   |
| Utilities                          |   | 2,020                   |    | 2,181                 |   | 5,463 |   | 3,772 |   |
| Vehicle Expenses                   |   | (2,082                  | )       | 3,708                 |   | (1,182 | ) | 5,478 |   |
| Rent                               |   | 15,386                  |    | 16,601                |   | 30,715 |   | 34,464 |   |
| Professional Fees                  |   | 11,110                  |    | 24,300                |   | 37,134 |   | 83,600 |   |
| Travel & Entertainment         |   | 238                     |    | —                |   | 2,213 |   | 876 |   |
| Outside Services                   |   | 1,302                   |    | 1,774                 |   | 3,177 |   | 9,515 |   |
| Total Operating Expenses           |   | 93,536                  |    | 137,471               |   | 218,363 |   | 312,533 |   |
|                               |   |                    |    |                  |   |   |   |   |   |
| OPERATING INCOME (LOSS)            |   | (54,721                 | )       | (159,453              | )      | (159,743 | ) | (351,097 | ) |
|                               |   |                    |    |                  |   |   |   |   |   |
| OTHER INCOME (EXPENSE)             |   |                    |    |                  |   |   |   |   |   |
| Interest Expense                   |   | (12,053                 | )       | (7,992                | )      | (23,692 | ) | (13,427 | ) |
| Gain/Loss Sale Of Fixed Assets     |   | 4,758                   |    | (907                  | )      | 5,628 |   | (907 | ) |
| NY State Gross Receipts Tax        |   | (1,600                  | )       | (5,295                | )      | (2,088 | ) | (5,385 | ) |
| Interest Income                    |   | —                  |    | 12                    |   |   |   | 34 |   |
| Total Other Income                 |   | (8,895                  | )       | (14,182               | )      | (20,152 | ) | (19,685 | ) |
|                               |   |                    |    |                  |   |   |   |   |   |
| NET INCOME (LOSS)                  |   | $                       | (63,616 | )                     | $      | (173,635 | ) | $ | (179,895 | ) | $ | (370,782 | ) |
|                               |   |                    |    |                  |   |   |   |   |   |
| Weighted Common Shares Outstanding |   | 17,699,388              |    | 17,699,388            |   | 17,699,388 |   | 17,699,388 |   |
|                               |   |                    |    |                  |   |   |   |   |   |
| Net Loss per Common Share          |   | $                       | —  |                  | $      | — |   | $ | — |   | $ | — |   |
|                               |   | x                       |    | x                     |   | x |   | x |   |

 

See Accountant’s Report and Notes To Financial Statement

 

4

----

 

USIP.COM,INC

CONSOLIDATED STATEMENT OFCASH FLOWS

 

 
|                                                                                            |   | **Six Months  June 30, 2002** |     | **Six Months  June 30, 2003** |   |
|-------------------------------------------------------------------------------------------------|--------|-------------------------------|----------|-------------------------------|--------|
|                                                                                            |   | **Unaudited**                 |     | **Unaudited**                 |   |
| Cash Flows From Operating Activities:                                                           |   |                          |     |                          |   |
| Net (Loss)                                                                                      |   | $                             | (370,782 | )                             | $      | (179,895 | ) |
| Adjustments to reconcile net   (loss) to net cash provided (used) by operating activities: |   |                          |     |                          |   |
| Depreciation Expense                                                                            |   | 143,447                       |     | 107,337                       |   |
| Gain on Sale of Equipment                                                                       |   | —                        |     | (5,628                        | )      |
| (Increase) Decrease in Commissions and Sales Receivables                                        |   | 40,528                        |     | (7,222                        | )      |
| (Increase) in Inventory                                                                         |   | (4,372                        | )        | —                        |   |
| (Increase) Decrease in Prepaid Expenses                                                         |   | (2,363                        | )        | (947                          | )      |
| Increase (Decrease) in Accounts Payable                                                         |   | (56,452                       | )        | 36,089                        |   |
| Increase (Decrease) in Accrued Expenses and Wages                                               |   | (9,354                        | )        | 16,211                        |   |
| Increase (Decrease) in Accrued State Gross Receipts Taxes                                       |   | (7,741                        | )        | (5,771                        | )      |
|                                                                                            |   |                          |     |                          |   |
| Net cash provided (used) by operating activities                                                |   | (267,089                      | )        | (39,826                       | )      |
|                                                                                            |   |                          |     |                          |   |
| Cash Flows From Investing Activities:                                                           |   |                          |     |                          |   |
| Acquisition of Equipment                                                                        |   | —                        |     | (1,090.00                     | )      |
| Sale of Equipment                                                                               |   | 16,345                        |     | 13,153.00                     |   |
|                                                                                            |   |                          |     |                          |   |
| Net cash provided (used)  by  investing activities                                         |   | 16,345                        |     | 12,063                        |   |
|                                                                                            |   |                          |     |                          |   |
| Cash Flows From Financing Activities:                                                           |   |                          |     |                          |   |
| Proceeds Received from Line of Credit                                                           |   | 166,300                       |     | 34,200                        |   |
| Principal Payments on Long-term Debt                                                            |   | (11,730                       | )        | (10,337                       | )      |
| Proceeds from Issuance of Stock                                                                 |   | 91,800                        |     |                          |   |
|                                                                                            |   |                          |     |                          |   |
| Net cash provided (used) by financing activities                                                |   | 246,370                       |     | 23,863                        |   |
|                                                                                            |   |                          |     |                          |   |
| Net Increase (Decrease) in cash                                                                 |   | (4,374                        | )        | (3,900                        | )      |
|                                                                                            |   |                          |     |                          |   |
| Cash - Beginning of Period, December 31 2001 & 2002                                         |   | 10,825                        |     | 7,021                         |   |
|                                                                                            |   |                          |     |                          |   |
| Cash - End of Period                                                                            |   | $                             | 6,451    |                          | $      | 3,121 |   |
|                                                                                            |   |                          |     |                          |   |
| Supplemental Disclosures of Cash Flow Information:                                              |   |                          |     |                          |   |
| Cash Paid During Period The Period For:                                                         |   |                          |     |                          |   |
| Interest                                                                                        |   | $                             | —   |                          | $      | — |   |
| Income Taxes                                                                                    |   | $                             | —   |                          | $      | — |   |

 

See Accountant’s Report and Notes To Financial Statement

 

5

----

 

USIP.COM, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 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 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 of our company contained in our form10K for the year ended December 31, 2002.

 

In the opinionof our management, the unaudited consolidated financial statements presentedherein reflect all adjustments (consisting only of normal recurringadjustments) necessary for fair presentation. Interim results are notnecessarily 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.                 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 June 30, 2003, there has been no activity within thiscorporation.

 

NOTE 3.                 LINE OFCREDIT

 

For additionalcapital requirements, we have increased the borrowings on our line of credit by$34,200, increasing our liability to $444,500.

 

NOTE 4.                 NOTESPAYABLE

 

On June 4,2003, one of our Lines of Credit was converted to a fixed note payable withinterest at 7.5%, payable over a five-year period. The amount of the new notewas approximately $91,000.

 

6

----

 

**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-lookingstatements that involve risks and uncertainties. You can identify thesestatements by the use of forward-looking words such as “may,” “will,” “expect,”“anticipate,” “estimate,” “believe” “continue,” or other similar words. Youshould read statements that contain these words carefully because they discussour future expectations, contain projections of our future results ofoperations or financial condition or state other “forward-looking” information.We believe that it is important to communicate our future expectations to ourinvestors. However, there may be events in the future that we are unable toaccurately predict or control. Those events as well as any cautionary languagein this Quarterly statement provide examples of risks, uncertainties and eventsthat may 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 Utah Departmentof 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 inner companytransaction. 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

 

7

----

 

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.

 

Theacquisition of a business opportunity may be made by purchase, merger, exchangeof stock, or otherwise, and may encompass assets or a business entity, such asa corporation, joint venture, or partnership. Because we have limited capital,we must be very selective about which entity we will do business with. Weintend to seek opportunities that demonstrate the potential for long-termgrowth as opposed to short-term earnings.

 

**PLANS FORFISCAL YEAR 2003.**

 

Our plans of operation for the remainder ofour 2003 fiscal year will consist of the following activities:

 

•                  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 towardsdeveloping a successful real estate based mortgage brokerage business.

 

**Basis of Presentation**

 

Our unauditedconsolidated financial statements include the accounts of USIP.Com, Inc. andour two wholly owned subsidiaries: Datone Inc. and NB Payphones Ltd. Allsignificant inter-company amounts have been eliminated. Our unauditedconsolidated financial statements present herein, should be read in conjunctionwith our audited consolidated financial statements as of and for the year endedDecember 31, 2002. In the opinion of our management, the unaudited consolidatedfinancial statements presented herein reflect all adjustments (consisting onlyof normal recurring adjustments) necessary for fair presentation. Interimresults are not necessary indicative of results to be expected for the entireyear.

 

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 isnot considered a material factor affecting our business. General operatingexpenses such as salaries, employee benefits and occupancy costs are, however,subject to normal inflationary pressures

 

Seasonality

 

Our revenuesfrom payphone operation are affected by seasonal variations, geographicdistribution of payphones and type of location. Because we operate in thenortheastern part of the country with many of the payphones located outdoors,weather patterns affect our revenue streams. Revenues drop off significantlyduring winter and conversely show an increase in the spring and summer.Revenues are generally lowest in the first quarter and highest in the thirdquarter.

 

As of June 30, 2003 we ownedand operated a network of approximately 607****payphones.Our installed payphone base generates revenue from three principle sources:coin-calls and non-coin calls, sales and service of payphones and pre-paidphone cards.

 

8

----

 

1. Commission Income.

 

Commissionincome includes commissions from operator service telecommunications companiesand commissions 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.

 

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 andpre-paid phone card sales.

 

We deriveincome from the sale and repair of a payphone. We can negotiate the sale, of apayphone to a site owner when it becomes cost prohibitive to maintain or if acustomer offers to buy the phone at a price that is favorable to our company.The new 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.

 

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 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 cost represent the cost of servicingand maintaining the payphones on an ongoing basis.

 

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

 

**Revenues**

 

Our totalrevenue decreased by $25,226 or approximately 13.05%, from $193,282 in thethree months ended June 30, 2002 to $168,056 in the three months ended June 30,2003. This decrease was primarily attributable to removal of unprofitable phonelocations; lower call volumes on our payphones resulting from the growth inwireless communication services. We reduced our network of payphones fromapproximately 914 in the three months ending June 30, 2002 to approximately 607in the three months ending June 30, 2003.

 

Ourcommissions decreased by $15,367 or approximately 67.47%, from $22,775 in thethree months ended June 30, 2002 to $7,408 in the three months ended June 30,2003. This decrease was a result of our reduction in payphones, fewer operatorassisted calls, and the increased competition from wireless communications.

 

Our coin callrevenues decreased by $42,610 or approximately 48.77% from $87,365 in threemonths ended June 30, 2002 to $44,755 in the year ended June 30, 2003. The decreasein coin call revenue was primarily attributable to an ongoing strategy ofremoving unprofitable phones coupled with a reduction in call volumes on ourpayphones due to increased competition from wireless communication services.

 

Our non-coincall revenue, which is comprised primarily of dial-around revenue and operatorservice revenue increased by $40,672 or approximately 120.8% from $33,671 inthe three months ended June 30, 2002 to $74,343 in the three months ended June30, 2003. This increase was primarily attributable to World Com, Inc. filingchapter 11 bankruptcy on July 21, 2002 reducing our non-coin revenue receivedin 2002.

 

9

----

 

Our service& repair sales decreased by $5,675, when compared to the same period in2002. This decrease was primarily attributable to removal of unprofitablepayphones. Our equipment sales increased by $5,684, from $1,768 in the threemonths ending June 30, 2002 to $7,452 in the three months ending June 30, 2003.This increase in sales is attributable to selling low revenue payphones to siteowners. Our phone card sales and ATM revenue decreased by $7,930 when comparedto the same period in 2002. This decrease is due to increased competition fromother phone card vendors along with loss of various site locations whencompanies go out of business. The increased competition and decreased sitelocations forced us to reduce our phone card sites by approximately 42% inaddition to losing our ATM sites.

 

Cost of Sales

 

Our overallcost of sales decreased for the three months ending June 30, 2003 by $86,023 orapproximately 39.962% from the three months ending June 30, 2002.Telecommunication costs decreased by $48,790, the cost of providing telephoneservice to 607 payphones in 2003 as compared to 914 payphones in 2002. Once alow revenue payphone is identified, we offer the site owner an opportunity topurchase the equipment. If the site owner does not purchase the payphone, weremove it from the site. Our installed payphone base generates revenue throughcoin calls (local and long-distance), non-coin calls (calling card, creditcard, collect, and third party billed calls using our pre-selected operatorservice).

 

Ourcontractor’s fee decreased by $15,040, this decrease is due to the eliminationof contractors and the re-organization of routes to help us manage them moreefficiently. Depreciation expense decreased $18,056 when compared to the sameperiod in 2002. This decrease is due to certain assets being fully depreciatedand our on going strategy of identifying unprofitable payphones, and sellingthem to the site owners. Once a payphone is sold to the site owner it isremoved from our assets and depreciation schedules. We own telephone equipmentand motor vehicles, which provide a service for a number of years. The term ofservice is commonly referred to as the “useful life” of the asset. Because anasset such as telephone equipment or motor vehicle is expected to provideservice for many years, it is recorded as an asset, rather than an expense, inthe year acquired. A portion of the cost of the long-lived asset is reported asan expense during the cost of an asset to expense over its life in a rationaland systematic manner.

 

Our cost ofsales for repairs, service, travel, and supplies decreased by $4,137 as aresult of our management team’s ongoing efforts to reduce cost.

 

Operation and AdministrativeExpenses

 

Our operatingexpenses decreased by $43,935 or approximately 31.96% over the same period in2002. This decrease in operating expense is a direct result of our managementdiligently working to cut expenses and run our company as efficiently aspossible. Salaries and related payroll taxes were reduced by $12,113 whencompared to the same expenses for 2002. This decrease is due to the eliminationof two employees, one technician and one clerical assistant. Our insuranceexpense decreased by $7,749 when compared to the fiscal year 2002. Thisdecrease is primarily attributable to the decrease in payroll. Our rentdecreased by $1,215 when compared to 2002. We ended a month-to-month rentalagreement for storage space in New York during 2002. Professional feesdecreased by $13,190 over 2002. These are fees we pay to accountants, attorneysand other professionals throughout the year for various task. Our expenses foroutside services decreased by $472 over 2002. Our telephone, utilities, office,and vehicle expenses, together account for a decrease of $9,196 when comparedto the same period ending June 30, 2002. This decrease is primarilyattributable to our management team diligently working to cut expenses, and thereplacement of older vehicles with new vehicles that require less maintenance.

 

**SIXMONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002**

 

**Revenues**

 

Our totalrevenue decreased by $91,778 or approximately 22.83%, from $401,939 in the sixmonths ended June 30, 2002 to $310,161 in the six months ended June 30, 2003.This decrease was primarily attributable to removal of unprofitable phonelocations, lower call volumes on our payphones resulting from the growth inwireless and other public communication services and changes in call traffic.

 

10

----

 

Ourcommissions decreased by $30,147 or approximately 67.9%, from $44,393 in thesix months ended June 30, 2002 to $14,246 in the six months ended June 30,2003. This decrease was a result of our reduction in payphones, fewer operatorassisted calls, and the increased competition from wireless communications.

 

Our coin callrevenues decreased by $83,106 or approximately 45.94%, from $180,919 in sixmonths ended June 30, 2002 to $97,813 in the year ended June 30, 2003. Thedecrease in coin call revenue was primarily attributable to an ongoing strategyof removing unprofitable phones as well as reduced call volumes on ourpayphones due to increased competition from wireless and other publiccommunication services.

 

Our non-coincall revenue, which is comprised primarily of dial-around and operator servicerevenue, increased $38,645 or approximately 46% from $83,945 in the six monthsended June 30, 2002 to $122,590 in the six months ended June 30, 2003.  This increase was primarily due to WorldCom, Inc filing chapter 11 bankruptcy on July 21, 2002 reducing our non-coinrevenue received in 2002.

 

Our service& repair sales increased by $1,169, when compared to the same period in2002. Equipment sales increased by $1,243, from $6,443 in the six months endingJune, 2002 to $7,686 in the six months ending June 30, 2003. This increase insales is attributable to selling low revenue payphones to site owners. Ourphone card sales and ATM revenue decreased by $19,582 when compared to the sameperiod in 2002. This decrease is due to increased competition from other phonecard vendors along with loss of various site locations when companies go out ofbusiness. The increased competition and decreased site location forced us toreduce our phone card sites by approximately 42% in addition to losing our ATMsites.

 

Cost of Sales

 

Our overallcost of sales decreased for the six months ending June 30, 2003 by $188,962 orapproximately 42.9% from the six months ending June 30, 2002. Telecommunicationcosts decreased by $102,027, the cost of providing telephone service to 607payphones 2003 as compared to 914 payphones in 2002. Once a low revenuepayphone is identified, we offer the site owner an opportunity to purchase theequipment. If the site owner does not purchase the payphone, we remove it fromthe site. Our installed payphone base generates revenue through coin calls(local and long-distance), non-coin calls (calling card, credit card, collect,and third party billed calls using our pre-selected operator service).

 

Ourcommissions payable decreased by $2,310 due to a decrease in payphone usage, adirect response to increase use of cellular phones and pre-paid phone cards.Contractor’s fees decreased by $30,976, this decrease is due to the eliminationof contractors and the re-organization of routes to manage them moreefficiently. Depreciation expense decreased $36,110 when compare to the sameperiod in 2002. This decrease is due to certain assets being fully depreciatedand our on going strategy of identifying unprofitable payphones and sellingthem to the site owners.  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 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.

 

Our cost ofsales for repairs, service, travel, and supplies decreased by $17,539 a resultof the management team’s ongoing efforts to reduce cost.

 

Operation and AdministrativeExpenses

 

Our operatingexpenses decreased by $94,170 or approximately 30.13% over the same period in2002. Salaries and related payroll taxes were reduced by $21,641 when comparedto the same expenses for 2002. This decrease is due to the elimination of twoemployees, one technician and one clerical assistant. Insurance expensedecreased by $5,722 when compared to the fiscal year 2002. Rent decreased by$3,749 when compared to 2002. Professional fees decreased by $46,466 over 2002.These are fees we pay to accountants, attorneys and other professionalsthroughout the year for various task. Our expenses for outside servicesdecreased by $6,338 over 2002. Our telephone, utilities, office, and vehicleexpenses, together account for a decreased of $10,254 when compared to

 

11

----

 

the same period ending June 30,2002. This decrease is primarily attributable to management diligently workingto cut expenses and the replacement of older vehicles with new vehicles thatrequire less maintenance.

 

GOING CONCERN QUALIFICATION

 

In hisIndependent Auditor’s Report for the fiscal year ending December 31, 2002, CEForse & Co. Ltd. states that we have incurred annual losses since inceptionraising substantial doubt about our ability to continue as a going concern.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flow

 

Our primarysources of liquidity have been cash from operations and borrowing from variouscredit facilities. As of June 30, 2003, we have a note payable to Key Bank inthe amount of $90,852. We have an additional line of credit with Lilly BeterCapital Group, Ltd. in the amount of $500,000 as of June 30, 2003 we have used$444,500.

 

**ITEM3****.   CONTROLSAND PROCEDURES**

 

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 ActRule 13a-14(c). Based upon that evaluation, the Company’s President andController have concluded that the Company’s disclosure controls and proceduresare effective for the purpose of ensuring that material information required tobe in this quarterly report is made 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 tothe other information in this report, the following risks should be consideredcarefully in evaluating our business and prospects:

 

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

 

If we areunable to achieve or sustain profitability, or if operating losses increase inthe future, we may not be able to remain a viable company and may have todiscontinue operations. Our expenses have historically exceeded our revenuesand we have had losses in all fiscal years of operation, including those infiscal years 2001 through 2002, and the losses are projected to continue in2003. Our net losses were $544,645 and $872,178 for fiscal years ended 2001,2002 respectively. We have been concentrating on the development of ourproducts, services and business plan. Our management believes that we can beprofitable and that our business plan will be successful; however, there is noassurance that we will be successful in implementing our business plan or thatwe 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 to increaseand there is no guarantee that we will not experience operating losses andnegative cash flow from operations for this fiscal year or for the foreseeablefuture. If we do not achieve or sustain profitability, then we may be unable tocontinue our operations.

 

12

----

 

**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 andsignificantly greater financial, technical, marketing and other resources thanwe do. In addition, our current and potential competitors may establishcooperative relationships among themselves or with third parties that mayfurther 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.

 

**IFWE DO NOT INCREASE OUR BRAND AND NAME RECOGNITION, OUR ABILITY TO SELL OURPRODUCTS WILL BE REDUCED AND OUR BUSINESS AND 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 targetedcustomers generally prefer to do business with established companies. We alsobelieve that the importance to us of name recognition and reputation willincrease as competition in our market

 

13

----

 

increases. Promotion and enhancement of ourcurrent or future acquired products will depend on the effectiveness of ourmarketing and advertising efforts and on our ability to continue providinghigh-quality products and services. We may not be successful in either regard.If we are not successful, our ability to generate revenue will be limited.

 

**IFWE CANNOT ATTRACT, RETAIN, MOTIVATE AND INTEGRATE ADDITIONAL SKILLED PERSONNEL,OUR ABILITY TO COMPETE WILL 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.

 

**OURFAILURE TO MANAGE PLANNED GROWTH COULD ADVERSELY AFFECT OUR ABILITY TO INCREASEREVENUES 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:

 

•                  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     otherthird 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 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.

 

14

----

 

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 become exposedto liabilities invoking the indemnification provisions, we could be exposed toadditional unreimbursable costs, including legal fees. Our articles ofincorporation 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.

 

**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 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 quarterlyoperating results;

•                  Changes in financial estimates ofour revenues and operating results by securities analysts;

•                  Changes in market valuations oftelecommunications equipment companies;

•                  Announcements by us of significantcontracts, acquisitions, strategic partnerships, joint ventures or capitalcommitments;

•                  Additions or departures of keypersonnel;

•                  Future sales of our common stock;

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

•                  Commencement of or involvement inlitigation.

 

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.

 

15

----

 

**WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS ONOUR COMMON STOCK.**

 

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

 

**IF WE ARE SUBJECT TO SEC REGULATIONS RELATINGTO LOW-PRICED STOCKS, THE MARKET FOR OUR COMMON STOCK COULD BE ADVERSELYAFFECTED.**

 

The Securities and Exchange Commission hasadopted regulations concerning low-priced (or “penny”) stocks. The regulationsgenerally define “penny stock” to be any equity security that has a marketprice less than $5.00 per share, subject to certain exceptions. If our sharesare offered at a market price less than $5.00 per share, and do not qualify forany exemption from the penny stock regulations, our shares may become subjectto these additional regulations relating to low-priced stocks.

 

The penny stock regulations require thatbroker-dealers, who recommend penny stocks to persons other than institutionalaccredited investors make a special suitability determination for thepurchaser, receive the purchaser’s written agreement to the transaction priorto the sale and provide the purchaser with risk disclosure documents thatidentify risks associated with investing in penny stocks. Furthermore, thebroker-dealer must obtain a signed and dated acknowledgment from the purchaserdemonstrating that the purchaser has actually received the required riskdisclosure document before effecting a transaction in penny stock. Theserequirements have historically resulted in reducing the level of tradingactivity in securities that become subject to the penny stock rules.

 

The additional burdens imposed uponbroker-dealers by these penny stock requirements may discourage broker-dealersfrom effecting transactions in the common stock, which could severely limit themarket liquidity of our common stock and our shareholders’ ability to sell ourcommon stock in the secondary market.

 

16

----

 

**PART IIOTHER INFORMATION.**

 

**ITEM 1****.  LEGAL PROCEEDINGS**

Notapplicable.

 

**ITEM 2.  CHANGESIN SECURITIES AND USE OF PROCEEDS.**

Not applicable

 

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

Notapplicable.

 

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

Notapplicable.

 

**ITEM 5.  OTHER INFORMATION**

Notapplicable.

 

**ITEM6.  EXHIBITS AND REPORTS ON 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.

 

17

----

 

**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: | August 12, 2003 |   |   | /s/ CRAIG BURTON       |   |
|   |            |   |   | Craig Burton           |   |
|   |            |   |   | President              |   |
|   |            |   |   |                   |   |
|   |            |   |   |                   |   |
| Dated: | August 12, 2003 |   |   | /s/ KATHY  CHRISTOPHER |   |
|   |            |   |   | Kathy  Christopher     |   |
|   |            |   |   | Controller             |   |

 

18

----