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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission File Number 0-31193
USIP.COM, INC.
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(Exact name of small business issuer as specified in its charter)
Utah 16-1583162
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7325 Oswego Road
Liverpool, New York 13090
(Address of principal executive offices)
(315) 451-7515
(Issuer's telephone number)
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(Former name, former address and former fiscal year
if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes ( ) No ( X )
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 17,618,888 shares of Common
Stock, $.01 par value, were outstanding as of September 20, 2000.
Transitional Small Business Disclosure Forms (check one):
Yes ( ) No ( X )
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USIP.COM, INC.
INDEX TO FORM 10-QSB
SEPTEMBER 30, 2000
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Page Nos.
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PART I----------------------------------------------------------------------------3
ITEM 1----------------------------------------------------------------------------3
Balance Sheets--------------------------------------------------------------------3
Statements of Income and Retained Earnings----------------------------------------4
Statement of Cash Flows-----------------------------------------------------------5
Notes to Financial Statements-----------------------------------------------------6
ITEM 2----------------------------------------------------------------------------7
PART II---------------------------------------------------------------------------9
ITEM 1----------------------------------------------------------------------------9
ITEM 2----------------------------------------------------------------------------9
ITEM 3----------------------------------------------------------------------------9
ITEM 4----------------------------------------------------------------------------9
ITEM 5----------------------------------------------------------------------------9
ITEM 6----------------------------------------------------------------------------9
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
USIP.COM, INC
CONSOLIDATED BALANCE SHEET
September 30, 2000
(unaudited)
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ASSETS
CURRENT ASSETS
Cash $ 158,861
Commissions and Sales Receivable, Net 202,708
Inventory 23,434
Interest Receivable 2,076
Notes Receivable 3,775
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TOTAL CURRENT ASSETS 390,854
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FIXED ASSETS
Telephone and Office Equipment 1,905,078
Vehicle 65,454
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1,970,532
Less: Accumulated Depreciation (206,268)
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Net Fixed Assets 1,764,264
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TOTAL ASSETS $2,155,118
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 247,175
Line of Credit 100,597
Accrued Payroll and Payroll Taxes 8,760
Accrued State Gross Receipts Taxes 9,642
Other Accrued Expenses 3,929
Current Portion of Long-Term Debt 10,229
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TOTAL CURRENT LIABILITIES 380,332
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Long-Term Liabilities
Notes Payable 51,143
Less Current Portion 10,229
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TOTAL LONG-TERM LIABILITIES 40,914
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STOCKHOLDERS' EQUITY
Common Stock, $.01 par value 25,000,000 176,189
Shares authorized, 17,618,888 shares
issued and outstanding
Additional Paid In Capital 1,433,935
Retained Earnings 164,662
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TOTAL STOCKHOLDERS' EQUITY 1,774,786
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,155,118
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</TABLE>
See Notes to Financial Statement
3
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USIP.COM, INC
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
For the Three Months Ended September 30, 2000
(unaudited)
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SALES
Commissions $ 74,435
Coin Collections 155,330
Dial Around 92,430
Dial Tone 27,852
Equipment Sales 10,624
Service and Repair Sales 4,068
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Total Sales 364,739
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COST OF SALES
Telecommunications Costs 145,914
Commissions 2,507
Contractor Fees 13,355
Repairs and Service Supplies 3,981
Other Direct Expenses - Travel 4,810
Depreciation 80,913
Phone Cards and Phone Costs 18,610
Supplies 982
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Total Cost of Sales 271,072
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GROSS PROFIT 93,667
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OPERATING EXPENSES
Salaries and Wages 57,595
Payroll Taxes 8,691
Insurance 12,094
Telephone 8,476
Utilities 1,872
Vehicle Expenses 4,773
Rent 18,035
Professional Fees 5,590
Contractor Fees 6,576
Gross Receipts Tax 5,488
Office Expense 7,801
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Total Operating Expenses 136,991
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OPERATING INCOME (LOSS) (43,324)
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OTHER INCOME (EXPENSE)
Interest Income 1,624
Interest Expense (4,357)
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Total Other Income (2,733)
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NET INCOME (LOSS) (46,057)
RETAINED EARNINGS - BEGINNING 210,719
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RETAINED EARNINGS - ENDING $ 164,662
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Weighted Common Shares Outstanding 176,618,888
Net Loss per Common Share $ -
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</TABLE>
See Notes to Financial Statement
4
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USIP.COM, INC
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended September 30, 2000
(unaudited)
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Cash Flows From Operating Activities:
Net (Loss) $ (46,057)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation Expense 80,913
(Increase) in Commissions and Sales Receivables (35,105)
(Increase) in Inventory -
Decrease in Prepaid Insurance 178
Increase in Sales Tax Payable 749
Increase in Accounts Payable 64,953
(Derease) in Accrued Expenses (468)
Increase in Accrued State Gross Receipts Taxes 3,685
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Net cash (used) by operating activities 68,848
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Cash Flows From Investing Activities:
Purchase of Telephone Equipment
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Net cash provided by investing activities 0
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Cash Flows From Financing Activities:
Proceeds received from Line of Credit 35,931
Payments on Notes Payable (775)
Proceeds from issuance of stock 500
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Net cash (used) by financing activities 35,656
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Net Increase in cash 104,504
Cash - Beginning of Period 54,357
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Cash - End of Period $ 158,861
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Supplemental Disclosures of Cash Flow Information:
Cash Paid During Period The Period For:
Interest $ 4,358
Income Taxes $ -
</TABLE>
See Notes to Financial Statement
5
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USIP.COM,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(unaudited)
NOTE 1. SUMMARY INFORMATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q of Regulation S-X and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
management of the Company, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation have been included. Operating
results for the three months ended September 30, 2000 are not indicative of the
results of operations that may be expected for the year ending December 31,
2000.
NOTE 2. CONSOLIDATION POLICES
On January 31, 2000, the Company issued 7,268,388 shares of its common stock, in
exchange for all the issued and outstanding stock of Datone Communications, Inc.
On April 29, 2000 the Company issued 8,750,000 shares of its common stock in
exchange for all the issued and outstanding stock of NB Payphones, Ltd. and
Cointel, Inc. The combinations will be accounted for by the pooling of interests
method. All intercompany transactions have been eliminated in the preparation of
the Financial Statements.
NOTE 3. NET (LOSS) PER COMMON SHARE
Net loss per common share has been calculated by taking the net loss for the
current period and dividing by the weighted average shares outstanding at the
end of the period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following is a discussion and analysis of the results of operations of
the Company and should be read in conjunction with the Company's financial
statements and related notes contained in this Form 10-QSB. This Form 10-QSB
contains forward-looking statements that involve risks and uncertainties. You
can identify these statements by the use of forward-looking words such as "may,"
"will," "expect," "anticipate," "estimate," "continue," or other similar words.
You should read statements that contain these words carefully because they
discuss our future expectations contain projections of our future results of
operations or financial condition or state other "forward-looking" information.
We believe that it is important to communicate our future expectations to our
investors. However there may be events in the future that we are unable to
accurately predict or control. Those events as well as any cautionary language
in this registration statement provide examples of risks, uncertainties and
events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. You should be aware
that the occurrence of the events described in this Form 10-QSB could have a
material adverse effect on our business, operating results and financial
condition. Actual results could differ materially from current expectations.
Among the factors that could effect the Company's actual results and could cause
results to differ from those contained in the forward-looking statements
contained herein is the Company's ability to expand it's customer base, which
will be dependent on business, financial and other factors beyond the Company's
control, including, among others, seasonal aspects such as the winter months
that tend to reduce the frequency of outdoor payphone use in the east coast,
ability to increase our size and marketing area by purchasing payphones and
locations from independent telephone companies, and whether the public uses our
payphones, together with all the risks inherent in the establishment of a new
enterprise and the marketing of new products.
PLAN OF OPERATION
USIP.Com, Inc., (the "Company" or "USIP" or "We"), was incorporated under
the laws of the State of Utah on April 6, 1978 as Derby Farms, Inc. On January
19, 1982, the Articles of Incorporation were amended and the name of the company
was changed to Commerce Oil of Kentucky, Inc. On February 4, 2000 the Articles
of Incorporation were amended and the name of the company was changed to
USIP.Com, Inc.
On April 29, 2000, we entered into a two hundred thousand dollar
($200,000), unsecured line of credit with Lilly Beter Capital Group, Ltd., with
interest at the rate of ten percent per annum. We are accessing these funds, as
needed, on an ongoing basis. These funds are being used to purchase and upgrade
telephones that will be placed at new locations.
We own, operate and manage privately owned public payphones in New York,
Pennsylvania and Massachusetts. Our revenue comes from commissions that we
receive from operator service telecommunications companies, and toll free calls.
It also comes from the coins that we collect from the payphones that we own as
well as from sales, service of payphones and prepaid phone cards that we sell at
various locations throughout these states. We enter into site leasing agreements
with various business sites that are open to the public. We pay each site owner
a commission based on a flat monthly rate or on a percentage of sales. Some of
the businesses include but are not limited to retail stores, convenience stores,
bars, restaurants, gas stations, colleges and hospitals. The agreements allow us
to install our payphones in areas that are accessible to the public. We provide
the payphones, install them, and pay all maintenance and operational costs for
the term of each lease. We also sell payphones to some of the site owners. We
derive income from the sale as well as any commission split that we negotiate
with the buyer.
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PLANS FOR FISCAL YEAR 2000.
Our plans of operation for the remainder of its 2000 fiscal year will consist of
the following activities:
o continuing to evaluate the acquisition of more payphones and new site
leasing arrangements that can enhance the Company's business plan;
o expanding our company into more states; and
o developing a marketing plan that can help us grow into the next year.
RESULTS OF OPERATIONS
The following discussion is based in part on our unaudited Financial
Statement for the three months ended September 30, 2000. Our revenue is derived
from three general sources, (i) commission income (ii) coin collections, and
(iii) the sales and service of payphones and sales of phone cards. Commission
income includes two types of commissions: (i) commissions from operator service
telecommunications companies and (ii) commissions for toll free calls.
Commissions for operator service are generally paid on a bi-weekly basis. The
"dial around" for toll free calls is paid to us subject to a three-month delay.
Coin collections are made on a monthly basis or more often if the particular
payphone has significant usage. The coins are counted in house and are deposited
weekly. Sales and repairs of payphones and the sale of phone cards are not
subject to the same collection delays as the other types of operational income.
Our second quarter gross sales were $394,719 and our third quarter gross
sales were $364,739 a decrease of 8%. This is attributable to the fact that in
the second quarter our equipment sales were $52,040 and decreased by 80% to
$10,624 in the third quarter due to a large sale of telephones to a hospital in
the second quarter. Third quarter costs of sales increased by 33% from $203,225
in the second quarter to $271,072 in the third. Payphone usage tends to increase
during the summer months. Operating expenses of $243,333 for the second quarter
decreased by 44% to $136,991 in the third. This was largely due to a decrease in
administrative telephone costs for the company.
Our second quarter commissions of $72,599 increased by 3% to $74,435 in the
third quarter. These commissions are paid to us by other long distance carriers
when a customer uses our phone to make a long distace call while using that
other carriers long distance account. Our collections were $157,244 in the
second quarter, and they decreasaed by 1% to $155,330. Collections are generally
done on a 90-120 day cycle, therefore these figures tend to fluctuate from
period to period, depending on what day the moneies were actually collected. The
dial around compensation of $90,487 in the second quarter increased by 2% to
$92,430. These small increases are also due to the fact that we had a large sale
of phones to a hospital in the second quarter and no such sale this quarter.
Telecommunications costs of $123,188 for the second quarter increased by
18% to $145,914. These costs tend to be higher during the summer months. Service
and repair charges decreased from $10,128 in the second quarter to $4,168 in the
third quarter, a percentage decrease of 59% due to to the fact that in last
quarter we had a big sale to a hospital and we had to install and prepare these
phones for use by the public.
Travel expenses decreased by 61% this quarter from $12,235 to $4,810. due
to the fact that the recently acquired Coin Tel and NB payphone routes are now
on a set collection and maintence schedule. Salary expenses decreased by 35%
from $88,534 to $57,595 due to a reduction in staffing of the acquired
companies.
The operating loss decreased from $51,839 in the second quarter to $43,324
in the third quarter which is a decrease of 16% due to better control of
expenses.
For additional capital requirements, we have increased our line of credit
with our banking institution up to $200,000 of which the balance is
approximately $30,597. We have an additional unsecured
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line of credit with Lilly Beter Capital Group, Ltd., in the amount of $200,000.
We are accessing these funds, as needed, on an ongoing basis. We intend to use
the remaining monies for our continued expansion.
The increased use of the cellular telephone has substantially impacted the
public's use of payphones, and we believe that the 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 by avoiding traditional travel
locations where cellular use is high. The impact on revenue is offset in part by
reductions in the cost for basic telecommunications services as shown by the
precentage reduction for 1998 to 1999. We believe that this trend will continue
into the foreseeable future. We expect to increase revenue by advertising. This
type of advertisement will be affixed to each payphone booth.
We will continue our expansion efforts by acquiring additional phones from
small independent local exchange companies. We have made some headway in
expanding the use of phone-to-phone Internet usage on our payphones as a means
of further reducing the costs in the future. We will be exploring the use of
existing services while we develop our own proprietary software and services for
resale to other payphone providers.
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item. 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
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The following exhibits required by Item 601 of Regulation S-B are attached.
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
Signature Page
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: November 13, 2000
USIP.Com, Inc.
(Registrant)
/s/ CRAIG BURTON
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President
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