**SECURITIES AND EXCHANGE COMMISSION**

**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, 2002**                                                                |
|                                                                                                                 |   |   |
| **o****   TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.**     |

 

**For the transition periodfrom                        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 September 30, 2002.

 

TransitionalSmall Business Disclosure Forms (check one):

 

Yes   o                                                                    No   ý

 

 

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USIP.COM, INC.

INDEXTO FORM 10-QSB

september 30, 2002

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

 

2

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PART I.     FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

USIP.COM, INC

CONSOLIDATED BALANCE SHEET

 
|                                                                                                        |   | **Unaudited  September 30, 2002** |      | **Audited  December 31, 2001** |    |
|-------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------|--------------------------------|---------|
| ASSETS                                                                                                      |   |                              |      |                           |    |
| CURRENT ASSETS                                                                                              |   |                              |      |                           |    |
| Cash                                                                                                        |   | $                                 | 16,127    |                           | 10,825  |   |
| Commissions and  Sales Receivable, Net                                                                      |   | 107,634                           |      | 144,772                        |    |
| Inventory                                                                                                   |   | 50,782                            |      | 46,410                         |    |
| Prepaid Expenses                                                                                            |   | 4,950                             |      | 2,866                          |    |
|                                                                                                        |   |                              |      |                           |    |
| TOTAL CURRENT  ASSETS                                                                                       |   | 179,493                           |      | 204,873                        |    |
|                                                                                                        |   |                              |      |                           |    |
| FIXED ASSETS                                                                                                |   |                              |      |                           |    |
| Telephone and  Office Equipment                                                                             |   | 1,900,875                         |      | 1,922,887                      |    |
| Vehicle                                                                                                     |   | 98,208                            |      | 74,542                         |    |
|                                                                                                        |   | 1,999,083                         |      | 1,997,429                      |    |
| Less:  Accumulated Depreciation                                                                             |   | (818,796                          | )         | (609,882                       | )       |
|                                                                                                        |   |                              |      |                           |    |
| Net Fixed Assets                                                                                            |   | 1,180,287                         |      | 1,387,547                      |    |
|                                                                                                        |   |                              |      |                           |    |
| TOTAL ASSETS                                                                                                |   | $                                 | 1,359,780 |                           | $       | 1,592,420 |   |
|                                                                                                        |   |                              |      |                           |    |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                  |   |                              |      |                           |    |
|                                                                                                        |   |                              |      |                           |    |
| Current  Liabilities                                                                                        |   |                              |      |                           |    |
| Accounts Payable                                                                                            |   | $                                 | 208,763   |                           | 294,605 |   |
| Line of Credit                                                                                              |   | 454,852                           |      | 212,952                        |    |
| Accrued Payroll  and Payroll Taxes                                                                          |   | 8,367                             |      | 5,622                          |    |
| Accrued State  Gross Receipts Taxes                                                                         |   | 9,123                             |      | 13,036                         |    |
| Other Accrued  Expenses                                                                                     |   | 19,332                            |      | 23,149                         |    |
| Current Portion  of Long-Term Debt                                                                          |   | 13,100                            |      | 10,291                         |    |
|                                                                                                        |   |                              |      |                           |    |
| TOTAL CURRENT LIABILITIES                                                                                   |   | 713,537                           |      | 559,655                        |    |
|                                                                                                        |   |                              |      |                           |    |
| LONG-TERM  LIABILITIES                                                                                      |   |                              |      |                           |    |
| Long-Term Debt,  Less Current Portion                                                                       |   | 47,554                            |      | 30,523                         |    |
| TOTAL  LIABILITIES                                                                                          |   | 761,091                           |      | 590,178                        |    |
| STOCKHOLDERS’  EQUITY                                                                                  |   |                              |      |                           |    |
| Common Stock,  $.01 par value  25,000,000 Shares  authorized, 17,699,388 shares issued and outstanding |   | 176,994                           |      | 176,194                        |    |
|                                                                                                        |   |                              |      |                           |    |
| Additional Paid  In Capital                                                                                 |   | 1,473,358                         |      | 1,382,358                      |    |
|                                                                                                        |   |                              |      |                           |    |
| Retained  Earnings                                                                                          |   | (1,051,663                        | )         | (556,310                       | )       |
|                                                                                                        |   |                              |      |                           |    |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                            |   | 598,689                           |      | 1,002,242                      |    |
|                                                                                                        |   |                              |      |                           |    |
| TOTAL LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                            |   | $                                 | 1,359,780 |                           | $       | 1,592,420 |   |

 

SeeAccountant’s Report and Notes to Financial Statement

 

3

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USIP.COM, INC

CONSOLIDATED STATEMENT OF INCOME (LOSS)

Unaudited

 
|                                |   | **Three  Months Ended** |    | **Nine  Months Ended**  |   |
|-------------------------------------|--------|-------------------------|---------|-------------------------|--------|
|                                |   | **September  30, 2001** |    | **September  30, 2002** |   | **September  30, 2001** |   | **September  30, 2002** |   |
| SALES                               |   |                    |    |                    |   |   |   |   |   |
| Commissions                         |   | $                       | 51,952  |                    | $      | 23,361 |   | $ | 214,367 |   | $ | 67,841 |   |
| Coin Collections                    |   | 117,956                 |    | 77,746                  |   | 355,144 |   | 258,665 |   |
| Dial Around                         |   | 87,355                  |    | 48,190                  |   | 178,288 |   | 132,135 |   |
| Phone Card Sales                    |   | 21,316                  |    | 6,035                   |   | 62,799 |   | 30,035 |   |
| Equipment Sales                     |   | 985                     |    | 1,984                   |   | 15,605 |   | 8,426 |   |
| Atm Revenue                         |   | 4,286                   |    | 1,797                   |   | 8,891 |   | 3,760 |   |
| Service and  Repair Sales           |   | 28,893                  |    | 30,364                  |   | 67,413 |   | 90,551 |   |
| Total Sales                         |   | 312,743                 |    | 189,477                 |   | 902,507 |   | 591,413 |   |
|                                |   |                    |    |                    |   |   |   |   |   |
| COST OF SALES                       |   |                    |    |                    |   |   |   |   |   |
| Telecommunications  Costs           |   | 144,378                 |    | 96,310                  |   | 452,360 |   | 313,887 |   |
| Commissions                         |   | 7,246                   |    | 428                     |   | 17,841 |   | 3,004 |   |
| Repairs and  Service Supplies       |   | 586                     |    | 3,317                   |   | 47,881 |   | 42,145 |   |
| Other Direct  Expenses - Travel     |   | 5,488                   |    | 3,198                   |   | 14,459 |   | 7,072 |   |
| Depreciation                        |   | 72,731                  |    | 72,907                  |   | 216,600 |   | 216,354 |   |
| Subcontractors                      |   | 20,163                  |    | 9,852                   |   | 59,843 |   | 44,055 |   |
| Supplies                            |   | —                  |    | —                  |   | — |   |   |   |
| Total Cost of  Sales                |   | 250,592                 |    | 186,012                 |   | 808,984 |   | 626,517 |   |
|                                |   |                    |    |                    |   |   |   |   |   |
| GROSS PROFIT                        |   | 62,151                  |    | 3,465                   |   | 93,523 |   | (35,104 | ) |
|                                |   |                    |    |                    |   |   |   |   |   |
| OPERATING  EXPENSES                 |   |                    |    |                    |   |   |   |   |   |
| Officers’  Salaries            |   | 16,770                  |    | 16,770                  |   | 52,100 |   | 50,052 |   |
| Salaries and  Wages                 |   | 42,231                  |    | 36,938                  |   | 123,947 |   | 118,723 |   |
| Payroll Taxes                       |   | 5,032                   |    | 4,038                   |   | 18,863 |   | 16,808 |   |
| Insurance                           |   | 16,036                  |    | 14,715                  |   | 48,601 |   | 42,020 |   |
| Office Supplies                     |   | 15,278                  |    | 3,826                   |   | 28,277 |   | 10,856 |   |
| Telephone                           |   | 6,220                   |    | 5,934                   |   | 19,506 |   | 18,590 |   |
| Utilities                           |   | 1,523                   |    | 2,163                   |   | 7,765 |   | 5,935 |   |
| Vehicle Expenses                    |   | 3,501                   |    | 8,946                   |   | 18,818 |   | 14,424 |   |
| Rent                                |   | 18,952                  |    | 13,932                  |   | 55,633 |   | 48,395 |   |
| Professional  Fees                  |   | 8,715                   |    | 7,245                   |   | 35,215 |   | 90,845 |   |
| Travel &  Entertainment         |   | 2,153                   |    | 2,298                   |   | 5,477 |   | 3,174 |   |
| Outside Services                    |   | 9,935                   |    | 2,247                   |   | 21,823 |   | 11,760 |   |
| Total Operating  Expenses           |   | 146,346                 |    | 119,052                 |   | 436,025 |   | 431,582 |   |
|                                |   |                    |    |                    |   |   |   |   |   |
| OPERATING INCOME  (LOSS)            |   | (84,195                 | )       | (115,587                | )      | (342,502 | ) | (466,686 | ) |
|                                |   |                    |    |                    |   |   |   |   |   |
| OTHER INCOME  (EXPENSE)             |   |                    |    |                    |   |   |   |   |   |
| Interest Expense                    |   | (7,929                  | )       | (10,345                 | )      | (15,115 | ) | (23,772 | ) |
| NY State Gross  Receipts Tax        |   |                    |    | (3,828                  | )      | (425 | ) | (9,213 | ) |
| Gain on Sale of  Assets             |   |                    |    | 5,175                   |   |   |   | 4,267 |   |
| Interest Income                     |   | 57                      |    | 17                      |   | 299 |   | 51 |   |
| Total Other  Income                 |   | (7,872                  | )       | (8,981                  | )      | (15,241 | ) | (28,667 | ) |
|                                |   |                    |    |                    |   |   |   |   |   |
| NET INCOME  (LOSS)                  |   | $                       | (92,067 | )                       | $      | (124,568 | ) | $ | (357,743 | ) | $ | (495,353 | ) |
|                                |   |                    |    |                    |   |   |   |   |   |
| Weighted Common  Shares Outstanding |   | 17,619,388              |    | 17,699,388              |   | 17,619,388 |   | 17,699,388 |   |
|                                |   |                    |    |                    |   |   |   |   |   |
| Net Loss per  Common Share          |   | $                       | —  |                    | $      | — |   | $ | — |   | $ | — |   |
|                                |   | x                       |    | x                       |   | x |   | x |   |

 

 

SeeAccountant’s Report and Notes to Financial Statement

 

4

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USIP.COM, INC

CONSOLIDATED STATEMENT OF CASH FLOWS

 
|                                                                                             |   | **Nine  Months  September 30, 2002** |     | **Nine  Months  September 30, 2001** |   |
|--------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|--------------------------------------|--------|
|                                                                                             |   | **Unaudited**                        |     | **Unaudited**                        |   |
| Cash Flows From  Operating Activities:                                                           |   |                                 |     |                                 |   |
| Net (Loss)                                                                                       |   | $                                    | (495,353 | )                                    | $      | (283,865 | ) |
| Adjustments to  reconcile net  (loss) to net cash  provided (used) by operating activities: |   |                                 |     |                                 |   |
| Depreciation  Expense                                                                            |   | 216,354                              |     | 214,769                              |   |
| (Increase)  Decrease in Commissions and Sales Receivables                                        |   | 37,138                               |     | 28,167                               |   |
| (Increase) in  Inventory                                                                         |   | (4,372                               | )        | (14,816                              | )      |
| (Increase)  Decrease in Prepaid Expenses                                                         |   | (2,084                               | )        | 9,889                                |   |
| Increase  (Decrease) in Accounts Payable                                                         |   | (85,842                              | )        | 72,402                               |   |
| Increase  (Decrease) in Accrued Expenses and Wages                                               |   | (1,072                               | )        | (7,155                               | )      |
| Increase  (Decrease) in Accrued State Gross Receipts Taxes                                       |   | (3,913                               | )        | 7,985                                |   |
|                                                                                             |   |                                 |     |                                 |   |
| Net cash  provided (used) by operating activities                                                |   | (339,144                             | )        | 27,376                               |   |
|                                                                                             |   |                                 |     |                                 |   |
| Cash Flows From  Investing Activities:                                                           |   |                                 |     |                                 |   |
| Proceeds from  Sale of Equipment                                                                 |   | 5,429                                |     |                                 |   |
| Acquisition of  Equipment                                                                        |   | —                               |     | (68,814                              | )      |
|                                                                                             |   |                                 |     |                                 |   |
| Net cash  provided (used)  by investing  activities                                         |   | 5,429                                |     | (68,814                              | )      |
|                                                                                             |   |                                 |     |                                 |   |
| Cash Flows From  Financing Activities:                                                           |   |                                 |     |                                 |   |
| Proceeds  Received from Line of Credit                                                           |   |                                 |     | 70,000                               |   |
| Principal  Payments on Long-term Debt                                                            |   | (18,077                              | )        | (6,801                               | )      |
| Proceeds from  Issuance on Notes Payable                                                         |   | 250,300                              |     | 80,945                               |   |
| Proceeds from  Issuance of Stock                                                                 |   | —                               |     | 5,500                                |   |
|                                                                                             |   |                                 |     |                                 |   |
| Net cash  provided (used) by financing activities                                                |   | 232,223                              |     | 149,644                              |   |
|                                                                                             |   |                                 |     |                                 |   |
| Net Increase in  cash                                                                            |   | (101,492                             | )        | 108,206                              |   |
|                                                                                             |   |                                 |     |                                 |   |
| Cash - Beginning  of Period                                                                      |   | 117,619                              |     | 9,413                                |   |
|                                                                                             |   |                                 |     |                                 |   |
| Cash - End of  Period                                                                            |   | $                                    | 16,127   |                                 | $      | 117,619 |   |
|                                                                                             |   |                                 |     |                                 |   |
|                                                                                             |   |                                 |     | x                                    |   |
| Supplemental  Disclosures of Cash Flow Information:                                              |   |                                 |     |                                 |   |
| Cash Paid During  The Period For:                                                                |   |                                 |     |                                 |   |
| Interest                                                                                         |   | $                                    | 20,767   |                                 | $      | 9,116 |   |
| Income Taxes                                                                                     |   | $                                    | —   |                                 | $      | — |   |

 

SeeAccountant’s Report and Notes to Financial Statement

 

5

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USIP.COM, INC

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

September 30, 2002

(Unaudited)

 

NOTE 1.                 SUMMARYINFORMATION

 

The accompanying unaudited consolidated financial statements includethe accounts of USIP.Com, Inc. and our three wholly owned subsidiaries: Datone,Inc., NB Payphones Ltd., and The Platinum Funding Corporation. All significantinter-company amounts have been eliminated. Our unaudited consolidatedfinancial statements presented herein, should be read in conjunction with theaudited consolidated financial statements of our company contained in theCompany’s form 10K for the year ended December 31, 2001.

 

In the opinion of management, the unaudited consolidated financialstatements presented herein reflect all adjustments (consisting only of normalrecurring adjustments) necessary for fair presentation. Interim results are notnecessarily indicative of results to be expected for the entire year.  For purposes of comparability, certain prioryear amounts have been reclassified to conform to current year presentation.

 

NOTE 2.                 COMPANYFORMATION

 

On January 16, 2002, the Company formed a 100% wholly owned subsidiarycorporation, The Platinum Funding Corporation. This company was formed to takeadvantage of the mortgage brokering business. As of September 30, 2002, therehas been no significant activity within Platinum Funding Company.

 

NOTE 3.                 NOTESPAYABLE

 

For additional capital requirements, the company has increased theborrowings on its line of credit by $84,000 increasing our liability to about$455,000. We intend to use the additional funding for our continued expansion.

 

6

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

 

**FORWARD LOOKINGSTATEMENTS**

 

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

 

**PLAN OF OPERATION**

 

USIP.Com, Inc. (“USIP,” the“Company,” “we,” “our” or “us”), was incorporated under the laws of the Stateof Utah on April 6, 1978 as Derby Farms, Inc. On January 19, 1982 our Articlesof Incorporation were amended and the name of our company was changed toCommerce Oil of Kentucky, Inc. On December 31, 1983 our Certificate ofIncorporation was suspended for failure to file an annual report. On December20, 1984 we filed a petition for relief under Chapter Eleven of the UnitedStates Bankruptcy Code. The case was filed in The United States Bankruptcy Court,Middle District of Tennessee. The case was converted to Chapter Seven on July1, 1986. On September 1, 1992 the court signed a Final Decree, and the case wasclosed. Our Certificate of Incorporation was reinstated on June 18, 1992 by theUtah Department of Commerce, Division of Corporations.

 

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

 

On April 29, 2000 wepurchased all the shares of NB Payphones, Ltd., (“NB”), the owner of 466****payphones in Pennsylvania and CointelLeasing, Inc. (“Cointel”), the owner of 45 payphones in Syracuse, NewYork, from Riviera Bay Holding Trust, a Gibraltar Trust, for 8,750,000restricted shares of our common stock. NB is a USIP wholly owned subsidiary.

 

On August 30, 2000 we incorporated Datone, Inc. as aDelaware company. Datone, Inc. is a USIP wholly owned subsidiary. All therevenue generating assets and related expenses that we received from the DatoneCommunications Merger were subsequently moved via an intercompany transfer fromUSIP into Datone, Inc. Datone, Inc. was capitalized with $1,017. All of theDatone, Inc. shares were given to USIP. On October 1, 2000 we merged Cointelinto Datone, Inc. by way of an inner company transaction. In an effort to savemoney our management decided to combine these similar companies.

 

On January 16, 2002 we incorporated The PlatinumFunding Corporation as a New York wholly owned subsidiary. We intend to developa real estate based mortgage brokerage business. We believe that in time we canservice clients in both the residential and commercial markets throughout thestate of New York. There is no

 

7

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guarantee that we will be able to develop this business and generate aprofit. We are exploring the market in an effort to develop our business planfurther.

 

As of September 30, 2002, weowned and operated a network of****approximately772 payphones in three states. Our installed payphone base generatesrevenue through coin calls (local and long-distance), non-coin calls (callingcard, credit card, collect, and third-party billed calls using our pre-selectedoperator services providers such as Qwest and ILD Telecommunications), anddial-around calls (utilizing a 1-800, 1010XXX or similar “toll free” dialingmethod to select a carrier other than our pre-selected carrier).

 

We enter into site leasing agreements with variousbusinesses that are open to the public. Some of the businesses include but arenot limited to retail stores, convenience stores, bars, restaurants, gasstations, colleges and hospitals. The agreements allow us to install ourpayphones in areas that are accessible to the public. We provide the payphones,install them, and pay all maintenance and operational costs for the term ofeach lease. We also sell payphones to some of the site owners. We derive incomefrom the sale as well as any commission split that we negotiate with the buyer.

 

**PLANS FORFISCAL YEAR 2002.**

 

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

 

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

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

•                  Expand our customer base in existing areas;

•                  Develop a marketing plan and infrastructure that canhelp us grow into the next year, and

•                  Work towards developing a successful real estatebased mortgage brokerage business.

 

**RESULTS OFOPERATIONS**

 

The following is adiscussion and analysis of our results of operations and should be read inconjunction with the financial statements and related notes contained in thisForm 10-QSB.

 

Our revenue is derived from the following threegeneral sources.

 

1. Commission Income.

 

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

 

2. Coin calls.

 

Coin calls represent calls paid for by customers whodeposit coins into the payphones. Coin call revenue is recorded as the actualamount of coins collected from the payphones. Some coin collections are made on a dailybasis and others more often if the particular payphone has significant usage.The coins are counted in house and deposited weekly.

 

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

 

We derive income from the sale and repair of apayphone. We can negotiate the sale of a payphone to a site owner when itbecomes cost prohibitive to maintain or if a customer offers to buy the phone ata price that is favorable to our company. The new owner or lessee becomesresponsible for the maintenance and operational costs of the payphone. We sellpre-paid phone cards at some of our payphone locations. Sales and repairs ofpayphones

 

8

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and the sale of pre-paid phone cards are not subject to the samecollection delays as the other types of operating income.

 

Costs related to our operation.

 

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

 

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

 

**Revenues**

 

Total revenue decreased by $123,266 or approximately39.41%, from $312,743 in the three months ended September 30, 2001 to $189,477in the three months ended September 30, 2002. This decrease was primarilyattributable to removal of unprofitable phone locations; lower call volumes onthe Company’s payphones resulting from the growth in wireless and other publiccommunication services.

 

Commissions decreased by $28,591 or approximately55.04%, from $51,952 in the three months ended September 30, 2001 to $23,361 inthe three months ended September 30, 2002. The Company is actively reviewingits strategies related to contract renewals in order to maintain its competitiveposition while retaining its customer base.

 

Coin call revenues decreased by $40,210 orapproximately 34.09%, from $117,956 in three months ended September 30, 2001 to$77,746 in the three months ended September 30, 2002. The decrease in coin callrevenue was primarily attributable to an ongoing strategy to removeunprofitable phones as well as call volumes on the Company’s payphones due toincreased competition from wireless and other public communication services.

 

Non-coin call revenue, which is comprised primarily ofdial-around revenue and operator service revenue decreased $39,165 orapproximately 44.83% from $87,355 in the three months ended September 30, 2001to $48,190 in the three months ended September 30, 2002. This decrease wasprimarily attributable to World Com, Inc. filing chapter 11 bankruptcy on July21, 2002 impacting our non-coin revenue by approximately 30%.

 

Service & Repair Sales increased by $1,471, whencompared to the same period in 2001. Equipment sales increased by $999, from$985 in the three months ending September 30, 2001 to $1,984 in the threemonths ending September 30, 2002. Phone card sales and ATM revenue decreased by$15,281 and $2,489 respectfully when compared to the same period in 2001.

 

Cost of Sales

 

Our overall cost of sales decreased for the threemonths ending September 30, 2002 by $64,580 or approximately 25.77% from thethree months ending September 30, 2001. Telecommunication costs decreased by$48,068, the cost of providing telephone service to 772 payphones 2002 ascompared to 1,386 payphones in 2001.  Once a low revenue payphone is identified, we offer the site owner anopportunity to purchase the equipment. If the site owner does not purchase thepayphone, we remove it from the site. Our installed payphone base generatesrevenue through coin calls (local and long-distance), non-coin calls (callingcard, credit card, collect, and third party billed calls using our pre-selectedoperator service).

 

Commissions payable decreased by $6,818 due to adecrease in payphone usage, a direct response to increase use of cellularphones and pre-paid phone cards. Contractor’s fees decreased by $10,311, thisis due impart to having one less independent contractor.  Depreciation expense increased $176 whencompared to the some period in 2001. This increase is due to purchasing a newmotor vehicle in July/02. The Company owns telephone

 

9

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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-lived asset is reported as an expenseduring the cost of an asset to expense over its life in a rational andsystematic manner.

 

Cost of sales for repair, service supplies, and travelincreased by $441 a result of the management team’s ongoing efforts to reducecost.

 

Operation and Administrative Expenses

 

Operating expenses decreased by $27,294 orapproximately 18.65% over the same period in 2001. This decrease in operatingexpense is a direct result of management diligently working to cut expense andrun the company as efficient as possible. Salaries and related payroll taxesdecreased by $6,287 when compared to the same expenses for 2001. This decreaseis due to the elimination of one employee. Insurance expense decreased by $1,321when compared to the same period in 2001. Rent decreased by $5,020 when compared to 2001. This decrease is dueimpart to the closing of the Pennsylvania office. Telephone, utilities, office,and other miscellaneous expenses, together account for a decrease of $10,953when compared to the same period ending September 30, 2001. Professional feesdecreased by $1,470 over 2001. These are fees the Company pays to accountantsand attorneys throughout the year for various task. Expenses for outsideservices decreased by $7,688 over 2001. This decrease was due to eliminatingthe use of temporary staffing. Vehicle expense increased by $5,445 in 2002 whencompared to 2001. This increase is primarily attributable to the accountsettlement for a leased vehicle.

 

**NINE MONTHS ENDED SEPTEMBER 30, 2002COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001**

 

Revenues

 

Total revenue decreased by $311,094 or approximately34.47%, from $902,507 in the nine months ended September 30, 2001 to $591,413in the nine months ended September 30, 2002. This decrease was primarily attributable to removal of unprofitablephone locations, lower call volumes on the Company’s payphones resulting fromthe growth in wireless and other public communication services.

 

Commissions decreased by $146,526 or approximately68.35%, from $214,367 in the nine months ended September 30, 2001 to $67,841 inthe nine months ended September 30, 2002. This decrease is primarilyattributable to a one-time bonus commission of $73,800 received in 2001 fromPacific Telemanagement Services in addition to lower commissionable revenuesfrom reduced number of the Company payphones. The Company is actively reviewingits strategies related to contract renewals in order to maintain itscompetitive position while retaining its customer base.

 

Coin call revenues decreased by $96,479 orapproximately 27.17%, from $355,144 in nine months ended September 30, 2001 to$258,665 in the nine months ended September 30, 2002. The decrease in coin callrevenue was primarily attributable to an ongoing strategy to removeunprofitable phones as well as decreased call volumes on the Company’spayphones due to increased competition from wireless and other publiccommunication services.

 

Non-coin call revenue, which is comprised primarily ofdial-around revenue and operator service revenue decreased $46,153 from$178,288 in the nine months ended September 30, 2001 to $132,135 in the ninemonths ended September 30, 2002. This decrease was primarily attributable toWorld Com, Inc. filing chapter 11 bankruptcy on July 21, 2002 impacting ournon-coin revenue by approximately 30%.

 

Service & Repair Sales increased by $23,138, whencompared to the same period in 2001. Equipment sales decreased by $7,179, from$15,605 in the nine months ending September 30, 2001 to $8,426 in the ninemonths ending September 30, 2002. Phone card sales and ATM revenue decreased by$32,764 and $5,131 respectfully when compared to the same period in 2001.

 

10

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Cost of Sales

 

Our overall cost of sales decreased for the ninemonths ending September 30, 2002 by $182,467 or approximately 22.55% from thenine months ending September 30, 2001. Telecommunication costs decreased by$138,473, the cost of providing telephone service to 772 payphones 2002 ascompared to 1,386 payphones in 2001. Once a low revenue payphone is identified, we offer the site owner anopportunity to purchase the equipment. If the site owner does not purchase the payphone, we remove it from thesite. Our installed payphone base generates revenue through coin calls (localand long-distance), non-coin calls (calling card, credit card, collect, andthird party billed calls using our pre-selected operator service).

 

Commissions payable decreased by $14,837 due to adecrease in payphone usage, a direct response to increase use of cellularphones and pre-paid phone cards. Contractor’s fees decreased by $15,788, thisis due impart to having one less independent contractor. Depreciation expensedecreased $246 when compared to the same period in 2001. The Company ownstelephone 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.

 

Cost of sales decreased for repairs and servicesupplies by $5,736, while the cost of travel decreased by $7,387, a directresult of the management team’s ongoing efforts to reduce cost.

 

Operation and Administrative Expenses

 

Operating expenses decreased by $4,443 orapproximately 1.02% over the same period in 2001. Salaries and related payrolltaxes were reduced by $9,327 when compared to the same expenses for 2001.Insurance expense decreased by $6,581 when compared to the same period in 2001.Rent decreased by $7,238 when compared to 2001.  Telephone, utilities, office, and other miscellaneous expenses,together account for a decrease of $22,470 when compared to the same periodending September 30, 2001. Professional fees increased by $55,630 over 2001.These are fees the Company pays to accountants and attorneys throughout theyear for various task. Expenses for outside services decreased by $10,063 over2001. Vehicle expense decreased by $4,394 in 2002 when compared to 2001.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Cash Flow

 

Our primary sources of liquidity have been cash fromoperations and borrowing from various credit facilities. As of September 30,2002 we have a note payable to Key Bank in the amount of $94,552. We had anunsecured $200,000 line of credit with Lilly Beter Capital Group, Ltd. On April30, 2002 we entered into an additional $300,000 line of credit with Lilly BeterCapital Group, Ltd. for a total of $500,000. As of September 30, 2002 we have borrowed$360,300 from the line of credit.

 

**COMPETITION**

 

We compete for payphonelocations directly with Regional Bell Operating Companies (RBOCs), such asVerizon Communications, Local Exchange Companies (LECs), such as CitizensCommunications and Alltel Corporation, and other Independent Payphone Providers(IPPs), such as Davel Communications. We also compete, indirectly, withlong-distance companies, which can offer Location Owners commissions onlong-distance calls made from LEC-owned payphones. Most LEC’s, long-distancecompanies and some IPPs may have substantially greater financial, marketing andother resources than our company.

 

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

 

11

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

 

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

 

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

 

**IMPACT OF INFLATION**

 

Inflation is not considered a material factoraffecting the Company’s business. General operating expenses such as salaries, employee benefits andoccupancy costs are, however, subject to normal inflationary pressures

 

**SEASONALASPECTS**

 

Weather conditions affect ourrevenue stream because we operate in the Northeastern part of the country.Revenues drop off significantly during the winter because most of our phonesare outdoors. The spring and summer periods show an increase in payphone usage.Revenue and income are generally lowest in the first quarter and highest in thethird quarter.

 

**RISKSASSOCIATED WITH OUR BUSINESS**

 

In addition to the other information in this report,the following risks should be considered carefully in evaluating our businessand 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 aviable company and may have to discontinue operations. Our expenses havehistorically exceeded our revenues and we have had losses in all fiscal yearsof operation, including those in fiscal years 2000 through 2001, and the lossesare projected to continue in 2002. Our net losses were $11,665 and $556,310 forfiscal years ended 2000, 2001 respectively. We have been concentrating on thedevelopment of our products, services and business plan. Our managementbelieves that we can be profitable and that our business plan will besuccessful; however, there is no assurance that we will be successful inimplementing our business plan or that we will be profitable now or in thefuture.

 

**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.

 

12

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**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 be certainwe will be able to find such additional financing on reasonable terms, or atall. If we are unable to obtain additional financing from Lilly Beter CapitalGroup, 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.

 

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

 

Most of our target customersare small and medium-sized businesses. We believe that establishing andmaintaining recognition in the payphone business is critical for attracting andexpanding this targeted customer base

 

13

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because we believe these targeted customersgenerally prefer to do business with established companies. We also believethat the importance to us of name recognition and reputation will increase ascompetition in our market increases. Promotion and enhancement of our currentor future acquired products will depend on the effectiveness of our marketingand advertising efforts and on our ability to continue providing high-qualityproducts and services. We may not be successful in either regard. If we are notsuccessful, our ability to generate revenue will be limited.

 

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

 

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

 

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

 

If we do not effectivelymanage our planned growth, our ability to significantly increase revenues andbecome profitable will be limited. Our growth has strained and will continue tostrain our management, financial controls, operations systems, personnel andother resources. If we do not manage our planned future growth effectively, ourefforts to increase our customer base and product and service offerings may notbe successful. In addition, our planned growth could adversely affect ourability to provide services and technical support in a timely manner and inaccordance with customer expectations. To manage growth of our operations, wemust:

 

•                  improve existingoperational, financial and management information controls, reporting systemsand procedures;

 

•                  hire, train and manage additional qualifiedpersonnel; and

 

•                  effectively manage multiple relationships with ourcustomers, vendors and other third parties.

 

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

 

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

 

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

 

•                  Cease selling, incorporating or using products or services that incorporate thechallenged intellectual property;

•                  Obtain from the holder of the infringedintellectual property right a license to sell or use the relevanttechnology,  which license may not beavailable on reasonable terms; or

•                  Redesign those products or services that incorporatesuch technology.

 

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

 

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

 

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

 

If our directorsor officers become exposed to liabilities invoking the indemnificationprovisions, we could be exposed to additional unreimbursable costs, includinglegal fees. Our articles of incorporation and bylaws provide that our directorsand officers will not be liable to us or to any shareholder and will beindemnified and held harmless for any consequences of any act or omission bythe directors and officers unless the act or omission constitutes grossnegligence or willful misconduct. Extended or protracted litigation could havea material adverse effect on our cash flow.

 

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

 

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

 

**OUR STOCKPRICE MAY BE VOLATILE.**

 

The market priceof our common stock will likely fluctuate significantly in response to thefollowing factors, some of which are beyond our control:

 

•                  Variations in our quarterly operatingresults;

•                  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, theequity markets have experienced volatility that has particularly effected themarket prices of equity securities issued by technology companies and thatoften has been unrelated or disproportionate to the operating results of thosecompanies. These broad market fluctuations may adversely effect the marketprice of our common stock.

 

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

 

We have not paidany dividends on our Common Stock since inception and do not anticipate payingany dividends on our Common Stock in the foreseeable future. Instead, we intendto retain any future earnings for use in the operation and expansion of ourbusiness.

 

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

 

The Securities andExchange Commission has adopted regulations concerning low-priced (or “penny”)stocks. The regulations generally define “penny stock” to be any equity securitythat has a market price less than $5.00 per share, subject to certainexceptions. If our shares are offered at a market price less than $5.00 pershare, and do not qualify for any exemption from the penny stock regulations,our shares may become subject to these additional regulations relating tolow-priced stocks.

 

The penny stockregulations require that broker-dealers who recommend penny stocks to personsother than institutional accredited investors make a special suitabilitydetermination for the purchaser, receive the purchaser’s written agreement tothe transaction prior to the sale and provide the purchaser with riskdisclosure documents that identify risks associated with investing in pennystocks. Furthermore, the broker-dealer must obtain a signed and datedacknowledgment from the purchaser demonstrating that the purchaser has actuallyreceived the required risk disclosure document before effecting a transactionin penny stock. These requirements have historically resulted in reducing the levelof trading activity in securities that become subject to the penny stock rules.

 

The additionalburdens imposed upon broker-dealers by these penny stock requirements maydiscourage broker-dealers from effecting transactions in the common stock,which could severely limit the market liquidity of our common stock and ourshareholders’ ability to sell our common stock in the secondary market.

 

Item 3. Controls and Procedures

 

Based on their evaluation, as of a date within 90 days of the filing date of this Form 10-QSB, the Company’s President and Controller have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) are effective. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

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

 

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 11, 2002 | /s/ CRAIG BURTON      |   |
|                                 | Craig Burton          |
|                                 | President             |
|                                 |                  |
|                                 |                  |
| Dated:   November 11, 2002 | /s/ KATHY CHRISTOPHER |   |
|                                 | Kathy Christopher     |
|                                 | Controller            |

 

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**CERTIFICATION**

I, CraigBurton, certify that:

1. I havereviewed this quarterly report on Form 10-QSB of USIP.Com, Inc.;

2. Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

3. Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

4. Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

a)designed such disclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

c)presented in this quarterly report our conclusions about the effectiveness ofthe disclosure controls and procedures based on our evaluation as of theEvaluation Date;

5. Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

a) allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b) anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

6. Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

Date:November 13, 2002

 

 
|   | /s/ Craig Burton         |   |
|--------|--------------------------|--------|
|   | Craig  Burton, President |   |

 

 

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**CERTIFICATION**

I, KathyChristopher, certify that:

1. I havereviewed this quarterly report on Form 10-QSB of USIP.Com, Inc.;

2. Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

3. Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

4. Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

a)designed such disclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

c)presented in this quarterly report our conclusions about the effectiveness ofthe disclosure controls and procedures based on our evaluation as of theEvaluation Date;

5. Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

a) allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b) anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

6. Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

Date:November 13, 2002

 

 
|   | /s/ Kathy Christopher          |   |
|--------|--------------------------------|--------|
|   | Kathy  Christopher, Controller |   |

 

 

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