**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM10-QSB**

 

| **(Mark One)**                                                                                                                                                                                                                                                                                                               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                   |
| **ý****   QUARTERLY REPORT PURSUANT TO  SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**                                                                                                                                                                                                    |
| ** **                                                                                                                                                                                                                                                                                                                   |
| **For the  quarterly period ended June 30, 2004**                                                                                                                                                                                                                                                                            |
| ** **                                                                                                                                                                                                                                                                                                                   |
| **o****   TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.**                                                                                                                                                                                                        |
| ** **                                                                                                                                                                                                                                                                                                                   |
| **For the transition period from                         to                         ** |
| ** **                                                                                                                                                                                                                                                                                                                   |
| **Commission File Number 0-31193**                                                                                                                                                                                                                                                                                           |

 

**USIP.COM, INC.**

(Exact name of small business issuer as specified in its charter)

 
| **Utah**                                                        | ** ** | **16-1583162**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **7325 Oswego Road  Liverpool, New York 13090**                 |
| (Address of principal executive offices)                        |
|                                                            |       |                                  |
| **(315) 451-7515**                                              |
| (Issuer’s telephone number)                                |
|                                                            |       |                                  |
|                                                            |
| (Former name, former address and former fiscal year             |
| if changed since last report)                                   |

 

Check whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

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

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date: 17,804,388 shares ofCommon Stock, $.01 par value, were outstanding as of June 30, 2004.

 

Transitional Small Business Disclosure Forms (check one):

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

 

 

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USIP.COM,INC.INDEX TO FORM 10-QSBJUNE 30, 2004

 
| PART  I    FINANCIAL INFORMATION |
|------------------------------------------------------|
|                                                 |
| ITEM 1.                                              | Financial  Statements |   |
|                                                 |   |   |
|                                                 | Consolidated Balance Sheets  At December 31, 2003 and June 30, 2004 |   |
|                                                 |   |   |
|                                                 | Consolidated Statements of Income and  Retained Earnings  For the three months and six months ended June 30, 2004 and June 30, 2003 |   |
|                                                 |   |   |
|                                                 | Consolidated Statements of Cash Flows  For the six months ended June 30, 2004 and June 30, 2003 |   |
|                                                 |   |   |
|                                                 | **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**     | ** ** | **Audited**           | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                           | ** ** | **June 30, 2004** | ** ** | **December 31, 2003** | ** ** |
| ASSETS                                                                                               |       |              |       |                  |       |
| CURRENT ASSETS                                                                                       |       |              |       |                  |       |
| Cash                                                                                                 |       | $                 | 10,649     |                  | 6,121      |   |
| Commissions and Sales Receivable, Net                                                                |       | 56,791            |       | 109,639               |       |
| Inventory                                                                                            |       | 20,289            |       | 20,289                |       |
| Prepaid Expenses                                                                                     |       | 4,802             |       | 4,989                 |       |
|                                                                                                 |       |              |       |                  |       |
| TOTAL CURRENT ASSETS                                                                                 |       | 92,531            |       | 141,038               |       |
|                                                                                                 |       |              |       |                  |       |
| FIXED ASSETS                                                                                         |       |              |       |                  |       |
| Telephone and Office Equipment                                                                       |       | 1,876,205         |       | 1,882,353             |       |
| Vehicle                                                                                              |       | 76,367            |       | 76,367                |       |
|                                                                                                 |       | 1,952,572         |       | 1,958,720             |       |
| Less: Accumulated Depreciation                                                                       |       | (1,453,949        | )          | (1,358,594            | )          |
|                                                                                                 |       |              |       |                  |       |
| Net Fixed Assets                                                                                     |       | 498,623           |       | 600,126               |       |
|                                                                                                 |       |              |       |                  |       |
| TOTAL ASSETS                                                                                         |       | $                 | 591,154    |                  | $          | 741,164 |   |
|                                                                                                 |       |              |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                            |       |              |       |                  |       |
|                                                                                                 |       |              |       |                  |       |
| Current Liabilities                                                                                  |       |              |       |                  |       |
| Accounts Payable                                                                                     |       | $                 | 171,114    |                  | 175,060    |   |
| Line of Credit                                                                                       |       | 619,499           |       | 508,356               |       |
| Accrued Payroll and Payroll Taxes                                                                    |       | 5,442             |       | 5,706                 |       |
| Accrued State Gross Receipts Taxes                                                                   |       | 1,859             |       | 7,049                 |       |
| Other Accrued Expenses                                                                               |       | 3,578             |       | 2,960                 |       |
| Current Portion of Long-Term Debt                                                                    |       | 36,301            |       | 27,592                |       |
|                                                                                                 |       |              |       |                  |       |
| TOTAL CURRENT LIABILITIES                                                                            |       | 837,793           |       | 726,723               |       |
|                                                                                                 |       |              |       |                  |       |
| LONG-TERM LIABILITIES                                                                                |       |              |       |                  |       |
| Long-Term Debt, Less Current Portion                                                                 |       | 86,621            |       | 110,587               |       |
| TOTAL LIABILITIES                                                                                    |       | 924,414           |       | 837,310               |       |
| STOCKHOLDERS’ EQUITY                                                                            |       |              |       |                  |       |
| Common Stock, $.01 par value 25,000,000  Shares authorized, 17,804,388 shares issued and outstanding |       | 178,044           |       | 178,044               |       |
|                                                                                                 |       |              |       |                  |       |
| Additional Paid In Capital                                                                           |       | 1,462,558         |       | 1,462,558             |       |
|                                                                                                 |       |              |       |                  |       |
| Retained Earnings                                                                                    |       | (1,973,862        | )          | (1,736,748            | )          |
|                                                                                                 |       |              |       |                  |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                      |       | (333,260          | )          | (96,146               | )          |
|                                                                                                 |       |              |       |                  |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                      |       | $                 | 591,154    |                  | $          | 741,164 |   |

 

See Accountant’s Report and Notes To FinancialStatement

 

3

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USIP.COM, INCCONSOLIDATED STATEMENT OF INCOME(LOSS)Unaudited

 
| ** **                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                         | ** ** | **June 30, 2003**      | ** ** | **June 30, 2004**    | ** ** | **June 30, 2003** | ** ** | **June 30, 2004** | ** ** |
| SALES                              |       |                   |       |                 |       |   |   |   |   |
| Commissions                        |       | $                      | 7,408      |                 | $          | 6,029 |   | $ | 14,246 |   | $ | 10,788 |   |
| Coin Collections                   |       | 44,755                 |       | 33,515               |       | 97,813 |   | 67,790 |   |
| Dial Around                        |       | 74,343                 |       | 56,157               |       | 122,590 |   | 64,871 |   |
| Phone Card Sales                   |       | 2,015                  |       | 1,115                |       | 6,382 |   | 1,555 |   |
| Equipment Sales                    |       | 7,452                  |       | 2,338                |       | 7,686 |   | 6,148 |   |
| Service and Repair Sales           |       | 32,083                 |       | 29,058               |       | 61,444 |   | 56,479 |   |
| Total Sales                        |       | 168,056                |       | 128,212              |       | 310,161 |   | 207,631 |   |
|                               |       |                   |       |                 |       |   |   |   |   |
| COST OF SALES                      |       |                   |       |                 |       |   |   |   |   |
| Telecommunications Costs           |       | 60,637                 |       | 53,230               |       | 121,336 |   | 100,577 |   |
| Commissions                        |       | —                 |       | 1,137                |       | 265 |   | 2,194 |   |
| Repairs and Service Supplies       |       | 10,235                 |       | 4,031                |       | 13,744 |   | 6,752 |   |
| Other Direct Expenses - Travel     |       | 2,775                  |       | 3,255                |       | 5,633 |   | 6,166 |   |
| Depreciation                       |       | 53,668                 |       | 49,233               |       | 107,337 |   | 98,465 |   |
| Subcontractors                     |       | 1,926                  |       | 1,927                |       | 3,226 |   | 3,948 |   |
| Total Cost of Sales                |       | 129,241                |       | 112,813              |       | 251,541 |   | 218,102 |   |
|                               |       |                   |       |                 |       |   |   |   |   |
| GROSS PROFIT                       |       | 38,815                 |       | 15,399               |       | 58,620 |   | (10,471 | ) |
|                               |       |                   |       |                 |       |   |   |   |   |
| OPERATING EXPENSES                 |       |                   |       |                 |       |   |   |   |   |
| Officers’ Salaries            |       | 16,770                 |       | 16,770               |       | 33,282 |   | 33,540 |   |
| Salaries and Wages                 |       | 32,633                 |       | 24,337               |       | 63,675 |   | 53,426 |   |
| Payroll Taxes                      |       | 3,317                  |       | 2,881                |       | 9,239 |   | 8,270 |   |
| Insurance                          |       | 6,867                  |       | 5,847                |       | 21,583 |   | 20,437 |   |
| Office Supplies                    |       | 2,227                  |       | 4,355                |       | 5,305 |   | 7,551 |   |
| Telephone                          |       | 3,748                  |       | 3,510                |       | 7,759 |   | 7,067 |   |
| Utilities                          |       | 2,020                  |       | 1,441                |       | 5,463 |   | 2,653 |   |
| Vehicle Expenses                   |       | (2,082                 | )          | 193                  |       | (1,182 | ) | 2,088 |   |
| Rent                               |       | 15,386                 |       | 15,771               |       | 30,715 |   | 31,353 |   |
| Professional Fees                  |       | 11,110                 |       | 17,142               |       | 37,134 |   | 37,559 |   |
| Travel & Entertainment         |       | 238                    |       | 16                   |       | 2,213 |   | 16 |   |
| Outside Services                   |       | 1,302                  |       | 1,269                |       | 3,177 |   | 5,239 |   |
| Total Operating Expenses           |       | 93,536                 |       | 93,532               |       | 218,363 |   | 209,199 |   |
|                               |       |                   |       |                 |       |   |   |   |   |
| OPERATING INCOME (LOSS)            |       | (54,721                | )          | (78,133              | )          | (159,743 | ) | (219,670 | ) |
|                               |       |                   |       |                 |       |   |   |   |   |
| OTHER INCOME (EXPENSE)             |       |                   |       |                 |       |   |   |   |   |
| Interest Expense                   |       | (12,053                | )          | (12,703              | )          | (23,692 | ) | (25,195 | ) |
| Gain/Loss Sale Of Fixed Assets     |       | 4,758                  |       | 254                  |       | 5,628 |   | 454 |   |
| NY State Gross Receipts Tax        |       | (1,600                 | )          | 4,541                |       | (2,088 | ) | 5,090 |   |
| Interest Income                    |       | —                 |       |                 |       |   |   |   |   |
| Total Other Income                 |       | (8,895                 | )          | (7,908               | )          | (20,152 | ) | (19,651 | ) |
|                               |       |                   |       |                 |       |   |   |   |   |
| NET INCOME (LOSS)                  |       | $                      | (63,616    | )                    | $          | (86,041 | ) | $ | (179,895 | ) | $ | (239,321 | ) |
|                               |       |                   |       |                 |       |   |   |   |   |
| Weighted Common Shares Outstanding |       | 17,699,388             |       | 17,804,388           |       | 17,699,388 |   | 17,804,388 |   |
|                               |       |                   |       |                 |       |   |   |   |   |
| Net Loss per Common Share          |       | $                      | —     |                 | $          | — |   | $ | — |   | $ | — |   |

 

See Accountant’s Report and Notes To FinancialStatement

 

4

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USIP.COM, INC

CONSOLIDATED STATEMENT OF CASH FLOWS

 
| ** **                                                                                | ** ** | **Six Months  June 30, 2004** | ** ** | **Six Months  June 30, 2003** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                                                                | ** ** | **Unaudited**                 | ** ** | **Unaudited**                 | ** ** |
| Cash Flows From Operating Activities:                                                     |       |                          |       |                          |       |
| Net (Loss)                                                                                |       | $                             | (239,321   | )                             | $          | (179,895 | ) |
| Adjustments to reconcile net (loss) to net  cash provided (used) by operating activities: |       |                          |       |                          |       |
| Depreciation Expense                                                                      |       | 98,465                        |       | 107,337                       |       |
| Gain on Sale of Equipment                                                                 |       | (454                          | )          | (5,628                        | )          |
| (Increase) Decrease in Commissions and  Sales Receivables                                 |       | 52,848                        |       | (7,222                        | )          |
| (Increase) in Inventory                                                                   |       | —                        |       | —                        |       |
| (Increase) Decrease in Prepaid Expenses                                                   |       | 187                           |       | (947                          | )          |
| Increase (Decrease) in Accounts Payable                                                   |       | (3,946                        | )          | 36,089                        |       |
| Increase (Decrease) in Accrued Expenses and  Wages                                        |       | 21,048                        |       | 16,211                        |       |
| Increase (Decrease) in Accrued State Gross  Receipts Taxes                                |       | (5,190                        | )          | (5,771                        | )          |
|                                                                                      |       |                          |       |                          |       |
| Net cash provided (used) by operating  activities                                         |       | (76,363                       | )          | (39,826                       | )          |
|                                                                                      |       |                          |       |                          |       |
| Cash Flows From Investing Activities:                                                     |       |                          |       |                          |       |
| Acquisition of Equipment                                                                  |       | —                        |       | (1,090.00                     | )          |
| Sale of Equipment                                                                         |       | 6,148                         |       | 13,153.00                     |       |
|                                                                                      |       |                          |       |                          |       |
| Net cash provided (used)  by investing activities                                    |       | 6,148                         |       | 12,063                        |       |
|                                                                                      |       |                          |       |                          |       |
| Cash Flows From Financing Activities:                                                     |       |                          |       |                          |       |
| Proceeds Received from Line of Credit                                                     |       | 90,000                        |       | 34,200                        |       |
| Principal Payments on Long-term Debt                                                      |       | (15,257                       | )          | (10,337                       | )          |
| Proceeds from Issuance of Stock                                                           |       |                          |       |                          |       |
|                                                                                      |       |                          |       |                          |       |
| Net cash provided (used) by financing  activities                                         |       | 74,743                        |       | 23,863                        |       |
|                                                                                      |       |                          |       |                          |       |
| Net Increase (Decrease) in cash                                                           |       | 4,528                         |       | (3,900                        | )          |
|                                                                                      |       |                          |       |                          |       |
| Cash - Beginning of Period, December 31  2003 & 2002                                  |       | 6,121                         |       | 7,021                         |       |
|                                                                                      |       |                          |       |                          |       |
| Cash - End of Period                                                                      |       | $                             | 10,649     |                          | $          | 3,121 |   |
|                                                                                      |       |                          |       |                          |       |
| Supplemental Disclosures of Cash Flow  Information:                                       |       |                          |       |                          |       |
| Cash Paid During Period The Period For:                                                   |       |                          |       |                          |       |
| Interest                                                                                  |       | $                             | 4,052      |                          | $          | 5,229 |   |

 

See Accountant’s Report and Notes To FinancialStatement

 

5

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USIP.COM, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(unaudited)

 

NOTE 1.                                                   SUMMARYINFORMATION

 

Theaccompanying unaudited consolidated financial statements include the accountsof USIP.Com, Inc., and our two wholly owned subsidiaries: Datone, Inc., NBPayphones Ltd.  All significantinter-company amounts have been eliminated. Our unaudited consolidated financial statements presented herein, shouldbe read in conjunction with the audited consolidated financial statements ofour company contained in the Company’s form 10K for the year ended December 31,2003.

 

In the opinionof management, the unaudited consolidated financial statements presented hereinreflect all adjustments (consisting only of normal recurring adjustments)necessary for fair presentation.  Interimresults are not necessarily indicative of results to be expected for the entireyear.  For purposes of comparability, certainprior year amounts have been reclassified to conform to current year presentation.

 

NOTE 2.                                                   COMPANYINFORMATION

 

On January 16,2002 we formed a 100% wholly owned subsidiary corporation, The Platinum FundingCorporation.  This company was formed toenter the mortgage brokering business. As of June 30, 2004, there has been no activity within this corporation.

 

NOTE 3.                                                   LINEOF CREDIT

 

For additional capital requirements, thecompany has increased the borrowings on its lines of credit by $26,000,increasing our liability to about $534,500.

 

NOTE 4.                                                   NOTESPAYABLE

 

On June 4,2003, our line of credit with Key Bank was converted to a fixed note payable at7.5%, payable over a five-year period.  As of June 30, 2004 the outstanding amount on this note was $78,057.

 

NOTE 5.                                                   GOINGCONCERN CONSIDERATIONS

 

The companyhas incurred annual operating losses since inception.  The company has had to continue to raise itsline of credit borrowings just to meet current obligations as they comedue.  This raises doubt as to the companies future operations.

 

6

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

 

#### **BASIS OF PRESENTATION**

 

Our unauditedconsolidated financial statements of USIP.Com, Inc. (“USIP”, the “Company”,“our”, or “we”), include the accounts of USIP.Com Inc. and its two wholly ownedsubsidiaries: Datone Inc. and NB Payphones Ltd. All significant inter-company amounts have been eliminated.   The unaudited consolidated financialstatements of USIP present herein, should be read in conjunction with theaudited consolidated financial statements of USIP as of and for the year endedDecember 31, 2003.  In the opinion ofmanagement, the unaudited consolidated financial statements presented hereinreflect all adjustments (consisting only of 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 resultscould differ from these estimates.

 

Impact of Inflation

 

Inflation is notconsidered a material factor affecting the Company’s business.  General operating expenses such as salaries,employee benefits and occupancy costs are, however, subject to normalinflationary pressures

 

Seasonality

 

The Company’s revenuesfrom payphone operation are affected by seasonal variations, geographicdistribution of payphones and type of location. Because the Company operates in the northeastern part of the countrywith many of the payphones located outdoor, weather patterns affect our revenuestreams.  Revenues drop off significantlyduring winter and conversely show an increase in the spring and summer.  Revenues are generally lowest in the firstquarter and highest in the third quarter.

 

As of June 30, 2004, we ownedand operated a network of approximately 548****payphones.  Our installed payphone base generates revenuefrom three principle sources:  coin-callsand non-coin calls, sales and service of payphones and pre-paid phone cards.

 

**1. Commission Income**.

 

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

 

**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 derive income from thesale and repair of a payphone. We can negotiate the sale, of a payphone to asite owner when it becomes cost prohibitive to maintain or if a customer offersto buy the phone at a price that is favorable to our company. The new owner orlessee becomes responsible for the maintenance and operational costs of thepayphone.  We sell pre-paid phone cardsat some of our payphone locations. Sales and repairs of payphones

 

7

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and the sale of pre-paid phone cards are notsubject to the same collection delays as the other types of operating income.

 

**CostsRelated to our operation**.

 

The principlecosts related to the ongoing operation of the Company’s payphones includetelephone charges, commissions, service, maintenanceand network costs.  Telephone chargesconsist of payments made by the Company to LEC or competitive local exchangecarriers and long distance carrier for access to and use of theirtelecommunications networks. Commission expense represents payments to ownersor operators of the premises at which a payphone is located.  Service, maintenance and network costrepresent the cost of servicing and maintaining the payphones on an ongoingbasis.

 

**THREEMONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003**

 

**Revenues**

 

Our totalrevenue decreased by $39,844 or approximately 23.71%, from $168,056 in thethree months ended June 30, 2003 to $128,212 in the three months ended June 30,2004.  This decrease was primarilyattributable to removal of unprofitable phone locations; lower call volumes onour payphones resulting from the growth in wireless communication services.   We reduced our network of payphones fromapproximately 607 in the three months ending June 30, 2003 to approximately 548in the three months ending June 30, 2004.

 

Ourcommissions decreased by $1,379 or approximately 18.61%, from $7,408 in the threemonths ended June 30, 2003 to $6,029 in the three months ended June 30,2004.  This decrease was a result of ourreduction in payphones, fewer operator assisted calls, and the increasedcompetition from wireless communications.

 

Our coin callrevenues decreased by $11,240 or approximately 25.12% from $44,755 in the threemonths ended June 30, 2003 to $33,515 in the year ended June 30, 2004.  The decrease in coin call revenue isprimarily attributable to an ongoing strategy to remove unprofitable phones aswell as reduced call volumes on our payphones due to increased competition fromwireless communication services.

 

Our non-coincall revenue, which is comprised primarily of dial-around revenue and operatorservice revenue decreased by $18,186 or approximately 24.46% from $74,343 inthe three months ended June 30, 2003 to $56,157 in the three months ended June30, 2004. This decrease is primarily due to a “Carrier Take Back” by GlobalCrossing, MCI, AT&T, and WilTel Communications that had significant impacton our fourth quarter dial-around for 2003 and first quarter 2004.  This action is a result of the FCC’sreallocation of responsibility for dial-around compensation to the IXCs.  The Federal Communications Commission’sNovember 2001 rules regarding compensation of PayphoneService Providers (“Payphone Rules”) provides that:  “the first facilities-based interexchangecarrier to which a completed coinless access code or subscribers toll-freepayphone call is delivered by the local exchange carrier shall compensate thepayphone service provider for the call.” Such interexchange carrier “may obtain reimbursement from its resellerand debit card customers for compensation amounts paid to payphone serviceproviders for the calls carried on their account and for the cost of trackingcompensable call.”

 

Our service & repair sales decreased by$3,025 when compared to the same period in 2003.This decrease was primarily attributable to removal of unprofitablepayphones.  Our equipment sales decreasedby $5,114, from $7,452 in the three months ending June 30, 2003 to $2,338 inthe three months ending June 30, 2004.  Our phone card revenue decreased by $900 when compared to the sameperiod in 2003.   This decrease isdue to increased competition from other phone card vendors along with loss ofvarious site locations when companies go out of business.  The increased competition and decreased sitelocations forced us to reduce our phone card sites by approximately 42%.

 

Cost of Sales

 

Our overall cost of salesdecreased for the three months ending June 30, 2004 by $16,428 or approximately12.71% from the three months ending June 30, 2003.   Telecommunication costsdecreased by $7,407, the cost of providing telephone service to 548 payphonesin 2004 as compared to 607 payphones in 2003.   Once a low revenue

 

8

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payphone is identified, we offer the site owneran opportunity to purchase the equipment. If the site owner does not purchase the payphone, we remove it from thesite.  Our installed payphone basegenerates revenue through coin calls (local and long-distance), non-coin calls(calling card, credit card, collect, and third party billed calls using ourpre-selected operator service).

 

Ourcommission’s payable increased by $1,137 when compared to the same period in2003.  This increase is due to thecompany’s attempt to attract business location for payphone sites by offering acommission to the site owner.  Ourcontractor’s fee remained consistent with the prior year due to there-organization of routes to manage them more efficiently.  Depreciation expense decreased $4,435 whencompared to the same period in 2003. This decrease is due to certain assets being fully depreciated and ouron going strategy of identifying unprofitable payphones, and selling them tothe site owners.  Once a payphone is soldto the site owner it is removed from our assets and depreciationschedules.   We own telephone equipmentand motor vehicles, which provide a service for a number of years.  The term of service is commonly referred toas the “useful life” of the asset. 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.

 

Our cost of sales for repairs, service,travel, and supplies decreased by $5,724 a result of our management team’songoing efforts to reduce cost.

 

Operation and Administrative Expenses

 

Our operating expensesremained approximately the same over the same period in 2003. Salaries andrelated payroll taxes were reduced by $8,732 when compared to the same expensesfor 2003.  This decrease was due to theelimination of one employee, a clerical assistant.  Our insurance expense decreased by $1,020when compared to the fiscal year 2003. This decrease is primarily attributableto the decrease in payroll the classification used to compute the majority ofour insurance premiums.  Our rentincreased by $385 when compared to 2003.   Professional fees increased by $6,032 over 2003.  These are fees we pay to accountants,attorneys and other professionals throughout the year for various task.  Our expenses for outsideservices decreased by $33 over 2003.  Our telephone, utilities, office, travel andentertainment, and vehicle expenses, together account for an increase of $3,364when compared to the same period ending June 30, 2003.

 

**SIXMONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003**

 

**Revenues**

 

Our totalrevenue decreased by $102,530 or approximately 33.1%, from $310,161 in the sixmonths ended June 30, 2003 to $207,631 in the six months ended June 30,2004.  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 and changes in call traffic.

 

Ourcommissions decreased by $3,458 or approximately 24.26%, from $14,246 in thesix months ended June 30, 2003 to $10,788 in the six months ended June 30,2004.  This decrease was a result of ourreduction in payphones, fewer operator assisted calls, and the increasedcompetition from wireless communications.

 

Our coin callrevenues decreased by $30,023 or approximately 30.7%, from $97,813 in sixmonths ended June 30, 2003 to $67,790 in the year ended June 30, 2004.  The decrease in coin call revenue wasprimarily attributable to an ongoing strategy to remove unprofitable phones aswell as call volumes on the Company’s payphones due to increased competitionfrom wireless and other public communication services.

 

Our non-coincall revenue, which is comprised primarily of dial-around revenue and operatorservice revenue decreased $57,719 or approximately47.1% from $122,590 in the six months ended June 30, 2003 to $64,871 in the sixmonths ended June 30, 2004.  Thisdecrease is primarily due to a “Carrier Take Back” by Global Crossing, MCI,AT&T, and WilTel Communications that had significant impact on our fourthquarter dial-around for 2003 and the first quarter of 2004.

 

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Our service & repair sales decreased by$4,965, when compared to the same period in 2003.   Equipment sales decreased by $1,538, from$7,686 in the six months ending June, 2003 to $6,148 in the six months endingJune 30, 2004.  Ourphone card revenue decreased by $4,827 when compared to the same period in2003.   This decrease is due toincreased competition from other phone card vendors along with loss of varioussite locations when companies go out of business.

 

Cost of Sales

 

Our overall cost of salesdecreased for the six months ending June 30, 2004 by $33,439 or approximately13.3% from the six months ending June 30, 2003.   Telecommunication costs decreased by $20,759the cost of providing telephone service to 548 payphones 2004 as compared to607 payphones in 2003.   Once a lowrevenue payphone is identified, we offer the site owner an opportunity topurchase the equipment.  If the siteowner does not purchase the payphone, we remove it from the site.  Our installed payphone base generates revenuethrough coin calls (local and long-distance), non-coin calls (calling card,credit card, collect, and third party billed calls using our pre-selectedoperator service).

 

Ourcommission’s payable increased by $1,929. This increase is due to the company’sattempt to attract business location for payphone sites by offering commissionto the site owner.   Our contractor’sfees increased by $722, from $3,226 in the six months ended June 30, 2003 to$3,948 in the six months ended June 30, 2004. Depreciation expense decreased $8,872 when compare to the same period in2003.  This decrease is due to certainassets being fully depreciated and our on going strategy of identifyingunprofitable payphones and selling them to the site owners.  The Company owns telephone equipment andmotor vehicles, which provide a service for a number of years.  The term of service is commonly referred toas the “useful life” of the asset. 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.

 

Our cost of sales for repairs, service, andtravel decreased by $6,459 a result of the management team’s ongoing efforts toreduce cost.

 

Operation and Administrative Expenses

 

Our operating expenses decreased by $9,164 orapproximately 4.2% over the same period in 2003.   Salaries and related payroll taxes werereduced by $10,960 when compared to the same expenses for 2003.  This decrease is due to the elimination ofone employee, one clerical assistant.  Insurance expense decreased by $1,146 when compared to the fiscal year2003.  Rent increased by $638 whencompared to 2003.   Professional feesincreased by $425 over 2003.  These arefees the Company pays to accountants, attorneys and other professionalsthroughout the year for various task. Our expenses for outside services increased by $2,062 over 2003, thisincrease was due to using a temporary personnel service.  Our telephone, utilities, office, travel& entertainment and vehicle expenses, together account for a decreased of$183 when compared to the same period ending June 30, 2003, a result of ourmanagement team’s ongoing efforts to reduce cost.

 

PROPOSED ACQUISITION

 

On May 24,2004, USIP announced that its Board of Directors unanimously approved anAgreement and Plan of Merger with Cornerstone Services Group, Inc.(“Cornerstone”), a privately held Houston, TX. basedcompany. Cornerstone acquires and provides infrastructure to companies relatingto the care of the Senior or Aged population.

 

Under theterms of the agreement, Cornerstone and USIP will merge, with USIP as thesurviving corporation.  Immediately uponthe consummation of the merger, the name of the surviving corporation will bechanged to Cornerstone Services Group, Inc. In the merger, the shareholders of Cornerstone will receive a number ofshares of USIP common stock representing approximately 75% of the shares ofUSIP common stock that will be outstanding, on a fully diluted basis, followingthe merger. The transaction is subject to USIP and Cornerstone shareholderapproval and other customary closing conditions.

 

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The Securities and ExchangeCommission maintains an Internet site at http://www.sec.gov where the public can review a copy of ourreports including the May 24, 2004 form 8-K which details the merger agreementbetween USIP and Cornerstone and a copy of the press release.

 

GOING CONCERN QUALIFICATION

 

In his IndependentAuditor’s Report for the fiscal year ending December 31, 2003, CE Forse &Co. Ltd. states that we have incurred annual losses since inception raisingsubstantial doubt about our ability to continue as a going concern.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flow

 

Our primary sources ofliquidity have been cash from operations and borrowing from various creditfacilities.   As of June 30, 2004, we havea note payable to Key Bank in the amount of $78,057. In addition, we haveincreased our lines of credit by $26,000, bringing our liability to $534,500.

 

**ITEM 3****.****   CONTROLS AND PROCEDURES**

 

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

 

b)  There have been no changes in the Company’sinternal controls or in other factors that could significantly affect thesecontrols subsequent to the date of their evaluation.

 

**RISKSASSOCIATED WITH OUR BUSINESS**

 

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

 

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

 

If we are unable to achieve or sustain profitability, or if operating losses increase in the future, we may not be able to remain a viable company and may have to discontinue operations. Our expenses have historically exceeded our revenues and we have had losses in all fiscal years of operation, including those in fiscal years 2002 through 2003, and the losses are projected to continue in 2004. Our net losses were $872,178 and $308,260 for fiscal years ended 2002, 2003 respectively. We have been concentrating on the development of our products, services and business plan. Our management believes that we can be profitable and that our business plan will be successful; however, there is no assurance that we will be successful in implementing our business plan or that we will be profitable now or in the future.

 

**WE 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 when needed, wecould be required to modify our business plan in accordance with the extent ofavailable financing.

 

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**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 of equity securities would diluteour existing stockholders.

 

**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 employee mobilityand aggressive recruiting of skilled personnel. If we are unable to continue toemploy our key personnel or to attract and retain qualified personnel in thefuture, our ability to successfully execute our business plan will bejeopardized and our growth will be inhibited.

 

**WE MAY BEUNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS OR MAY BE SUED BY THIRDPARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS.**

 

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

 

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

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

•                  Redesign those products or services thatincorporate such technology.

 

A successful claim of infringement against us, and our failure tolicense the same or similar technology, could adversely effectour business, asset value or stock value. Infringement claims, with or withoutmerit, would be expensive to litigate or settle, and would divert managementresources.

 

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 orofficers become exposed to liabilities invoking the indemnification provisions,we could be exposed to additional unreimbursable costs, including legal fees.Our articles of incorporation and bylaws provide

 

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that our directors andofficers will not be liable to us or to any shareholder and will be indemnifiedand held harmless for any consequences of any act or omission by the directorsand officers unless the act or omission constitutes gross negligence or willfulmisconduct. Extended or protracted litigation could have a material adverseeffect 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 STOCK PRICE MAY BE VOLATILE.**

 

The market price of ourcommon stock will likely fluctuate significantly in response to the followingfactors, some of which are beyond our control:

 

•                  Variations in our quarterlyoperating results;

•                  Changes in financialestimates of our revenues and operating results by securities analysts;

•                  Changes in market valuations oftelecommunications equipment companies;

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

•                  Additions or departures ofkey personnel;

•                  Future sales of our commonstock;

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

•                  Commencement of or involvementin litigation.

 

In addition, the equitymarkets have experienced volatility that has particularly effectedthe market 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 effectthe market price of our common stock.

 

**WE DO NOT ANTICIPATE PAYING ANY DIVIDENDSON OUR COMMON STOCK.**

 

We have not paid anydividends on our Common Stock since inception and do not anticipate paying anydividends on our Common Stock in the foreseeable future. Instead, we intend toretain any future earnings for use in the operation and expansion of ourbusiness.

 

**IF WE ARE SUBJECT TO SEC REGULATIONSRELATING TO LOW-PRICED STOCKS, THE MARKET FOR OUR COMMON STOCK COULD BEADVERSELY EFFECTED.**

 

The Securities and ExchangeCommission has adopted regulations concerning low-priced (or “penny”) stocks.The regulations generally define “penny stock” to be any equity security thathas a market price less than $5.00 per share, subject to certain exceptions. Ifour shares are offered at a market price less than $5.00 per share, and do notqualify for any exemption from the penny stock regulations, our shares maybecome subject to these additional regulations relating to low-priced stocks.

 

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

 

The additional burdensimposed upon broker-dealers by these penny stock requirements may discouragebroker-dealers from effecting transactions in the common stock, which couldseverely limit the market liquidity of our common stock and our shareholders’ability to sell our common stock in the secondary market.

 

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

 

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

Not applicable.

 

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

Not applicable

 

**ITEM 3.****  DEFAULTSUPON SENIOR SECURITIES.**

Not applicable.

 

**ITEM 4.****  SUBMISSIONOF 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

 
| **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

 

Form 8-K dated May 24, 2004 was filed pursuant to Item5 (Other Events).

 

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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:    August  9, 2004 |   | /s/ CRAIG BURTON       |   |
|                                          |   | Craig Burton           |
|                                          |   | President              |
|                                          |   |                   |
|                                          |   |                   |
| Dated:    August  9, 2004 |   | /s/ KATHY  CHRISTOPHER |   |
|                                          |   | Kathy Christopher      |
|                                          |   | Controller             |
|                                               |        |                        |  |  |

 

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