**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

 

**FORM 10-QSB**

 

**(MarkOne)**

 

**ý        QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THESECURITIES EXCHANGE ACT OF 1934.**

 

**For thequarterly period ended March 31, 2002**

**o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES EXCHANGE ACT OF 1934.**

 

**For the transition period from                                             to                                                       **

 

 

**CommissionFile 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 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 yearif 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: 17,639,388 shares of Common Stock,$.01 par value, were outstanding as of May 7, 2002.

 

TransitionalSmall Business Disclosure Forms (check one):

 

Yes   o                                                                  No   ý

 

 

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USIP.COM, INC.

INDEX TO FORM10-QSB

MARCH 31, 2002

 

 

PART I     FINANCIAL INFORMATION

 
| ITEM 1.  | Financial Statements                                                                                                    |   |   |
|----------|-------------------------------------------------------------------------------------------------------------------------|--------|--------|
|     |                                                                                                                    |   |   |
|     | Consolidated Balance Sheets

At  December 31, 2001 and March 31, 2002                                                   |   |   |
|     |                                                                                                                    |   |   |
|     | Consolidated  Statements of Income and Retained Earnings

For  the three months ended March 31, 2001 and March 31, 2002 |   |   |
|     |                                                                                                                    |   |   |
|     | Consolidated  Statements of Cash Flows

For  the three months ended March 31, 2001 and March 31, 2002                   |   |   |
|     |                                                                                                                    |   |   |
|     | Notes to  Consolidated Financial Statements                                                                             |   |   |
|     |                                                                                                                    |   |   |
|     |                                                                                                                    |   |   |
| ITEM  2. | Managements  Discussion and Analysis of Financial Condition and Results of Operation                                    |   |   |

 

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

CONSOLIDATEDBALANCE SHEET

 
|                                                                                                              |                                             | **(Unaudited)**     |    | **Audited**            |      |
|-------------------------------------------------------------------------------------------------------------------|--------------------------------------------------|---------------------|---------|------------------------|-----------|
|                                                                                                              |                                             | **March 31,  2002** |    | **December  31, 2001** |      |
| ASSETS                                                                                                            |                                             |                |    |                   |      |
| CURRENT  ASSETS                                                                                                   |                                             |                |    |                   |      |
| Cash                                                                                                              |                                             | $                   | 9,983   |                   | 10,825    |   |
| Commissions  and Sales Receivable, Net                                                                            |                                             | 124,448             |    | 144,772                |      |
| Inventory                                                                                                         |                                             | 50,782              |    | 46,410                 |      |
| Prepaid  Expenses                                                                                                 |                                             | 4,721               |    | 2,866                  |      |
|                                                                                                              |                                             |                |    |                   |      |
|                                                                                                              | TOTAL  CURRENT ASSETS                            |                | 189,934 |                   | 204,873   |   |
|                                                                                                              |                                             |                |    |                   |      |
| FIXED  ASSETS                                                                                                     |                                             |                |    |                   |      |
| Telephone  and Office Equipment                                                                                   |                                             | 1,922,887           |    | 1,922,887              |      |
| Vehicle                                                                                                           |                                             | 74,542              |    | 74,542                 |      |
|                                                                                                              |                                             | 1,997,429           |    | 1,997,429              |      |
| Less:  Accumulated Depreciation                                                                                   |                                             | (681,606            | )       | (609,882               | )         |
|                                                                                                              |                                             |                |    |                   |      |
| Net  Fixed Assets                                                                                                 |                                             | 1,315,823           |    | 1,387,547              |      |
|                                                                                                              |                                             |                |    |                   |      |
|                                                                                                              | TOTAL  ASSETS                                    |                | $       | 1,505,757              |      | $ | 1,592,420 |   |
|                                                                                                              |                                             |                |    |                   |      |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                        |                                             |                |    |                   |      |
|                                                                                                              |                                             |                |    |                   |      |
| Current  Liabilities                                                                                              |                                             |                |    |                   |      |
| Accounts  Payable                                                                                                 |                                             | $                   | 292,531 |                   | 294,605   |   |
| Line  of Credit                                                                                                   |                                             | 299,952             |    | 212,952                |      |
| Accrued  Payroll and Payroll Taxes                                                                                |                                             | 9,979               |    | 5,622                  |      |
| Accrued  State Gross Receipts Taxes                                                                               |                                             | —              |    | 13,036                 |      |
| Other  Accrued Expenses                                                                                           |                                             | 13,793              |    | 23,149                 |      |
| Current  Portion of Long-Term Debt                                                                                |                                             | 10,291              |    | 10,291                 |      |
|                                                                                                              |                                             |                |    |                   |      |
|                                                                                                              | TOTAL  CURRENT LIABILITIES                       |                | 626,546 |                   | 559,655   |   |
|                                                                                                              |                                             |                |    |                   |      |
| LONG-TERM  LIABILITIES                                                                                            |                                             |                |    |                   |      |
| Long-Term  Debt, Less Current Portion                                                                             |                                             | 27,586              |    | 30,523                 |      |
|                                                                                                              | TOTAL  LIABILITIES                               |                | 654,132 |                   | 590,178   |   |
| STOCKHOLDERS’  EQUITY                                                                                        |                                             |                |    |                   |      |
| Common  Stock, $.01 par value  25,000,000  Shares authorized, 17,639,388 shares issued and  outstanding |                                             | 176,394             |    | 176,194                |      |
|                                                                                                              |                                             |                |    |                   |      |
| Additional  Paid In Capital                                                                                       |                                             | 1,428,958           |    | 1,382,358              |      |
|                                                                                                              |                                             |                |    |                   |      |
| Retained  Earnings                                                                                                |                                             | (753,727            | )       | (556,310               | )         |
|                                                                                                              |                                             |                |    |                   |      |
|                                                                                                              | TOTAL  STOCKHOLDERS’ EQUITY                 |                | 851,625 |                   | 1,002,242 |   |
|                                                                                                              |                                             |                |    |                   |      |
|                                                                                                              | TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY |                | $       | 1,505,757              |      | $ | 1,592,420 |   |
|                                                                                                                   |                                                  |                     |         |                        |           |  |  |  |  |

 

 

See Accountant’sReport and Notes To Financial Statement

 

3

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USIP.COM, INC

CONSOLIDATED STATEMENT OFINCOME (LOSS)

(Unaudited)

 
|                                |                     | **Three  Months Ended** |     |
|-------------------------------------|--------------------------|-------------------------|----------|
|                                |                     | **March 31, 2002**      |     | **March 31,  2001** |   |
| SALES                               |                     |                    |     |   |   |
| Commissions                         |                     | $                       | 21,618   |   | $ | 49,031 |   |
| Coin  Collections                   |                     | 93,555                  |     | 118,588 |   |
| Dial  Around                        |                     | 50,274                  |     | 75,244 |   |
| Phone  Card Sales                   |                     | 13,310                  |     | 24,996 |   |
| Equipment  Sales                    |                     | 5,175                   |     | 10,477 |   |
| Service  and Repair Sales           |                     | 24,726                  |     | 18,658 |   |
| Total  Sales                        |                     | 208,658                 |     | 296,994 |   |
|                                |                     |                    |     |   |   |
| COST  OF SALES                      |                     |                    |     |   |   |
| Telecommunications  Costs           |                     | 109,575                 |     | 162,248 |   |
| Commissions                         |                     | 5,581                   |     | 9,062 |   |
| Repairs  and Service Supplies       |                     | 19,819                  |     | 27,919 |   |
| Other  Direct Expenses - Travel     |                     | 1,304                   |     | 4,308 |   |
| Depreciation                        |                     | 71,724                  |     | 71,764 |   |
| Subcontractors                      |                     | 17,236                  |     | 18,996 |   |
|                                |                     |                    |     |   |   |
| Total  Cost of Sales                |                     | 225,239                 |     | 294,297 |   |
|                                |                     |                    |     |   |   |
|                                | GROSS  PROFIT            |                    | (16,581  | ) | 2,697 |   |
|                                |                     |                    |     |   |   |
| OPERATING  EXPENSES                 |                     |                    |     |   |   |
| Officers’  Salaries            |                     | 16,512                  |     | 14,760 |   |
| Salaries  and Wages                 |                     | 38,677                  |     | 49,286 |   |
| Payroll  Taxes                      |                     | 7,815                   |     | 7,441 |   |
| Insurance                           |                     | 12,689                  |     | 14,855 |   |
| Office  Expense                     |                     | 4,934                   |     | 11,758 |   |
| Telephone                           |                     | 6,171                   |     | 8,483 |   |
| Utilities                           |                     | 1,591                   |     | 3,496 |   |
| Vehicle  Expenses                   |                     | 1,770                   |     | 7,158 |   |
| Rent                                |                     | 18,132                  |     | 18,237 |   |
| Professional  Fees                  |                     | 59,300                  |     | 5,000 |   |
| Outside  Services                   |                     | 7,742                   |     | 3,502 |   |
| Total  Operating Expenses           |                     | 175,333                 |     | 143,976 |   |
|                                |                     |                    |     |   |   |
|                                | OPERATING  INCOME (LOSS) |                    | (191,914 | ) | (141,279 | ) |
|                                |                     |                    |     |   |   |
| OTHER  INCOME (EXPENSE)             |                     |                    |     |   |   |
| Interest  Expense                   |                     | (5,435                  | )        | (2,102 | ) |
| NY  State Gross Receipts Tax        |                     | (90                     | )        | (425 | ) |
| Interest  Income                    |                     | 22                      |     | 202 |   |
| Total  Other Income                 |                     | (5,503                  | )        | (2,325 | ) |
|                                |                     |                    |     |   |   |
|                                | NET  INCOME (LOSS)       |                    | $        | (197,417 | ) | $ | (143,604 | ) |
|                                |                     |                    |     |   |   |
| Weighted  Common Shares Outstanding |                     | 17,639,388              |     | 17,619,388 |   |
|                                |                     |                    |     |   |   |
| Net  Loss per Common Share          |                     | $                       | —   |   | $ | — |   |

 

 

See Accountant’sReport and Notes to Financial Statement

 

4

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USIP.COM, INC

CONSOLIDATED STATEMENT OFCASH FLOWS

(Unaudited)

 
|                                                                                             |   | **Three  Months Ended** |     |
|--------------------------------------------------------------------------------------------------|--------|-------------------------|----------|
|                                                                                             |   | **March 31**            |     |
|                                                                                             |   | **2002**                |     | **2001** |   |
| Cash  Flows From Operating Activities:                                                           |   |                    |     |   |   |
| Net  (Loss)                                                                                      |   | $                       | (197,417 | ) | $ | (143,604 | ) |
| Adjustments  to reconcile net  (loss) to net cash  provided (used) by operating activities: |   |                    |     |   |   |
| Issuance  of Common Stock for Professional Services                                              |   | 46,800                  |     | — |   |
| Depreciation  Expense                                                                            |   | 71,724                  |     | 26,361 |   |
| (Increase)  Decrease in Commissions and Sales Receivables                                        |   | 20,324                  |     | 1,935 |   |
| (Increase)  in Inventory                                                                         |   | (4,372                  | )        | — |   |
| (Increase)  Decrease in Prepaid Expenses                                                         |   | (1,855                  | )        | (11,962 | ) |
| Increase  (Decrease) in Accounts Payable                                                         |   | (2,074                  | )        | 27,734 |   |
| Increase  (Decrease) in Accrued Expenses and Wages                                               |   | (4,999                  | )        | 13,706 |   |
| (Decrease)  in Accrued State Gross Receipts Taxes                                                |   | (13,036                 | )        | — |   |
|                                                                                             |   |                    |     |   |   |
| Net  cash (used) by operating activities                                                         |   | (84,905                 | )        | (85,830 | ) |
|                                                                                             |   |                    |     |   |   |
| Cash  Flows From Investing Activities:                                                           |   |                    |     |   |   |
| Acquisition  of Equipment                                                                        |   | —                  |     | (54,668 | ) |
| Stockholder  Capital Contributions                                                               |   | —                  |     | 0 |   |
|                                                                                             |   |                    |     |   |   |
| Net  cash provided by investing activities                                                       |   | —                  |     | (54,668 | ) |
|                                                                                             |   |                    |     |   |   |
| Cash  Flows From Financing Activities:                                                           |   |                    |     |   |   |
| Proceeds  Received from Line of Credit                                                           |   | 90,000                  |     | 20,000 |   |
| Principal  Payments on Long-term Debt                                                            |   | (2,937                  | )        | (3,379 | ) |
| Repayments  on Line of Credit Borrowings                                                         |   | (3,000                  | )        | — |   |
|                                                                                             |   |                    |     |   |   |
| Net  cash (used) by financing activities                                                         |   | 84,063                  |     | 16,621 |   |
|                                                                                             |   |                    |     |   |   |
| Net  Increase in cash                                                                            |   | (842                    | )        | (123,877 | ) |
|                                                                                             |   |                    |     |   |   |
| Cash  - Beginning of Period                                                                      |   | 10,825                  |     | 117,619 |   |
|                                                                                             |   |                    |     |   |   |
| Cash  - End of Period                                                                            |   | $                       | 9,983    |   | $ | (6,258 | ) |
|                                                                                             |   |                    |     |   |   |
| Supplemental  Disclosures of Cash Flow Information:                                              |   |                    |     |   |   |
| Cash  Paid During Period The Period For:                                                         |   |                    |     |   |   |
| Interest                                                                                         |   | $                       | 5,435    |   | $ | 2,102 |   |
| Income  Taxes                                                                                    |   | $                       | 13,036   |   | $ | 425 |   |

 

 

See Accountant’sReport and Notes To Financial Statement

 

5

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USIP.COM, INC

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

March 31, 2002

(unaudited)

 

 

 

NOTE 1.                 SUMMARYINFORMATION

 

  Theaccompanying unaudited consolidated financial statements include the accountsof USIP.Com, Inc. and our three wholly owned subsidiaries: Datone, Inc., NBPayphones Ltd., and Platinum Funding Corporation.  All significant inter-company amounts have been eliminated. Ourunaudited consolidated 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, 2001.

In the opinion of management, the unauditedconsolidated financial statements presented herein reflect all adjustments (consistingonly 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, certain prior year amounts have beenreclassified to conform with current year presentation.

 

NOTE 2.                 COMPANYFORMATION

 

  On January16, 2002, the Company formed a 100% wholly owned subsidiary corporation, ThePlatinum Funding Corporation. This company was formed to take advantage of themortgage brokering business. As of March 31, 2002, there have been nosignificant activities within The Platinum Funding Corporation.

 

NOTE 3.                 NOTESPAYABLE

 

  Foradditional capital requirements, the company has increased the borrowings onits line of credit by $90,000, increasing our liability to about $300,000. Weintend to use the additional funding for our continued expansion.

 

6

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**ITEM 2.                  MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**FORWARDLOOKING STATEMENTS**

 

The following is adiscussion and analysis of the results of operations of our company and shouldbe read in conjunction with our financial statements and related notescontained in this Form 10-QSB. This Form 10-QSB contains forward-lookingstatements that involve risks and uncertainties. You can identify thesestatements by the use of forward-looking words such as “may,” “will,” “expect,”“anticipate,” “estimate,” “believe” “continue,” or other similar words. Youshould read statements that contain these words carefully because they discussour future expectations, contain projections of our future results ofoperations or financial condition or state other “forward-looking” information.We believe that it is important to communicate our future expectations to ourinvestors. However, there may be events in the future that we are unable toaccurately predict or control. Those events as well as any cautionary languagein this registration statement provide examples of risks, uncertainties andevents that may cause our actual results to differ materially from theexpectations we describe in our forward-looking statements. You should be awarethat the occurrence of the events described in this Form 10-QSB could have amaterial 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, amongothers, seasonal aspects such as the winter months that tend to reduce thefrequency of outdoor payphone use on the east coast, ability to increase oursize and marketing area by purchasing payphones and locations from independenttelephone companies, and whether the public uses our payphones, together withall the risks inherent in the establishment of a new enterprise and themarketing of new products.

 

**PLAN OFOPERATION**

 

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. On January 19,1982 our Articles of Incorporation were amended and the name of our company waschanged to Commerce Oil of Kentucky, Inc. On December 31, 1983 our Certificateof Incorporation was suspended for failure to file an annual report. On December20, 1984 we filed a petition for relief under Chapter Eleven of the UnitedStates Bankruptcy Code. The case was filed in The United States BankruptcyCourt, Middle District of Tennessee. The case was converted to Chapter Seven onJuly 1, 1986. On September 1, 1992 the court signed a Final Decree, and thecase was closed. Our Certificate of Incorporation was reinstated on June 18,1992 by the Utah Department of Commerce, Division of Corporations.

 

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. On February 4,2000 we amended the Articles of Incorporation and changed our name to USIP.Com,Inc.

 

OnApril 29, 2000 we purchased all the shares of NB Payphones, Ltd., (“NB”), theowner of 466****payphones inPennsylvania and Cointel Leasing, Inc. (“Cointel”), the owner of 45 payphones in Syracuse,New York, from Riviera Bay Holding Trust, a Gibraltar Trust, for 8,750,000restricted shares of our common stock. NB is a USIP wholly owned subsidiary. OnApril 29, 2000 we entered into a two hundred thousand dollar ($200,000),unsecured line of credit with Lilly Beter Capital Group, Ltd. with interest atthe rate of ten percent per annum. These funds will be used to purchase andupgrade telephones that will be placed at new locations.

 

On August 30, 2000 weincorporated Datone, Inc. as a Delaware company. Datone, Inc. is a USIP whollyowned subsidiary. All the revenue generating assets and related expenses thatwe received from the Datone Communications Merger were subsequently moved viaan intercompany transfer from USIP into Datone, Inc. Datone, Inc. wascapitalized with $1,017. All of the Datone, Inc. shares were given to USIP. OnOctober 1, 2000 we merged Cointel into Datone, Inc. by way of an inner companytransaction. Management decided that it would not benefit our company to havetwo companies that are in the same business and location; we therefore combinedthe two in an effort to save money.

 

7

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On January 16, 2002 weincorporated The Platinum Funding Corporation as a New York wholly owned subsidiary.We intend to develop a real estate based mortgage brokerage business. Webelieve that in time we can service clients in both the residential andcommercial markets throughout the state of New York. There is no guarantee thatwe will be able to develop this business and generate a profit. We areexploring the market in an effort to develop our business plan further.

 

Asof March 31, 2002 we owned and operated a network of****approximately 1,157 payphones in three states. Our installed payphone base generatesrevenue through coin calls (local and long-distance), non-coin calls (callingcard, credit card, collect, and third-party billed calls using our pre-selectedoperator services providers such as Qwest, ESS Communications, and PacificTelemanagement Services) and dial-around calls (utilizing a 1-800, 1010XXX orsimilar “toll free” dialing method to select a carrier other than ourpre-selected carrier). We enter into site leasing agreements with variousbusiness sites that are open to the public. Some of the businesses include butare not limited to retail stores, convenience stores, bars, restaurants, gasstations, colleges and hospitals. The agreements allow us to install ourpayphones in areas that are accessible to the public. We provide the payphones,install them, and pay all maintenance and operational costs for the term ofeach lease. We also sell payphones to some of the site owners. We derive incomefrom the sale as well as any commission split that we negotiate with the buyer.

 

**PLANS FOR FISCAL YEAR 2002.**

 

Our plans of operation forthe remainder of our 2002 fiscal year will consist of the following activities:

 

•                  Continue to evaluate the acquisition of more payphones and new siteleasing arrangements that will enhance our business plan;

•                  Evaluate potential acquisitions of non-telecommunications businessesthat will enhance and bring value to our company;

•                  Expand ourcustomer base in existing areas;

•                  Develop amarketing plan and infrastructure that can help us grow into the next year, and

•                  Work towardsdeveloping a successful real estate based mortgage brokerage business.

 

**RESULTSOF OPERATIONS**

 

The following discussionis based in part on our unaudited****FinancialStatements for the three months ended March 31, 2002 and the unauditedFinancial Statements for the three months ended March 31, 2001. Our revenue isderived from the following three general sources.

 

1. Commission Income.

 

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

 

2. Coin calls.

 

Coin calls representcalls paid for by customers who deposit coins into the payphones. Coin callrevenue is recorded as the actual amount of coins collected from the payphones. Some coincollections are made on a daily basis and others more often if the particularpayphone has significant usage. The coins are counted in house and depositedweekly.

 

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

 

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

 

 

8

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**THREEMONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001**

 

**Revenues**

 

Total revenue decreasedby $88,336 or 29.74%, from $296,994 in the three months ended March 31, 2001 to$208,658 in the three months ended March 31, 2002. This decrease was primarilyattributable to removal of unprofitable phone locations, lower call volumes onour payphones resulting from the growth in wireless and other publiccommunication services and changes in call traffic.

 

Commissions decreased by$27,413 or 55.9%, from $49,031 in the three months ended March 31, 2001 to$21,618 in the three months ended March 31, 2002. The decrease was primarilyattributable to lower commissionable revenues from reduced number of ourpayphones. We are actively reviewing our strategies related to contractrenewals in order to maintain our competitive position while retaining ourcustomer base.

 

Coin call revenuesdecreased by $25,033 or 21.1% from $118,588 in the three months ended March 31,2001 to $93,555 in the year ended March 31, 2002. The decrease in coin callrevenue was primarily attributable to an ongoing strategy of removingunprofitable phones as well as reduced call volumes on our payphones due toincreased competition from wireless and other public communication services.

 

Non-coin call revenue,which is comprised primarily of dial-around revenue and operator servicerevenue decreased approximately $24,970 or 33.18% from $75,244 in the threemonths ended March 31, 2001 to $50,274 in the three months ended March 31,2002. This decrease was primarily attributable to the removal of unprofitablephone locations, lower call volumes on our payphones resulting from the growthin wireless communication services and changes in call traffic. In addition,the dial-around decreased due the continuing underpayments of dial-aroundrevenues caused by deficiencies in the established payment and tracking processnow under regulatory review by the FCC.

 

Service and Repair Sales increased by $6,068 whencompared to the same period in 2001. We operated three ATM machines, whichprovided revenue through transaction fees and surcharges on each transactioncompleted by the customer. Equipment sales decreased by $5,302 from $10,477 inthe three months ending March 31, 2001 to $5,175 in the three months ending March31, 2002. Phone card sales decreased by $11,686 when compared to the sameperiod in 2001.

 

**Cost ofSales**

 

Our overall cost of salesdecreased for the three months ending March 31, 2002 by $69,058 or 23.46% fromthe three months ending March 31, 2001. Our telecommunication costs decreasedby $52,673 due to the cost of providing telephone service to 1,157 payphones in2002 as compared to 1,669 payphones in 2001. Once a low revenue payphone isidentified, we offer the site owner an opportunity to purchase the equipment.If the site owner does not purchase the payphone, we remove it from the site.Our installed payphone base generates revenue through coin calls (local andlong-distance), non-coin calls (calling card, credit card, collect and thirdparty billed calls using our pre-selected operator service).

 

Commissions payabledecreased by $3,481 due to a decrease in payphone usage, a direct response tothe increased use of cellular phones and pre-paid phone cards. Most of our siteowners are no longer receiving a commission and in most cases are beinginvoiced monthly for payphone services. Contractor fees decreased by $1,760.This occurred because we have one less independent contractor. Depreciationexpense decreased $40 when compared to the same period in 2001. This decreaseis due to full depreciation of certain assets. We own telephone equipment andmotor vehicles, which provide a service for a number of years. The term ofservice is commonly referred to as the “useful life” of the asset. Because anasset such as telephone equipment or a motor vehicle is expected to provideservice for many years, it is recorded as an asset, rather than an expense inthe year acquired. A portion of the cost of the long-lived asset is reported asan expense during the cost of an asset to expense over its life in a rationaland systematic manner.

 

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Cost of sales for repairs, service, travel, ATMparts, and supplies decreased by $11,104. This was a result of our managementteam’s ongoing efforts to reduce cost.

 

**Operatingand Administrative Expenses**

 

Operating expensesincreased by $31,357 or 21.78% over the same period in 2001. This decrease is adirect result of management diligently working to cut expenses and run ourcompany as efficiently as possible.  Salaries and related payroll taxes were reduced by $8,483 when comparedto the same expenses for 2001. Insurance expense decreased by $2,166 whencompared to the year 2001. Rent decreased by $105 when compared to 2001.Telephone, utilities, office, and other miscellaneous expenses, togetheraccount for a decrease of $11,041 when compared to the same period ending March31, 2001. Professional fees increased by $54,300 over 2001. These are fees wepay to accountants and attorneys throughout the year for various tasks.Expenses for outside services increased by $4,240 over 2001. This increase wasdue to the use of temporary staffing used to meet specific needs and timeconstraints. Vehicle expense decreased by $5,388 in 2002 when compared to 2001.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Our primary sources ofliquidity have been cash from operations and borrowing under various creditfacilities. As of March 31, 2002 we have a note payable to Key Bank in theamount of $99,952. We have an additional note payable with Lilly Beter CapitalGroup, Ltd. in the amount of $200,000.

 

**COMPETITION**

 

Wecompete for payphone locations directly with Regional Bell Operating Companies(RBOCs), such as Verizon Communications, Local Exchange Companies (LECs) suchas Citizens Communications and Alltel Corporation, and other IndependentPayphone Providers (IPPs) such as Davel Communications. We also compete,indirectly, with long-distance companies, which can offer Location Ownerscommissions on long-distance calls made from LEC-owned payphones. Most LEC’s,long-distance companies and some IPPs may have substantially greater financial,marketing and other resources than our company.

 

We believe that ourprincipal competition is from providers of wireless communications services forboth local and long distance traffic. Certain providers of wirelesscommunication services have introduced rate plans that are competitively pricedwith certain of the products offered by us and have negatively impacted theusage of payphones throughout the nation.

 

Webelieve that the competitive factors among payphone providers are (1) thecommission payments to a Location Owner, (2) the ability to serve accounts withlocations in several Local Access Transport Areas (LATAs) or states, (3) thequality of service and the availability of specialized services provided to aLocation Owner and payphone users, and (4) responsiveness to customer serviceneeds. We believe that we are currently competitive in each of these areas.

 

Additionally, a number ofdomestic IPPs continue to experience financial difficulties from variouscompetitive and regulatory factors impacting the pay telephone industrygenerally, which may impair their ability to compete prospectively. While noassurances can be given, we believe that these circumstances create anopportunity for us to obtain new location agreements and reduced sitecommissions going forward.

 

Wecompete with long-distance carriers that provide dial-around services that canbe accessed through our payphones. Certain national long-distance operatorservice providers and prepaid calling card providers have implemented extensiveadvertising promotions and distribution schemes which have increaseddial-around activity on payphones owned by LECs and IPPs, including ourcompany, thereby reducing traffic to our primary providers of long-distanceservice. While we do receive compensation for dial-around calls placed from ourpayphones, regulatory efforts are underway to improve the collection system andprovide us with the ability to collect that portion of dial-around calls thatcurrently owe.

 

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**SEASONAL ASPECTS**

 

Weatherconditions affect our revenue stream because we operate in the Northeasternpart of the country. Revenues drop off significantly during the winter becausemost of our phones are outdoors. The spring and summer periods show an increasein payphone usage. Revenue and income are generally lowest in the first quarterand highest in the third quarter.

 

**RISKS ASSOCIATED 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 2000 through 2001, and the losses are projected to continue in 2002. Our net losses were $11,665 and $556,310 for fiscal years ended 2000, 2001 respectively. We have been concentrating on the development of our products, services and business plan. Our management believes that we can be profitable and that our business plan will be successful; however, there is no assurance that we will be successful in implementing our business plan or that we will be profitable now or in the future.

 

**WE MAY NOT SUCCEED OR BECOME PROFITABLE.**

 

Wewill need to generate significant revenues to achieve profitability and we maybe unable to do so. Even if we do achieve profitability, we may not be able tosustain or increase profitability in the future. We expect that our expenseswill continue to increase and there is no guarantee that we will not experienceoperating losses and negative cash flow from operations for this fiscal year orfor the foreseeable future. If we do not achieve or sustain profitability, thenwe may be unable to continue our operations.

 

**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 from Lilly Beter Capital Group, Ltd. or Key Bank when needed, wecould be required to modify our business plan in accordance with the extent ofavailable financing.

 

**IF WE ARE UNABLE TO COMPETE SUCCESSFULLY IN THIS HIGHLYCOMPETITIVE MARKET, OUR BUSINESS WILL FAIL.**

 

Themarket for payphones is worldwide and highly competitive and we expectcompetition to intensify in the future. There are few substantial barriers toentry, and additional competition from existing competitors and new marketentrants will likely occur in the future. An increase in competitive pressuresin our market or our failure to compete effectively may result in pricingreductions, reduced gross margins and loss of market share. Many of our currentor potential competitors have longer operating histories, greater namerecognition, larger customer bases and significantly greater financial,technical, marketing and other resources than we do. In addition, our currentand potential competitors may establish cooperative relationships amongthemselves or with third parties that may further enhance their resources. As aresult, they may be able to adapt more quickly to new technologies and customerneeds, devote greater resources to the promotion or sale of their products andservices, initiate or withstand substantial price competition, take advantageof acquisition or other opportunities more readily or develop and expand theirproduct and service offerings more quickly. In addition, our competitors maybundle products that compete with ours. If these companies were to use theirgreater financial, technical and marketing resources in our target markets, itcould adversely affect our business.

 

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**WE MAY FAIL TO ENGAGE IN STRATEGIC ACQUISITIONS, WHICH COULDLIMIT OUR FUTURE GROWTH.**

 

Oneof our strategies for growth is to engage in selective strategic acquisitionsof key products, technologies or companies. Our ability to conduct suchacquisitions is limited by our ability to identify potential acquisitioncandidates, obtain necessary financing and consummate the acquisitions. In theevent we are unable to identify and take advantage of these opportunities, wemay experience difficulties in growing our business. In addition, pursuingacquisition opportunities could divert our management’s attention from ourongoing business operations and result in decreased operating performance.

 

**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 DO NOT INCREASE OUR BRAND AND NAME RECOGNITION,OUR ABILITY TO SELL OUR PRODUCTS WILL BE REDUCED AND OUR BUSINESS AND OPERATINGRESULTS WILL SUFFER.**

 

Mostof our target customers are small and medium-sized businesses. We believe thatestablishing and maintaining recognition in the payphone business is criticalfor attracting and expanding this targeted customer base because we believethese targeted customers generally prefer to do business with establishedcompanies. We also believe that the importance to us of name recognition andreputation will increase as competition in our market increases. Promotion andenhancement of our current or future acquired products will depend on theeffectiveness of our marketing and advertising efforts and on our ability tocontinue providing high-quality products and services. We may not be successfulin either regard. If we are not successful, our ability to generate revenuewill be limited.

 

**IF WECANNOT ATTRACT, RETAIN, MOTIVATE AND INTEGRATE ADDITIONAL SKILLED PERSONNEL,OUR ABILITY TO COMPETE WILL BE IMPAIRED.**

 

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.

 

**OUR FAILURE TO MANAGE PLANNED GROWTH COULD ADVERSELYAFFECT OUR ABILITY TO INCREASE REVENUES AND BECOME PROFITABLE.**

 

Ifwe do not effectively manage our planned growth, our ability to significantlyincrease revenues and become profitable will be limited. Our growth hasstrained and will continue to strain our management, financial controls,operations systems, personnel and other resources. If we do not manage ourplanned future growth effectively, our efforts to increase our customer baseand product and service offerings may not be successful. In addition, ourplanned growth could adversely affect our ability to provide services andtechnical support in a timely manner and in accordance with customerexpectations.

 

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To manage growth of ouroperations, we must:

 

•                  improve existing operational, financial and management informationcontrols, reporting systems and procedures;

 

•                  hire, train andmanage additional qualified personnel; and

 

•                  effectivelymanage multiple relationships with our customers, vendors and     other third parties.

 

We may not be able to installmanagement information and control systems in an efficient and timely manner,and our current or planned personnel, systems, procedures and controls may notbe adequate to support our future operations.

 

**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,copyright or patent infringement. We may inadvertently infringe a patent ofwhich we are unaware. In addition, because patent applications can take manyyears to issue, there may be a patent application now pending of which we areunaware that will cause us to be infringing when it is issued in the future. Ifwe make any acquisitions, we could have similar problems in those industries.Although we are not currently involved in any intellectual property litigation,we may be a party to litigation in the future to protect our intellectualproperty or as a result of our alleged infringement of another’s intellectualproperty, forcing us to do one or more of the following:

 

•                  Cease selling,incorporating or using products or services that incorporate the challengedintellectual property;

•                  Obtain from theholder of the infringed intellectual property right a license to sell or usethe relevant technology, which license may not be available on reasonableterms; or

•                  Redesign thoseproducts or services that incorporate 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.

 

**BECAUSE OUR OFFICERS ANDDIRECTORS ARE INDEMNIFIED AGAINST CERTAIN LOSSES, WE MAY BE EXPOSED TO COSTSASSOCIATED WITH LITIGATION.**

 

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

 

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**WE WILL DEPEND ON OUTSIDE MANUFACTURING SOURCES ANDSUPPLIERS.**

 

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 STOCK PRICE MAY BEVOLATILE.**

 

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

 

•                  Variations in our quarterly operatingresults;

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

•                  Changes in market valuations oftelecommunications equipmentcompanies;

•                  Announcements by us of significantcontracts, acquisitions,strategic partnerships, joint ventures orcapital commitments;

•                  Additions or departures of key personnel;

•                  Future sales of our common stock;

•                  Stock market price and volume fluctuationsattributable toinconsistent trading volume levels of ourstock;

•                  Commencement of or involvement inlitigation.

 

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

 

**WE DO NOT ANTICIPATEPAYING ANY DIVIDENDS ON OUR COMMON STOCK.**

 

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

 

**IF WE ARE SUBJECT TO SECREGULATIONS RELATING TO LOW-PRICED STOCKS, THE MARKET FOR OUR COMMON STOCKCOULD BE ADVERSELY AFFECTED.**

 

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

 

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

 

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

 

 

**PART II  OTHER INFORMATION.**

 

 

Item 1.    Legal Proceedings.

Not applicable.

 

Item 2.    Changes in Securities and Use of Proceeds.

Not applicable.

 

Item 3     Defaults Upon Senior Securities.

Not applicable.

 

Item. 4.   Submission of Matters to a Vote of SecurityHolders.

Not applicable.

 

Item 5.    Other Information.

Not applicable.

 

Item 6.    Exhibits and Reports on Form 8-K.

(a)                                  Exhibits.

 

 

The followingexhibits required by Item 601 of Regulation S-B are attached.

 

There were noExhibits filed with this report.

 

(b)           Reports on Form 8-K.

 

None

SIGNATURES

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|   | Dated: |   | May 7, 2002 |   |   |             |   |
|--------|--------|--------|-------------|--------|--------|------------------|--------|
|   |   |   |        |   |   |             |   |
|   |   |   |        |   |   | USIP.Com, Inc.   |   |
|   |   |   |        |   |   |             |   |
|   |   |   |        |   |   | (Registrant)     |   |
|   |   |   |        |   |   |             |   |
|   |   |   |        |   |   | /s/ Craig Burton |   |
|   |   |   |        |   |   |             |   |
|   |   |   |        |   |   | President        |   |

 

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