**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, 2002**                                                                                                                                      |
|                                                                                                                                                                                 |   |                                                                                      |
| **OR**                                                                                                                                                                               |
|                                                                                                                                                                                 |   |                                                                                      |
| **o**                                                                                                                                                                                |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**   |
|                                                                                                                                                                                 |   |                                                                                      |
| **FOR THE TRANSITION PERIOD               TO              ** |
|                                                                                                                                                                                 |   |                                                                                      |
| **COMMISSION FILE 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** |

 

Securities RegisteredPursuant to Section 12(b) of The Exchange Act: **None**

Securities RegisteredPursuant 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 by Sections 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ýNo o

 

Check if disclosure of delinquent filers inresponse to Item 405 of Regulation S-B is not contained in this form, and nodisclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in PartIII of this Form 10-KSB or any amendment to this Form 10-KSB. o

 

State issuer’s revenues for itsmost recent fiscal year: $773,447

 

As of December 31, 2002 the aggregate marketvalue of the common stock held by non-affiliates was approximately $1,919,302based upon the closing price on December 31, 2002 of $0.45. As of December 31,2002, there were 17,699,388 shares of common stock outstanding.

 

Documents incorporated by reference: None

 

Transitional Small Business Disclosure Format:Yes o  No ý

 

 

 

**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 |
|         |
| **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.     | Controls and  Procedures |
|         |   |
|         | Signatures |

 

**PART I**

 

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

 

**GENERALOVERVIEW**

** **

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 December 31, 1983 our Certificate of Incorporation wassuspended for failure to file an annual report. On December 20, 1984 we filed apetition for relief under Chapter Eleven of the United States Bankruptcy Code.The case was filed in The United States Bankruptcy Court, Middle District ofTennessee. The case was converted to Chapter Seven on July 1, 1986. OnSeptember 1, 1992 the court signed a Final Decree, and the case was closed. OurCertificate of Incorporation was reinstated on June 18, 1992 by the UtahDepartment of Commerce, Division of Corporations.

 

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 the Articles ofIncorporation and changed our name to USIP.Com, Inc.

 

On April 29, 2000 wepurchased all the shares of NB Payphones, Ltd., (“NB”), the owner of 466****payphones in Pennsylvania and CointelLeasing, 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 April 29,2000 we entered into a two hundred thousand dollar ($200,000) unsecured line ofcredit with Lilly Beter Capital Group, Ltd., with interest at the rate of 10%per annum. On April 30, 2002 we entered into an additional $300,000 line ofcredit with Lilly Beter Capital Group, Ltd., with interest at the rate of 8%per annum for a total of $500,000.

 

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 inner companytransaction. Management decided that it would not benefit our company to havetwo companies that are in the same business and location; we therefore combinedthe two in an effort to save money.

 

On December14, 2001 we incorporated The Platinum Funding Corporation  (“Platinum”), as a New York wholly ownedsubsidiary for the purpose of developing a real estate based mortgage brokeragebusiness. On January 16, 2002 we issued a press release announcing theformation of Platinum. On July 11, 2002 Platinum signed a Letter of Intent withElap Solutions, Inc., (“ELAP”), to acquire 100 percent of ELAP’s issued andoutstanding shares. On July 25, 2002 we issued a second press releaseannouncing the planned acquisition of Elap. On September 4, 2002 we receivedformal notification that Elap was declining the Letter of Intent due tofinancial reasons beyond their control. Because the acquisition did not occur,Platinum has had no activity since December 14, 2001.

 

We arecontinuing our efforts to find a suitable candidate that will help us develop areal estate based mortgage brokerage business as originally intended. Webelieve that in time we can service clients in both the residential andcommercial markets throughout the state of New York. We cannot predict when we might locate targetassets or companies, and there is no guarantee that we will be able todevelop this business and generate a profit. We anticipate that the analysis of specific proposals and the selectionof business opportunities could take many months to finalize.

 

Theacquisition of a business opportunity may be made by purchase, merger, exchangeof stock, or otherwise, and may encompass assets or a business entity, such asa corporation, joint venture, or partnership. Because we have limited capital,we must be very selective about which entity we will do business with. Weintend to seek opportunities that demonstrate the potential of long-term growthas opposed to short-term earnings.

 

            As of December 31, 2002 we owned and operateda network of****approximately 681payphones in three states. Our installed payphone base generates revenuethrough coin calls (local and long-distance), non-coin calls (calling card,credit card, collect, and third-party billed calls using our pre-selectedoperator services providers such as Qwest, ILD Telecommunications, Inc., andPacific Telemanagement Services) and dial-around calls (utilizing a 1-800,1010XXX or similar “toll free” dialing method to select a carrier other thanour pre-selected carrier).

 

**SMARTPAYPHONE 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, electronically erasable, programmable memory chip, the payphonescan also be programmed and reprogrammed from our central computer facilities toupdate rate information or to direct different types of calls toparticular carriers. Our payphones can also distinguish coins by size andweight, report to our central host computer the total amount of coin in thecoin box, perform self-diagnosis and automatically report problems to apre-programmed service number.

 

**CUSTOMERSERVICE.**

 

The technologywe use enables us to (i) respond quickly to equipment malfunctions and (ii)maintain accurate records of payphone activity, which can be verified bycustomers. We strive to minimize “downtime” on our payphones by identifyingservice problems as quickly as possible. We employ both advancedtelecommunications technology and trained field technicians as part of ourcommitment to provide superior customer service. The records generated throughour technology also allow for the more timely and accurate payment ofcommissions to Location Owners.

 

**OPERATIONS**

 

As of December 31, 2002 andDecember 31, 2001 we owned and operated approximately 681 and 1,386 payphones,respectively.

 

**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 Massachusetts and $0.35, and $0.50 in Pennsylvania. In ensuring “faircompensation” for all calls, the FCC determined that local coin rates frompayphones should be generally deregulated by October 7, 1997, but provided forpossible modifications or exemptions from deregulation upon a detaileddemonstration by an individual state that there are market failures within thestate that would not allow market-based rates to develop. On July 1, 1997, afederal court issued an order that upheld the FCC’s authority to deregulatelocal coin call rates. In accordance with the FCC’s ruling and the court order,certain RBOCs, LECs and IPPs, including our Company, began to increase ratesfor local coin calls 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.

 

**NON-COINCALLS**

 

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.

 

**REGULATIONSAND DIAL-AROUND COMPENSATION**

 

On September20, 1996 the Federal Communications Commission (“FCC”) adopted rules, whichbecame effective November 7, 1996 (the “1996 Payphone Order”), initiallymandating dial-around compensation for both access code calls and 800 subscribercalls at a flat rate of $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 payphone per month rate was to transition to a per-call system atthe rate of $0.35 per call. Several parties challenged certain of the FCCregulations including the dial-around compensation rate. On July 1, 1997 afederal court vacated certain portions of the FCC’s 1996 Payphone Order,including the dial-around compensation rate.

 

In accordancewith the court’s mandate, on October 9, 1997 the FCC adopted a second order(the “1997 Payphone Order”), establishing a rate of $0.284 per calls for thefirst two years of per-call compensation (October 7, 1997 through October 6,1999). The IXCs were required to pay this per-call amount to payphone serviceproviders, beginning October 7, 1997. On May 15, 1998 the court again remandedthe per-call compensation rate to the FCC for further explanation withoutvacating 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 determination of the allocation of this totalcompensation rate among the various carriers required to pay compensation forthe interim period.

 

                OnOctober 23, 2002 the FCC released its Fifth Order on Reconsideration and Orderon Remand (The “Interim Order”), which resolved the remaining issuessurrounding the interim/intermediate period true-up and specifically howmonthly per-phone compensation owed to PSPs is to be allocated among therelevant dial-around carriers. The Interim Order also resolves how certainoffsets to such payments will be handled and a host of other issues raised by partiesin their remaining FCC challenges to the 1999 Payphone Order and the 2002Payphone Order. In the Interim Order the FCC ordered a true-up for the interimperiod and increased the adjusted monthly rate to $35.22 per payphone permonth, to compensate for the three-month payment delay inherent in thedial-around payment system. The new rate of $35.22 per payphone per month is acomposite rate, allocated among approximately five hundred carriers based ontheir estimated dial-around traffic during the interim period. The FCC alsoordered a true-up requiring PSPs, to refund an amount equal to $0.046 (thedifference between the old $0.284 rate and the current $0.238 rate) to eachcarrier that compensated the PSP on a per-call basis during the intermediate period.Interest on additional payments and refunds is to be computed from the originalpayment date, at the IRS 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.

 

Webelieve that the “fair compensation” requirements of Section 276 of the TelcomAct mandate that the FCC promptly review and adjust the dial-aroundcompensation rate level. While no assurances can be given as to the timing oramount of any increase in the dial-around rate level, we believe an increase inthe rate is reasonably likely given the significant reduction in payphone callvolumes, and other relevant changes 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 LocationOwners, by users of payphones or by the telephone itself as part of itsinternal diagnostic procedures. Some of our technicians are also responsiblefor the installation of new payphones.

 

**CUSTOMERS,SALES AND MARKETING**

 

The Location Owners with whomwe contract are a diverse group of small and medium sized businesses, which arefrequented by individuals needing payphone access. The majority of ourpayphones are located at convenience stores, truck stops, service stations,grocery stores, colleges and hospitals. As of December 31, 2002 our payphoneaccounts of 20 or more payphones represented approximately 5% of our installedpayphone base. Approximately 70% of our customers are a result of acquisitionsfrom (ITOC’s), Independent Telephone Operating Companies.

 

We install our payphones inconvenience stores, truck stops, service stations, grocery stores, colleges andhospitals. Before we install a phone, we search for, and utilize historicalrevenue information about each payphone location. In locations where historicalrevenue information is not available, we rely on our site survey to examinegeographic factors, population density, traffic patterns and other factors indetermining whether to install a payphone. We recognize, however, that recentchanges in payphone traffic volumes and usage patterns being experienced on anindustry-wide basis warrant a continued assessment of the location deploymentof our payphones.

 

Our location agreements mayprovide for revenue sharing with the applicable location owners based on fixedpercentages of revenues. Our agreements also provide for monthly billing forpayphone service. We can terminate a location agreement on 30 days’ notice tothe Location Owner if the payphone does not generate sufficient revenue.

 

**SERVICE ANDEQUIPMENT SUPPLIERS**

 

Our primary suppliers providepayphone components, local line access, long-distance transmission and operatorservices. To promote acceptance by end users accustomed to using RBOC orLEC-owned payphone equipment, we utilize payphones designed to be similar inappearance and operation to payphones owned by LECs.

 

We purchase circuit boardsfrom various manufacturers for repair and installation of our payphones. Weprimarily obtain local line access from various LECs, including Verizon,Citizens Communications and various other incumbent and competitive suppliersof local line access. New sources of local line access are expected to emergeas competition continues to develop in local service markets. Long-distanceservices are provided to our company by various long-distance and operatorservice providers, including AT&T, Qwest, ILD Telecommunications, Inc., andothers.

 

We expect the basicavailability of such products and services to continue in the future; however,the continuing availability of alternative sources cannot be assured. Althoughwe are not aware of any current circumstances that would require us to seekalternative suppliers for any material portion of the products or services usedin the operation of our business, transition from our existing suppliers, if necessary,could have a disruptive effect on our operations and could give rise tounforeseen delays and/or expenses.

 

**ASSEMBLY ANDREPAIR 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 each call,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.

 

Our payphones can distinguishcoins by size and weight, report to a remote location the total coins in thecoin box, perform self-diagnosis and automatically report problems to apre-programmed service number, and immediately report attempts at vandalism ortheft. Many of our payphones operate on power available from the telephonelines, thereby avoiding the need for and reliance upon an additional powersource at the installation location.

 

We provide all technicalsupport required to operate the payphones, such as computers and software andhardware specialists, at our headquarters in Liverpool New York. Our assemblyand repair support operations provide materials, equipment, spare parts andaccessories to the field. Each of our division offices and each of ourtechnician’s vehicles maintain inventories for immediate deployment in thefield.

 

**MAJORCUSTOMERS**

 

No individual customeraccounted for more than 5% of our consolidated revenues in 2001 and 2002.

 

**COMPETITION**

 

We compete for payphonelocations directly with RBOCs, LECs and other IPPs. We also compete,indirectly, with long-distance companies, which can offer Location Ownerscommissions on long-distance calls made from LEC-owned payphones. We competewith LECs and long-distance companies who may have substantially greaterfinancial, marketing and other resources.

 

We believe that our principalcompetition is from providers of wireless communications services for bothlocal and long distance traffic. Certain providers of wireless communicationservices have introduced rate plans that are competitively priced with certainof the products offered by us, and have negatively impacted the usage ofpayphones throughout the nation.

 

We believe that thecompetitive factors among payphone providers are (1) the commission payments toa Location Owner, (2) the ability to serve accounts with locations in severalLATAs or states, (3) the quality of service and the availability of specializedservices provided to a Location Owner and payphone users, and (4)responsiveness to customer service needs. We believe that we are currentlycompetitive in each of these areas.

 

Additionally, a number ofdomestic IPPs continue to experience financial difficulties from variouscompetitive and regulatory factors impacting the pay telephone industrygenerally, which may impair their ability to compete prospectively. While noassurances can be given, we believe that these circumstances create anopportunity for us to obtain new location agreements and reduced sitecommissions going forward. There are no guarantees that we will be able toobtain new location agreements that are advantageous to our company.  

 

We competewith long-distance carriers that provide dial-around services that can beaccessed through our payphones. Certain national long-distance operator serviceproviders and prepaid calling card providers have implemented extensive advertisingpromotions and distribution schemes which have increased dial-around activityon payphones owned by LECs and IPPs, including our company, thereby reducingtraffic to our primary providers of long-distance service. While we do receivecompensation for dial-around calls placed from our payphones, regulatoryefforts are underway to improve the collection system and provide us with theability to collect that portion of dial-around calls that are owed.

 

**OUREMPLOYEES**

 

We currently have six fulltime employees. We may, from time to time, supplement our regular work force asnecessary with temporary and contract personnel. None of our employees arerepresented by a labor union. We believe we have a good relationship with ouremployees.

 

**A NOTE ABOUTFORWARD-LOOKING STATEMENTS**

 

This report (including theforegoing “Description of Business” and the section below entitled“Management’s Discussion and Analysis of Financial Condition and Results ofOperations”) contains forward-looking statements that involve risks anduncertainties. 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 anddevelopment efforts;

 

•                  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 statementsusing the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” andsimilar words; and

 

•                  any statementsother than historical fact.

 

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.

 

                Any person or entity may read and copy ourreports filed with the Securities and Exchange Commission at the SEC’s PublicReference Room at 450 Fifth Street, NW, Washington, D.C. 20549. The public mayobtain information on the operation of the Public Reference Room by calling the SEC toll freeat 1-800-SEC-0330. The SEC also maintains an Internet site athttp://www.sec.gov where reports, proxies and informational statements onpublic companies may be viewed by the public.

 

**ITEM 2.  DESCRIPTION OF PROPERTY**

 

We leaseapproximately 5600 square feet of space in Liverpool, New York. This locationprovides office space and space for assembly and repair of payphones.

 

**ITEM 3.  LEGALPROCEEDINGS**

 

Not Applicable

 

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

Not Applicable

 

 

**PART II**

 

**ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

In the third calendar quarter of 2001 ourcommon stock was included in the NASD’s Bulletin Board system under the symbol“USPO”. The following table sets forth for the respective periods indicated theprices of the common stock in the over-the-counter market, as reported andsummarized by the OTC Bulletin Board. Such prices are based on inter-dealer bidand asked prices, without markup, markdown, commissions, or adjustments and maynot represent actual transactions.

 
| **Calendar Quarter Ended** |   | **High Bid ($)** |   | **Low Bid ($)** |
|----------------------------|--------|------------------|--------|-----------------|
|                       |   |             |   |            |
| September 30, 2001         |   | $                | 0.84   |            | $ | 0.70 |
| December 31, 2001          |   | $                | 1.55   |            | $ | 1.35 |
|                       |   |             |   |            |
| 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 |

 

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 dividends on our common stock willbe declared and paid in the foreseeable future. At December 31, 2002 there wereapproximately 256 holders of record of our common stock.

 

Any future dividends will beat the discretion of the board of directors, after taking into account variousfactors, including among others, operations, current and anticipated cash needsand expansion plans, the income tax laws then in effect, the requirements ofUtah law, and any restrictions that may be imposed by our future creditarrangements.

 

On February 12, 2002 weissued twenty thousand unregistered shares of common stock to RaymondTricarico, a resident of the State of Minnesota in lieu of a debt owed by ourcompany. The shares were issued under Section 4(2) of the Securities Act of1933, as amended. On June 7, 2002 we issued sixty thousand unregistered sharesof common stock to Lawrence Taylor, a resident of the State of New York, inlieu of a debt owed by our company. The shares were issued under Section 4(2)of the Securities Act of 1933, as amended.

 

**ITEM6.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussion and analysisshould be read in conjunction with our consolidated financial statements andnotes.

 

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**

 

Our installed payphone basegenerated revenue for the fiscal year 2001 and 2002 from the following threesources.

 

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

 

2. Coin calls. Coin callsrepresent calls paid for by customers who deposit coins into the payphones.Coin call revenue is recorded as the actual amount of coins collected from thepayphones. Some coin collections are made on a daily basis and others moreoften if the particular payphone has significant usage. The coins are countedin house and deposited weekly.

 

3. Payphone sales, repairs andpre-paid phone cards. We derive income from the sale and repair of a payphone.We negotiate the sale to a site owner when it becomes cost prohibitive tomaintain, or if a customer offers to buy the phone at a price that is favorableto our company. The new owner or lessee becomes responsible for the maintenanceand operational costs of the payphone. We sell pre-paid phone cards at some ofour payphone locations. We also derive a profit from any commission split thatis negotiated between the parties as a result of a sale or lease of a payphone.Sales, payphone repair, and the sale of pre-paid phone cards are not subject tothe same collection delays as the other types of operating income.

 

The principalcosts related to the ongoing operation of our payphones include telephonecharges, commissions, service, maintenance and network costs. Telephone chargesconsist of payments we make to local exchange carriers and long distancecarriers for line charges and use of their networks. Commission expenserepresents payments to owners of locations where our payphones are installed. Service,maintenance and network costs represent the cost of servicing and maintainingthe payphones on an ongoing basis.

 

**YEARENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001**

 

**Revenues**

 

Our totalrevenue decreased by $330,938 or approximately 29.97%, from $1,104,385 in theyear ended December 31, 2001 to $773,447 in the year ended December 31,2002.  This decrease was primarilyattributable to removal of unprofitable phone locations and lower call volumeson our payphones resulting from the growth in wireless communication services.We reduced our network from approximately 1386 payphones in 2001 toapproximately 681 in 2002.

 

Ourcommissions decreased by $139,637, or approximately 62.19% from $224,560 in theyear ended December 31, 2001 to $84,923, in the year ended December 31,2002.  This decrease was a result of ourreduction in payphones by 51%, fewer operator assisted calls, and the increasedcompetition from the wireless communication industry.

 

Our coin callrevenues decreased by $141,372 or approximately 30.21% from $468,069 in theyear ended December 31, 2001 to $326,697 in the year ended December 31, 2002.The decrease in coin call revenue was primarily attributable to the reducednumber of payphones we operated, coupled with the increased competition fromwireless communication services.

 

Our non-coincall revenue, which is comprised primarily of dial-around revenue and operatorservice revenue decreased by $26,080 or approximately 12.24% from $213,097 inthe year ended December 31, 2001 to $187,017 in the year ended December 31,2002. Our dial-around decrease was primarily attributable to the removal ofunprofitable phone locations, and declining pay phone call volume. Our operatorservice revenue decrease is attributable to fewer long distance calls perpayphone.

 

On July 21,2002 WorldCom, Inc., who’s subsidiary MCI is one of our major payers ofdial-around revenue, filed for protection under Chapter 11 of the United StatesBankruptcy Code. As a result of the filing we reduced our accrual for thesecond quarter and a part of the third quarter by approximately 39.9% becausethe bankruptcy may impair our ability to receive pre-petition dial-aroundpayments from MCI. We are pursuing our rights in the Bankruptcy Court toreceive payment from MCI.  No assurancecan be given at this time regarding the outcome of this action. We do notbelieve that the WorldCom bankruptcy filing will materially impair our abilityto collect dial-around payment from MCI post-petition. We have resumed our normalaccrual of dial-around revenue attributable to MCI for post-petition periods.

 

Our service& repair sales increased by $32,069 when compared to the same period in2001. Our equipment sales decreased by $10,281. Our phone card sales decreasedby $38,524 when compared to the same period ending December 31, 2001. Thisdecrease is due to increased competition from other phone card vendors alongwith the loss of various site locations when companies go out of business. Theincreased competition and decreased site locations forced us to reduce ourphone card sites by approximately 42%. Our ATM revenue decreased by $7,113. Wereduced our ATM location sites from 3 sites at the end of 2001 to 1 site at theend of 2002.

 

**Costof Sales**

 

Our overallcost of sales decreased for the year ending December 31, 2002 by $274,491 orapproximately 25.92% when compared to the year ending December 31, 2001. Ourtelecommunications costs decreased by $185,790 because we provided telephoneservice to 681 payphones in 2002 compared to 1386 payphones in 2001. Once weidentify a low revenue payphone, we offer the site owner the opportunity to buyit. If the site owner does not buy the payphone we remove it from the site. Ourinstalled payphone base generates revenue through coin calls (local andlong-distance), non-coin calls (calling card, credit card, collect, and thirdparty billed calls using our pre-selected operator service).

 

Ourcommissions’ payable decreased by $20,788 because of a decrease in payphoneusage. We believe this resulted from an increased use of cellular phones andpre-paid phone cards. In 2002 our contractor’s fees decreased by $28,565because we cut cost by eliminating three independent contractors. Our decreaseof $14,287 in depreciation is due directly to our on going strategy ofidentifying unprofitable payphones, selling them to the site owner or removingthem. Once a payphone is sold to the site owner it is removed from our assetsand depreciation schedule. We own telephone equipment and motor vehicles that providea service for a number of years. The term of service is commonly referred to asthe “useful life” of the asset. Because assets such as telephone equipment ormotor vehicles are expected to provide service for many years, they arerecorded as an asset rather than an expense in the year acquired. A portion ofthe cost of a long-lived asset is reported as an expense during the cost of anasset to expense over its life in a rational and systematic manner.

 

Our cost ofsales for repairs, service supplies, and travel decreased by $3,289 because ofour management team’s ongoing efforts to reduce costs. Our phone card expensesdecreased by $21,772 when comparing year 2002 to 2001. This decrease is alsodue to the reduced number of phone card machine sites in 2002.

 

**Operationand Administrative Expenses**

 

Our operatingexpenses decreased by $37,209 or 6.65% over the same period in 2001. Thisdecrease in operating expenses is a direct result of our management team’songoing efforts to cut expenses, and run our company as efficiently aspossible. Our salaries and related payroll taxes were reduced by $20,810 whencompared to the same expenses for 2002. This decrease is due to the eliminationof two employees, one technician and one clerical assistant. Our insuranceexpense decreased by $793 when compared to the fiscal year 2001. Our rentdecreased by $11,562 when compared to 2001. We did not renew the lease forextra office space in Pennsylvania, and we ended a month-to-month rentalagreement for storage space in New York during 2002. Our telephone, utilities,office, travel & entertainment costs account for a decrease of $22,971 whencompared to the same period ending December 31, 2001. Our professional feesincreased by $38,609 over 2001. These are fees we pay to accountants, attorneysand other professionals throughout the year for various work. Our expenses foroutside services decreased by $13,168 over 2001 because we no longer usetemporary personnel services. Our vehicle expense decreased by $6,514 in 2002because we replaced older vehicles for new vehicles that require lessmaintenance.

 

At the end of2002 we determined that the value of some of our assets needed to be adjustedbecause of obsolescence. An adjustment of $292,666 appears on our ConsolidatedStatement of Income and Retained Earnings under the heading Other Income(Expense) listed as “Loss on Equipment Obsolescence.” Such a write-off is notclassified as an extraordinary item because write-offs of operating assetsfrequently occur in the normal course of our business.

 

Interest expense in the year ended December 31, 2002 increased by$16,373 from $20,852 in the year ended December 31, 2001 to $37,225 in the yearended December 31, 2002. This is attributable to increasedborrowing levels related to our line of credit. We drew $210,300 on our line ofcredit in 2002.

 

As of December31, 2002 we have a note payable to Key Bank in the amount of $91,552. We havean additional unsecured line of credit with the Lilly Beter Capital Group, Ltd.in the amount of $500,000 as of December 31, 2002 we have used $410,300.

 

# **GOING CONCERNQUALIFICATION**

 

In hisIndependent Auditor’s Report, our auditor states that we have incurred annuallosses since inception raising substantial doubt about our ability to continueas a going concern.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

**CashFlows**

 

Our primarysources of liquidity have been cash from operations, borrowing from variouscredit facilities and periodically proceeds from the issuance of common stock.

 

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

 

The increased use of the cellular telephonehas substantially impacted the public’s use of payphones, and we believe thatthe trend will continue to increase as the cost for cellular usage declines.However, we have attempted to minimize some of the impact from cellular use byavoiding traditional travel locations where cellular use is high. There are noguarantees that we will be successful in minimizing the effects of increasedcellular usage. We intend to increase revenue by advertising. We do not plan toexpend large sums of money to advertise. The advertisement will be affixed toeach payphone booth.

 

**RISKSASSOCIATED WITH OUR BUSINESS**

 

In addition tothe other information in this report, the following risks should be consideredcarefully in evaluating our business and prospects:

 

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

 

If we areunable to achieve or sustain profitability, or if operating losses increase inthe future, we may not be able to remain a viable company and may have todiscontinue operations. Our expenses have historically exceeded our revenuesand we have had losses in all fiscal years of operation, including those infiscal years 2001 through 2002, and the losses are projected to continue in2003. Our net losses were $544,645 and $872,178 for fiscal years ended 2001,2002 respectively. We have been concentrating on the development of ourproducts, services and business plan. Our management believes that we can beprofitable and that our business plan will be successful; however, there is noassurance that we will be successful in implementing our business plan or thatwe will be profitable now or in the future.

 

**WE MAY NOTSUCCEED 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 NEEDADDITIONAL CAPITAL FINANCING IN THE FUTURE.**

 

We may be required to seekadditional financing in the future to respond to increased expenses orshortfalls in anticipated revenues, accelerate product development anddeployment, respond to competitive pressures, develop new or enhanced products,or take advantage of unanticipated acquisition opportunities. We cannot becertain we will be able to find such additional financing on reasonable terms,or at all. If we are unable to obtain additional financing from Lilly BeterCapital Group, Ltd. or Key Bank when needed, we could be required to modify ourbusiness plan in accordance with the extent of available financing.

 

**IF WE AREUNABLE TO COMPETE SUCCESSFULLY IN THIS HIGHLY COMPETITIVE MARKET, OUR BUSINESSWILL FAIL.**

 

The market for payphones isworldwide and highly competitive and we expect competition to intensify in thefuture. There are few substantial barriers to entry, and additional competitionfrom existing competitors and new market entrants will likely occur in thefuture. An increase in competitive pressures in our market or our failure tocompete effectively may result in pricing reductions, reduced gross margins andloss of market share. Many of our current or potential competitors have longeroperating histories, greater name recognition, larger customer bases andsignificantly greater financial, technical, marketing and other resources thanwe do. In addition, our current and potential competitors may establishcooperative relationships among themselves or with third parties that mayfurther enhance their resources. As a result, they may be able to adapt morequickly to new technologies and customer needs, devote greater resources to thepromotion or sale of their products and services, initiate or withstandsubstantial price competition, take advantage of acquisition or otheropportunities more readily or develop and expand their product and serviceofferings more quickly. In addition, our competitors may bundle products thatcompete with ours. If these companies were to use their greater financial,technical and marketing resources in our target markets, it could adverselyaffect our business.

 

**WEMAY FAIL TO ENGAGE IN STRATEGIC ACQUISITIONS, WHICH COULD LIMIT OUR FUTUREGROWTH.**

 

One of our strategies forgrowth is to engage in selective strategic acquisitions of key products,technologies or companies. Our ability to conduct such acquisitions is limitedby our ability to identify potential acquisition candidates, obtain necessaryfinancing and consummate the acquisitions. In the event we are unable toidentify and take advantage of these opportunities, we may experiencedifficulties in growing our business. In addition, pursuing acquisitionopportunities could divert our management’s attention from our ongoing businessoperations and result in decreased operating performance.

 

**IF WE ENGAGEIN ACQUISITIONS, WE MAY EXPERIENCE SIGNIFICANT COSTS AND DIFFICULTYASSIMILATING THE OPERATIONS OR PERSONNEL OF THE ACQUIRED COMPANIES, WHICH COULDTHREATEN****OUR FUTURE GROWTH.**

 

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

 

**IFWE DO NOT INCREASE OUR BRAND AND NAME RECOGNITION, OUR ABILITY TO SELL OURPRODUCTS WILL BE REDUCED AND OUR BUSINESS AND OPERATING RESULTS WILL SUFFER.**

 

Most of our target customersare small- and medium-sized businesses. We believe that establishing andmaintaining recognition in the payphone business is critical for attracting andexpanding this targeted customer base because we believe these targetedcustomers generally prefer to do business with established companies. We alsobelieve that the importance to us of name recognition and reputation willincrease as competition in our market increases. Promotion and enhancement ofour current or future acquired products will depend on the effectiveness of ourmarketing and advertising efforts and on our ability to continue providinghigh-quality products and services. We may not be successful in either regard.If we are not successful, our ability to generate revenue will be limited.

 

**IFWE CANNOT ATTRACT, RETAIN, MOTIVATE AND INTEGRATE ADDITIONAL SKILLED PERSONNEL,OUR ABILITY TO COMPETE WILL BE IMPAIRED.**

 

Many of our current andpotential competitors have more employees than we do. Our success depends inlarge part on our ability to attract, retain and motivate highly qualifiedmanagement and technical personnel. We face intense competition for qualifiedpersonnel. The industry in which we compete has a high level of employeemobility and aggressive recruiting of skilled personnel. If we are unable tocontinue to employ our key personnel or to attract and retain qualifiedpersonnel in the future, our ability to successfully execute our business planwill be jeopardized and our growth will be inhibited.

 

**OURFAILURE TO MANAGE PLANNED GROWTH COULD ADVERSELY AFFECT OUR ABILITY TO INCREASEREVENUES AND BECOME PROFITABLE.**

 

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

 

•                  improve existingoperational, financial and management information controls, reporting systemsand procedures;

 

•                  hire, train and manage additional qualifiedpersonnel; and

 

•                  effectively manage multiple relationships withour customers, vendors and     otherthird parties.

 

Wemay not be able to install management information and control systems in anefficient and timely manner, and our current or planned personnel, systems,procedures and controls may not be adequate to support our future operations.

 

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

 

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

 

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

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

•                  Redesign those products or services thatincorporate such technology.

 

A successful claim 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.

 

**BECAUSE OUR OFFICERS AND DIRECTORS AREINDEMNIFIED AGAINST CERTAIN LOSSES, WE MAY BE EXPOSED TO COSTS ASSOCIATED WITHLITIGATION.**

 

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

 

**WEWILL DEPEND ON OUTSIDE MANUFACTURING SOURCES AND SUPPLIERS.**

 

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

 

**OUR STOCK PRICE MAY BE VOLATILE.**

 

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

 

•                  Variations in our quarterlyoperating results;

•                  Changes in financial estimates ofour revenues 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 volumefluctuations attributable to inconsistent trading volume levels of our stock;

•                  Commencement of or involvement inlitigation.

 

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

 

**WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS ONOUR COMMON STOCK.**

 

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

 

**IF WE ARE SUBJECT TO SEC REGULATIONS RELATINGTO LOW-PRICED STOCKS, THE MARKET FOR OUR COMMON STOCK COULD BE ADVERSELYEFFECTED.**

 

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

 

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

 

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

 

**ITEM7.   FINANCIAL STATEMENTS**

 

**USIP.COM,INC.**

 

**CONSOLIDATEDFINANCIAL STATEMENTS**

 

**TABLE OF CONTENTS**

 

 
| **INDEPENDENT AUDITORS’ REPORT** |
|---------------------------------------|
|                                  |
| **FINANCIAL  STATEMENTS**             |
|                                  |
|                                  | Consolidated Balance Sheet  At December 31, 2002 |
|                                  |   |
|                                  | Consolidated Statements of Income and  Retained Earnings  For the Years Ended December 31, 2002 and 2001 |
|                                  |   |
|                                  | Consolidated Statements of Stockholders’ Equity  For the Years Ended December 31, 2002 and 2001 |
|                                  |   |
|                                  | Consolidated Statements of Cash Flows  For the Years Ended December 31, 2002 and 2001 |
|                                  |   |
|                                  | Notes to Consolidated Financial Statements  For the Years Ended December 31, 2002 and 2001 |

 

Report of Independent 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, 2001 and 2002 and the related consolidatedstatements of income, stockholders’ equity and cash flows for the years thenended. These financial statements are the responsibility of the Company’smanagement. 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 planand perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatements. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the overallfinancial statement presentation. We believe that our audit provides areasonable 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, 2001 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 preparedassuming that the Company will continue as a going concern. As discussed inNote 10 to the financial statements, the Company has incurred annual operatinglosses since inception. At December 31, 2002, the Company has increased itsline of credit borrowings to meet operating costs, 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.

 

 

CE Forse & Co., Ltd.

 

February 21, 2003

 

USIP.COM, INC

CONSOLIDATED BALANCE SHEET

December31

 
|                                                                                                       |   | **2001**  |      | **2002**   |   |
|------------------------------------------------------------------------------------------------------------|--------|-----------|-----------|------------|--------|
| ASSETS                                                                                                     |   |      |      |       |   |
| CURRENT ASSETS                                                                                             |   |      |      |       |   |
| Cash                                                                                                       |   | $         | 10,825    |       | $      | 7,021 |   |
| Commissions and Sales Receivable, Net                                                                      |   | 144,772   |      | 125,276    |   |
| Inventory                                                                                                  |   | 46,410    |      | 50,782     |   |
| Prepaid Expenses                                                                                           |   | 2,866     |      | 3,932      |   |
| TOTAL CURRENT ASSETS                                                                                       |   | 204,873   |      | 187,011    |   |
| FIXED ASSETS                                                                                               |   |      |      |       |   |
| Telephone and Office Equipment                                                                             |   | 1,922,887 |      | 1,899,122  |   |
| Vehicle                                                                                                    |   | 74,542    |      | 76,367     |   |
|                                                                                                       |   | 1,997,429 |      | 1,975,489  |   |
| Less: Accumulated Depreciation                                                                             |   | (609,882  | )         | (1,151,240 | )      |
|                                                                                                       |   |      |      |       |   |
| Net Fixed Assets                                                                                           |   | 1,387,547 |      | 824,249    |   |
|                                                                                                       |   |      |      |       |   |
| TOTAL ASSETS                                                                                               |   | $         | 1,592,420 |       | $      | 1,011,260 |   |
|                                                                                                       |   |      |      |       |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                       |   |      |      |       |   |
| Current Liabilities                                                                                        |   |      |      |       |   |
| Accounts Payable                                                                                           |   | $         | 294,605   |       | $      | 201,812 |   |
| Line of Credit                                                                                             |   | 212,952   |      | 501,852    |   |
| Accrued Payroll and Payroll Taxes                                                                          |   | 5,622     |      | 5,896      |   |
| Accrued State Gross Receipts Taxes                                                                         |   | 13,036    |      | 9,621      |   |
| Other Accrued Expenses                                                                                     |   | 23,149    |      | 28,663     |   |
| Current Portion of Long-Term Debt                                                                          |   | 10,291    |      | 18,253     |   |
|                                                                                                       |   |      |      |       |   |
| TOTAL CURRENT LIABILITIES                                                                                  |   | 559,655   |      | 766,097    |   |
|                                                                                                       |   |      |      |       |   |
| Long-Term Liabilities                                                                                      |   |      |      |       |   |
| Notes Payable                                                                                              |   | 40,814    |      | 72,302     |   |
| Less Current Portion                                                                                       |   | 10,291    |      | 18,253     |   |
|                                                                                                       |   |      |      |       |   |
| TOTAL LONG-TERM LIABILITIES                                                                                |   | 30,523    |      | 54,049     |   |
|                                                                                                       |   |      |      |       |   |
| TOTAL LIABILITIES                                                                                          |   | 590,178   |      | 820,146    |   |
|                                                                                                       |   |      |      |       |   |
| STOCKHOLDERS' EQUITY                                                                                       |   |      |      |       |   |
| Common Stock, $.01 par value   25,000,000 Shares authorized, 17,699,388 shares issued and outstanding |   | 176,194   |      | 176,994    |   |
|                                                                                                       |   |      |      |       |   |
| Additional Paid In Capital                                                                                 |   | 1,382,358 |      | 1,442,608  |   |
|                                                                                                       |   |      |      |       |   |
| Retained Earnings                                                                                          |   | (556,310  | )         | (1,428,488 | )      |
|                                                                                                       |   |      |      |       |   |
| TOTAL STOCKHOLDERS' EQUITY                                                                                 |   | 1,002,242 |      | 191,114    |   |
|                                                                                                       |   |      |      |       |   |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                 |   | $         | 1,592,420 |       | $      | 1,011,260 |   |

 

See Accountant’s Report and Notes To Financial Statement

 

USIP.COM, INC

CONSOLIDATED STATEMENT OFINCOME AND RETAINED EARNINGS

For the Years Ended December 31

 
|                               |   | **2001**   |     | **2002**   |   |
|------------------------------------|--------|------------|----------|------------|--------|
| SALES                              |   |       |     |       |   |
| Commissions                        |   | $          | 224,560  |       | $      | 84,923 |   |
| Coin Collections                   |   | 468,069    |     | 326,697    |   |
| Dial Around                        |   | 213,097    |     | 187,017    |   |
| Equipment Sales                    |   | 19,537     |     | 9,256      |   |
| Phone Card Sales                   |   | 74,594     |     | 36,070     |   |
| ATM Revenue                        |   | 15,273     |     | 8,160      |   |
| Service and Repair Sales           |   | 89,255     |     | 121,324    |   |
| Total Sales                        |   | 1,104,385  |     | 773,447    |   |
|                               |   |       |     |       |   |
| COST OF SALES                      |   |       |     |       |   |
| Telecommunications Costs           |   | 570,747    |     | 384,957    |   |
| Commissions                        |   | 24,924     |     | 4,136      |   |
| Contractor Fees                    |   | 76,807     |     | 48,242     |   |
| Repairs and Service Supplies       |   | 28,193     |     | 33,548     |   |
| Depreciation                       |   | 303,887    |     | 289,600    |   |
| Phone Cards and Phone Costs        |   | 36,301     |     | 14,529     |   |
| Travel                             |   | 18,326     |     | 9,682      |   |
| Total Cost of Sales                |   | 1,059,185  |     | 784,694    |   |
|                               |   |       |     |       |   |
| GROSS PROFIT                       |   | 45,200     |     | (11,247    | )      |
|                               |   |       |     |       |   |
| OPERATING EXPENSES                 |   |       |     |       |   |
| Salaries and Wages                 |   | 238,240    |     | 220,681    |   |
| Payroll Taxes                      |   | 24,145     |     | 20,894     |   |
| Insurance                          |   | 58,449     |     | 57,656     |   |
| Telephone                          |   | 25,818     |     | 23,307     |   |
| Outside Services                   |   | 27,208     |     | 14,040     |   |
| Utilities                          |   | 10,024     |     | 8,305      |   |
| Vehicle Expenses                   |   | 23,213     |     | 16,699     |   |
| Rent                               |   | 74,218     |     | 62,656     |   |
| Professional Fees                  |   | 41,313     |     | 79,922     |   |
| Travel and Entertainment           |   | 6,528      |     | 4,763      |   |
| Office Expense                     |   | 30,928     |     | 13,952     |   |
| Total Operating Expenses           |   | 560,084    |     | 522,875    |   |
|                               |   |       |     |       |   |
| OPERATING INCOME (L0SS)            |   | (514,884   | )        | (534,122   | )      |
|                               |   |       |     |       |   |
| OTHER INCOME (EXPENSE)             |   |       |     |       |   |
| Interest Income                    |   | 204        |     | 53         |   |
| Gain on Sale of Equipment          |   | —     |     | 2,293      |   |
| Loss on Equipment Obsolescence     |   |       |     | (292,666   | )      |
| Prov For State Tax                 |   | (9,113     | )        | (10,511    | )      |
| Interest Expense                   |   | (20,852    | )        | (37,225    | )      |
| Total Other Income                 |   | (29,761    | )        | (338,056   | )      |
|                               |   |       |     |       |   |
| NET INCOME (LOSS)                  |   | (544,645   | )        | (872,178   | )      |
|                               |   |       |     |       |   |
| RETAINED EARNINGS - BEGINNING      |   | (11,665    | )        | (556,310   | )      |
|                               |   |       |     |       |   |
| RETAINED EARNINGS - ENDING         |   | $          | (556,310 | )          | $      | (1,428,488 | ) |
|                               |   |       |     |       |   |
| Weighted Common Shares Outstanding |   | 17,619,378 |     | 17,699,378 |   |
|                               |   |       |     |       |   |
| Net Loss per Common Share          |   | $          | —   |       | $      | — |   |

 

See Accountant’s Report and Notes To Financial Statement

 

USIP.COM,INC

CHANGES IN STOCKHOLDERS'EQUITY

Forthe Years Ended December 31, 2001 and 2002

 

 
|                                   |   | **Common Stock** |   | **Additional  Paid-in  Capital** |    | **Retained  Earnings** |   | **Total  Stockholder's  Equity** |   |
|----------------------------------------|--------|------------------|--------|----------------------------------|---------|------------------------|--------|----------------------------------|--------|
| **Shares**                             |   | **Amount**       |
| Balance  as of January 1, 2001    |   | 17,619,388       |   | $                                | 176,194 |                   | $      | 1,382,358                        |   | $ | (11,665 | ) | $ | 1,546,887 |   |
|                                   |   |             |   |                             |    |                   |   |                             |   |   |   |
| Net Loss - 2001                        |   |             |   |                             |    |                   |   | (544,645                         | )      | $ | (544,645 | ) |
|                                   |   |             |   |                             |    |                   |   |                             |   |   |   |
| Balance  as of December 31,  2001 |   | 17,619,388       |   | $                                | 176,194 |                   | $      | 1,382,358                        |   | $ | (556,310 | ) | $ | 1,002,242 |   |
|                                   |   |             |   |                             |    |                   |   |                             |   |   |   |
| 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 Jun-02        |   | 60,000           |   | 600                              |    | 44,400                 |   |                             |   | 45,000 |   |
|                                   |   |             |   |                             |    |                   |   |                             |   |   |   |
| Net Loss-2002                          |   |             |   |                             |    |                   |   | (872,178                         | )      | $ | (872,178 | ) |
|                                   |   |             |   |                             |    |                   |   |                             |   |   |   |
| Balance as of December 31, 2000        |   | 17,699,388       |   | $                                | 176,994 |                   | $      | 1,442,608                        |   | $ | (1,428,488 | ) | $ | 191,114 |   |
|                                        |        |                  |        |                                  |         |                        |        |                                  |        |  |  |  |  |  |  |  |

 

See Accountant’s Report and Notes To Financial Statement

 

USIP.COM,INC

CONSOLIDATED STATEMENT OFCASH FLOWS

YearsEnded December 31, 

 
|                                                                                            |   | **2001** |     | **2002** |   |
|-------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
|                                                                                            |   |     |     |     |   |
| Cash Flows From Operating Activities:                                                           |   |     |     |     |   |
| Net (Loss)                                                                                      |   | $        | (544,645 | )        | $      | (872,178 | ) |
| Adjustments to reconcile net   (loss) to net cash provided (used) by operating activities: |   |     |     |     |   |
| Depreciation Expense                                                                            |   | 303,887  |     | 289,600  |   |
| Gain on Sale of Equipment                                                                       |   | —   |     | (2,293   | )      |
| Loss on Equipment Obsolesence                                                                   |   | —   |     | 292,666  |   |
| (Increase) Decrease in Commission Receivables                                                   |   | 27,019   |     | 19,496   |   |
| (Increase) in Inventory                                                                         |   | (10,160  | )        | (4,372   | )      |
| (Increase) Decrease in Prepaid Insurance                                                        |   | (2,866   | )        | (1,066   | )      |
| Increase (Decrease) in Accounts Payable                                                         |   | 90,796   |     | (92,794  | )      |
| Increase (Decrease) in Accrued Expenses                                                         |   | 21,918   |     | 5,788    |   |
| Increase (Decrease) in Gross Receipts Tax                                                       |   | (7,606   | )        | (3,415   | )      |
|                                                                                            |   |     |     |     |   |
| Net cash (used) by operating activities                                                         |   | (121,657 | )        | (368,568 | )      |
|                                                                                            |   |     |     |     |   |
| Cash Flows From Investing Activities:                                                           |   |     |     |     |   |
| Capital Expenditures                                                                            |   | (76,315  | )        | —   |   |
|                                                                                            |   |     |     |     |   |
|                                                                                            |   |     |     |     |   |
| Net cash (used) by investing activities                                                         |   | (76,315  | )        | —   |   |
|                                                                                            |   |     |     |     |   |
| Cash Flows From Financing Activities:                                                           |   |     |     |     |   |
| Proceeds received from Line of Credit                                                           |   | 114,066  |     | 300,300  |   |
| Proceeds from issuance of Notes Payable                                                         |   | —   |     | 54,143   |   |
| Payments on Notes Payable                                                                       |   | (12,413  | )        | (23,279  | )      |
| Payments on Lines of Credit                                                                     |   | (10,475  | )        | (11,400  | )      |
| Proceeds from issuance of stock                                                                 |   | —   |     | 45,000   |   |
|                                                                                            |   |     |     |     |   |
| Net cash provided by financing activities                                                       |   | 91,178   |     | 364,764  |   |
|                                                                                            |   |     |     |     |   |
| Net Increase (Decrease) in cash                                                                 |   | (106,794 | )        | (3,804   | )      |
|                                                                                            |   |     |     |     |   |
| Cash - Beginning of Period                                                                      |   | 117,619  |     | 10,825   |   |
|                                                                                            |   |     |     |     |   |
| Cash - End of Period                                                                            |   | $        | 10,825   |     | $      | 7,021 |   |
|                                                                                            |   |     |     |     |   |
| Supplemental Disclosures of Cash Flow Information:                                              |   |     |     |     |   |
| Cash Paid During Period The Period For:                                                         |   |     |     |     |   |
| Interest                                                                                        |   | $        | 7,002    |     | $      | 25,446 |   |
| Income Taxes                                                                                    |   | $        | 7,606    |     | $      | — |   |

 

See Accountant’s Report and Notes To Financial Statement

 

**USIP.COM, INC.**

**CONSOLIDATED NOTES TO THE FINANCIALSTATEMENTS**

**December 31, 2002**

 

**NOTE 1.****                                                 NATUREOF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**NATURE OF BUSINESS**

 

USIP.Com Inc. owns, operatesand manages privately owned public payphones in New York, Pennsylvania, andMassachusetts. The Company derives its revenue from coin-calls, non-coin calls,sales and service of payphones and prepaid phone cards.

 

# **SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

**MANAGEMENTESTIMATES**

 

The preparation of financialstatements in conformity with generally accepted accounting principals requiresmanagement to make estimates and assumptions that effect the reported amountsof assets and liabilities and the disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates.

 

**PRINCIPLESOF CONSOLIDATION**

 

The accompanying consolidatedFinancial Statements include the accounts of USIP.COM, Inc. and its whollyowned subsidiaries, Datone, Inc., NB Payphones, Ltd., and The Platinum FundingCorporation. Inter-company transactions and balances have been eliminated inconsolidation and combination.

 

**CONCENTRATIONSOF CREDIT RISK**

 

The Company’s payphones arelocated primarily in New York and parts of Pennsylvania and Massachusetts. Useof those payphones may be affected by economic conditions in those areas. Thecompany has experienced approximately a 30% drop in revenue, due to increasedcompetition from other payphone providers and increase use of wirelesscommunications.

 

The Company maintains cashbalances with a financial institution insured by the Federal Deposit InsuranceCorporation up to $100,000. There are no uninsured balances at December 31,2002.

 

**CASHAND CASH EQUIVALENTS**

 

The Company considers allhighly liquid instruments with maturity of three months or less when purchasedto be cash equivalents for purposes of classification in the balance sheets andstatement of cash flows. Cash and Cash equivalents consists of cash in bank(checking) accounts.

 

**FIXEDASSETS AND DEPRECIATION**

 

Fixed assets are stated atcost. Depreciation is calculated on a straight-line basis over the useful livesof the related assets, which range from five to seven years.

 

**INCOMETAXES**

 

Income taxes are accounted forin accordance with Statement of Financial Accounting Standards No. 109,“Accounting for Income Taxes”. Under SFAS No. 109, deferred income taxes arerecognized using the asset and liability method by applying tax rates tocumulative temporary differences based on when and how they are expected toaffect the tax return. Deferred tax assets and liabilities are adjusted forincome tax rate changes.

 

**NET(LOSS) PER COMMON SHARE**

 

Net loss per common share hasbeen calculated by taking the net loss for the current period and dividing bythe weighted average shares outstanding at the end of the period.

 

**REVENUERECOGNITION**

 

The Company derives its primaryrevenue from the following sources; dial-around revenues, coin collections, andcommissions. Other revenues generated by the Company include; prepaid phonecard sales, telephone equipment repairs and sales.

 

The Company recognizesdial-around revenues from toll-free calls that are dialed from its payphones togain access to a long distance carrier other than the one selected by theCompany as the primary carrier for the phones. Revenues from dial-around callsare recorded based on estimates. Coin collection revenues are generated whencustomers deposit coins into the payphones to make calls. Coin revenuesare recorded in an amount equal to the coin collected.

 

**ADVERTISING**

 

The corporation expensesadvertising costs as incurred. Advertising expense amounted to $7,455 and$2,691 for the years ended December 31, 2001 and 2002 respectively.

 

**NOTE2.                INVENTORY**

 

Inventory is valued at thelower of cost, determined on the first-in, first-out basis (FIFO), or marketvalue. At December 31, inventory consists of the following:

 
|                  |   | **2001** |   | **2002** |   |
|-----------------------|--------|----------|--------|----------|--------|
|                  |   |     |   |     |   |
| Calling Cards         |   | $        | 9,350  |     | $      | l0,156 |   |
| Parts and Accessories |   | 37,060   |   | 40,626   |   |
|                  |   | $        | 46,410 |     | $      | 50,782 |   |

 

**NOTE3.                COMMISSIONS AND SALESRECEIVABLE**

 

Commissions and SalesReceivable consists of the following at December 31:

 
|                                  |   | **2001** |    | **2002** |   |
|---------------------------------------|--------|----------|---------|----------|--------|
|                                  |   |     |    |     |   |
| Commissions Receivable                |   | $        | 133,966 |     | $      | 113,030 |   |
| Sales Receivable                      |   | 10,806   |    | 12,245   |   |
| Commissions and Sales Receivable, Net |   | $        | 144,772 |     | $      | 125,275 |   |

 

**NOTE4.                LINE OF CREDIT**

 

**REVOLVINGLINE OF CREDIT**

 

The Company has revolving linesof credit, of which $ 212,952 and $501,852 was outstanding at December 31, 2001and 2002 respectively. Bank advances on the credit line are payable on demandand carry an interest rate of 7%-10%.

 

**NOTE5.                LONG-TERM DEBT**

 
|                                                                      |   | **2001** |   | **2002** |   |
|---------------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                                      |   |     |   |     |   |
| Long-term debt as of December 31 is as  follows:                          |   |     |   |     |   |
|                                                                      |   |     |   |     |   |
| Note payable, Vehicle, Monthly payments of  $261 with interest at 12.4%   |   | $        | 7,475  |     | $      | 4, 654 |   |
|                                                                      |   |     |   |     |   |
| Note payable, Vehicle, Monthly payments of  $226 with interest at 12.4%   |   | 6,483    |   | 0        |   |
|                                                                      |   |     |   |     |   |
| Note payable, Vehicle, Monthly payments of  $302 with interest at 12.9%   |   | 9,074    |   | 0        |   |
|                                                                      |   |     |   |     |   |
| Note payable, Vehicle, Monthly payments of  $437 with interest at 9.25%   |   | 14,398   |   | 11,106   |   |
|                                                                      |   |     |   |     |   |
| Note payable, Vehicles, Monthly payment of  $535 w/interest at 8.2%       |   | 0        |   | 28,251   |   |
|                                                                      |   |     |   |     |   |
| Note payable, Vehicles, Monthly payment of  $589 w/interest at  8.2% |   | 0        |   | 26,515   |   |
|                                                                      |   |     |   |     |   |
| Lease on ATM Machine                                                      |   | 3,384    |   | 1,776    |   |
|                                                                      |   |     |   |     |   |
|                                                                      |   | $        | 40,814 |     | $      | 72,302 |   |

 

 

Aggregate annual maturitiesrequired on long-term debt at December 31, 2002  are as follows:

 
| 2003       |   | $      | 18,253     | ** ** |
|------------|--------|--------|------------|------------|
| 2004       |   | 17,234 | ** ** |
| 2005       |   | 12,398 | ** ** |
| 2006       |   | 12,881 | ** ** |
| 2007       |   | 10,840 | ** ** |
| Thereafter |   | 696    |       |
|       |   | $      | 72,302     |       |

 

**NOTE6.  OPERATING LEASES**

 

The Company leases itscorporate offices that are accounted for as a non-cancelable operating lease.The lease has a term of 36 months expiring December 2005. Future minimum leasepayments through maturity are as follows:

 
| **Years Ending  December 31,** |   |   | ** ** |
|--------------------------------|--------|--------|------------|
|                           |   |   |       |
| 2003                           |   | $      | 60,641     |   |
| 2004                           |   | 60,641 |       |
| 2005                           |   | 60,641 |       |
|                           |   |   |       |
|                           |   | $      | 181,923    |   |

 

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

 

The Company receivedapproximately 95% of total dial around and zero-plus compensation (commissions)from two providers.

 

**NOTE8.                INCOME TAXES**

 

**OPERATINGLOSS CARRYFORWARDS**

 

The Company has loss carryforwards totaling $ 888,643 that may be offset against future taxable income.If not used, the carry forwards will expire as follows:

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

 

**NOTE9.                FIXED ASSETS**

 

The Company has chosen to writedown the carrying value of equipment by approximately $292,000 and thecorresponding loss was recorded. This adjustment was due to obsolescence ofsome of the Company’s telephone equipment.

 

**NOTE10.              GOING CONCERNCONSIDERATIONS**

 

The Company has incurred annualoperating losses since inception. Prior to December 31, 2002, the Company hasincreased its line of credit borrowings to $500,000 to meet operating costs,while revenue’s have declined over 30% for the year ended December 31, 2002.The accompanying financial statements do not include any adjustments related tothe recoverability and classification of recorded assets, or the amounts andclassification of liabilities that might be necessary in the event that thecompany cannot continue in existence.

 

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

 

NONE

 

**PART III**

 

**ITEM 9.**  **DIRECTORSEXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**

 
| **Name**             |   | **Age** |   | **Position  with Company** |   | **Director  Continuously  Since** |
|----------------------|--------|---------|--------|----------------------------|--------|-----------------------------------|
|                 |   |    |   |                       |   |                              |
| Craig H. Burton      |   | 41      |   | President                  |   | January 2000                      |
|                 |   |    |   |                       |   |                              |
| Joseph J. Passalaqua |   | 29      |   | Secretary/Treasurer        |   | January 2000                      |
|                 |   |    |   |                       |   |                              |
| Lilly O. Beter       |   | 68      |   | Director                   |   | January 2000                      |

 

Craig H. Burton attended theUniversity of South Carolina-Coastal and was a duly licensed real estate agentin the State of New York. He began working in marketing for a long distancecarrier in 1996 and then moved to Datone as Director of Marketing for payphonesand prepaid cards.

 

Joseph J. Passalaqua hasserved as a technical support employee for Datone Communications, Inc., apayphone company. He was elected an officer and director of Datone in 1999.Several other payphone companies in the Central New York area have employedhim.

 

Lilly O. Beter is the formerPresident of Lilly Beter Capital Group, Ltd. The firm was founded over 30 yearsago when she had been associated with her husband, Dr. Peter David Beter, inhis law practice until his death in 1987. Dr. Beter had been General Counselfor the Export-Import Bank of Washington, co-founder of a mining explorationcompany in Zaire, and represented international financial interests in Europe,South America, and the Middle East. Ms. Beter provided governmentrepresentation to their clients. Ms. Beter, having lived extensively abroad, isnow active in overseas investment management.

 

**BOARD OFDIRECTORS; 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 meeting of the shareholders or (ii) the term designated for thedirector at the time of creation of the position being filled.

 

**SECTION16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**

 

Section 16(a) of theSecurities Exchange Act of 1934, as amended, requires our officers anddirectors and persons who own more than 10% of a registered class of our equitysecurities to file initial reports of ownership and reports of changes inownership with the Securities and Exchange Commission (the “SEC”). Such personsare required by SEC regulation to furnish us with copies of all Section 16(a)forms they file.

 

Based solely on review of thecopies of such forms received by us with respect to fiscal year 2002, orwritten representations from certain reporting persons, we believe that all filing requirementsapplicable to its directors, officers and persons who own more than ten percentof a registered class of the Company’s equity securities have been compliedwith.

 

**Item10.   EXECUTIVE COMPENSATION**

 

SUMMARYCOMPENSATION TABLE

 
| **NAME AND PRINCIPAL POSITION**                 |   | **FISCAL****YEAR PAID** |   | **SALARY** |   | **BONUS** |   |
|-------------------------------------------------|--------|-------------------------|--------|------------|--------|-----------|--------|
|                                            |   |                    |   |       |   |      |   |
| Craig H. Burton, President                      |   | 2002                    |   | $          | 40,040 |      | 0      |   |
|                                            |   |                    |   |       |   |      |   |
| Joseph  J, Passalaqua, Secretary/Treasurer |   | 2002                    |   | $          | 27,040 |      | 0      |   |

 

We have health insurance forour employees. We do not have retirement, pension, profit sharing, stockoptions, or other similar programs for the benefit of our employees.

 

**ITEM11.  SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT.**

 

The following table setsforth information, as of December 31, 2002, concerning all persons known by usto own beneficially more than 5% of our common stock and concerning sharesbeneficially owned by each director and executive officer and by all directorsand executive officers as a group. Unless expressly indicated otherwise, eachstockholder exercises sole voting and investment power with respect to the sharesbeneficially owned. The address for each of our executive officers anddirectors is 7325 Oswego Rd., Liverpool, N.Y., 13090.

 

SHARESBENEFICIALLY 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  Gibraltar                   |   | 6,086,111  |   | 34.4           | %      |
| Riviera Bay Holding Trust  Gibraltar           |   | 6,798,161  |   | 38.4           | %      |
| International Caribbean Trust, Ltd.  Gibraltar |   | 1,601,839  |   | 9.1            | %      |

 

----

*              Representsless than one percent.

 

(1)   Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficialownership of any securities as to which such person, directly or indirectly,through any contract, arrangement, undertaking, relationship or otherwise hasor shares voting power and/or investment power or as to which such person hasthe right to acquire such voting  and/orinvestment power within 60 days.

 

(2)    Percentage of beneficial ownership as to any person as of aparticular date is calculated by dividing the number of shares beneficially ownedby such person by the sum of the number of shares outstanding as of such dateand the number of unissued shares as to which such person has the right to acquire voting and/or investmentpower within 60 days. The number of shares shown includes outstanding shares ofCommon Stock owned as of December 31, 2002 by the person indicated. Our totalissued and outstanding stock as of December 31, 2002 was 17,699,388 shares.

 

**ITEM  12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

NotApplicable.

 

**ITEM13.  EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)           Exhibits

 
| **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)                                                                                                                                 |

 

----

(1)           Filedherewith.

 

(b)           Reports on Form 8K

 

No reports on Form 8-K werefiled in the fourth quarter of 2002.

 

**ITEM14.  CONTROLS AND PROCEDURES**

 

a) As of a date within 90 daysof the filing date of this annual report, an evaluation of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedureswas performed under the supervision and with the participation of the Company’sPresident and Controller, pursuant to Exchange Act Rule 13a-14(c). Based uponthat evaluation, the Company’s President and Controller have concluded that theCompany’s disclosure controls and procedures are effective for the purpose ofensuring that material information required to be in this annual report is madeknown to them by others on a timely basis.

 

b) There have been no changesin the Company’s internal controls or in other factors that could significantlyaffect these controls subsequent to the date of their evaluation.

 

 

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 6, 2003

 
|   | By:             | /s/ CRAIG H. BURTON |   |
|--------|-----------------|---------------------|--------|
|   | CRAIG H. BURTON |
|   | President       |

 

Pursuant tothe 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 6, 2003 |
| Craig H. Burton                |   |      |                |     |
|                           |   |      |                |     |
| /s/  JOSEPH J. PASSALAQUA |   |      | Secretary/Treasurer |     | March 6, 2003 |
| Joseph J. Passalaqua           |   |      |                |     |
|                           |   |      |                |     |
| /s/  LILLY O. BETER       |   |      | Director            |     | March 6, 2003 |
| Lilly O. Beter                 |   |      |                |     |

 

**CERTIFICATION**

 

I, Craig Burton, certify that:

 

1. I have reviewed this annual report on Form10-KSB of USIP.Com, Inc.;

 

2. Based on my knowledge, this annual reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3. Based on my knowledge, the financialstatements, and other financial information included in this annual report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this annual report;

 

4. The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and have:

 

a) designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

 

b) evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the “Evaluation Date”); and

 

c) presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

a) all significant deficiencies in the designor operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6. The registrant’s other certifying officersand I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

Date: March 6, 2003

 
|   |                     | /s/  Craig Burton |   |   |
|--------|--------------------------|-------------------|--------|--------|
|   | Craig  Burton, President |              |

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report ofUSIP.Com, Inc. (the “Company”) on Form 10-KSB for the period ended December 31,2002 as filed with the Securities and Exchange Commission on the date hereof(the “Report”), I, Craig Burton, President of the Company, certify, pursuant to18 U.S.C. section 1350, as adopted pursuant to section 906 of theSarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

(1) The Report fully complies with therequirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;and

 

(2) The information contained in the Reportfairly presents, in all material respects, the financial condition and resultof operations of the Company.

 
| /s/  Craig Burton         |   |
|---------------------------|--------|
| Craig Burton              |
| President, USIP.Com, Inc. |

 

March 6, 2003

 

**CERTIFICATION**

 

I, Kathy Christopher, certify that:

1. I have reviewed this annual report on Form10-KSB of USIP.Com, Inc.;

 

2. Based on my knowledge, this annual reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3. Based on my knowledge, the financialstatements, and other financial information included in this annual report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this annual report;

 

4. The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and have:

 

a) designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

 

b) evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the “Evaluation Date”); and

 

c) presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

a) all significant deficiencies in the designor operation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b) any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

 

6. The registrant’s other certifying officersand I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

Date: March 6, 2003

 
|   |                           | /s/  Kathy Christopher |   |   |
|--------|--------------------------------|------------------------|--------|--------|
|   | Kathy  Christopher, Controller |                   |

 

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report ofUSIP.Com, Inc. (the “Company”) on Form 10-KSB for the period ended December 31,2002 as filed with the Securities and Exchange Commission on the date hereof(the “Report”), I, Kathy Christopher, Controller of the Company, certify,pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of theSarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

(1) The Report fully complies with therequirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;and

 

(2) The information contained in the Reportfairly presents, in all material respects, the financial condition and resultof operations of the Company.

 

 
| /s/ Kathy Christopher      |   |
|----------------------------|--------|
| Kathy Christopher          |
| Controller, USIP.Com, Inc. |

 

March 6, 2003

 

 

USIP.Com, Inc. does not have a“Chief Financial Officer,” Kathy Christopher is the principal financial andaccounting officer.