**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-KSB**

 

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| **(MARK ONE)**                                                                                                                            |
|-------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                      |   |
| **ý**                                                                                                                                | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                      |   |
| **FOR THE  FISCAL YEAR ENDED DECEMBER 31, 2003**                                                                                          |
|                                                                                                                                      |   |
|                                                                                                                                      | **OR** |
|                                                                                                                                      |   |
| **o**                                                                                                                                     | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                      |   |
| **FOR THE TRANSITION PERIOD                     TO** |

 

**COMMISSIONFILE NUMBER 0-31193**

 

| **USIP.COM,  INC.**                                                     |
|-------------------------------------------------------------------------|
| (Name of small business issuer as specified in its charter)             |
|                                                                    |   |   |
| **UTAH**                                                                |   | **16-1583162** |
| (State or other jurisdiction of  incorporation or organization)         |   | (I.R.S. Employer  Identification No.) |
|                                                                    |   |   |
| **7325  Oswego Rd.  Liverpool, N.Y.**                                   |   | **13090** |
| (Address of principal  executive offices)                               |   | (Zip Code) |
|                                                                    |   |   |
| Issuer’s telephone number, including area code: **(315) 451-7515** |

 

SecuritiesRegistered Pursuant to Section 12(b) of The Exchange Act: **None**

SecuritiesRegistered Pursuant to Section 12(g) of The Exchange Act:

 

**Common Stock, $.01 Par Value**

(Titleof Class)

 

Check whether the issuer (1) filed all reports required to be filed bySections 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes ýNo o

 

Checkif disclosure of delinquent filers in response to Item 405 of Regulation S-B isnot contained in this form, and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporatedby reference in Part III of this Form 10-KSB or any amendment to this Form10-KSB. o

 

# **State issuer’s revenues for its most recent fiscal year:$670,381**

** **

Asof December 31, 2003 the aggregate market value of the common stock held bynon-affiliates was approximately $1,660,644 based upon the closing price onDecember 31, 2003 of $0.38. As of December 31, 2003, there were 17,804,388shares of common stock outstanding.

 

Documentsincorporated by reference: **None**

 

TransitionalSmall Business Disclosure Format: Yes o  No ý

 

 

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**TABLE OF CONTENTS**

 
| **PART  I**   |                                                                                                               |
|---------------|--------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                               |   |
| Item 1.       | Description  of Business                                                                                           |   |
|          |                                                                                                               |   |
| Item 2.       | Description  of Property                                                                                           |   |
|          |                                                                                                               |   |
| Item 3.       | Legal  Proceedings                                                                                                 |   |
|          |                                                                                                               |   |
| Item  4.      | Submission  of Matters to a Vote of Security Holders                                                               |   |
|          |                                                                                                               |   |
| **PART  II**  |                                                                                                               |
|          |                                                                                                               |   |
| Item 5.       | Market for Common Equity and Related  Stockholder Matters                                                          |   |
|          |                                                                                                               |   |
| Item  6.      | Managements  Discussion and Analysis or Plan of Operation                                                          |   |
|          |                                                                                                               |   |
| Item  7.      | Financial  Statements                                                                                              |   |
|          |                                                                                                               |   |
| Item  8.      | Changes  in and Disagreements With Accountants on  Accounting and Financial Disclosure                             |   |
|          |                                                                                                               |   |
| Item 8A       | Controls  and Procedures                                                                                           |   |
|          |                                                                                                               |   |
| **PART  III** |                                                                                                               |
|          |                                                                                                               |   |
| Item 9.       | Directors, Executive  Officers, Promoters and Control persons;  Compliance with Section 16(a) of the Exchange Act. |   |
|          |                                                                                                               |   |
| Item 10.      | Executive  Compensation                                                                                            |   |
|          |                                                                                                               |   |
| Item  11.     | Security  ownership of Certain Beneficial Owners and Management                                                    |   |
|          |                                                                                                               |   |
| Item  12.     | Certain  Relationships and Related Transactions                                                                    |   |
|          |                                                                                                               |   |
| **PART IV**   |                                                                                                               |
|          |                                                                                                               |   |
| Item 13.      | Exhibits and Reports  on Form 8-K                                                                                  |   |
|          |                                                                                                               |   |
| Item  14.     | Principal  Accountant Fees and Services                                                                            |   |
|          |                                                                                                               |   |
|          | Signatures                                                                                                         |   |

 

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**PART I**

 

**ITEM 1.**  **DESCRIPTION OF****BUSINESS**

 

**GENERAL OVERVIEW**

** **

USIP.Com, Inc. (“USIP,” the“Company,” “we,” “our” or “us”) was incorporated under the laws of the State ofUtah on April 6, 1978 as Derby Farms, Inc. On January 19, 1982 our Articles ofIncorporation were amended and the name of our company was changed to CommerceOil of Kentucky, Inc.

 

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

 

On April 29,2000 we purchased all the shares of NB Payphones, Ltd., (“NB”), the owner of466****payphones in Pennsylvania andCointel Leasing, Inc., (“Cointel”), the owner of 45 payphones in Syracuse, NewYork, from Riviera Bay Holding Trust, a Gibraltar Trust, for 8,750,000restricted shares of our common stock. NB is a USIP wholly owned subsidiary.

* *

On August 30,2000 we incorporated Datone, Inc. as a Delaware company. Datone, Inc. is a USIPwholly owned subsidiary. All the revenue generating assets and related expensesthat we received from the Datone Communications Merger were subsequently movedvia an 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 inter 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.

 

On December 14, 2001 we incorporated The Platinum FundingCorporation  (“Platinum”), as a New Yorkwholly owned subsidiary for the purpose of developing a real estate based mortgagebrokerage business. Platinum has had no activity since December 14, 2001. Weare continuing our efforts to find a suitable candidate that will help usdevelop a real estate based mortgage brokerage business as originally intended.

 

**SMART PAYPHONE TECHNOLOGY.**

 

Our payphones utilize “smart”technology which provides voice synthesized calling instructions, detects andcounts coins deposited during each call, informs the caller at certainintervals of the time remaining on each call, identifies the need for and theamount of an additional deposit in order to continue the call, and providesother functions associated with the completion of calls. Through the use of anon-volatile,

 

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electronically erasable,programmable memory chip, the payphones can also be programmed and reprogrammedfrom our central computer facilities to update rate information or to directdifferent types of calls to particular carriers. Our payphones can alsodistinguish coins by size and weight, report to our central host computer thetotal amount of coin in the coin box, perform self-diagnosis and automaticallyreport problems to a pre-programmed service number.

 

**CUSTOMER SERVICE.**

 

The technology we use enables us to (i) respond quickly to equipmentmalfunctions and (ii) maintain accurate records of payphone activity, which canbe verified by customers. We strive to minimize “downtime” on our payphones byidentifying service problems as quickly as possible. We employ both advanced telecommunicationstechnology and trained field technicians as part of our commitment to providesuperior customer service. The records generated through our technology alsoallow for the more timely and accurate payment of commissions to LocationOwners.

 

**OPERATIONS**

 

As of December 31, 2003 weowned and operated approximately 567 payphones in two states, and as of  December 31, 2002 we owned and operatedapproximately  681 payphones in threestates.

 

**COIN CALLS**

 

Our payphones generate coinrevenues primarily from local calls. Historically, the maximum rate that LECsand IPPs could charge for local calls was generally set by state regulatoryauthorities and in most cases was $0.25 through October 6, 1997.****We charge $0.25, $0.35, and $0.50 in NewYork, and $0.35, and $0.50 in Pennsylvania. In ensuring “fair compensation” forall calls, the FCC determined that local coin rates from payphones should begenerally deregulated by October 7, 1997, but provided for possiblemodifications or exemptions from deregulation upon a detailed demonstration byan individual state that there are market failures within the state that wouldnot allow market-based rates to develop. On July 1, 1997, a federal courtissued an order that upheld the FCC’s authority to deregulate local coin callrates. In accordance with the FCC’s ruling and the court order, certain RBOCs,LECs and IPPs, including our Company, began to increase rates for local coincalls from $0.25 to $0.35 after October 7, 1997.

 

Long distance carriers thathave contracted to provide transmission services to our payphones typicallycarry long distance coin calls. We pay a charge to the long-distance carriereach time the carrier transports a long-distance call for which we receive coinrevenue from an end user.

 

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**NON-COIN CALLS**

 

We also receive revenue fromnon-coin calls made from our payphones. Traditional non-coin calls includecredit card, calling card, prepaid calling card, collect and third party billedcalls where the caller dials “0” plus the number or simply dials “0” for anoperator.

 

The services needed tocomplete a non-coin call include providing an automated or live operator toanswer the call, verifying billing information, validating calling cards andcredit cards, routing and transmitting the call to its destination, monitoringthe call’s duration and determining the charge for the call, and billing andcollecting the applicable charge. We have contracted with operator serviceproviders to handle these calls and perform all associated functions, whilepaying us a commission on the revenues generated.

 

**REGULATIONS AND DIAL-AROUND COMPENSATION**

 

**On September 20, 1996 theFederal Communications Commission (“FCC”) adopted rules, which became effectiveNovember 7, 1996 (the “1996 Payphone Order”), initially mandating dial-aroundcompensation for both access code calls and 800 subscriber calls at a flat rateof $45.85 per payphone per month (131 calls multiplied by $0.35 per call).Commencing October 7, 1997 and ending October 6, 1998 the $45.85 per payphoneper month rate was to transition to a per-call system at the rate of $0.35 percall. Several parties challenged certain of the FCC regulations including thedial-around compensation rate. On July 1, 1997 a federal court vacated certainportions of the FCC’s 1996 Payphone Order, including the dial-aroundcompensation rate.**

 

In accordance with the court’s mandate, on October 9, 1997 the FCCadopted a second order (the “1997 Payphone Order”), establishing a rate of $0.284per calls for the first two years of per-call compensation (October 7, 1997through October 6, 1999). The IXCs were required to pay this per-call amount topayphone service providers, beginning October 7, 1997. On May 15, 1998 thecourt again remanded the per-call compensation rate to the FCC for furtherexplanation without vacating the $0.284 default rate.

 

On February 4, 1999 the FCCreleased a third order (the “1999 Payphone Order”), in which the FCC abandonedits efforts to derive a “market based” default dial-around compensation rateand instead adopted a “cost based” rate of $0.24 per dial-around call. Thisrate became effective on April 21, 1999 and served as a default rate throughJanuary 31, 2002.

 

In a decision releasedJanuary 31, 2002 (the “2002 Payphone Order”) the FCC partially addressed theremaining issues concerning the “true-up” required for interim and intermediateperiod compensation. The FCC adjusted the per-call rate to $0.229, for theinterim period only, to reflect a different method of calculating the delay inIXC payments to PSPs for the interim period, and determined that the totalinterim period compensation should be $33.89 per payphone per month ($0.229times an average of 148 calls per payphone per month). The 2002 Payphone Orderdeferred to a later order its

 

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determination of the allocation of this totalcompensation rate among the various carriers required to pay compensation forthe interim period.

 

On October 23, 2002 the FCCreleased its Fifth Order on Reconsideration and Order on Remand (The “InterimOrder”), which resolved the remaining issues surrounding theinterim/intermediate period true-up and specifically how monthly per-phonecompensation owed to PSPs is to be allocated among the relevant dial-aroundcarriers. The Interim Order also resolves how certain offsets to such paymentswill be handled and a host of other issues raised by parties in their remainingFCC challenges to the 1999 Payphone Order and the 2002 Payphone Order. In theInterim Order the FCC ordered a true-up for the interim period and increasedthe adjusted monthly rate to $35.22 per payphone per month, to compensate forthe three-month payment delay inherent in the dial-around payment system. The newrate of $35.22 per payphone per month is a composite rate, allocated amongapproximately five hundred carriers based on their estimated dial-aroundtraffic during the interim period. The FCC also ordered a true-up requiringPSPs, to refund an amount equal to $0.046 (the difference between the old$0.284 rate and the current $0.238 rate) to each carrier that compensated thePSP on a per-call basis during the intermediate period. Interest on additionalpayments and refunds is to be computed from the original payment date, at theIRS prescribed rate applicable to late tax payments.

 

On August 2, 2002 andSeptember 2, 2002 respectively, the APCC and the RBOCs filed petitions with theFCC to revisit and increase the dial-around compensation level. Using the FCC’sexisting formula, as approved by the Court in its June 26, 2000 order, andadjusted only to reflect current costs and call volumes, the APCC and RBOCspetitions support approximately doubling of the current $0.24 rate. In responseto the petitions, on September 2, 2002 the FCC put them out for comment andreply comment by interested parties, seeking input on how the Commission shouldproceed to address the issues raised by the filings.

 

We believe that the “faircompensation” requirements of Section 276 of the Telcom Act mandate that theFCC promptly review and adjust the dial-around compensation rate level. Whileno assurances can be given as to the timing or amount of any increase in thedial-around rate level, we believe an increase in the rate is reasonably likelygiven the significant reduction in payphone call volumes, and other relevantchanges since the FCC set the $0.24 rate level.

 

Our objectives are tocontinue to review our overall cost structure, improve route density andservice quality, monitor and take action on our under performing telephones andplace an emphasis on expanding in economically favorable territories. We haveimplemented the following strategy to meet our objectives.

 

#### **SERVICE AND MAINTENANCE**

 

We employ field servicetechnicians, who collect coin boxes, and clean and maintain a route ofpayphones. Our technicians also respond to trouble calls made by

 

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Location Owners, by users of payphones or bythe telephone itself as part of its internal diagnostic procedures. Some of ourtechnicians are also responsible for the installation of new payphones.

 

**CUSTOMERS, SALES AND MARKETING**

 

TheLocation Owners with whom we contract are a diverse group of small and mediumsized businesses, which are frequented by individuals needing payphone access.The majority of our payphones are located at convenience stores, truck stops,service stations, grocery stores, colleges and hospitals. As of December 31,2003 our payphone accounts of 20 or more payphones represented approximately 5%of our installed payphone base. Approximately 70% of our customers are a resultof acquisitions from (ITOC’s), Independent Telephone Operating Companies.

 

Weinstall our payphones in convenience stores, truck stops, service stations,grocery stores, colleges and hospitals. Before we install a phone, we searchfor, and utilize historical revenue information about each payphone location.In locations where historical revenue information is not available, we rely onour site survey to examine geographic factors, population density, trafficpatterns and other factors in determining whether to install a payphone. Werecognize, however, that recent changes in payphone traffic volumes and usagepatterns being experienced on an industry-wide basis warrant a continuedassessment of the location deployment of our payphones.

 

Ourlocation agreements may provide for revenue sharing with the applicablelocation owners based on fixed percentages of revenues. Our agreements alsoprovide for monthly billing for payphone service. We can terminate a locationagreement on 30 days’ notice to the Location Owner if the payphone does notgenerate sufficient revenue.

 

**SERVICE AND EQUIPMENT SUPPLIERS**

 

Ourprimary suppliers provide payphone components, local line access, long-distancetransmission and operator services. To promote acceptance by end usersaccustomed to using RBOC or LEC-owned payphone equipment, we utilize payphonesdesigned to be similar in appearance and operation to payphones owned by LECs.

 

Wepurchase circuit boards from various manufacturers for repair and installationof our payphones. We primarily obtain local line access from various LECs,including Verizon, Citizens Communications and various other incumbent andcompetitive suppliers of local line access. New sources of local line accessare expected to emerge as competition continues to develop in local servicemarkets. Long-distance services are provided to our company by variouslong-distance and operator service providers, including AT&T, Qwest, ILDTelecommunications, Inc., and others.

 

Weexpect the basic availability of such products and services to continue in thefuture; however, the continuing availability of alternative sources cannot beassured. Although we are not aware of any current circumstances that wouldrequire us to seek

 

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alternative suppliers for any material portionof the products or services used in the operation of our business, transitionfrom our existing suppliers, if necessary, could have a disruptive effect onour operations and could give rise to unforeseen delays and/or expenses.

 

**ASSEMBLY AND REPAIR OF PAYPHONES**

 

We assemble and repairpayphone equipment for our use. The assembly of payphone equipment provides uswith technical expertise used in the operation, service, maintenance and repairof our payphones. We assemble, refurbish or replace payphones from standardpayphone components either obtained from our sizable inventory or purchasedfrom component manufacturers. These components include a metal case, anintegrated circuit board incorporating a microprocessor, a handset and cord,and a coin box and lock. On the occasion when components are not available frominventory, we can purchase the components from several suppliers. We do notbelieve that the loss of any single supplier would have a material adverseeffect on our assembly operations.

 

Our payphones comply with allmaterial regulatory requirements regarding the performance and quality ofpayphone equipment and have all of the operating characteristics required bythe applicable regulatory authorities, including free access to local emergency(911) telephone numbers, dial-around access to all available carriers, andautomatic coin return capability for incomplete calls.

 

**TECHNOLOGY**

 

Thepayphone equipment we install makes use of microprocessors to provide voicesynthesized calling instructions, detect and count coin deposits during eachcall, inform the caller at certain intervals of the time remaining on eachcall, identify the need for and the amount of an additional deposit and otherfunctions associated with completion of calls. Through the use of non-volatile,electronically erasable, programmable read-only memory chips, our payphones canalso be programmed and reprogrammed from our central computer facilities toupdate rate information or to direct different kinds of calls to particularcarriers.

 

Ourpayphones can distinguish coins by size and weight, report to a remote locationthe total coins in the coin box, perform self-diagnosis and automaticallyreport problems to a pre-programmed service number, and immediately reportattempts at vandalism or theft. Many of our payphones operate on poweravailable from the telephone lines, thereby avoiding the need for and relianceupon an additional power source at the installation location.

 

Weprovide all technical support required to operate the payphones, such ascomputers and software and hardware specialists, at our headquarters in LiverpoolNew York. Our assembly and repair support operations provide materials,equipment, spare parts and accessories to the field. Each of our divisionoffices and each of our technician’s vehicles maintain inventories forimmediate deployment in the field.

 

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**MAJOR CUSTOMERS**

 

Noindividual customer accounted for more than 5% of our consolidated revenues in2002 and 2003.

 

**COMPETITION**

 

Wecompete for payphone locations directly with RBOCs, LECs and other IPPs. Wealso compete, indirectly, with long-distance companies, which can offerLocation Owners commissions on long-distance calls made from LEC-ownedpayphones. We compete with LECs and long-distance companies who may havesubstantially greater financial, marketing and other resources.

 

Webelieve that our principal competition is from providers of wirelesscommunications services for both local and long distance traffic. Certainproviders of wireless communication services have introduced rate plans thatare competitively priced with certain of the products offered by us, and havenegatively impacted the usage 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 LATAs or states, (3) the quality of service and theavailability of specialized services provided to a Location Owner and payphoneusers, and (4) responsiveness to customer service needs. We believe that we arecurrently competitive in each of these areas.

 

  Additionally, a number of domestic IPPscontinue to experience financial difficulties from various competitive andregulatory factors impacting the pay telephone industry generally, which mayimpair their ability to compete prospectively. While no assurances can begiven, we believe that these circumstances create an opportunity for us toobtain new location agreements and reduced site commissions going forward.There are no guarantees that we will be able to obtain new location agreementsthat are advantageous to our company.  

 

We compete with long-distance carriers that provide dial-aroundservices that can be accessed through our payphones. Certain nationallong-distance operator service providers and prepaid calling card providershave implemented extensive advertising promotions and distribution schemeswhich have increased dial-around activity on payphones owned by LECs and IPPs,including our company, thereby reducing traffic to our primary providers oflong-distance service. While we do receive compensation for dial-around callsplaced from our payphones, regulatory efforts are underway to improve thecollection system and provide us with the ability to collect that portion ofdial-around calls that are owed.

 

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**OUR EMPLOYEES**

 

Wecurrently have five full time employees. We may, from time to time, supplementour regular work force as necessary with temporary and contract personnel. Noneof our employees are represented by a labor union. We believe we have a goodrelationship with our employees.

 

**A NOTE ABOUT FORWARD-LOOKING STATEMENTS**

** **

Thisreport (including the foregoing “Description of Business” and the section belowentitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations”) contains forward-looking statements that involve risksand uncertainties. You should exercise extreme caution with respect to allforward-looking statements contained in this report. Specifically, thefollowing statements are forward-looking:

 

•                  statements regarding our overall strategy forexpansion of our company, including without limitation our intended markets andfuture products;

 

•                  statements regarding our research and developmentefforts;

 

•                  statements regarding the plans and objectivesof our management for future operations, including, without limitation, plansto explore other non telecommunication business along with the size and natureof the costs we expect to incur and the people and services we may employ;

 

•                  statements regarding the future of ourcompany, our competition or regulations that may affect us;

 

•                  statements regarding our ability to competewith third parties;

 

•                  any statements using the words “anticipate,”“believe,” “estimate,” “expect,” “intend,” and similar words; and

 

•                  any statements other than historicalfact.

 

We believe that it isimportant to communicate our future expectations to our shareholders.Forward-looking statements reflect the current view of management with respectto future events and are subject to numerous risks, uncertainties andassumptions, including, without limitation, the factors listed in “RisksAssociated with Our Business.” Although we believe that the expectationsreflected in such forward-looking statements are reasonable, we can give noassurance that such expectations will prove to be correct. Should any one ormore of these or other risks or uncertainties materialize or should anyunderlying assumptions prove incorrect, actual results are likely to varymaterially from those described in this report. There can be no assurance thatthe projected results will occur, that these judgments or assumptions willprove correct or that unforeseen developments will not occur.

 

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Any person orentity may read and copy our reports filed with the Securities and ExchangeCommission at the SEC’s Public Reference Room at 450 Fifth Street, NW,Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room bycalling the SEC toll free at 1-800-SEC-0330. The SEC also maintains an Internetsite at HTTP://WWW.SEC.GOV where reports, proxies and informational statementson public companies may be viewed by the public.

 

**ITEM 2.**   **DESCRIPTION OFPROPERTY**

 

We lease approximately 5600 square feet of spacein Liverpool, New York. This location provides office space and space forassembly and repair of payphones.

 

**ITEM 3.  LEGAL PROCEEDINGS**

 

Not Applicable

 

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

** **

Not Applicable

 

**PART II**

** **

**ITEM5.  MARKET FOR COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS**

 

In the third calendarquarter of 2001 our common stock was included in the NASD’s Bulletin Boardsystem under the symbol “USPO”. The following table sets forth for therespective periods indicated the prices of the common stock in theover-the-counter market, as reported and summarized by the OTC Bulletin Board.Such prices are based on inter-dealer bid and asked prices, without markup,markdown, commissions, or adjustments and may not represent actualtransactions.

 
| **Calendar Quarter Ended** |   | **High Bid ($)** |   | **Low Bid ($)** |   |
|----------------------------|--------|------------------|--------|-----------------|--------|
|                       |   |             |   |            |   |
| March 31, 2002             |   | $                | 2.40   |            | $      | 1.90 |   |
| June 30, 2002              |   | $                | 1.75   |            | $      | 1.25 |   |
| September 30, 2002         |   | $                | 2.00   |            | $      | 1.50 |   |
| December 31, 2002          |   | $                | 1.05   |            | $      | 0.45 |   |
|                       |   |             |   |            |   |
| March 31, 2003             |   | $                | 0.38   |            | $      | 0.25 |   |
| June 30, 2003              |   | $                | 0.65   |            | $      | 0.40 |   |
| September 30, 2003         |   | $                | 0.65   |            | $      | 0.40 |   |
| December 31, 2003          |   | $                | 0.65   |            | $      | 0.38 |   |

 

Since inception, no dividends have been paidon our common stock. We intend to retain any earnings for use in our businessactivities, so it is not expected that any

 

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dividends on our common stock will be declared and paid in theforeseeable future. At December 31, 2003 there were approximately 378 holdersof record of our common stock.

 

Anyfuture dividends will be at the discretion of the board of directors, aftertaking into account various factors, including among others, operations,current and anticipated cash needs and expansion plans, the income tax lawsthen in effect, the requirements of Utah law, and any restrictions that may beimposed by our future credit arrangements.

 

OnDecember 23, 2003 we issued twenty five thousand unregistered shares of commonstock to Carl E. Worboys, a resident of the State of New York, and eightythousand unregistered shares to Jass Equities, Inc., a resident of the State ofNew York in lieu of services rendered to our company. The shares were issuedunder Section 4(2) of the Securities Act of 1933, as amended.

 

**ITEM 6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITIONS AND RESULTS OF OPERATIONS**

 

**The following discussion andanalysis should be read in conjunction with our consolidated financial statements and notes.**

 

Certainstatements contained below are forward-looking statements (rather thanhistorical facts) that are subject to risks and uncertainties that could causeactual results to differ materially from those described in the forward-lookingstatements.

 

**GENERAL**

 

As of December 31, 2003 we owned and operated a network ofapproximately 567 payphones.  Ourinstalled payphone base generated revenue for the fiscal year 2002 and 2003from the following three sources.

 

1. Commission Income. Commission income includescommissions from operator service telecommunications companies and commissionsfor toll free calls from all payphones. The commissions for operator servicesare paid 45 days in arrears. Dial Around compensation is billed quarterly and receivedthree and one half months behind the billed quarter.

 

2.Coin calls. Coin calls represent calls paid for by customers who depositcoins into the payphones. Coin call revenue is recorded as the actual amount ofcoins collected from the payphones.Some coin collections are made on a daily basis and others more often if theparticular payphone has significant usage. The coins are counted in house anddeposited weekly.

 

3. Payphone sales, repairs and pre-paid phonecards. We derive income from the sale and repair of a payphone. We cannegotiate the sale, of a payphone to a site owner

 

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whenit becomes cost prohibitive to maintain or if a customer offers to buy thephone at a price that is favorable to our company. The new owner or lesseebecomes responsible for the maintenance and operational costs of thepayphone.  We sell pre-paid phone cardsat some of our payphone locations. We also derive a profit from any commissionsplit that is negotiated between the parties as a result of a sale or lease ofa payphone. Sales and repairs of payphones and the sale of pre-paid phone cardsare not subject to the same collection delays as the other types of operatingincome.

 

The principal costs relatedto the ongoing operation of the Company’s payphones include telephone charges,commissions, and service, maintenance and network costs.  Telephone charges consist of payments madeby the Company to local exchange carriers and long distance carriers for theline charge and use of their networks. Commission expense represents payments to owners of locations where theCompany’s payphones are installed. Service, maintenance and network costs represent the cost of servicingand maintaining the payphones on an ongoing basis.

 

Weather conditions affect ourrevenue stream because we operate in the Northeastern part of the country.Revenues drop off significantly during the winter because most of our phonesare outdoors. The spring and summer periods show a significant increase inpayphone usage. Revenues are generally lowest in the first quarter and highestin the third quarter.

** **

**The increase use of wirelesscommunication services has substantially impacted the public’s use ofpayphones, and we believe that this trend will continue to increase as the costfor wireless usage declines.  However,we have attempted to minimize some of the impact from wireless use by avoidingtraditional travel locations where wireless communication is high.  There are no guarantees that we will be successfulin minimizing the effects of wireless usage.**

 

**YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEARENDED DECEMBER 31, 2002**

 

**Revenues**

 

Total revenuedecreased by $103,066 or approximately 13.33%, from $773,447 in the year endedDecember 31, 2002 to $670,381 in the year ended December 31, 2003.  This decrease was primarily attributable toremoval of unprofitable phone locations and lower call volumes on our payphonesresulting from the growth in wireless communications.  We reduced our network from approximately 681 payphones on 2002to approximately 567 in 2003.

 

Commissionsdecreased by $51,056 approximately 60.1%, from $84,923 in the year endedDecember 31, 2002 to $33,867 in the year ended December 31, 2003.  This decreased was a result of our reductionin payphones, fewer operator assisted calls, and the increase competition fromthe wireless communication industry.

 

13

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Coin callrevenues decreased by $141,741 or approximately 43.4%, from $326,697 in yearended December 31, 2002 to $184,956 in the year ended December 31, 2003.  The decrease in coin call revenue wasprimarily attributable to the reduced number of payphones we operated, coupledwith the increased competition from wireless communication services.

 

Non-coin callrevenue, which is comprised primarily of dial-around revenue and operatorservice revenue increased $122,481 approximately 65.5% from $187,017 in theyear ended December 31, 2002 to $309,498 in the year ended December 31, 2003.   Approximately $92,200 of this increase isattributable to a one-time settlement brought forth by the FCC’s Order on theCompensation True-up.  This orderresolved a hosts of open dial-around compensation “issues” and mostimportantly, setting forth the terms for the “true-up” of past dial-aroundpayments for the so-called “interim” and “intermediate” time periods.  The order reconciles prior FCC and Courtdecisions regarding dial-around compensation payments and basically brings allprior payments in line with the 24 cents per call rate (the current and ongoingrate).  The remaining increase of$30,281 was primarily attributable to the WorldCom, Inc. chapter 11 bankruptcyin 2002 which reduced our non-coin revenue in 2002.

 

Service & Repair Sales increased by $5,519,when compared to the same period in 2002.  Equipment sales decreased by $2,636, from $9,256 for the year endingDecember 31, 2002 to $6,620 in the year ending December 31, 2003.   Our phone card and ATM revenue decreased by$35,633 when compared to 2002.  Thisdecrease is due to increased competition from other phone card vendors alongwith loss of various locations.   Theincreased competition forced us to reduce our phone card sites by approximately42% in addition to losing our ATM sites in 2003.

 

**Cost of Sales**

** **

**Our overall cost of salesdecreased for the year ending December 31, 2003 by $275,383 or approximately35.1% when compared to the year ending December 31, 2002.   Our telecommunication costs decreased by$167,195, the cost of providing telephone service to 567 payphones in 2003 ascompared to 681 payphones in 2002. This number reflects an overall reduction of114 payphones due to our ongoing strategy of identifying and removingunprofitable payphones.  Once a lowrevenue payphone is identified, we offer the site owner an opportunity topurchase the equipment.  If the siteowner does not purchase the payphone, we remove it from the site.**

** **

Our commissions payable decreased by $1,395 due to a decrease inpayphone usage, a direct response to increase use of cellular phones andpre-paid phone cards.  In 2003 ourcontractor’s fees decreased by $38,674 this decrease is due to the eliminationof contractors and the re-organization of routes to manage them more efficiently.  Depreciation expense decreased by $74,926when compared to the same period in 2002. This decrease is due to certainassets being fully depreciated and our on going strategy of identifyingunprofitable payphones, and selling them to the site owners.  Once a payphone is sold to the site owner itis removed from our assets and depreciation

 

14

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schedules.  We own telephone equipment and motorvehicles, which provide a service for a number of years.  The term of service is commonly referred toas the “useful life” of the asset. Because an asset such as telephone equipment or motor vehicle isexpected to provide service for many years, it is recorded as an asset, ratherthan an expense, in the year acquired.  A portion of the cost of the long-lived asset is reported as an expenseduring the cost of an asset to expense over its life in a rational andsystematic manner.

 

Our cost of sales for repairs, service, travel and supplies increasedby $12,992 a direct result of utilizing employees to provide service overcontractors.  Our phone card expensesdecreased by $6,185 in 2003.  Thisdecrease is due to the reduced number of phone card machine sites in 2003.

** **

**Operation and Administrative Expenses**

** **

**Operating expenses decreasedby $104,149 or approximately 19.92% over the same period in 2002.   This decrease in operating expense is adirect result of our management team’s ongoing efforts to cut expenses and runthe company as efficiently as possible. Salaries and related payroll taxes were reduced by $41,375 when comparedto the same expenses for 2002. This decrease is due the elimination of threeemployees, one technician and two clerical assistants. Our insurance expensedecreased by $12,992 when compared to the fiscal year 2002.  This decrease is primarily attributable tothe decrease in payroll.   Rentdecreased by $1,338 when compared to 2002. Telephone, utilities, office, and other miscellaneous expenses, accountfor a decrease of $16,247 when compared to the same period ending December 31,2002.  Professional fees decreased by$24,456 over 2002.  These are fees wepay to accountants and attorneys throughout the year for various tasks.  Expenses for outside services increased by$6,191 over 2002. This increase is due in part to utilizing an outsideconsulting company. Vehicle expense decreased by $13,932 in 2003 when comparedto 2002.  This decrease is primarilyattributable to the replacement of older vehicles with new vehicles thatrequire less maintenance.**

** **

**Interest expense in the year ended December 31, 2003increased by $12,063 from $37,225 in the year ended December 31, 2002 to$49,288 in the year ended December 31, 2003. This increase is attributable to increased borrowing levels related toour line of credit.  We drew $34,200 onour line of credit in 2003.**

** **

**GOING CONCERN QUALIFICATION**

 

**In his Independent Auditor’s Report, our auditor statesthat we have incurred annual losses since inception raising substantial doubtabout our ability to continue as a going concern.**

 

15

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**LIQUIDITYAND CAPITAL RESOURCES**

 

**Cash Flow**

 

**Our primary sources of liquidity have been cash fromoperations and borrowing from various credit facilities.   As of December 31, 2003 we have a notepayable to Key Bank in the amount of $84,559. We have an additional unsecured line of credit with the Lilly BeterCapital Group, Ltd. in the amount of $500,000. As of December 31, 2003 we haveused $444,500.**

** **

**RISKS ASSOCIATED WITH OUR BUSINESS**

 

Inaddition to the other information in this report, the following risks should beconsidered carefully 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 MAY NOT SUCCEED OR BECOME PROFITABLE.**

 

We will need to generatesignificant revenues to achieve profitability and we may be unable to do so.Even if we do achieve profitability, we may not be able to sustain or increaseprofitability in the future. We expect that our expenses will continue toincrease and there is no guarantee that we will not experience operating lossesand negative cash flow from operations for this fiscal year or for theforeseeable future. If we do not achieve or sustain profitability, then we maybe unable to continue our operations.

 

**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 product developmentand deployment, respond to competitive pressures, develop new or enhancedproducts, or take advantage of unanticipated acquisition opportunities. Wecannot be certain we will be able to find such additional financing onreasonable terms, or at all. If we are unable to obtain additional financingfrom Lilly Beter Capital Group, Ltd. or Key Bank when needed, we could berequired to modify our business plan in accordance with the extent of availablefinancing.

 

**IF WE ENGAGE IN ACQUISITIONS, WE MAY EXPERIENCE SIGNIFICANTCOSTS AND DIFFICULTY ASSIMILATING THE OPERATIONS OR**

 

16

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**PERSONNEL OFTHE ACQUIRED COMPANIES, WHICH COULD THREATEN****OUR FUTUREGROWTH.**

 

If we make any acquisitions,we could have difficulty assimilating the operations, technologies and productsacquired or integrating or retaining personnel of acquired companies. Inaddition, acquisitions may involve entering markets in which we have no orlimited direct prior experience. The occurrence of any one or more of thesefactors could disrupt our ongoing business, distract our management andemployees and increase our expenses. In addition, pursuing acquisitionopportunities could divert our management’s attention from our ongoing businessoperations and result in decreased operating performance. Moreover, ourprofitability may suffer because of acquisition-related costs or amortizationof acquired goodwill and other intangible assets. Furthermore, we may have toincur debt or issue equity securities in future acquisitions.  The issuance of equity securities woulddilute our existing stockholders.

 

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

** **

Many of our current and potentialcompetitors have more employees than we do. Our success depends in large parton our ability to attract, retain and motivate highly qualified management andtechnical personnel. We face intense competition for qualified personnel. Theindustry in which we compete has a high level of employee mobility andaggressive recruiting of skilled personnel. If we are unable to continue toemploy our key personnel or to attract and retain qualified personnel in thefuture, our ability to successfully execute our business plan will bejeopardized and our growth will be inhibited.

 

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

 

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

 

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

 

17

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•                  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.

** **

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

 

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

 

If our directors orofficers become exposed to liabilities invoking the indemnification provisions,we could be exposed to additional unreimbursable costs, including legal fees.Our articles of incorporation and bylaws provide that our directors andofficers will not be liable to us or to any shareholder and will be indemnifiedand held harmless for any consequences of any act or omission by the directorsand officers unless the act or omission constitutes gross negligence or willfulmisconduct. Extended or protracted litigation could have a material adverseeffect on our cash flow.

** **

**WE WILL DEPEND ON OUTSIDE MANUFACTURINGSOURCES AND SUPPLIERS.**

 

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

 

18

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**OUR STOCKPRICE MAY BE VOLATILE.**

 

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

 

•                  Variations in our quarterlyoperating results;

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

•                  Changes in market valuations oftelecommunications equipment companies;

•                  Announcements by us of significantcontracts, acquisitions, strategic partnerships, joint ventures or capitalcommitments;

•                  Additions or departures of keypersonnel;

•                  Future sales of our common stock;

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

•                  Commencement of or involvement inlitigation.

 

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

 

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

 

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

 

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

** **

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

 

The penny stock regulationsrequire that broker-dealers who recommend penny stocks to persons other 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

 

19

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must obtain a signed and dated acknowledgment from thepurchaser demonstrating that the purchaser has actually received the required riskdisclosure document before effecting a transaction in penny stock. Theserequirements have historically resulted in reducing the level of tradingactivity in securities that become subject to the penny stock rules.

 

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

 

**ITEM 7.   FINANCIAL STATEMENTS**

 

**USIP.COM,INC.**

 

**CONSOLIDATEDFINANCIAL STATEMENTS**

 

 

**TABLE OF CONTENTS**

 

**INDEPENDENT AUDITORS’ REPORT**

 
| **FINANCIAL  STATEMENTS** |
|---------------------------|
|                      |   |
|                      | Consolidated Balance Sheet  At December 31, 2003 and 2002 |
|                      |   |
|                      | Consolidated Statements of Income and  Retained Earnings  For the Years Ended December 31, 2003 and 2002 |
|                      |   |
|                      | Consolidated Statements of Stockholders’ Equity  For the Years Ended December 31, 2003 and 2002 |
|                      |   |
|                      | Consolidated Statements of Cash Flows  For the Years Ended December 31, 2003 and 2002 |
|                      |   |
|                      | Notes to Consolidated Financial Statements  For the Years Ended December 31, 2003 and 2002 |

 

20

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Report ofIndependent Auditors

 

The Stockholders and Board of Directors

USIP.COM, Inc.

 

We have audited the accompanying consolidated balance sheets ofUSIP.Com, Inc. as of December 31, 2003 and 2002 and the related consolidatedstatements of income, stockholders’ equity and cash flows for the years thenended.  These financial statements arethe responsibility of the Company’s management.  Our responsibility is to express an opinion on these financialstatements base on our audit.

 

We conducted our audit in accordance with generally accepted auditingstandards generally accepted in the USA. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatements.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the overall financial statementpresentation.  We believe that our auditprovides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of USIP.Com, Inc. andsubsidiaries as of December 31, 2003 and 2002, and the results of operationsand their cash flows for the year then ended, in conformity with generallyaccepted accounting principles, generally accepted in the USA.

 

The accompanying consolidated financial statements have been prepared assumingthat the Company will continue as a going concern.  As discussed in Note 10 to the financial statements, the Companyhas incurred annual operating losses since inception.  As of  December 31, 2003,the Company has increased its line of credit borrowings to meet operatingcosts, and has seen stockholders’ equity declining.  The financial statements do not include any adjustments toreflect the possible future effects on the recoverability and classification ofassets or the amounts and classification of liabilities that might result fromthe outcome of the foregoing uncertainties.

 

 

Anderson, Forse & Co., Ltd.

 

March 23, 2003

 

21

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USIP.COM, INC

CONSOLIDATEDBALANCE SHEET

December 31

 
|                                                                                                       |   | **2003**   |    | **2002**   |   |
|------------------------------------------------------------------------------------------------------------|--------|------------|---------|------------|--------|
| ASSETS                                                                                                     |   |       |    |       |   |
| CURRENT ASSETS                                                                                             |   |       |    |       |   |
| Cash                                                                                                       |   | $          | 6,121   |       | $      | 7,021 |   |
| Commissions and Sales Receivable, Net                                                                      |   | 109,639    |    | 125,276    |   |
| Inventory                                                                                                  |   | 20,289     |    | 50,782     |   |
| Prepaid Expenses                                                                                           |   | 4,989      |    | 3,932      |   |
| TOTAL CURRENT ASSETS                                                                                       |   | 141,038    |    | 187,011    |   |
| FIXED ASSETS                                                                                               |   |       |    |       |   |
| Telephone and Office Equipment                                                                             |   | 1,882,353  |    | 1,899,122  |   |
| Vehicle                                                                                                    |   | 76,367     |    | 76,367     |   |
|                                                                                                       |   | 1,958,720  |    | 1,975,489  |   |
| Less: Accumulated Depreciation                                                                             |   | (1,358,594 | )       | (1,151,240 | )      |
|                                                                                                       |   |       |    |       |   |
| Net Fixed Assets                                                                                           |   | 600,126    |    | 824,249    |   |
|                                                                                                       |   |       |    |       |   |
| TOTAL ASSETS                                                                                               |   | $          | 741,164 |       | $      | 1,011,260 |   |
|                                                                                                       |   |       |    |       |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                  |   |       |    |       |   |
| Current Liabilities                                                                                        |   |       |    |       |   |
| Accounts Payable                                                                                           |   | $          | 175,060 |       | $      | 201,812 |   |
| Line of Credit                                                                                             |   | 508,356    |    | 501,852    |   |
| Accrued Payroll and Payroll Taxes                                                                          |   | 5,706      |    | 5,896      |   |
| Accrued State Gross Receipts Taxes                                                                         |   | 7,049      |    | 9,621      |   |
| Other Accrued Expenses                                                                                     |   | 2,960      |    | 28,663     |   |
| Current Portion of Long-Term Debt                                                                          |   | —     |    | 18,253     |   |
|                                                                                                       |   |       |    |       |   |
| TOTAL CURRENT LIABILITIES                                                                                  |   | 699,131    |    | 766,097    |   |
|                                                                                                       |   |       |    |       |   |
| Long-Term Liabilities                                                                                      |   |       |    |       |   |
| Notes Payable                                                                                              |   | 138,179    |    | 72,302     |   |
| Less Current Portion                                                                                       |   | 0          |    | 18,253     |   |
|                                                                                                       |   |       |    |       |   |
| TOTAL LONG-TERM LIABILITIES                                                                                |   | 138,179    |    | 54,049     |   |
|                                                                                                       |   |       |    |       |   |
| TOTAL LIABILITIES                                                                                          |   | 837,310    |    | 820,146    |   |
|                                                                                                       |   |       |    |       |   |
| STOCKHOLDERS’ EQUITY                                                                                  |   |       |    |       |   |
| Common Stock, $.01 par value  25,000,000 Shares authorized, 17,804,388  shares issued and outstanding |   | 178,044    |    | 176,994    |   |
|                                                                                                       |   |       |    |       |   |
| Additional Paid In Capital                                                                                 |   | 1,462,558  |    | 1,442,608  |   |
|                                                                                                       |   |       |    |       |   |
| Retained Earnings                                                                                          |   | (1,736,748 | )       | (1,428,488 | )      |
|                                                                                                       |   |       |    |       |   |
| TOTAL STOCKHOLDERS’ EQUITY                                                                            |   | (96,146    | )       | 191,114    |   |
|                                                                                                       |   |       |    |       |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                            |   | $          | 741,164 |       | $      | 1,011,260 |   |

 

See Accountant’s Report and Notes To Financial Statement

 

F-3

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USIP.COM, INC.

CONSOLIDATED STATEMENT OF INCOME AND RETAINEDEARNINGS

 

FOR THE YEARS ENDED DECEMBER 31

 
|                               |   | **2003**   |       | **2002**   |   |
|------------------------------------|--------|------------|------------|------------|--------|
| SALES                              |   |       |       |       |   |
| Commissions                        |   | $          | 33,867     |       | $      | 84,923 |   |
| Coin Collections                   |   | 184,956    |       | 326,697    |   |
| Dial Around                        |   | 309,498    |       | 187,017    |   |
| Equipment Sales                    |   | 6,620      |       | 9,256      |   |
| Phone Card Sales                   |   | 8,597      |       | 36,070     |   |
| ATM Revenue                        |   | —     |       | 8,160      |   |
| Service and Repair Sales           |   | 126,843    |       | 121,324    |   |
| Total Sales                        |   | 670,381    |       | 773,447    |   |
|                               |   |       |       |       |   |
| COST OF SALES                      |   |       |       |       |   |
| Telecommunications Costs           |   | 217,762    |       | 384,957    |   |
| Commissions                        |   | 2,741      |       | 4,136      |   |
| Contractor Fees                    |   | 9,568      |       | 48,242     |   |
| Repairs and Service Supplies       |   | 45,001     |       | 33,548     |   |
| Depreciation                       |   | 214,674    |       | 289,600    |   |
| Phone Cards and Phone Costs        |   | 8,344      |       | 14,529     |   |
| Travel                             |   | 11,221     |       | 9,682      |   |
| Total Cost of Sales                |   | 509,311    |       | 784,694    |   |
|                               |   |       |       |       |   |
| GROSS PROFIT                       |   | 161,070    |       | (11,247    | )      |
|                               |   |       |       |       |   |
| OPERATING EXPENSES                 |   |       |       |       |   |
| Salaries and Wages                 |   | 184,088    |       | 220,681    |   |
| Payroll Taxes                      |   | 16,112     |       | 20,894     |   |
| Insurance                          |   | 44,664     |       | 57,656     |   |
| Telephone                          |   | 13,564     |       | 23,307     |   |
| Outside Services                   |   | 20,231     |       | 14,040     |   |
| Utilities                          |   | 8,277      |       | 8,305      |   |
| Vehicle Expenses                   |   | 2,767      |       | 16,699     |   |
| Rent                               |   | 61,318     |       | 62,656     |   |
| Professional Fees                  |   | 55,466     |       | 79,922     |   |
| Travel and Entertainment           |   | 2,718      |       | 4,763      |   |
| Office Expense                     |   | 9,521      |       | 13,952     |   |
| Total Operating Expenses           |   | 418,726    |       | 522,875    |   |
|                               |   |       |       |       |   |
| OPERATING INCOME (L0SS)            |   | (257,656   | )          | (534,122   | )      |
|                               |   |       |       |       |   |
| OTHER INCOME (EXPENSE)             |   |       |       |       |   |
| Interest Income                    |   | —     |       | 53         |   |
| Gain on Sale of Equipment          |   | 6,871      |       | 2,293      |   |
| Loss on Equipment Obsolescence     |   | —     |       | (292,666   | )      |
| Prov For State Tax                 |   | (8,187     | )          | (10,511    | )      |
| Interest Expense                   |   | (49,288    | )          | (37,225    | )      |
| Total Other Income                 |   | (50,604    | )          | (338,056   | )      |
|                               |   |       |       |       |   |
| NET INCOME (LOSS)                  |   | (308,260   | )          | (872,178   | )      |
|                               |   |       |       |       |   |
| RETAINED EARNINGS - BEGINNING      |   | (1,428,488 | )          | (556,310   | )      |
|                               |   |       |       |       |   |
| RETAINED EARNINGS - ENDING         |   | $          | (1,736,748 | )          | $      | (1,428,488 | ) |
|                               |   |       |       |       |   |
| Weighted Common Shares Outstanding |   | 17,804,388 |       | 17,699,388 |   |
|                               |   |       |       |       |   |
| Net Loss per Common Share          |   | $          | —     |       | $      | — |   |

 

See Accountant’s Report and Notes To Financial Statement

 

F-4

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USIP.COM, INC

CHANGES INSTOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2002 and 2003

 
|                            |   |       |   |    |    | **Additional  Paid-in  Capital** |      | **Retained  Earnings** |   | **Total  Stockholder’s  Equity** |       |
|---------------------------------|--------|------------|--------|---------|---------|----------------------------------|-----------|------------------------|--------|---------------------------------------|------------|
| **Common  Stock**               |
| **Shares**                      |   | **Amount** |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Balance as of January 1, 2002   |   | 17,619,388 |   | $       | 176,194 |                             | $         | 1,382,358              |   | $                                     | (556,310   | ) | $ | 1,002,242 |   |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Issuance of Common Stock        |   | 20,000     |   | 200     |    | 15,850                           |      |                   |   | 16,050                                |       |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Issuance of Common Stock        |   | 60,000     |   | 600     |    | 44,400                           |      |                   |   | 45,000                                |       |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Net Loss - 2002                 |   |       |   |    |    |                             |      | (872,178               | )      | (872,178                              | )          |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Balance as of December 31, 2002 |   | 17,699,388 |   | $       | 176,994 |                             | $         | 1,442,608              |   | $                                     | (1,428,488 | ) | $ | 191,114 |   |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Balance as of January 1, 2003   |   | 17,699,388 |   | 176,994 |    | 1,442,608                        |      | (1,428,488             | )      | 191,114                               |       |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Issuance of Common Stock        |   | 80,000     |   | 800     |    | 15,200                           |      |                   |   | 16,000                                |       |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Issuance of Common Stock        |   | 25,000     |   | 250     |    | 4,750                            |      |                   |   | 5,000                                 |       |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Net Loss-2003                   |   |       |   |    |    |                             |      | (308,260               | )      | (308,260                              | )          |
|                            |   |       |   |    |    |                             |      |                   |   |                                  |       |
| Balance as of December 31, 2003 |   | 17,804,388 |   | 178,044 |    | $                                | 1,462,558 |                   | $      | (1,736,748                            | )          | $ | (96,146 | ) |

 

See Accountant’s Report and Notes To Financial Statement

 

F-5

----

 

USIP.COM, INC

CONSOLIDATEDSTATEMENT OF CASH FLOWS

Years Ended December 31, 

 
|                                                                                            |   | **2003** |     | **2002** |   |
|-------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
|                                                                                            |   |     |     |     |   |
| Cash Flows From Operating Activities:                                                           |   |     |     |     |   |
| Net (Loss)                                                                                      |   | $        | (308,260 | )        | $      | (872,178 | ) |
| Adjustments to reconcile net  (loss) to net cash provided (used) by  operating activities: |   |     |     |     |   |
| Depreciation Expense                                                                            |   | 214,674  |     | 289,600  |   |
| Gain on Sale of Equipment                                                                       |   | (6,871   | )        | (2,293   | )      |
| Loss on Equipment Obsolesence                                                                   |   | —   |     | 292,666  |   |
| (Increase) Decrease in Commission  Receivables                                                  |   | 15,637   |     | 19,496   |   |
| (Increase) Decrease in Inventory                                                                |   | 30,493   |     | (4,372   | )      |
| (Increase) Decrease in Prepaid Insurance                                                        |   | 1,057    |     | (1,066   | )      |
| Increase (Decrease) in Accounts Payable                                                         |   | (26,752  | )        | (92,794  | )      |
| Increase (Decrease) in Accrued Expenses                                                         |   | 12,993   |     | 5,788    |   |
| Increase (Decrease) in Gross Receipts Tax                                                       |   | (2,572   | )        | (3,415   | )      |
|                                                                                            |   |     |     |     |   |
| Net cash (used) by operating activities                                                         |   | (69,601  | )        | (368,568 | )      |
|                                                                                            |   |     |     |     |   |
| Cash Flows From Investing Activities:                                                           |   |     |     |     |   |
| Proceeds from Sale of Equipment                                                                 |   | 16,769   |     | —   |   |
|                                                                                            |   |     |     |     |   |
| Net cash (used) by investing activities                                                         |   | 16,769   |     | —   |   |
|                                                                                            |   |     |     |     |   |
| Cash Flows From Financing Activities:                                                           |   |     |     |     |   |
| Proceeds received from Line of Credit                                                           |   | 82,614   |     | 300,300  |   |
| Proceeds from issuance of Notes Payable                                                         |   | —   |     | 54,143   |   |
| Payments on Notes Payable                                                                       |   | (18,682  | )        | (23,279  | )      |
| Payments on Lines of Credit                                                                     |   | (33,000  | )        | (11,400  | )      |
| Proceeds from issuance of stock                                                                 |   | 21,000   |     | 45,000   |   |
|                                                                                            |   |     |     |     |   |
| Net cash provided by financing activities                                                       |   | 51,932   |     | 364,764  |   |
|                                                                                            |   |     |     |     |   |
| Net Increase (Decrease)  in cash                                                           |   | (900     | )        | (3,804   | )      |
|                                                                                            |   |     |     |     |   |
| Cash - Beginning of Period                                                                      |   | 7,021    |     | 10,825   |   |
|                                                                                            |   |     |     |     |   |
| Cash - End of Period                                                                            |   | $        | 6,121    |     | $      | 7,021 |   |
|                                                                                            |   |     |     |     |   |
| Supplemental Disclosures of Cash Flow  Information:                                             |   |     |     |     |   |
| Cash Paid During Period The Period For:                                                         |   |     |     |     |   |
| Interest                                                                                        |   | $        | 10,402   |     | $      | 25,446 |   |
| Income Taxes                                                                                    |   | $        | 8,937    |     | $      | — |   |

 

F-6

----

 

**USIP.COM, INC.**

**CONSOLIDATED NOTES TO THE FINANCIALSTATEMENTS**

**December 31, 2003**

 

**NOTE1.****                                                ****NATURE OF BUSINESS ANDSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**NATUREOF BUSINESS**

 

**USIP.COM, Inc. owns, operates and manages privately ownedpublic payphones in New York State and Pennsylvania. The Company derives itsrevenue from coin-calls, non-coin calls, sales and service of payphones andpre-paid phone cards.**

 

# **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

** **

**MANAGEMENT ESTIMATES**

 

**The preparation of financial statements in conformity withgenerally accepted accounting principals requires management to make estimatesand assumptions that effect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from those estimates.**

 

**PRINCIPLES OF CONSOLIDATION**

** **

**The accompanying consolidated Financial Statements includethe accounts of USIP.COM, Inc. and its wholly owned subsidiaries, Datone, Inc.and NB Payphones Ltd.  Intercompanytransactions and balances have been eliminated in consolidation andcombination.**

** **

**CONCENTRATIONS OF CREDIT RISK**

** **

**The Company’s payphones are located primarily in New YorkState and parts of Pennsylvania.  Use ofthose payphones may be affected by economic conditions in those areas.  The company has experienced about a 30% dropin revenue’s, due to increased competition from other payphone providers andincrease usage of wireless communications.**

** **

**The Company maintains cash balances with a financialinstitution insured by the Federal Deposit Insurance Corporation up to$100,000. There are no uninsured balances at December 31, 2003.**

** **

**CASH AND CASH EQUIVALENTS**

** **

**The Company considers all highly liquid instruments with amaturity of three months or less when purchased to be cash equivalents forpurposes of classification in the balance sheets and statement of cash flows.Cash and Cash equivalents consists of cash in bank (checking) accounts.**

** **

**FIXED ASSETS AND DEPRECIATION**

** **

**Fixed assets are stated at cost. Depreciation is calculatedon a straight-line basis over the useful lives of the related assets, whichrange from five to seven years.**

** **

**INCOME TAXES**

** **

**Income taxes are accounted for in accordance with Statementof Financial Accounting Standards No. 109, “Accounting for Income Taxes”. UnderSFAS No. 109, deferred income taxes are recognized using the asset andliability method by applying tax rates to cumulative temporary differencesbased on when and**

** **

**F-7**

----

** **

**how they are expected to affect the tax return. Deferredtax assets and liabilities are adjusted for income tax rate changes.**

** **

**NET (LOSS) PER COMMON SHARE**

** **

**Net loss per common share has been calculated by taking thenet loss for the current period and dividing by the weighted average sharesoutstanding at the end of the period.**

** **

**REVENUE RECOGNITION**

** **

**The Company derives its primary revenue from the sourcesdescribed below, which includes dial around revenues, coin collections, andcommissions. Other revenues generated by the company include, phone card sales,telephone equipment repairs and sales.**

** **

**Dial around revenues are generated from calls to gainaccess to a different long distance carrier than is already programmed into thephone. Revenues from dial around calls are recorded based upon estimates untilthe coin collection revenues are generated when callers deposit coins into thephones to make calls. Coin revenues are recorded in an amount equal to thecoins collected.**

** **

**ADVERTISING**

** **

**The corporation expenses advertising costs as incurred.Advertising expense amounted to $ -0- and $2,691 for the years ended December31, 2003 and 2002 respectively.**

** **

**NOTE 2.                INVENTORY**

** **

**Inventory is valued at the lower of cost, determined on thefirst-in, first-out basis (FIFO), or market value. At December 31, inventoryconsists of the following:**

** **
|                  |   | **2003** |   | **2002** |   |
|-----------------------|--------|----------|--------|----------|--------|
|                  |   |     |   |     |   |
| Calling Cards         |   | $        | 4,058  |     | $      | l0,156 |   |
| Parts and Accessories |   | 16,231   |   | 40,626   |   |
|                  |   | $        | 20,289 |     | $      | 50,782 |   |

 

**NOTE 3.                COMMISSIONSAND SALES RECEIVABLE**

** **

**Commissions and Sales Receivable consists of the followingat December 31:**

 
|                                  |   | **2003** |    | **2002** |   |
|---------------------------------------|--------|----------|---------|----------|--------|
|                                  |   |     |    |     |   |
| Commissions Receivable                |   | $        | 108,806 |     | $      | 113, 030 |   |
| Sales Receivable                      |   | 833      |    | 12, 245  |   |
| Commissions and Sales Receivable, Net |   | $        | 109,639 |     | $      | 125,275 |   |

 

**NOTE 4.                LINEOF CREDIT**

** **

**REVOLVING LINE OF CREDIT**

** **

**The Company has a revolving line of credit, of which $444,500 was outstanding at December 31, 2003. Advances on the credit line arepayable on demand and carry an interest rate of 8%-10%.**

 

F-8

----

 

**NOTE 5.                LONG-TERMDEBT**

 

Long-term debt as of December31 is as follows:

 
|                                                                      |   | **2003** |    | **2002** |   |
|---------------------------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                                      |   |     |    |     |   |
| Note Payable, Vehicle, Monthly payments of  $462 with interest at 9.25%   |   | $        | 6,401   |     | $      | 11,106 |   |
|                                                                      |   |     |    |     |   |
| Note Payable, Vehicle, Monthly payments of  $261 with interest at 12.4%   |   | 2,327    |    | 4,654    |   |
|                                                                      |   |     |    |     |   |
| Note Payable, Bank, Monthly payments of  $1,825 with interest at 7.5%     |   | 84,559   |    | -0-      |   |
|                                                                      |   |     |    |     |   |
| Note Payable, Vehicles, Monthly payment of  $535 w/interest at 8.2%       |   | 23,613   |    | 28,251   |   |
|                                                                      |   |     |    |     |   |
| Note Payable, Vehicles, Monthly payment of  $589 w/interest at  8.2% |   | 21,114   |    | 26,515   |   |
|                                                                      |   |     |    |     |   |
| Lease on ATM Machine                                                      |   | 165      |    | 1,776    |   |
|                                                                      |   | $        | 138,179 |     | $      | 72,302 |   |

** **

**Aggregate annual maturities required on long-term debt atDecember 31, 2003  are as follows:**

** **
| 2004       |   | $      | 27,592  |   |
|------------|--------|--------|---------|--------|
| 2005       |   | 36,301 |    |
| 2006       |   | 43,700 |    |
| 2207       |   | 24,614 |    |
| 2208       |   | 5,972  |    |
| Thereafter |   | -0-    |    |
|       |   | $      | 138,179 |   |

 

**NOTE 6. OPERATING LEASES**

 

The Company leases its corporate offices that are accounted for as anon-cancelable operating lease.  Thelease has a term of 36 months expiring December 2005.  Future minimum lease payments through maturity are as follows:

 
| **Years Ending  December 31,** |   |   | ** ** |
|--------------------------------|--------|--------|------------|
| 2004                           |   | 60,641 |       |
| 2005                           |   | 60,641 |       |
|                           |   | $      | 121,282    |   |
|                                |        |        |            |  |

** **

**NOTE 7.                MAJORDIAL AROUND COMPENSATION PROVIDERS (COMMISSIONS)**

 

**The Company received approximately 95% of total dial aroundand zero-plus compensation (commissions) from two providers.**

** **

**NOTE 8.                INCOMETAXES**

** **

**OPERATING LOSS CARRYFORWARDS**

** **

**The Company has loss carryforwards totaling $ 888,643 thatmay be offset against future taxable income. If not used, the carryforwardswill expire as follows:**

 

F-9

----

 
|      |   | **Operating  Losses** |    |
|-----------|--------|-----------------------|---------|
| Year 2020 |   | $                     | 343,998 |   |
| Year 2021 |   | 544,645               |    |
|      |   | $                     | 888,643 |   |

 

**NOTE 9.                FIXEDASSETS**

 

**The Company has chosen to write down the carrying value ofequipment for about $292,000 during the year ended December 31, 2002 and thecorresponding loss was recorded.  Thisadjustment was due to obsolescence of some the Company’s telephone equipment.**

 

**NOTE 10.              GOINGCONCERN CONSIDERATIONS**

 

**The Company has incurred annual operating losses sinceinception.  Prior to December 31, 2003,the Company has increased its line of credit borrowings to $500,000 to meetoperating expenses, while revenue’s have declined over 13% for the year endedDecember 31, 2003.  The accompanyingfinancial statements do not include any adjustments related to therecoverability and classification of recorded assets, or the amounts andclassification of liabilities that might be necessary in the event that thecompany cannot continue in existence. The Company also had one of its credit lines converted to fixed noteduring 2003.  The Company’s ratios arealso reason for concern.  The companyhas a current ratio of just .2, and has a deficit in stockholders’ equity.**

 

**ITEM 8.   CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

NONE

 

**ITEM 8A                CONTROLS AND PROCEDURES**

** **

a) As of a date within 90 days of the filing date of this annualreport, an evaluation of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures was performed under thesupervision and with the participation of the Company’s President andController, pursuant to Exchange Act Rule 13a-14(c). Based upon thatevaluation, the Company’s President and Controller have concluded that theCompany’s disclosure controls and procedures are effective for the purpose ofensuring that material information required to be in this annual report is madeknown 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.

 

F-10

----

 

**PART III**

 

**ITEM 9.**  **DIRECTORSEXECUTIVE OFFICER****S, PROMOTERSAND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT**

** **
| **Name**              |   | **Age** |   | **Position with Company** |   | **Director  Continuously  Since** |
|-----------------------|--------|---------|--------|---------------------------|--------|-----------------------------------|
|                  |   |    |   |                      |   |                              |
| Craig  H. Burton      |   | 42      |   | President                 |   | January  2000                     |
|                  |   |    |   |                      |   |                              |
| Joseph  J. Passalaqua |   | 30      |   | Secretary/Treasurer       |   | January  2000                     |
|                  |   |    |   |                      |   |                              |
| Lilly  O. Beter       |   | 69      |   | Director                  |   | January  2000                     |

 

CraigH. Burton attended the University of South Carolina-Coastal and was a dulylicensed real estate agent in the State of New York. He began working inmarketing for a long distance carrier in 1996 and then moved to Datone asDirector of Marketing for payphones and prepaid cards.

 

JosephJ. Passalaqua has served as a technical support employee for DatoneCommunications, Inc., a payphone company. He was elected an officer anddirector of Datone in 1999. Several other payphone companies in the Central NewYork area have employed him.

 

LillyO. Beter is the former President of Lilly Beter Capital Group, Ltd. The firmwas founded over 30 years ago when she had been associated with her husband,Dr. Peter David Beter, in his law practice until his death in 1987. Dr. Beterhad been General Counsel for the Export-Import Bank of Washington, co-founderof a mining exploration company in Zaire, and represented internationalfinancial interests in Europe, South America, and the Middle East. Ms. Beter providedgovernment representation to their clients. Ms. Beter, having lived extensivelyabroad, is now active in overseas investment management.

 

**BOARDOF DIRECTORS; ELECTION OF OFFICERS**

 

All directors hold officeuntil the next annual meeting of shareholders and until their successors areduly elected and qualified. Any vacancy occurring in the Board of Directors maybe filled by the shareholders, the Board of Directors, or if the Directorsremaining in office constitute fewer than a quorum of the Board of Directors,they may fill the vacancy by the affirmative vote of a majority of theDirectors remaining in office. A director elected to fill a vacancy is electedfor the unexpired term of his predecessor in office. Any directorship filled byreason of an increase in the number of directors shall expire at the nextshareholders’ meeting in which directors are elected, unless the vacancy isfilled by the shareholders, in which case the term shall expire on the later of(i) the next

 

F-11

----

 

meeting of the shareholders or (ii) the termdesignated for the director at the time of creation of the position beingfilled.

 

**SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**

 

Section16(a) of the Securities Exchange Act of 1934, as amended, requires our officersand directors and persons who own more than 10% of a registered class of ourequity securities to file initial reports of ownership and reports of changesin ownership with the Securities and Exchange Commission (the “SEC”). Suchpersons are required by SEC regulation to furnish us with copies of all Section16(a) forms they file.

 

Basedsolely on review of the copies of such forms received by us with respectto fiscal year 2003, or written representations from certain reporting persons,we believe that allfiling requirements applicable to its directors, officers and persons who ownmore than ten percent of a registered class of the Company’s equity securitieshave been complied with.

 

**Item 10.  EXECUTIVE COMPENSATION**

SUMMARY COMPENSATION TABLE

 
| **NAME AND PRINCIPAL POSITION**                  |   | **FISCAL****YEAR PAID** |   | **SALARY** |   | **BONUS** |   |
|--------------------------------------------------|--------|-------------------------|--------|------------|--------|-----------|--------|
|                                             |   |                    |   |       |   |      |   |
| Craig H. Burton, President                       |   | 2003                    |   | $          | 40,040 |      | -0-    |   |
|                                             |   |                    |   |       |   |      |   |
| Joseph  J, Passalaqua,  Secretary/Treasurer |   | 2003                    |   | $          | 27,040 |      | -0-    |   |

 

We have health insurance for our employees. Wedo not have retirement, pension, profit sharing, stock options, or othersimilar programs for the benefit of our employees.

 

**ITEM 11.  SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT.**

 

Thefollowing table sets forth information, as of December 31, 2003, concerning allpersons known by us to own beneficially more than 5% of our common stock andconcerning shares beneficially owned by each director and executive officer andby all directors and executive officers as a group. Unless expressly indicatedotherwise, each stockholder exercises sole voting and investment power withrespect to the shares beneficially owned. The address for each of our executiveofficers and directors is 7325 Oswego Rd., Liverpool, N.Y., 13090.

 

F-12

----

 

SHARES BENEFICIALLY OWNED (1)

 
| **PERSON OR GROUP**                                          |   | **NUMBER** |   | **PERCENT  (2)** |   |
|--------------------------------------------------------------|--------|------------|--------|------------------|--------|
|                                                         |   |       |   |             |   |
| NAMED EXECUTIVE OFFICERS AND DIRECTORS:                      |   |       |   |             |   |
| Craig H. Burton                                              |   | 150,000    |   | *                |   |
| Joseph J. Passalaqua                                         |   | 200,000    |   | *                |   |
| Lilly O. Beter                                               |   | —     |   | *                |   |
| All  directors and executive officers as a group (3 persons) |   | 350,000    |   | *                |   |

 

BENEFICIALOWNERS OF 5% OR MORE OFOUR OUTSTANDING COMMON STOCK

 
| **NAME AND ADDRESS OF BENEFICIAL OWNER** |   | **NUMBER** |   | **PERCENT  (2)** |   |
|------------------------------------------|--------|------------|--------|------------------|--------|
|                                     |   |       |   |             |   |
| Epic Events Trust                        |   | 6,086,111  |   | 34.4             | %      |
| Gibraltar                                |   |       |   |             |   |
| Riviera Bay Holding Trust                |   | 6,798,161  |   | 38.4             | %      |
| Gibraltar                                |   |       |   |             |   |
| International Caribbean Trust, Ltd.      |   | 1,601,839  |   | 9.1              | %      |
| Gibraltar                                |   |       |   |             |   |

 

----

*              Represents less than one percent.

 

(1)           Pursuant to Rule 13d-3 under theExchange Act, a person has beneficial ownership of any securities as to whichsuch person, directly or indirectly, through any contract, arrangement,undertaking, relationship or otherwise has or shares voting power and/orinvestment power or as to which such person has the right to acquire suchvoting  and/or investment power within60 days.

 

(2)           Percentage ofbeneficial ownership as to any person as of a particular date is calculated bydividing the number of shares beneficially owned by such person by the sum ofthe number of shares outstanding as of such date and the number of unissuedshares as to which such person has the right to acquire voting and/or investment power within 60 days. Thenumber of shares shown includes outstanding shares of Common Stock owned as ofDecember 31, 2003 by the person indicated. Our total issued and outstandingstock as of December 31, 2003 was 17,804,388 shares.

 

**ITEM  12.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

NotApplicable.

 

**ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)           Exhibits

 

F-13

----

 
| **EXHIBIT  NO.** |   | **DESCRIPTION**                                                                                                                                                     |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                |
| 3                |   | Articles  of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s  Form 10-SB) filed on July 28, 2000(the “2000 10SB”).          |
| 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(the “2000 10-SB”). |
| 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(the “2000 10SB”).  |
| 3.3              |   | Bylaws  (incorporated by reference to Exhibit 4 of the 2000 10-SB).                                                                                                 |
| 4.1              |   | Specimen  Stock Certificate (incorporated by reference to Exhibit 5 of the 2000 10SB).                                                                              |
| 21.1             |   | Subsidiaries  of the Registrant. (1)                                                                                                                                |
| 31.1             |   | Sarbanes-Oxley  Act of 2002 Section 302 Certification by Craig Burton                                                                                               |
| 31.2             |   | Sarbanes-Oxley  Act of 2002 Section 302 Certification by Kathy Christopher                                                                                          |
| 32.1             |   | Sarbanes-Oxley  Act of 2002 Section 906 Certification by Craig Burton                                                                                               |
| 32.2             |   | Sarbanes-Oxley  Act of 2002 Section 906 Certification by Kathy Christopher                                                                                          |

 

----

(1)           Filed herewith.

 

(b)           Reports on Form 8K

 

No reports on Form 8-K were filed in the fourthquarter of 2003.

 

****ITEM 14. PRINCIPALACCOUNTANT FEES AND SERVICES****

 

Aggregate fees billed by the Company’s principal accountants, Anderson,Forse & Co., Ltd., for audit services related to the most recent two fiscalyears, and for other professional services billed in the most recent two fiscalyears, were as follows:

 
|                                                                     |   | **Fiscal  2003** |   | **Fiscal  2002** |   |
|--------------------------------------------------------------------------|--------|------------------|--------|------------------|--------|
|                                                                     |   |             |   |             |   |
| Audit  Fees      (1)                       |   | $                | 20,800 |             | $      | 19,800 |   |
| Audit-Related Fees                                                       |   | 0                |   | 0                |   |
| Tax  Fees          (2) |   | 4,000            |   | 4,000            |   |
| All Other Fees                                                           |   | 0                |   | 0                |   |
|                                                                     |   |             |   |             |   |
| Total                                                                    |   | $                | 24,800 |             | $      | 23,800 |   |

 

----

(1)Comprised of the audit of the Company’s annual financial statements and reviewsof the Company’s quarterly financial statements, as well as consents related toand reviews of other documents filed with the Securities and ExchangeCommission.

 

(2)Comprised of preparation of all federal and state corporate income tax returnsfor the Company and it’s subsidiaries.

 

F-14

----

 

Under the Sarbanes-Oxley Act of 2002, all audit and non-audit servicesperformed by the Company’s independent accountants must now be approved inadvance by the Audit Committee to assure that such services do not impair theaccountants’ independence from the Company. The Company does not have an AuditCommittee, therefore, the Board of Directors reviews and approves audit andpermissible non-audit services performed by Anderson, Forse & Co., Ltd., aswell as the fees charged by Anderson, Forse & Co., Ltd. for such services.

 

SIGNATURES

 

In accordance with Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|   |   | USIP.COM,  INC.            |
|--------|--------|----------------------------|
|   |   | Date:  March 24, 2004 |
|   |   |                       |
| By:    |   | /s/  CRAIG H. BURTON       |   |
|   |   | CRAIG  H. BURTON           |
|   |   | President                  |

 

**Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theCompany and in the capacities and on the dates indicated.**

 
| **SIGNATURE**                  |   | **TITLE** |                | **DATE** |
|--------------------------------|--------|-----------|---------------------|----------|
|                           |   |      |                |     |
| /s/  CRAIG H. BURTON      |   |      | President           |     | March  24, 2004 |
| Craig  H. Burton               |   |      |                |     |
|                           |   |      |                |     |
| /s/  JOSEPH J. PASSALAQUA |   |      | Secretary/Treasurer |     | March  24, 2004 |
| Joseph  J. Passalaqua          |   |      |                |     |
|                           |   |      |                |     |
| /s/  LILLY O. BETER       |   |      | Director            |     | March  24, 2004 |
| Lilly  O. Beter                |   |      |                |     |
|                                |        |           |                     |          |  |  |  |

 

F-15

----