**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

**(Mark One)**

 

**ý****  QUARTERLY REPORT PURSUANT TOSECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

**For thequarterly period ended September 30, 2004**

 

**o****  TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.**

 

**For thetransition 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 Oswego Road**

Liverpool, NewYork 13090

(Address of principal executive offices)

 

**(315) 451-7515**

(Issuer’s telephone number)

(Former name, former addressand 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: 17,804,388 shares of Common Stock,$.01 par value, were outstanding as of September 30, 2004.

 

TransitionalSmall Business Disclosure Forms (check one):

 

Yes   o                                              No   ý

 

 

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USIP.COM, INC.

INDEX TO FORM 10-QSB

SEPTEMBER 30, 2004

 

PART I  FINANCIAL INFORMATION

 
| ITEM 1.                                     | Financial Statements                                                                                                                             |
|---------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|                                        |                                                                                                                                             |
|                                        | Consolidated Balance Sheets  At December 31, 2003 and September 30, 2004                                                                         |
|                                        |                                                                                                                                             |
|                                        | Consolidated Statements  of Income and Retained Earnings   For the three months and nine months ended September 30, 2003 and September  30, 2004 |
|                                        |                                                                                                                                             |
|                                        | Consolidated Statements of Cash Flows  For the nine months ended September 30, 2003 and September 30, 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                                                                                                                                       |

 

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**PART I.    FINANCIAL INFORMATION**

 

**ITEM1. FINANCIAL STATEMENTS**

 

USIP.COM,INC

CONSOLIDATED BALANCE SHEET

 
| ** **                                                                                           | ** **                | **Unaudited  September 30, 2004** | ** ** | **Audited  December 31, 2003** | ** ** |
|------------------------------------------------------------------------------------------------------|---------------------------|-----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                           | ** **                | ** **                        | ** ** | ** **                     | ** ** |
| ASSETS                                                                                               |                      |                              |       |                           |       |
| CURRENT ASSETS                                                                                       |                      |                              |       |                           |       |
| Cash                                                                                                 |                      | $                                 | 5,933      |                           | 6,121      |   |
| Commissions and Sales Receivable, Net                                                                |                      | 63,935                            |       | 109,639                        |       |
| Inventory                                                                                            |                      | 20,289                            |       | 20,289                         |       |
| Prepaid Expenses                                                                                     |                      | 1,630                             |       | 4,989                          |       |
|                                                                                                 |                      |                              |       |                           |       |
|                                                                                                 | TOTAL CURRENT ASSETS      |                              | 91,787     |                           | 141,038    |   |
|                                                                                                 |                      |                              |       |                           |       |
| FIXED ASSETS                                                                                         |                      |                              |       |                           |       |
| Telephone and Office Equipment                                                                       |                      | 1,873,131                         |       | 1,882,353                      |       |
| Vehicle                                                                                              |                      | 76,367                            |       | 76,367                         |       |
|                                                                                                 |                      | 1,949,498                         |       | 1,958,720                      |       |
| Less: Accumulated Depreciation                                                                       |                      | (1,501,516                        | )          | (1,358,594                     | )          |
|                                                                                                 |                      |                              |       |                           |       |
| Net Fixed Assets                                                                                     |                      | 447,982                           |       | 600,126                        |       |
|                                                                                                 |                      |                              |       |                           |       |
|                                                                                                 | TOTAL ASSETS              |                              | $          | 539,769                        |       | $ | 741,164 |   |
|                                                                                                 |                      |                              |       |                           |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                            |                      |                              |       |                           |       |
|                                                                                                 |                      |                              |       |                           |       |
| Current Liabilities                                                                                  |                      |                              |       |                           |       |
| Accounts Payable                                                                                     |                      | $                                 | 215,733    |                           | 175,060    |   |
| Line of Credit                                                                                       |                      | 534,500                           |       | 508,356                        |       |
| Accrued Payroll and Payroll Taxes                                                                    |                      | 2,738                             |       | 5,706                          |       |
| Accrued State Gross Receipts Taxes                                                                   |                      | 1,953                             |       | 7,049                          |       |
| Other Accrued Expenses                                                                               |                      | 100,963                           |       | 2,960                          |       |
| Current Portion of Long-Term Debt                                                                    |                      | 22,475                            |       | 27,592                         |       |
|                                                                                                 |                      |                              |       |                           |       |
|                                                                                                 | TOTAL CURRENT LIABILITIES |                              | 878,362    |                           | 726,723    |   |
|                                                                                                 |                      |                              |       |                           |       |
| LONG-TERM LIABILITIES                                                                                |                      |                              |       |                           |       |
| Long-Term Debt, Less Current Portion                                                                 |                      | 95,814                            |       | 110,587                        |       |
|                                                                                                 | TOTAL LIABILITIES         |                              | 974,176    |                           | 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                                                                                    |                      | (2,075,009                        | )          | (1,736,748                     | )          |
|                                                                                                 |                      |                              |       |                           |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                      |                      | (434,407                          | )          | (96,146                        | )          |
|                                                                                                 |                      |                              |       |                           |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                      |                      | $                                 | 539,769    |                           | $          | 741,164 |   |

 

See Accountant’s Report and Notes To Financial Statement

 

3

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USIP.COM, INC

CONSOLIDATED STATEMENT OF INCOME(LOSS)

Unaudited

 
| ** **                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                         | ** ** | **September 30, 2003** | ** ** | **September 30, 2004** | ** ** | **September 30, 2003** | ** ** | **September 30, 2004** | ** ** |
| SALES                              |       |                   |       |                   |       |   |   |   |   |
| Commissions                        |       | $                      | 11,447     |                   | $          | 9,534 |   | $ | 25,693 |   | $ | 20,322 |   |
| Coin Collections                   |       | 46,065                 |       | 32,463                 |       | 143,878 |   | 100,253 |   |
| Dial Around                        |       | 141,970                |       | 30,977                 |       | 264,559 |   | 95,848 |   |
| Phone Card Sales                   |       | 1,020                  |       | 240                    |       | 7,402 |   | 1,795 |   |
| Equipment Sales                    |       | 1,340                  |       | 1,408                  |       | 9,027 |   | 7,556 |   |
| Atm Revenue                        |       | —                 |       | —                 |       | — |   | — |   |
| Service and Repair Sales           |       | 32,620                 |       | 31,042                 |       | 94,064 |   | 87,520 |   |
| Total Sales                        |       | 234,462                |       | 105,664                |       | 544,623 |   | 313,294 |   |
|                               |       |                   |       |                   |       |   |   |   |   |
| COST OF SALES                      |       |                   |       |                   |       |   |   |   |   |
| Telecommunications Costs           |       | 62,958                 |       | 51,364                 |       | 184,295 |   | 151,941 |   |
| Commissions                        |       | 1,343                  |       | 896                    |       | 1,608 |   | 3,090 |   |
| Repairs and Service Supplies       |       | 4,951                  |       | 2,569                  |       | 18,695 |   | 9,321 |   |
| Other Direct Expenses - Travel     |       | 2,826                  |       | 3,401                  |       | 8,459 |   | 9,567 |   |
| Depreciation                       |       | 53,668                 |       | 49,233                 |       | 161,005 |   | 147,697 |   |
| Subcontractors                     |       | 1,612                  |       | 1,590                  |       | 4,837 |   | 5,538 |   |
| Supplies                           |       | —                 |       | —                 |       |   |   | — |   |
| Total Cost of Sales                |       | 127,358                |       | 109,053                |       | 378,899 |   | 327,154 |   |
|                               |       |                   |       |                   |       |   |   |   |   |
| GROSS PROFIT                       |       | 107,104                |       | (3,389                 | )          | 165,724 |   | (13,860 | ) |
|                               |       |                   |       |                   |       |   |   |   |   |
| OPERATING EXPENSES                 |       |                   |       |                   |       |   |   |   |   |
| Officers’ Salaries            |       | 17,028                 |       | 17,028                 |       | 50,310 |   | 50,568 |   |
| Salaries and Wages                 |       | 28,145                 |       | 24,931                 |       | 91,820 |   | 78,356 |   |
| Payroll Taxes                      |       | 3,650                  |       | 2,993                  |       | 12,889 |   | 11,263 |   |
| Insurance                          |       | 8,786                  |       | 5,475                  |       | 30,369 |   | 25,912 |   |
| Office Supplies                    |       | 3,040                  |       | 397                    |       | 8,053 |   | 7,948 |   |
| Telephone                          |       | 4,003                  |       | 3,941                  |       | 11,762 |   | 11,008 |   |
| Utilities                          |       | 1,623                  |       | 1,312                  |       | 7,086 |   | 3,966 |   |
| Vehicle Expenses                   |       | 890                    |       | 659                    |       | — |   | 2,746 |   |
| Rent                               |       | 15,329                 |       | 15,747                 |       | 46,045 |   | 47,100 |   |
| Professional Fees                  |       | 6,358                  |       | 8,060                  |       | 43,492 |   | 45,620 |   |
| Travel & Entertainment         |       | 301                    |       | 762                    |       | 2,514 |   | 778 |   |
| Outside Services                   |       | 1,657                  |       | 1,448                  |       | 4,834 |   | 6,686 |   |
| Total Operating Expenses           |       | 90,810                 |       | 82,753                 |       | 309,174 |   | 291,951 |   |
|                               |       |                   |       |                   |       |   |   |   |   |
| OPERATING INCOME (LOSS)            |       | 16,294                 |       | (86,142                | )          | (143,450 | ) | (305,811 | ) |
|                               |       |                   |       |                   |       |   |   |   |   |
| OTHER INCOME (EXPENSE)             |       |                   |       |                   |       |   |   |   |   |
| Interest Expense                   |       | (12,628                | )          | (14,949                | )          | (36,319 | ) | (40,144 | ) |
| NY State Gross Receipts Tax        |       | (1,600                 | )          | (94                    | )          | (3,688 | ) | 4,996 |   |
| Gain on Sale of Assets             |       | 600                    |       | —                 |       | 6,228 |   | — |   |
| Interest Income                    |       |                   |       | 38                     |       |   |   | 492 |   |
| Total Other Income                 |       | (13,628                | )          | (15,005                | )          | (33,779 | ) | (34,656 | ) |
|                               |       |                   |       |                   |       |   |   |   |   |
| NET INCOME (LOSS)                  |       | $                      | 2,666      |                   | $          | (101,147 | ) | $ | (177,229 | ) | $ | (340,467 | ) |
|                               |       |                   |       |                   |       |   |   |   |   |
| Weighted Common Shares Outstanding |       | 17,699,388             |       | 17,804,388             |       | 17,699,388 |   | 17,804,388 |   |
|                               |       |                   |       |                   |       |   |   |   |   |
| Net Income (Loss) per Common Share |       | $                      | —     |                   | $          | — |   | $ | — |   | $ | — |   |
|                               |       | x                      |       | x                      |       | x |   | x |   |

 

See Accountant’s Report and Notes To Financial Statement

 

4

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USIP.COM, INC

CONSOLIDATED STATEMENT OF CASHFLOWS

 
| ** **                                                                                | ** ** | **Nine Months  September 30, 2003** | ** ** | **Nine Months  September 30, 2004** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                | ** ** | **Unaudited**                       | ** ** | **Unaudited**                       | ** ** |
| Cash Flows From Operating Activities:                                                     |       |                                |       |                                |       |
| Net (Loss)                                                                                |       | $                                   | (177,229   | )                                   | $          | (340,467 | ) |
| Adjustments to reconcile net (loss) to net cash  provided (used) by operating activities: |       |                                |       |                                |       |
| Depreciation Expense                                                                      |       | 161,005                             |       | 147,697                             |       |
| (Increase) Decrease in Commissions and  Sales Receivables                                 |       | (81,612                             | )          | 45,704                              |       |
| (Increase) in Inventory                                                                   |       | —                              |       | —                              |       |
| (Increase) Decrease in Prepaid Expenses                                                   |       | (666                                | )          | 3,359                               |       |
| Increase in Accounts Payable                                                              |       | 47,843                              |       | 40,673                              |       |
| Increase (Decrease) in Accrued Expenses and  Wages                                        |       | 29,527                              |       | 28,612                              |       |
| Increase (Decrease) in Accrued State Gross  Receipts Taxes                                |       | (4,171                              | )          | (5,096                              | )          |
|                                                                                      |       |                                |       |                                |       |
| Net cash provided (used) by operating  activities                                         |       | (25,303                             | )          | (79,518                             | )          |
|                                                                                      |       |                                |       |                                |       |
| Cash Flows From Investing Activities:                                                     |       |                                |       |                                |       |
| Acquisition of Equipment                                                                  |       | (1,090                              | )          | —                              |       |
| Sale of Equipment                                                                         |       | 16,227                              |       | 9,222                               |       |
|                                                                                      |       |                                |       |                                |       |
| Net cash provided (used) by investing  activities                                         |       | 15,137                              |       | 9,222                               |       |
|                                                                                      |       |                                |       |                                |       |
| Cash Flows From Financing Activities:                                                     |       |                                |       |                                |       |
| Proceeds Received from Line of Credit                                                     |       | 34,200                              |       | 90,000                              |       |
| Principal Payments on Long-term Debt                                                      |       | (24,087                             | )          | (19,892                             | )          |
| Proceeds from Issuance on Notes Payable                                                   |       | —                              |       | —                              |       |
| Proceeds from Issuance of Stock                                                           |       | —                              |       | —                              |       |
|                                                                                      |       |                                |       |                                |       |
| Net cash provided (used) by financing  activities                                         |       | 10,113                              |       | 70,108                              |       |
|                                                                                      |       |                                |       |                                |       |
| Net Increase (Decrease) in cash                                                           |       | (53                                 | )          | (188                                | )          |
|                                                                                      |       |                                |       |                                |       |
| Cash - Beginning of Period                                                                |       | 7,021                               |       | 6,121                               |       |
|                                                                                      |       |                                |       |                                |       |
| Cash - End of Period                                                                      |       | $                                   | 6,968      |                                | $          | 5,933 |   |
|                                                                                      |       |                                |       |                                |       |
| Supplemental Disclosures of Cash Flow  Information:                                       |       |                                |       |                                |       |
| Cash Paid During Period The Period For:                                                   |       |                                |       |                                |       |
| Interest                                                                                  |       | $                                   | 7,407      |                                | $          | 7,214 |   |
| Income Taxes                                                                              |       | $                                   | 7,960      |                                | $          | — |   |
|                                                                                           |            |                                     |            |                                     |            |  |  |  |

 

See Accountant’s Report and Notes ToFinancial Statement

 

5

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USIP.COM, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2004

(unaudited)

 

**NOTE 1.                SUMMARYINFORMATION**

 

The accompanying unaudited consolidated financial statements includethe accounts of USIP.Com, Inc., and our two wholly owned subsidiaries: Datone,Inc. and NB Payphones Ltd.  Allsignificant inter-company amounts have been eliminated.  Our unaudited consolidated financialstatements presented herein, should be read in conjunction with the auditedconsolidated financial statements of our company contained in the Company’sform 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 owned subsidiarycorporation, The Platinum Funding Corporation. This company was formed to enter the mortgage brokering business.  As of September 30, 2004, there has been noactivity within this corporation.

 

**NOTE 3.                LINE OFCREDIT**

 

For additionalcapital requirements, the company has various lines of credit to draw on, as ofSeptember 30, 2004 the company has drawn on these lines of credit in the amountof $534,500.

 

**NOTE 4.                NOTESPAYABLE**

 

On June 4, 2003, our line of credit with Key Bank was converted to afixed note payable at 7.5%, payable over a five-year period.   As of September 30, 2004, the outstandingamount on this note was $75,408.

 

**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 come due.  This raises doubt as to the company’s futureoperations.

 

6

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

 

#### **BASISOF PRESENTATION**

#### ** **

Our unaudited consolidated financial statements of USIP.Com, Inc. (“USIP”,the “Company”, “our”, or “we”), include the accounts of USIP.Com Inc. and itstwo 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 inconjunction with the audited consolidated financial statements of USIP as ofand 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 necessary indicativeof results to be expected for the entire year.

 

We prepare our consolidated financial statements inaccordance with generally accepted accounting principles, which require thatmanagement make estimates and assumptions that affect reported amounts.  Actual results could differ from theseestimates.

 

Impact of Inflation

 

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

 

Seasonality

 

The Company’srevenues from payphone operation are affected by seasonal variations,geographic distribution of payphones and type of location.  Because the Company operates in thenortheastern part of the country with many of the payphones located outdoor,weather patterns affect our revenue streams. Revenues drop off significantly during winter and conversely show anincrease in the spring and summer. Revenues are generally lowest in the first quarter and highest in thethird quarter.

 

Asof September 30, 2004, we owned and operated a network of approximately 548****payphones. Our installed payphone base generates revenue from three principlesources:  coin-calls and non-coin calls,sales and service of payphones and pre-paid phone cards.

 

**1.Commission Income**.

 

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

 

**2. Coin calls**.

 

Coin calls represent calls paid for by customers who deposit coins intothe payphones. Coin call revenue is recorded as the actual amount of coinscollected from the payphones. Some coin collections are made on a daily basis and others more oftenif the particular payphone has significant usage. The coins are counted inhouse and deposited weekly.

 

**3.Payphone sales, repairs and pre-paid phone card sales.**

 

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

 

7

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and the sale of pre-paidphone cards are not subject to the same collection delays as the other types ofoperating income.

 

**Costs Related to our operation**.

 

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

 

**THREE MONTHS ENDED SEPTEMBER 30, 2004COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2003**

 

**Revenues**

 

Our total revenue decreased by $128,798 or approximately 54.94%, from$234,462 in the three months ended September 30, 2003 to $105,664 in the threemonths ended September 30, 2004.  Thisdecrease was primarily attributable to receiving a one-time settlement ofapproximately $83,000, for the quarter ending September 30, 2003, resultingfrom the Federal Communications Commission (FCC) Order on the CompensationTrue-up.

 

Our commissions decreased by $1,913 or approximately 16.7%, from$11,447 in the three months ended September 30, 2003 to $9,534 in the threemonths ended September 30, 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 $13,602 or approximately 29.54%from $46,065 in three months ended September 30, 2003 to $32,463 in the threemonths ended September 30, 2004.  Thedecrease in coin call revenue was primarily attributable to a reduction from581 payphones in 2003 to 548 payphones in 2004 as well as reduced call volumeson our payphones due to increased competition from wireless communicationservices.

 

Our non-coin call revenue, which is comprised primarily of dial-aroundrevenue and operator service revenue decreased by $110,993 or approximately78.18% from $141,970 in the three months ended September 30, 2003 to $30,977 inthe three months ended September 30, 2004. Approximately $83,000 of this decrease is attributable to a one-timesettlement by the FCC’s Order on the Compensation True-up received in the thirdquarter 2003.  The remaining decease ofapproximately $27,993 is due impart to the reduction in payphones, reduced callvolumes and the increased competition from wireless communication services.

 

Our service & repair sales decreased by $1,578 when compared to thesame period in 2003.  Our equipment salesincreased by $68, from $1,340 in the three months ending September 30, 2003 to$1,408 in the three months ending September 30, 2004.   Our phone card sales decreased by $780 whencompared to the same period in 2003. This decrease is due to increased competition from other phone cardvendors along with loss of various site locations.

 

**Cost of Sales**

 

Our overall cost of sales decreased for the three months ending September30, 2004 by $18,305 or approximately 14.37% from the three months endingSeptember 30, 2003.   Telecommunicationcosts decreased by $11,594, the cost of providing telephone service to 548payphones in 2004 as compared to 581 payphones in 2003.   Once a low revenue payphone is identified,we offer the site owner an opportunity to purchase the equipment.  If the site owner does not purchase thepayphone, we remove it from the site.

 

Our subcontractors’ fees decreased by $22, this decrease is due to theelimination of contractors and the re-organization of routes to manage themmore efficiently.  Our commission payabledecreased by $447 when compared to 2003. These are commissions paid to the site owners where our payphones andphone card machines

 

8

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are located.  Depreciationexpense decreased $4,435 when compared to the same period in 2003.  This decrease is due to certain assets beingfully depreciated and our on going strategy of identifying unprofitablepayphones, and selling them to the site owners. 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 forrepairs, service, travel, and supplies decreased by $1,807 a result of usingemployees instead of independent contractors to service routes.

 

**Operation and AdministrativeExpenses**

 

Our operating expenses decreased by $8,057 or approximately 8.9% over thesame period in 2003.  This decrease inoperating expense is a direct result of management diligently working to cutexpenses and run the company as efficient as possible.   Salaries and related payroll taxes werereduced by $3,871 when compared to the same expenses for 2003.  Our insurance expense decreased by $3,311when compared to the fiscal year 2003. This decrease is primarily attributableto the decrease in payroll. Our rent increased by $418 when compared to2003.   Professional fees increased by$1,702 over 2003.  These are fees we payto accountants, attorneys and other professionals throughout the year forvarious task.  Our expenses for outsideservices decreased by $209 over 2003.  Our telephone, utilities, office, vehicle and travel & entertainmentexpenses, together account for a decrease of $2,786 when compared to the sameperiod ending September 30, 2003.

 

**NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPAREDTO NINE MONTHS ENDED SEPTEMBER 30, 2003**

 

**Revenues**

 

Our total revenue decreased by $231,329 or approximately 42.48%, from$544,623 in the nine months ended September 30, 2003 to $313,294 in the ninemonths ended September 30, 2004.  Thisdecrease was primarily attributable to receiving for the third quarter of 2003a one-time settlement of approximately $83,000 from the Federal CommunicationsCommission (FCC) Order on the Compensation True-up.   In addition to the one-time settlementreceived in 2003, this decrease was attributable to removal of unprofitablephone locations, lower call volumes on the Company’s payphones resulting fromthe growth in wireless and other public communication services.

 

Our commissions decreased by $5,371 or approximately 20.9%, from$25,693 in the nine months ended September 30, 2003 to $20,322 in the ninemonths ended September 30, 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 $43,625 or approximately 30.32%,from $143,878 in nine months ended September 30, 2003 to $100,253 in the ninemonths ended September 30, 2004.  Thedecrease in coin call revenue was primarily attributable to an ongoing strategyto remove unprofitable phones as well as a reduction in call volumes on theCompany’s payphones due to increased competition from wireless and other publiccommunication services.

 

Our non-coin call revenue, which is comprised primarily of dial-aroundrevenue and operator service revenue, decreased by $168,711 or approximately63.77% from $264,559 in the nine months ended September 30, 2003 to $95,848 inthe nine months ended September 30, 2004. Approximately $83,000 of thisdecrease is attributable to a one-time class action settlement for underpayment of past dial-around commissions against the long distance carriersreceived for the quarter ending September 30, 2003.  The remaining decease of approximately$85,711 is due impart to a “Carrier Take Back” by Global Crossing, MCI,AT&T and WilTel Communications that had significant impact on our firstquarter dial-around for 2004 and the reduction in payphones, reduced callvolumes and the increased competition from wireless communication services.

 

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Our service& repair sales decreased by $6,544 when compared to the same period in2003.   Equipment sales decreased by$1,471, from $9,027 in the nine months ending September 30, 2003 to $7,556 inthe nine months ending September 30, 2004. Our phone card sales decreased by $5,607 when compared to the sameperiod in 2003.  This decrease is due toincreased competition from other phone card vendors along with loss of varioussite locations when companies go out of business.  The increased competition and decreased sitelocation forced us to reduce our phone card sites by approximately 70%.

 

**Cost of Sales**

 

Our overall cost of sales decreased for the nine months ending September30, 2004 by $51,745 or approximately 13.66% from the nine months endingSeptember 30, 2003.   Telecommunicationcosts decreased by $32,354, the cost of providing telephone service to 548payphones 2004 as compared to 581 payphones in 2003.   Once a low revenue payphone is identified,we offer the site owner an opportunity to purchase the equipment.  If the site owner does not purchase thepayphone, we remove it from the site.

 

Our commission’s payable increased by $1,482 when compared to the sameperiod in 2003.  This increase is due tothe company’s attempt to attract business locations for payphone sites byoffering commission to the site owner. Our contractor’s fee increased by $701, from $4,837 in the nine monthsended September 30, 2003 to $5,538 in the nine months ended September 30,2004.  Depreciation expense decreased$13,308 when compared to the same period in 2003.  This decrease is due to certain assets beingfully depreciated and our on going strategy of identifying unprofitablepayphones and selling them to the site owners. The Company owns telephone equipment and motor vehicles, which provide aservice for a number of years.  The termof service is commonly referred to as the “useful life” of the asset.  Because an asset such as telephone equipmentor motor vehicle is expected to provide service for many years, it is recordedas an asset, rather than an expense, in the year acquired.   A portion of the cost of the long-livedasset is reported as an expense during the cost of an asset to expense over itslife in a rational and systematic manner. Our cost of sales for repairs, service, travel, and supplies decreased by$8,266 a result of the management team’s ongoing efforts to reduce cost.

 

**Operation and AdministrativeExpenses**

 

Our operating expenses decreased by $17,223 or approximately 5.57% overthe same period in 2003.   Salaries andrelated payroll taxes were reduced by $14,832 when compared to the sameexpenses for 2003.  This decrease is dueto the elimination of a clerical position. Insurance expense decreased by $4,457 when compared to the fiscal year2003.  Rent increased by $1,055 whencompared to 2003.   Professional feesincreased by $2,128 over 2003.  These arefees the Company pays to accountants, attorneys and other professionalsthroughout the year for various task. Our expenses for outside servicesincreased by $1,852 over 2003.  Ourtelephone, utilities, office, vehicle and travel & entertainment expenses,together account for a decrease of $2,969 when compared to the same periodending September 30, 2003.   Thisdecrease is primarily attributable to management diligently working to cutexpenses.

 

**PROPOSED MERGER**

 

On May 24, 2004, USIP announced that its Board of Directors unanimouslyapproved an Agreement and Plan of Merger with Cornerstone Services Group, Inc.(“Cornerstone”), a privately held Houston, TX. based company. Cornerstoneacquires and provides infrastructure and pharmaceutical services to companiesrelating to the care of the Senior or Aged population.

 

Under the terms of the agreement, Cornerstone and USIP will merge, withUSIP as the surviving corporation. Immediately upon the consummation of the merger, the name of the survivingcorporation will be changed to Cornerstone Services Group, Inc.  In the merger, the shareholders ofCornerstone will receive a number of shares of USIP common stock representingapproximately 75% of the shares of USIP common stock that will be outstanding,on a fully diluted basis, following the merger.

 

This transaction is subject to USIP shareholder approval and othercustomary closing conditions. The shareholders will be voting on the proposedacquisition and other related matters pertaining to the merger at the

 

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upcoming shareholders meeting. Further information on the merger may befound in the preliminary proxy statement that was filed with the SEC onNovember 5, 2004. The Securities and Exchange Commission maintains an Internetsite at http://www.sec.gov where the public can review a copy of our reports.

 

**GOING CONCERN QUALIFICATION**

 

In his Independent Auditor’s Report for the fiscal year ending December31, 2003, CE Forse & Co. Ltd. states that we have incurred annual lossessince inception raising substantial doubt about our ability to continue as agoing concern.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

**Cash Flow**

 

Our primary sources of liquidity have been cash from operations andborrowing from various credit facilities.  As of September 30, 2004, we have a note payable to Key Bank in theamount of $75,408.  In addition, we havevarious lines of credit, as of September 30, 2004; we have drawn on these linesin the amount of $534,500.

 

**ITEM3.   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 to Exchange Act Rule 13a-14(c). Based uponthat evaluation, the Company’s President and Controller have concluded that theCompany’s disclosure controls and procedures are effective for the purpose ofensuring that material information required to be in this quarterly report ismade known to them by others on a timely basis.

 

b) There have been no changes in the Company’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.

 

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**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.  The issuance of equity securities woulddilute our existing stockholders.

 

**IF WE CANNOT ATTRACT, RETAIN, MOTIVATE ANDINTEGRATE 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.

 

**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 productsor services that incorporate the challenged intellectual property;

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

•                  Redesign those products or services thatincorporate such technology.

 

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

 

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that our directors and officers will not be liable to us or to anyshareholder and will be indemnified and held harmless for any consequences ofany act or omission by the directors and officers unless the act or omissionconstitutes gross negligence or willful misconduct. Extended or protractedlitigation could have a material adverse effect on our cash flow.

 

**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 operating results;

•                  Changes in financial estimates of our revenues and operating resultsby securities analysts;

•                  Changes in market valuations of telecommunications equipment companies;

•                  Announcements by us of significant contracts, acquisitions, strategicpartnerships, joint ventures or capital commitments;

•                  Additions or departures of key personnel;

•                  Future sales of our common stock;

•                  Stock market price and volume fluctuations attributable to inconsistenttrading volume levels of our stock;

•                  Commencement of or involvement in litigation.

 

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 EFFECTED.**

 

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.

 

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

 

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

 

**PART II OTHER INFORMATION.**

 

**ITEM 1.  LEGAL PROCEEDINGS**

Not applicable.

 

**ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.**

Notapplicable

 

**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.

 

**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                                                                                                                     |   |
|             |       |                                                                                                                                    |
| None             |       |                                                                                                                                    |

 

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**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: | November  11, 2004 | /s/  CRAIG BURTON     |   |
|   |               | Craig  Burton         |
|   |               | President             |
|   |               |                  |
|   |               |                  |
| Dated: | November  11, 2004 | /s/ KATHY CHRISTOPHER |   |
|   |               | Kathy Christopher     |
|   |               | Controller            |
|        |                    |                       |  |  |

 

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