**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 

**(Mark One)**

 

| **ý****QUARTERLY REPORT PURSUANT TO SECTION 13 or  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**                                                                                                                                                                                                                                                                                                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **For the quarterly period ended March 31, 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 businessissuer as specified in its charter)

 

| **Utah**                                                         |   | **16-1583162**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**7325 OswegoRoad**

**Liverpool, New York 13090**

(Address of principalexecutive offices)

 

**(315)451-7515**

(Issuer’s telephone number)

 

 

(Former name, former addressand 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: 17,804,388 shares of Common Stock,$.01 par value, were outstanding as of March 31, 2004.

 

TransitionalSmall Business Disclosure Forms (check one):

 

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

 

 

----

 

USIP.COM, INC.

INDEX TO FORM 10-QSB

MARCH 31, 2004

 
| PART I  FINANCIAL INFORMATION |                                                                                                                             |
|------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|
|                               |                                                                                                                             |   |
| ITEM 1.                            | Financial Statements                                                                                                             |   |
|                               |                                                                                                                             |   |
|                               | Consolidated Balance Sheets  At December 31, 2003 and March 31, 2004                                                   |   |
|                               |                                                                                                                             |   |
|                               | Consolidated  Statements of Income and Retained Earnings  For the three months ended March 31, 2003 and March 31, 2004 |   |
|                               |                                                                                                                             |   |
|                               | Consolidated Statements of Cash Flows  For the three months ended March 31, 2003 and March 31, 2004                    |   |
|                               |                                                                                                                             |   |
|                               | **Notes to  Consolidated Financial Statements**                                                                                  |   |
|                               |                                                                                                                             |   |
| **ITEM  2.**                       | **Managements  Discussion and Analysis of Financial  Condition and Results of Operation**                                        |   |
|                               |                                                                                                                             |   |
| **ITEM 3.**                        | **Controls and  Procedures**                                                                                                     |   |
|                               |                                                                                                                             |   |
| PART II  OTHER INFORMATION    |                                                                                                                             |
|                               |                                                                                                                             |   |
| ITEM 1.                            | Legal Proceedings                                                                                                                |   |
|                               |                                                                                                                             |   |
| ITEM  2.                           | Changes  in Securities and Use of Proceeds                                                                                       |   |
|                               |                                                                                                                             |   |
| ITEM 3.                            | Defaults Upon  Senior Securities                                                                                                 |   |
|                               |                                                                                                                             |   |
| ITEM  4.                           | Submission  of Matters to a Vote of Security Holders                                                                             |   |
|                               |                                                                                                                             |   |
| ITEM 5.                            | Other Information                                                                                                                |   |
|                               |                                                                                                                             |   |
| ITEM 6.                            | Exhibits and  Reports on Form 8-K                                                                                                |   |
|                               |                                                                                                                             |   |
|                               | Signatures                                                                                                                       |   |

 

----

 

**PART I. FINANCIAL INFORMATION**

 

**ITEM1. FINANCIAL STATEMENTS**

 

USIP.COM, INC

CONSOLIDATEDBALANCE SHEET

 
|                                                                                                       |   | **(Unaudited)**          |    | **Audited**                 |    |
|------------------------------------------------------------------------------------------------------------|--------|--------------------------|---------|-----------------------------|---------|
|                                                                                                       |   | **March 31,  2004** |    | **December 31,  2003** |    |
| ASSETS                                                                                                     |   |                     |    |                        |    |
| CURRENT ASSETS                                                                                             |   |                     |    |                        |    |
| Cash                                                                                                       |   | $                        | 7,345   |                        | 6,121   |   |
| Commissions and Sales Receivable, Net                                                                      |   | 64,230                   |    | 109,639                     |    |
| Inventory                                                                                                  |   | 20,289                   |    | 20,289                      |    |
| Prepaid Expenses                                                                                           |   | 4,667                    |    | 4,989                       |    |
|                                                                                                       |   |                     |    |                        |    |
| TOTAL CURRENT ASSETS                                                                                       |   | 96,531                   |    | 141,038                     |    |
|                                                                                                       |   |                     |    |                        |    |
| FIXED ASSETS                                                                                               |   |                     |    |                        |    |
| Telephone and Office Equipment                                                                             |   | 1,880,911                |    | 1,882,353                   |    |
| Vehicle                                                                                                    |   | 76,367                   |    | 76,367                      |    |
|                                                                                                       |   | 1,957,278                |    | 1,958,720                   |    |
| Less: Accumulated Depreciation                                                                             |   | (1,407,084               | )       | (1,358,594                  | )       |
|                                                                                                       |   |                     |    |                        |    |
| Net Fixed Assets                                                                                           |   | 550,194                  |    | 600,126                     |    |
|                                                                                                       |   |                     |    |                        |    |
| TOTAL ASSETS                                                                                               |   | $                        | 646,725 |                        | $       | 741,164 |   |
|                                                                                                       |   |                     |    |                        |    |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                  |   |                     |    |                        |    |
|                                                                                                       |   |                     |    |                        |    |
| Current Liabilities                                                                                        |   |                     |    |                        |    |
| Accounts Payable                                                                                           |   | $                        | 171,906 |                        | 175,060 |   |
| Line of Credit                                                                                             |   | 508,500                  |    | 508,356                     |    |
| Accrued Payroll and Payroll Taxes                                                                          |   | 2,385                    |    | 5,706                       |    |
| Accrued State Gross Receipts Taxes                                                                         |   | 6,500                    |    | 7,049                       |    |
| Other Accrued Expenses                                                                                     |   | 77,073                   |    | 2,960                       |    |
| Current Portion of Long-Term Debt                                                                          |   |                     |    | —                      |    |
|                                                                                                       |   |                     |    |                        |    |
| TOTAL CURRENT LIABILITIES                                                                                  |   | 766,364                  |    | 699,131                     |    |
|                                                                                                       |   |                     |    |                        |    |
| LONG-TERM LIABILITIES                                                                                      |   |                     |    |                        |    |
| Long-Term Debt, Less Current Portion                                                                       |   | 129,831                  |    | 138,179                     |    |
| TOTAL LIABILITIES                                                                                          |   | 896,195                  |    | 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                                                                                          |   | (1,890,072               | )       | (1,736,748                  | )       |
|                                                                                                       |   |                     |    |                        |    |
| TOTAL STOCKHOLDERS’ EQUITY                                                                            |   | (249,470                 | )       | (96,146                     | )       |
|                                                                                                       |   |                     |    |                        |    |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                            |   | $                        | 646,725 |                        | $       | 741,164 |   |

 

See Accountant’s Report and Notes ToFinancial Statement

 

F-3

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USIP.COM, INC

CONSOLIDATEDSTATEMENT OF INCOME (LOSS)

(Unaudited)

 
|                               |   | **Three  Months Ended**  |     |
|------------------------------------|--------|--------------------------|----------|
|                               |   | **March 31,  2004** |     | **March 31,  2003** |   |
| SALES                              |   |                     |     |   |   |
| Commissions                        |   | $                        | 4,759    |   | $ | 6,838 |   |
| Coin Collections                   |   | 34,275                   |     | 53,058 |   |
| Dial Around                        |   | 8,714                    |     | 48,246 |   |
| Phone Card Sales                   |   | 440                      |     | 4,367 |   |
| Equipment Sales                    |   | 3,810                    |     | 235 |   |
| Service and Repair Sales           |   | 27,375                   |     | 29,361 |   |
| Total Sales                        |   | 79,373                   |     | 142,105 |   |
|                               |   |                     |     |   |   |
| COST OF SALES                      |   |                     |     |   |   |
| Telecommunications Costs           |   | 47,347                   |     | 60,699 |   |
| Commissions                        |   | 1,058                    |     | 1,243 |   |
| Repairs and Service Supplies       |   | 2,721                    |     | 2,531 |   |
| Other Direct Expenses - Travel     |   | 2,911                    |     | 2,857 |   |
| Depreciation                       |   | 49,233                   |     | 53,668 |   |
| Subcontractors                     |   | 2,021                    |     | 1,299 |   |
|                               |   |                     |     |   |   |
| Total Cost of Sales                |   | 105,291                  |     | 122,297 |   |
|                               |   |                     |     |   |   |
| GROSS PROFIT                       |   | (25,918                  | )        | 19,808 |   |
|                               |   |                     |     |   |   |
| OPERATING EXPENSES                 |   |                     |     |   |   |
| Officers’ Salaries            |   | 16,770                   |     | 16,512 |   |
| Salaries and Wages                 |   | 29,089                   |     | 31,042 |   |
| Payroll Taxes                      |   | 5,389                    |     | 5,923 |   |
| Insurance                          |   | 14,589                   |     | 14,716 |   |
| Office Expense                     |   | 3,448                    |     | 5,053 |   |
| Telephone                          |   | 3,556                    |     | 4,011 |   |
| Utilities                          |   | 1,212                    |     | 3,443 |   |
| Vehicle Expenses                   |   | 1,895                    |     | 900 |   |
| Rent                               |   | 15,239                   |     | 15,329 |   |
| Professional Fees                  |   | 20,507                   |     | 26,024 |   |
| Outside Services                   |   | 3,969                    |     | 1,875 |   |
| Total Operating Expenses           |   | 115,663                  |     | 124,828 |   |
|                               |   |                     |     |   |   |
| OPERATING INCOME (LOSS)            |   | (141,581                 | )        | (105,020 | ) |
|                               |   |                     |     |   |   |
| OTHER INCOME (EXPENSE)             |   |                     |     |   |   |
| Interest Expense                   |   | (12,492                  | )        | (11,639 | ) |
| NY State Gross Receipts Tax        |   | 549                      |     | (488 | ) |
| Interest   & Other Income |   | 200                      |     | 869 |   |
| Total Other Income                 |   | (11,743                  | )        | (11,258 | ) |
|                               |   |                     |     |   |   |
| NET INCOME (LOSS)                  |   | $                        | (153,324 | ) | $ | (116,278 | ) |
|                               |   |                     |     |   |   |
| Weighted Common Shares Outstanding |   | 17,804,388               |     | 17,639,388 |   |
|                               |   |                     |     |   |   |
| Net Loss per Common Share          |   | $                        | —   |   | $ | — |   |

 

See Accountant’s Report and Notes ToFinancial Statement

 

F-4

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USIP.COM, INC

CONSOLIDATEDSTATEMENT OF CASH FLOWS

(Unaudited)

 
|                                                                                            |   | **Three  Months Ended  March 31** |     |
|-------------------------------------------------------------------------------------------------|--------|----------------------------------------|----------|
|                                                                                            |   | **2004**                               |     | **2003** |   |
| Cash Flows From Operating Activities:                                                           |   |                                   |     |   |   |
| Net (Loss)                                                                                      |   | $                                      | (153,324 | ) | $ | (116,278 | ) |
| Adjustments to reconcile net  (loss) to net cash provided (used) by  operating activities: |   |                                   |     |   |   |
| Issuance of Common Stock for Professional  Services                                             |   | —                                 |     | — |   |
| Depreciation Expense                                                                            |   | 49,233                                 |     | 53,668 |   |
| (Increase) Decrease in Commissions and  Sales Receivables                                       |   | 45,409                                 |     | 16,450 |   |
| (Increase) in Inventory                                                                         |   | —                                 |     | — |   |
| (Increase) Decrease in Prepaid Expenses                                                         |   | 322                                    |     | 2,302 |   |
| Increase (Decrease) in Accounts Payable                                                         |   | (5,361                                 | )        | 35,307 |   |
| Increase (Decrease) in Accrued Expenses and  Wages                                              |   | 8,401                                  |     | 11,092 |   |
| (Decrease) in Accrued State Gross Receipts  Taxes                                               |   | (549                                   | )        | 589 |   |
|                                                                                            |   |                                   |     |   |   |
| Net cash (used) by operating activities                                                         |   | (55,869                                | )        | 3,130 |   |
|                                                                                            |   |                                   |     |   |   |
| Cash Flows From Investing Activities:                                                           |   |                                   |     |   |   |
| Sale of Equipment                                                                               |   | 1,441                                  |     | (365 | ) |
|                                                                                            |   |                                   |     |   |   |
| Net cash provided by investing activities                                                       |   | 1,441                                  |     | (365 | ) |
|                                                                                            |   |                                   |     |   |   |
| Cash Flows From Financing Activities:                                                           |   |                                   |     |   |   |
| Proceeds Received from Line of Credit                                                           |   | 64,000                                 |     | 12,500 |   |
| Principal Payments on Long-term Debt                                                            |   | (8,348                                 | )        | (5,087 | ) |
| Repayments on Line of Credit Borrowings                                                         |   | —                                 |     | (500 | ) |
|                                                                                            |   |                                   |     |   |   |
| Net cash (used) by financing activities                                                         |   | 55,652                                 |     | 6,913 |   |
|                                                                                            |   |                                   |     |   |   |
| Net Increase in cash                                                                            |   | 1,224                                  |     | 9,678 |   |
|                                                                                            |   |                                   |     |   |   |
| Cash - Beginning of Period                                                                      |   | 6,121                                  |     | 7,021 |   |
|                                                                                            |   |                                   |     |   |   |
| Cash - End of Period                                                                            |   | $                                      | 7,345    |   | $ | 16,699 |   |
|                                                                                            |   |                                   |     |   |   |
| Supplemental Disclosures of Cash Flow  Information:                                             |   |                                   |     |   |   |
| Cash Paid During Period The Period For:                                                         |   |                                   |     |   |   |
| Interest                                                                                        |   | $                                      | 2,509    |   | $ | 2,509 |   |
| Income Taxes                                                                                    |   | $                                      | —   |   | $ | — |   |

 

See Accountant’s Report and Notes ToFinancial Statement

 

F-5

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USIP.COM, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004

(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 significant inter-company amounts havebeen eliminated.  Our unauditedconsolidated financial statements presented herein, should be read inconjunction with the audited consolidated financial statements of our companycontained in the Company’s form 10K for the year ended December 31, 2003.

 

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 not necessarilyindicative 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.   COMPANYINFORMATION

 

On January 16, 2002 we formed a 100% wholly owed subsidiarycorporation, The Platinum Funding Corporation. This company was formed to enter the mortgage brokering business.  As of March 31, 2004, there has been noactivity within this corporation.

 

NOTE 3.   LINEOF CREDIT

 

                                                Foradditional capital requirements, the company has increased the borrowings onits lines of credit by $64,000, increasing our liability to about$508,500.  We intend to use theadditional funding for our continued expansion.

 

NOTE 4.   NOTESPAYABLE

 

On June 4, 2003, our line of credit with Key Bank was converted toa fixed note payable at 7.5%, payable over a five-year period.  As of March 31, 2004 the outstandingamount on this note was $79,362.

 

NOTE 5.   GOINGCONCERN CONSIDERATIONS

 

The Company has 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 thecompanies future operations.

 

----

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF****OPERATIONS**

 

**FORWARD LOOKINGSTATEMENTS**

** **

The following is a discussion and analysis of the results of operationsof our company and should be read in conjunction with our financial statementsand related notes contained in this Form 10-QSB. This Form 10-QSB containsforward-looking statements that involve risks and uncertainties. You canidentify these statements by the use of forward-looking words such as “may,”“will,” “expect,” “anticipate,” “estimate,” “believe” “continue,” or othersimilar words. You should read statements that contain these words carefullybecause they discuss our future expectations, contain projections of our futureresults of operations or financial condition or state other “forward-looking”information. We believe that it is important to communicate our futureexpectations to our investors. However, there may be events in the future thatwe are unable to accurately predict or control. Those events as well as anycautionary language in this Quarterly statement provide examples of risks,uncertainties and events that may cause our actual results to differ materiallyfrom the expectations we describe in our forward-looking statements. You shouldbe aware that the occurrence of the events described in this Form 10-QSB couldhave a material adverse effect on our business, operating results and financialcondition. Actual results could differ materially from current expectations.Among the factors that could effect our actual results and could cause resultsto differ from those contained in the forward-looking statements containedherein is our ability to expand our customer base, which will be dependent onbusiness, financial and other factors beyond our control, including, among others,seasonal aspects such as the winter months that tend to reduce the frequency ofoutdoor payphone use on the east coast, ability to increase our size andmarketing area by purchasing payphones and locations from independent telephonecompanies, and whether the public uses our payphones, together with all therisks inherent in the establishment of a new enterprise and the marketing ofnew products.

 

**HISTORY OF USIP.COM, INC.**

 

USIP.Com,Inc. (“USIP,” the “Company,” “we,” “our” or “us”) was incorporated under thelaws of the State of Utah on April 6, 1978 as Derby Farms, Inc. OnJanuary 19, 1982 our Articles of Incorporation were amended and the nameof our company was changed to Commerce Oil of Kentucky, Inc.

 

OnJanuary 31, 2000 Datone Communications, Inc., (“Datone”), a New Yorkcorporation and an independent payphone provider (“IPP”) merged into ourcompany. All the Datone shares were retired. Datone shareholders received7,268,388 restricted shares of common stock for their stock. OnFebruary 4, 2000 we amended our Articles of Incorporation and changed ourname to USIP.Com, Inc.

 

OnApril 29, 2000 we purchased all the shares of NB Payphones, Ltd., (“NB”),the owner of 466****payphones inPennsylvania and Cointel Leasing, Inc., (“Cointel”), the owner of 45 payphonesin Syracuse, New York, from Riviera Bay Holding Trust, a Gibraltar Trust, for8,750,000 restricted shares of our common stock. NB is a USIP wholly ownedsubsidiary.

 

On August 30, 2000 we incorporated Datone, Inc. as a Delawarecompany. Datone, Inc. is a USIP wholly owned subsidiary. All the revenuegenerating 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 mergedCointel into Datone, Inc. by way of an inter company transaction. Managementdecided that it would not benefit our company to have two companies that are inthe same business and location; we therefore combined the two in an effort tosave money.

 

On December 14, 2001 we incorporated The Platinum FundingCorporation  (“Platinum”), as a New Yorkwholly owned subsidiary for the purpose of developing a real estate basedmortgage brokerage business. Platinum has had no activity sinceDecember 14, 2001. We are continuing our efforts to find a suitablecandidate that will help us develop a real estate based mortgage brokeragebusiness as originally intended.

 

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#### **BASIS OF PRESENTATION**

#### ** **

The unaudited consolidated financial statements of USIP.Com, Inc.(“USIP”, the “Company”, “our”, or “we”), include the accounts of USIP.Com Inc.and its two wholly owned subsidiaries: Datone Inc. and NB Payphones Ltd.  All significant inter-company amounts havebeen eliminated.   The unauditedconsolidated financial statements of USIP present herein, should be read in conjunction with the auditedconsolidated financial statements of USIP as of and for the year endedDecember 31, 2003.  In the opinionof our management, the unaudited consolidated financial statements presentedherein reflect all adjustments (consisting only of normal recurringadjustments) necessary for fair presentation. Interim results are not necessary indicative of results to be expectedfor the entire year.

 

We prepare our consolidated financial statements in accordance withgenerally accepted principles, which require that management make estimates andassumptions that affect reported amounts. Actual results could differ from these estimates.

 

Impact of Inflation

 

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

 

Seasonality

 

Our revenues frompayphone operation are affected by seasonal variations, geographic distributionof payphones and type of location. Because we operate in the northeastern part of the country with many ofthe payphones located outdoor, weather patterns affect our revenuestreams.  Our revenues drop offsignificantly during winter and conversely show an increase in the spring andsummer.  Our revenues are generallylowest in the first quarter and highest in the third quarter.

 

The following discussionand analysis should be read in conjunction with our consolidated financialstatements and notes.

 

Certain of the statements contained below are forward-lookingstatements (rather than historical facts) that are subject to risks anduncertainties that could cause actual results to differ materially from thosedescribed in the forward-looking statement.

 

Asof March 31, 2004, we owned and operated a network of approximately 557payphones.  Our installed payphone basegenerates revenue from three principle sources:  coin-calls and non-coin calls, sales and service of payphones andpre-paid phone cards.

 

1. Commission Income.Commission income includes commissions from operator service telecommunicationscompanies and commissions for toll free calls from all payphones. Thecommissions for operator services are paid 45 days in arrears. Dial Aroundcompensation is billed quarterly and received three and one half months behindthe billed quarter.

 

2.Coin calls. Coin calls represent calls paid for by customers who depositcoins into the payphones. Coin call revenue is recorded as the actual amount ofcoins collected from the payphones.Some coin 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.

 

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3. Payphone sales,repairs and pre-paid phone cards sales. We derive income from the sale andrepair of a payphone. We can negotiate the sale, of a payphone to a site ownerwhen it becomes cost prohibitive to maintain or if a customer offers to buy thephone at a price that is favorable to our company. The new owner or lesseebecomes 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 and the saleof pre-paid phone cards are not subject to the same collection delays as theother types of operating income.

 

The principle costs related to the ongoing operation of our Company’spayphones include telephone charges, commissions, service, maintenance andnetwork costs.  Telephone chargesconsist of payments made by our 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.

 

**THREE MONTHS ENDED MARCH 31, 2004COMPARED TO THREE MONTHS ENDED MARCH 31, 2003**

 

**Revenues**

 

Our total revenue decreased by $62,732 or approximately 44.15%, from$142,105 in the three months ended March 31, 2003 to $79,373 in the threemonths ended March 31, 2004.  Thisdecrease was primarily attributable to removal of unprofitable phone locations;lower call volumes on our payphones resulting from the growth in wirelesscommunication services.   We reduced ournetwork of payphones from approximately 656 in the three months endingMarch 31, 2003 to approximately 557 in the three months endingMarch 31, 2004.

 

Our commissions decreased by $2,079 or approximately 30.4%, from $6,838in the three months ended March 31, 2003 to $4,759 in the three monthsended March 31, 2004.  Thisdecrease was a result of our reduction in payphones, fewer operator assistedcalls, and the increased competition from wireless communications.

 

Our coin call revenues decreased by $18,783 or approximately 35.4% from$53,058 in three months ended March 31, 2003 to $34,275 in the threemonths ended March 31, 2004.  Thedecrease in coin call revenue was primarily attributable to an ongoing strategyto remove unprofitable phones as well as reduced call volumes on our payphonesdue to increased competition from wireless communication services.

 

Our non-coin call revenue, which is comprised primarily of dial-aroundrevenue and operator service revenue decreased by $39,532 or approximately81.94% from $48,246 in the three months ended March 31, 2003 to $8,714 inthe three months ended March 31, 2004.  This decrease is primarily due to a “Carrier Take Back” by GlobalCrossing, MCI and WilTel Communications that had significant impact on ourfourth quarter dial-around for 2003.  This action is a result of the FCC’s reallocation of responsibility fordial-around compensation to the IXCs. The Federal Communications Commission’s November 2001 rulesregarding compensation of Payphone Service Providers (“Payphone Rules”)provides that:  “the firstfacilities-based interexchange carrier to which a completed coinless accesscode or subscribers toll-free payphone call is delivered by the local exchangecarrier shall compensate the payphone service provider for the call.”  Such interexchange carrier “may obtainreimbursement from its reseller and debit card customers for compensationamounts paid to payphone service providers for the calls carried on theiraccount and for the cost of tracking compensable call.”  In addition, we have received notificationthat AT&T will administer a ‘take back” that will impact our dial-aroundreceivable for the first quarter of 2004.

 

Our service & repair sales decreased by$1,986 when compared to the same period in 2003.   Our equipment sales increased by $3,575, from $235 in the threemonths ending March 31, 2003 to $3,810 in the three months endingMarch 31, 2004.   Our phone cardrevenue decreased by $3,927 when compared to the same period in 2003.   This decrease is due to increasedcompetition from other phone card vendors along with loss of various sitelocations when companies go out of business.  The increased competition and decreased site location forced us toreduce our phone card sites by approximately 42%.

 

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Cost of Sales

 

Our overall cost of salesdecreased for the three months ending March 31, 2004 by $17,006 orapproximately 13.91% from the three months ending March 31, 2003.   Telecommunication costs decreased by$13,352, the cost of providing telephone service to 557 payphones in 2004 ascompared to 656 payphones in 2003.  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 commissions payable decreased by $185 due to a decrease in payphoneusage, a direct response to increase use of cellular phones and pre-paid phonecards. Our contractor’s fee increased by $722 when compared to same period in2003.  Depreciation expense decreased$4,435 when compared to the same period in 2003.  This decrease is due to certain assets being fully depreciatedand our on going strategy of identifying unprofitable payphones, selling themto the site owners or removing them. Once a payphone is sold to the site owner it is removed from our assetsand depreciation schedules.   We owntelephone equipment and motor vehicles, which provide a service for a number ofyears.  The term of service is commonlyreferred to as the “useful life” of the asset. Because an asset such 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 increased by $244 a result of our management team’songoing efforts to reduce cost.

 

Operation andAdministrative Expenses

 

Our operating expensesdecreased by $9,165 or approximately 7.34% over the same period in 2003.  This decrease in operating expense is adirect result of management diligently working to cut expenses and run thecompany as efficiently as possible.  Salaries and related payroll taxes were reduced by $2,229 when comparedto the same expenses for 2003.  Ourinsurance expense decreased by $127 when compared to the fiscal year 2003.  Our rent decreased by $90 when compared to2003.  Our telephone, utilities, office,and other miscellaneous expenses, together account for a decrease of $4,291when compared to the same period ending March 31, 2003.  Professional fees decreased by $5,517 over2003.  These are fees we pay toaccountants and attorneys and other professionals throughout the year for varioustask.    Our expenses for outsideservices increased by $2,094 over 2003, this increase is due to using temporarypersonnel services.   Our vehicleexpense increased by $995 in 2004, this increase was due to some major repairsto our one older vehicle.

 

GOING CONCERNQUALIFICATION

 

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 inceptionraising substantial doubt about our ability to continue as a going concern.

 

LIQUIDITY AND CAPITALRESOURCES

 

Cash Flow

 

Our primary sources ofliquidity have been cash from operations and borrowing from various creditfacilities.   As of March 31, 2004,we have a note payable to Key Bank in the amount of $79,362.  In addition we increased our lines of creditby $64,000, bringing our liability to $508,500 for the period endingMarch 31, 2004.

 

**ITEM 3. CONTROLS AND PROCEDURES**

 

a)  As of a date within 90 daysof the filing date of this quarterly report, an evaluation of the effectivenessof the design and operation of the Company’s disclosure controls and procedureswas performed under the supervision and with the participation of the Company’sPresident and Controller, pursuant  toExchange Act Rule 13a-14(c). Based

 

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upon that evaluation, the Company’s President and Controller haveconcluded that the Company’s disclosure controls and procedures are effectivefor the purpose of ensuring that material information required to be in thisquarterly report is made known to them by others on a timely basis.

 

b) There have been no changes in the Company’s internal controls or inother factors that could significantly affect these controls subsequent to thedate of their evaluation.

 

**RISKS ASSOCIATED WITH OUR BUSINESS**

 

In addition to theother information in this report, the following risks should be consideredcarefully in 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 NEED ADDITIONAL CAPITAL FINANCING IN THE FUTURE.**

 

Wemay be required to seek additional financing in the future to respond toincreased expenses or shortfalls in anticipated revenues, accelerate productdevelopment and deployment, respond to competitive pressures, develop new orenhanced products, or take advantage of unanticipated acquisitionopportunities. We cannot be certain we will be able to find such additionalfinancing on reasonable terms, or at all. If we are unable to obtain additionalfinancing when needed, we could be required to modify our business plan inaccordance with the extent of available financing.

 

**IF WE ENGAGE IN ACQUISITIONS, WE MAY EXPERIENCE SIGNIFICANTCOSTS AND DIFFICULTY ASSIMILATING THE OPERATIONS OR PERSONNEL OF THE ACQUIREDCOMPANIES, WHICH COULD THREATEN****OUR FUTURE GROWTH.**

 

Ifwe make any acquisitions, we could have difficulty assimilating the operations,technologies and products acquired or integrating or retaining personnel ofacquired companies. In addition, acquisitions may involve entering markets inwhich we have no or limited direct prior experience. The occurrence of any oneor more of these factors could disrupt our ongoing business, distract ourmanagement and employees and increase our expenses. In addition, pursuingacquisition opportunities could divert our management’s attention from ourongoing business operations and result in decreased operating performance.Moreover, our profitability may suffer because of acquisition-related costs oramortization of acquired goodwill and other intangible assets. Furthermore, wemay have to incur debt or issue equity securities in future acquisitions.

 

Theissuance of equity securities would dilute our existing stockholders.

 

**IF WE CANNOT ATTRACT, RETAIN, MOTIVATE ANDINTEGRATE ADDITIONAL SKILLED PERSONNEL, OUR ABILITY TO COMPETE WILL BEIMPAIRED.**

 

Manyof our current and potential competitors have more employees than we do. Oursuccess depends in large part on our ability to attract, retain and motivatehighly qualified management and technical personnel. We face intensecompetition for qualified personnel. The industry in which we compete has ahigh level of employee mobility and aggressive recruiting of skilled personnel.If we are unable to continue to employ our key personnel or to attract andretain qualified personnel in the future, our ability to successfully executeour business plan will be jeopardized and our growth will be inhibited.

 

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**WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTSOR MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS.**

 

Thetelecommunications industry is characterized by the existence of a large numberof patents and frequent litigation based on allegations of trade secret, copyrightor patent infringement. We may inadvertently infringe a patent of which we areunaware. In addition, because patent applications can take many years to issue,there may be a patent application now pending of which we are unaware that willcause us 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.

 

Asuccessful claim of infringement against us, and our failure to license thesame or similar technology, could adversely effect our business, asset value orstock value. Infringement claims, with or without merit, would be expensive tolitigate or settle, and would divert management resources.

 

Ouremployees may be bound by confidentiality and other nondisclosure agreementsregarding the trade secrets of their former employers. As a result, ouremployees or we could be subject to allegations of trade secret violations andother similar violations if claims are made that they breached theseagreements.

 

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

 

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 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.

 

WE WILL DEPEND ONOUTSIDE MANUFACTURING SOURCES AND SUPPLIERS.

 

Wemay contract with third party manufacturers to produce our products and we willdepend on third party suppliers to obtain the raw materials necessary for theproduction of our products. We do not know what type of contracts we will havewith such third party manufacturers and suppliers. In the event we outsourcethe manufacture of our products, we will have limited control over the actualproduction process. Moreover, difficulties encountered by any one of our thirdparty manufacturers, which result in product defects, delayed or reducedproduct shipments, cost overruns or our inability to fill orders on a timelybasis, could have an adverse impact on our business. Even a short-termdisruption in our relationship with third party manufacturers or supplierscould have a material adverse effect on our operations. We do not intend tomaintain an inventory of sufficient size to protect ourselves for anysignificant period of time against supply interruptions, particularly if we arerequired to obtain alternative sources of supply.

 

**OUR STOCKPRICE 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:

 

•                  Variationsin our quarterly operating results;

 

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•                  Changesin financial estimates of our revenues and operating results by securitiesanalysts;

•                  Changesin market valuations of telecommunications equipment companies;

•                  Announcementsby us of significant contracts, acquisitions, strategic partnerships, jointventures or capital commitments;

•                  Additionsor departures of key personnel;

•                  Futuresales of our common stock;

•                  Stockmarket price and volume fluctuations attributable to inconsistent tradingvolume levels of our stock;

•                  Commencementof or involvement in litigation.

 

In addition, the equitymarkets have experienced volatility that has particularly effected the marketprices of equity securities issued by technology companies and that often hasbeen unrelated or disproportionate to the operating results of those companies.These broad market fluctuations may adversely effect the market price of ourcommon stock.

 

**WE DO NOTANTICIPATE PAYING ANY DIVIDENDS ON 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 ARESUBJECT TO SEC REGULATIONS RELATING TO LOW-PRICED STOCKS, THE MARKET FOR OURCOMMON STOCK COULD BE ADVERSELY 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.

 

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

 

The additional 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.  LEGALPROCEEDINGS**

Not applicable.

 

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

Notapplicable

 

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

Not applicable.

 

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

Not applicable.

 

**ITEM 5.  OTHERINFORMATION**

Not applicable.

 

**ITEM6. EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)                                  Exhibits

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

 

(b)                                 Reports on Form 8K

 

No reports on Form 8-Kwere filed in the second quarter of 2003.

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|   |          | USIP.Com, Inc.        |
|--------|---------------|-----------------------|
|   |          |                  |
|   |          | (Registrant)          |
|   |          |                  |
|   |          |                  |   |
| Dated: | May  11, 2004 | /s/  CRAIG BURTON     |   |
|   |          |                  | Craig  Burton |
|   |          |                  | President |
|   |          |                  |   |
|   |          |                  |   |
| Dated: | May  11, 2004 | /s/ KATHY CHRISTOPHER |   |
|   |          |                  | Kathy Christopher |
|   |          |                  | Controller |
|        |               |                       |  |  |  |

 

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