<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12 (g) of the Securities Exchange Act of 1934
USIP.Com, Inc.
(Name of small business issuer 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, NY 13090
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (315) 451-7515
For mailing correspondence to USIP.Com, Inc.:
Carl E. Worboys
P.O. Box 2711
Liverpool, New York 13089
Securities to be registered under Section 12 (b) of the Act:
Title of each class Name of each exchange on which
To be so registered each class is to be registered
NONE N/A
--------------------------- -------------------------------
Securities to be registered under Section 12 (g) of the Act:
Common Stock, Par Value $.01 per share
--------------------
(Title of Class)
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TABLE OF CONTENTS
<TABLE>
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PART I PAGE
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Item 1. Description of Business -----------------------------------------------------------3
Item 2. Management's Discussion and Analysis or Plan of Operation -------------------------6
Item 3. Description of Property -----------------------------------------------------------8
Item 4. Security Ownership of Certain Beneficial Owners and Management --------------------8
Item 5. Directors, Executive Officers, Promoters and Control Persons ----------------------8
Item 6. Executive Compensation ------------------------------------------------------------9
Item 7. Certain Relationships and Related Transactions ------------------------------------9
Item 8. Description of Securities ---------------------------------------------------------9
PART II
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Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters -----------------------------------------------------10
Item 2. Legal Proceedings -----------------------------------------------------------------10
Item 3. Changes in and Disagreements with Accountants -------------------------------------10
Item 4. Recent Sales of Unregistered Securities -------------------------------------------10
Item 5. Indemnification of Directors and Officers -----------------------------------------10
PART F/S
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Financial Statements --------------------------------------------------------------F-1
PART III
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Item 1. Index to Exhibits -----------------------------------------------------------------11
Signatures ------------------------------------------------------------------------12
</TABLE>
2
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FORWARD-LOOKING STATEMENTS
This Form 10-SB 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-SB could have a material adverse effect on our business, operating
results and financial condition.
GENERAL
USIP.Com, Inc., a Utah corporation (the "Company" or "USIP"), seeks to
become a reporting company and is filing this Form 10-SB on a voluntary basis.
The company intends to voluntarily file periodic reports even if its obligation
to file such reports is suspended under the Exchange Act of 1934, as amended
(the "Exchange Act").
ITEM 1. DESCRIPTION OF BUSINESS.
USIP.Com, Inc., 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 December 31, 1983 the company's Certificate of
Incorporation was suspended for failure to file an annual report. On December
20, 1984 the company filed a petition for relief under Chapter Eleven of the
United States Bankruptcy Code. The case was filed in The United States
Bankruptcy Court, Middle District of Tennessee. The case was converted to
Chapter Seven on July 1, 1986. On September 1, 1992 the court signed a Final
Decree, and the case was closed. The company's Certificate of Incorporation was
reinstated on June 18, 1992 by the Utah Department of Commerce, Division of
Corporations.
On January 31, 2000, Datone Communications, Inc., ("Datone"), a New York
corporation merged into the company. All of the Datone shares were retired.
Datone shareholders received 7,268,388 restricted shares of common stock for its
stock. On February 4, 2000 the company amended its Articles of Incorporation and
the name was changed to USIP.Com, Inc.
On April 29, 2000 we purchased all the shares of NB Payphones, Inc.,
("NB"), the owner of 641 payphones in Pennsylvania and Cointel Leasing, Inc.,
("Cointel"), the owner of 45 payphones in Syracuse, New York, for 8,750,000
restricted shares of common stock. Cointel and NB are wholly owned subsidiaries
of the company. 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. These funds will be used to
purchase and
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upgrade telephones that will be placed at new locations. On June 14, 2000 we
purchased the payphone assets, 123 payphones, and associated equipment of
Taconic Telephone Corporation (Taconic), a New York corporation for $66,000.00.
We own, operate and manage privately owned public payphones in New York,
Pennsylvania and Massachusetts. We also offer prepaid phone cards for sale 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 contact potential customers through telemarketing, mailings, media ads
and direct sales. We use commissioned sales personnel who actively seek out new
customers. The sales force has been successful in signing area convenience store
chains and restaurants. This success in marketing and sales has served to
increase our geographical coverage and market penetration.
We have increased our size and marketing area by purchasing the payphones
and locations from independent telephone companies. These companies are defined
as traditional local service companies who are not part of the original AT&T
system. FCC ordered deregulation of payphone services has provided us with an
opportunity to buy payphones and payphone locations from small telephone
companies that no longer have to provide payphones as part of their business.
Because some of these companies are anxious to get out of the payphone business,
we are able to buy payphones and locations at a price that is beneficial to us.
We upgrade our payphones with "smart card" payphone technology. The upgrade
is a circuit board with improved technology. As we purchase phones from other
companies, we upgrade them. This upgrade of the phones will reduce the number
and frequency of service calls due to outages and other payphone related
problems and, in turn, will reduce the cost of maintaining each phone. The local
telephone switch controls the traditional payphone technology. The local switch
does not provide any services in the payphone that can benefit the owner of the
phone. The smart technology allows us to determine on a preset time basis the
operational status of the payphone. It also tells us when the coins in the phone
have to be collected, the number and types of calls that have been made from
each phone, as well as other helpful information that helps us provide better
service to our payphone using public.
The market in which we do business is highly competitive and constantly
evolving. We face competition from the larger and more established companies,
from companies that develop new technology, as well as the many smaller
companies throughout the country. For example, the last several years have shown
an increase in the use of cellular phones and 800 services. These increases cut
into our potential payphone customer base. Companies who have a larger sales
force, more money, larger manufacturing capabilities and greater ability to
expand their markets also cut into our potential payphone customers. Many of our
competitors have longer operating histories, significantly greater financial
strength, nationwide advertising coverage and other resources that we do not
have. Our competitors might introduce a less expensive or more improved
payphone. These, as well as other factors, can impact negatively on income for
the
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company. Through a series of orders from 1996-1999 the Federal Communications
Commission ("FCC"), attempts to address the financial loss created by 800
services, commonly known as "dial around" or "toll free" calls.
The FCC requires the sellers of long distance 800 services to pay the
payphone owner 24.8 cents per call. These funds are remitted quarterly through a
service provided by the American Public Communication Council "APCC". We sell
prepaid phone cards from vending machines at various payphone locations. If our
phone cards are used at one of our locations, we get paid for each call as well
as from the markup on each card. The card also permits international calls to be
made from a payphone. International calls have always been a target for those
who choose to defraud the payphone company through various illegal electronic
manipulations. International calls are generally more expensive and therefore
more susceptible to fraud. Because of these problems, payphones generally do not
permit international calls. Prepaid phone cards do away with fraud at the
payphone and are therefore an added source of income for us.
The competition from cellular phones is a very serious threat that can
result in substantially less revenue per payphone. We have attempted to address
this issue by avoiding the locations that serve the business traveler. For many
years these locations were the most lucrative, but now they are the locations
most impacted by the cellular user.
The large former "Bell" companies who provide local service dominate the
industry. These companies have greater financial ability than we do and they
give us the greatest competitive challenge. However, we compete with these
companies by paying a commission to the site owner. The commission is an
enticement for the site owner to put our phone on the site. We are able to
provide a higher quality customer service because the phones alert us to any
technical difficulties, and we can service them immediately. The ability to
immediately know that a problem exists with a payphone is very important because
down time for a phone means lost revenue for the company.
We do not rely on a major customer for our revenue. We have a variety of
small single businesses as well as some small chain stores that we service. We
do not believe that the company would suffer dramatically if any one customer or
small chain decided to stop using our phones. We must buy dial tone for each
payphone from the local exchange carrier. As long as we pay the carrier bill, it
must provide a dial tone. As a regulated Utility the exchange carrier may not
refuse to provide us service. Alternate service exists in certain areas where
Bell Atlantic competitors have located. We use alternate local service providers
when we can get a better price for the service. We use long distance providers
on all the payphones. We use Qwest and ATIX as our long distance carriers.
If the FCC regulation requiring sellers of long distance 800 services to
pay payphone owners 24.8 cents per call is reduced or done away with, it could
have a negative effect upon our revenue stream. We have no control over what
rules and regulations the state and federal regulatory agencies require us to
follow now or in the future. It is possible for future regulations to be so
financially demanding that they cause us to go out of business.
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We have seven full time employees and four sub-contractors. Our employees
are not subject to any collective bargaining agreements and we regard our
relations with employees to be good.
Any person or entity may read and copy our reports filed with the
Securities and Exchange Commission at the SEC's Public Reference Room at 450
Fifth Street, NW, Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC toll free at
1-800-SEC-0330. The SEC also maintains an Internet site at HTTP://WWW.SEC.GOV
where reports, proxies and informational statements on public companies may be
viewed by the public. You might also consider visiting our site at
HTTP://WWW.US-IP.COM. Our web site is currently being developed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion is based on our audited Financial Statements
for the years ended December 31, 1998 and 1999 and our audited Financial
Statement for the three months ended March 31, 2000. Our revenue for the last
two fiscal years has come from three general sources, (i) commission income (ii)
coin collections, and (iii) sales, service of payphones, and sale of phone
cards. Commission income includes two types of commissions: (i) commissions from
operator service telecommunications companies and (ii) commissions for toll free
calls from all payphones. Commissions from both types of services are subject to
a three-month delay in payment, because the operator service company must bill
and collect from the customer. 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 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 operating income. We derive income from the sale of a payphone. We can
sell a payphone to a site owner when it becomes cost prohibitive to maintain or
if a customer wants to buy the phone, and the company can negotiate a favorable
sale. We also derive a profit from any commission split that is negotiated
between the parties. The new owner or lessee becomes responsible for the
maintenance and operational costs of the payphone.
Weather conditions affect our revenue stream because we operate in the
Northeast part of the country. Revenues drop off significantly during the winter
because most of our phones are outdoors. The spring and summer periods show a
significant increase. Revenue and income are lowest in the first quarter and
highest in the third quarter.
Our revenue increased for the year ending December 31, 1999 by $265,676
or 35% from the year ending December 31, 1998. This increase in revenue can be
attributed to the purchase of new routes from small independent phone companies
as well as increased payphone installations in existing areas. Cost of sales as
a percentage of revenue increased from 41.2% in 1998 to 48.6% in 1999 due in
part to an increase in repairs and service. The increase in repairs and service
was necessary for improving the payphones that were purchased from the small
independent phone companies. Travel expenses increased due to the geographic
expansion of the company. On the other hand, the amount paid for local and long
distance services decreased by over $35,000 and as a percentage of revenue it
dropped from 35.5% to 22.9%. These figures as
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percentages of sales should continue to drop with the increased competition in
the telecommunications industry. Operating expenses increased by $164,820 over
the prior fiscal year as we had increased costs in every category due to the
rapid expansion of our company. The percentage of operating expenses to total
revenue increased from 20% to 31%. We expect this percentage to decrease as the
expansions are fully assimilated into our operations.
During 1998, 1999 and the first three months of 2000, we generated net
cash from operations and we expect to continue that trend in the future. Our
operations for the three months ending March 31, 2000 had gross revenue of
$227,700, gross profit of $51,217 and an operating loss of $44,356. The first
quarter results are due in part to the cost of the Datone merger, the purchase
of payphones, and a bad debt expense in the amount of $64,611. Had it not been
for the bad debt expense, the quarter would have shown a small profit slightly
in excess of $10,000.
To meet additional capital requirements, we have a line of credit with
our banking institution in the amount of $35,000 of which $33,297 has been
used. We have the right to expand the line of credit by $3,500. We have an
additional unsecured line of credit with Lilly Beter Capital Group, Ltd., in the
amount of $200,000 that has been used in part to fund the purchase of payphone
routes and telephones from Taconic Telephone Corporation and to upgrade the
telephones with "smart" technology. We do not expect to exhaust this line of
credit on upgrading the telephones purchased from Taconic. We intend to use the
remaining monies for our company's 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 of basic telecommunications services as shown by the
percentage reduction from 1998 to 1999. We believe that this trend will continue
into the foreseeable future. We expect to increase revenue by advertising. The
advertisement will be affixed to each payphone booth.
We plan to increase our expansion efforts by acquiring additional
phones from small independent local exchange companies, placing the upgraded
payphones at new sites, and selling more prepaid phone cards. We anticipate that
the acquisition of additional payphones from Taconic, NB PayPhones and Cointel
Leasing will increase our income and profit for the last six months of the year.
We intend to explore the use of phone-to-phone Internet usage on our
payphones as a means of further reducing 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.
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ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases commercial space at 7325 Oswego Road, Liverpool, NY
13090 and 4204 E. Ewalt Rd., Gibsonia, PA 15044.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
<TABLE>
<CAPTION>
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(1) (2) (3) (4)
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Owner
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<S> <C> <C> <C>
Common Epic Events Trust 6,086,111 37.9%
Gibraltar
Common Riviera Bay Holdings Trust 6,798,161 42.4%
Gibraltar
Common International Caribbean Trust, Ltd 1,601,839 10%
Gibraltar
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
<TABLE>
<CAPTION>
Year First Became
Name Age Position with Company a Director
---- --- --------------------- -------------------
<S> <C> <C> <C>
Craig H. Burton 38 President January 31, 2000
One-year term
Joseph J. Passalaqua 26 Secretary/Treasurer January 31, 2000
One-year term
Lilly O. Beter 66 Director January 31, 2000
One-year term
Carl E Worboys 56 Director January 31, 2000
One-year term
</TABLE>
Craig H. Burton attended the University of South Carolina-Coastal and
was a duly licensed real estate agent in the State of New York. He began working
in marketing for a long distance carrier in 1996 and then moved to Datone as
Director of Marketing for payphones and prepaid cards. In October 1999, he was
elected President of Datone.
Joseph J. Passalaqua has served as a technical support employee for
Datone Communications, Inc., a payphone company. He was elected an officer and
director of Datone in 1999. He has been employed by several other payphone
companies in the Central New York area.
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Lilly O. Beter is the former President of Lilly Beter Capital Group,
Ltd. The firm was founded over 30 years ago when she had been associated with
her husband, Dr. Peter David Beter, in his law practice until his death in 1987.
Dr. Beter had been General Counsel for the Export-Import Bank of Washington,
co-founder of a mining exploration company in Zaire, and represented
international financial interests in Europe, South America, and the Middle East.
Ms. Beter provided government representation to their clients.
Ms. Beter, having lived extensively abroad, is now active in overseas
investment management. She currently sits on the board of directors of numerous
companies including New Visual Entertainment, Inc., a public company.
Carl E. Worboys is a practicing attorney in the State of New York. He
formed Datone Communications in 1997 and acted as legal counsel since the
formation. For five years he was in charge of regulatory affairs for American
Telecommunications Enterprises, Inc., a long distance carrier. During Mr.
Worboy's association with American Telecommunications Enterprises, Inc., the
company filed for protection under Chapter Eleven of the United States
Bankruptcy Code.
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL OTHER
NAME AND PRINCIPAL POSITION YEAR PAID SALARY BONUS COMPENSATION
--------------------------- --------- ------ ----- ------------
<S> <C> <C> <C> <C>
Craig Burton, President 2000 $22,000 -0- -0-
Joseph J, Passalaqua, Secretary/Treasurer 2000 $22,000 -0- -0-
</TABLE>
We have no retirement, pension, profit sharing, stock options, insurance
programs, or other similar programs for the benefit of our employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not Applicable.
ITEM 8. DESCRIPTION OF SECURITIES.
We are authorized to issue 25,000,000 shares of common stock, with a
par value of $.01 per share. At this time, 16,023,388 shares have been issued.
The holders of common stock have one vote per share on all matters including
election of directors, without provision for cumulative voting. The common stock
is not redeemable and has no conversion or preemptive rights. The common stock
currently outstanding is validly issued, fully paid and nonassessable. In the
event of liquidation of the company, the holders of common stock will share
equally in any balance of the company's assets available for distribution to
them after satisfaction of creditors and preferred shareholders, if any. The
holders of common stock of the company are entitled to equal dividends and
distributions per share with respect to the common stock when, as and if,
declared by the board of directors from funds legally available.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
There is no public trading market for our company's stock. There are
approximately 270 stockholders. As of today, we have not declared any cash
dividends on our common stock. We currently intend to retain our earnings, if
any, to finance the expansion of the business and for general corporate purposes
and we do not anticipate paying any cash dividends on our common stock for the
foreseeable future. Any future dividends will be at the discretion of the board
of directors, after taking into account various factors, including among others,
operations, current and anticipated cash needs and expansion plans, the income
tax laws then in effect, the requirements of Utah law, and any restrictions that
may be imposed by our future credit arrangements.
ITEM 2. LEGAL PROCEEDINGS.
To the knowledge of management, there is no material litigation pending
or threatened against the company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, we have issued the following unregistered securities.
Five Thousand Shares of common stock were issued to David Singleton, a resident
of the State of Florida, in lieu of a debt owed by the company. The shares were
issued under Section 4(2) of the Securities Act of 1933, as amended.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation provide for indemnification to the full
extent permitted by the laws of the State of Utah for each person who becomes a
party to any civil or criminal action or proceeding by reason of the fact that
he, or his testator, or intestate, is or was a director or officer of the
corporation or served any other corporation of any type or kind, domestic or
foreign in any capacity at the request of the corporation.
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PART F/S
FINANCIAL STATEMENTS
USIP.COM,INC.
FINANCIAL STATEMENTS
PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE NO.
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<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Income and Retained Earnings F-4
Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
USIP.Com, Inc.
Liverpool, New York
We have audited the accompanying balance sheet of USIP.Com, Inc. as of March 31,
2000 and the related statements of income and retained earnings and cash flows
for the period ended March 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USIP.Com, Inc. as of March 31,
2000, and the results of operations and cash flows for the period ended March
31, 2000, in conformity with generally accepted accounting principles.
/s/ CE Forse
------------
CE Forse
Saint Paul, Minnesota
July 20, 2000
F-2
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USIP.COM, INC
BALANCE SHEET
March 31, 2000
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,494
Commissions and Sales Receivable, Net 156,285
Inventory 65,063
Prepaid Insurance 4,656
------------
TOTAL CURRENT ASSETS 228,498
------------
FIXED ASSETS
Telephone and Office Equipment 1,466,144
Vehicle 18,811
------------
1,484,955
Less: Accumulated Depreciation (103,902)
------------
------------
Net Fixed Assets 1,381,053
------------
TOTAL ASSETS $ 1,609,551
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 150,625
Line of Credit 33,297
Accrued Payroll and Payroll Taxes 6,681
Accrued State Gross Receipts Taxes 8,457
Other Accrued Expenses 412
Current Portion of Long-Term Debt 1,076
------------
TOTAL CURRENT LIABILITIES 200,548
------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value 25,000,000 88,639
Shares authorized, 8,863,888 shares
issued and outstanding
Additional Paid In Capital 1,089,745
Retained Earnings 230,619
------------
TOTAL STOCKHOLDERS' EQUITY 1,409,003
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,609,551
============
</TABLE>
See Accountant's Report and Notes To Financial Statement
F-3
<PAGE>
USIP.COM, INC
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Three Months Ended March 31, 2000
<TABLE>
<S> <C>
SALES
Commissions $ 38,510
Coin Collections 94,600
Dial Around 58,000
Phone Card Sales 21,965
Equipment Sales 13,210
Service and Repair Sales 1,415
-----------
Total Sales 227,700
-----------
COST OF SALES
Telecommunications Costs 44,007
Commissions 23,757
Repairs and Service Supplies 7,064
Other Direct Expenses - Travel 9,956
Depreciation 13,315
Subcontractors 13,773
Bad Debt Expense 64,611
-----------
Total Cost of Sales 176,483
-----------
GROSS PROFIT 51,217
-----------
OPERATING EXPENSES
Officers' Salaries 14,649
Salaries and Wages 32,542
Payroll Taxes 5,525
Insurance 15,454
Office Supplies 2,156
Utilities 1,031
Vehicle Expenses 6,876
Rent 15,179
Professional Fees 136
Outside Services 2,025
-----------
Total Operating Expenses 95,573
-----------
OPERATING INCOME (LOSS) (44,356)
-----------
OTHER INCOME (EXPENSE)
Interest Expense (786)
Other Income 3,561
-----------
Total Other Income 2,775
-----------
NET INCOME (LOSS) (41,581)
RETAINED EARNINGS - BEGINNING 272,200
-----------
RETAINED EARNINGS - ENDING $ 230,619
===========
Weighted Common Shares Outstanding 8,863,888
Net Loss per Common Share $ --
===========
</TABLE>
See Accountant's Report and Notes To Financial Statement
F-4
<PAGE>
USIP.COM, INC
CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Stockholder's
--------------------------
Shares Amount Capital Earnings Equity
------------- --------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance as of January 1,
2000 1,595,500 $15,955 $57,334 $ 272,200 $345,489
Issuance of Common Stock
to Datone, Inc. Shareholders 7,268,388 $72,684 $1,032,411 $1,105,095
Net Loss (41,581) (41,581)
------------- --------- ------------- ---------------- ----------------
Balance as of March 31, 2000 8,863,888 $88,639 $1,089,745 $ 230,619 $ 1,409,003
============= ========= ============= ================ ================
</TABLE>
See Accountant's Report and Notes To Financial Statement
F-5
<PAGE>
USIP.COM, INC
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2000
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net (Loss) $ (41,581)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation Expense 13,315
Bad Debt Expense 64,611
(Increase) in Commissions and Sales Receivables (26,696)
(Increase) in Inventory (43,629)
Decrease in Prepaid Insurance 5,233
Decrease in Due From Related Parties 3,775
Increase in Accounts Payable 19,218
(Decrease) in Accrued Expenses and Wages (6,915)
(Decrease) in Accrued State Gross Receipts Taxes (4,200)
------------------
Net cash (used) by operating activities (16,869)
------------------
Cash Flows From Investing Activities:
Stockholder Capital Contributions 10,000
------------------
Net cash provided by investing activities 10,000
------------------
Cash Flows From Financing Activities:
Repayments on Line of Credit Borrowings (50)
------------------
Net cash (used) by financing activities (50)
------------------
Net Increase in cash (6,919)
Cash - Beginning of Period 9,413
------------------
Cash - End of Period $ 2,494
==================
Supplemental Disclosures of Cash Flow Information:
Cash Paid During Period The Period For:
Interest $ 480
Income Taxes $ 4,200
</TABLE>
See Accountant's Report and Notes To Financial Statement
F-6
<PAGE>
USIP.COM, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
USIP.COM, Inc. (The Company) is a small business issuer and organized under the
laws of the State of Utah. The Company was formed on April 6, 1978 as Derby
Farms Inc. and its stated purpose was to engage in horse racing in the State of
Utah.
On January 10, 1982, the name of the company was changed to Commerce Oil of
Kentucky, Inc. The company commenced doing business in the State of Tennessee
with offices for the transaction of business in the City of Nashville.
On December 31, 1983, the Company was suspended by the State of Utah for failure
to file corporate reports. On December 31, 1984, the State of Utah issued a
Certificate of Involuntary Dissolution for failure to file an annual report.
The Company operated a pipeline in the State of Tennessee and subsequently did
not operate as a Utah corporation. The Company and a related company filed in
bankruptcy as Commerce Oil Company in the U. S. Bankruptcy Court for the Middle
District of Tennessee and a final decree was issued by the Court on September 1,
1992.
On January 31, 2000, the name of the Company was changed to USIP.Com, Inc. Its
principal offices were relocated to Liverpool, New York.
On January 31, 2000, the Company was authorized to and did acquire all the
shares of Datone Communications, Inc. by issuing 7,268,388 shares of the
Company's common stock.
USIP.COM, Inc. is currently a provider of both privately owned and company owned
payphones (COCOT'S) and stations in New York State and Pennsylvania. The Company
receives revenues from the collection of the payphone coinage, a portion of
usage of service from each payphone and a percentage of long distance calls
placed from each payphone from the telecommunications service providers. In
addition, the Company also receives revenues from the service and repair of
privately owned payphones, sales of payphone units and the sales of prepaid
phonecards.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date
F-7
<PAGE>
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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.
The combination will be accounted for by the pooling of interests method. All
intercompany transactions have been eliminated in the preparation of the
Financial Statements.
CONCENTRATIONS OF CREDIT RISK
The Company's payphones are located primarily in New York State and parts of
Pennsylvania and usage of those phones may be affected by economic conditions in
those areas. However, the use of payphones has demonstrated an immunity to
economic fluctuations.
The Company maintains cash balances with a financial institution insured by the
Federal Deposit Insurance Corporation up to $100,000. There are no uninsured
balances at March 31, 2000.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents for purposes of
classification in the balance sheets and statement of cash flows. Cash and Cash
equivalents consists of cash in bank (checking) accounts.
FIXED ASSETS AND DEPRECIATION
Fixed Assets are stated at cost. Depreciation is calculated on a straight-line
basis over the useful lives of the related assets, which range from five to
seven years. For income tax purposes, the modified accelerated cost recovery
method is used.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under SFAS No. 109,
deferred income taxes are recognized using the asset and liability method by
applying income tax rates to cumulative temporary differences based on when and
how they are expected to affect the tax return. Deferred tax assets and
liabilities are adjusted for income tax rate changes.
NET (LOSS) PER COMMON SHARE
Net loss per common share has been calculated by taking the net loss for the
current period and dividing by the weighted average shares outstanding at the
end of the period.
F-8
<PAGE>
NOTE 2. INVENTORY
Inventory is valued at the lower of cost, determined on the first-in, first-out
basis (FIFO), or market value. At March 31, 2000, inventory consists of the
following:
<TABLE>
<S> <C>
Telephones $ 44,243
Enclosures and pedestals 3,904
Signs 1,952
Parts and accessories 14,964
--------
$ 65,063
</TABLE>
NOTE 3. COMMISSIONS AND SALES RECEIVABLE
Commissions and Sales Receivable consists of the following at March 31, 2000:
<TABLE>
<S> <C>
Commissions Receivable $ 218,856
Sales Receivable 2,040
----------
220,896
Less: Allowance for Doubtful Accounts (64,611)
Commissions and Sales Receivable, Net 156,285
</TABLE>
NOTE 4. LINE OF CREDIT
The Company has a cash reserve credit account with their banking institution in
the amount of $1,000, of which $514 was outstanding of March 31, 2000. This
reserve insures payment of any small overdrafts from the business checking
account. This reserve is unsecured and bears interest at the bank's prime rate
plus 6%, 11% as of March 31, 2000.
On February 19, 1999, the Company entered into an agreement to obtain a
revolving line of credit, with its banking institution, with maximum borrowings
of $35,000, of which $33,297 was outstanding on March 31, 2000. The agreement
has a provision that allows the Company to request an additional line of credit,
called a responsive line option, not to exceed 25% of the original note amount
or $10,000, whichever is less. The Company must meet certain provisions
contained in the agreement in order to be eligible to request activation of the
responsive line. The line of credit bears interest at 2% over the prime rate as
published each business day in the "Money Rates" column of the Wall Street
Journal. The line of credit is secured by a first security interest in all the
Company's assets, including intangibles.
NOTE 5. OPERATING LEASES
The Company is the lessee of two vehicles, office equipment and its corporate
offices accounted for as non-cancelable operating leases. The leases have terms
of thirty (30) to thirty-six (36) months, expiring at various months through
October 2002. Future minimum lease payments, in the aggregate, through
maturities are as follows:
F-9
<PAGE>
<TABLE>
<CAPTION>
Years Ending
December 31,
<S> <C>
2000 $ 53,821
2001 53,088
2002 42,914
--------
$149,823
--------
</TABLE>
NOTE 6. MAJOR DIAL AROUND COMPENSATION PROVIDERS (COMMISSIONS)
The Company received approximately 95% of total dial around and zero-plus
compensation (commissions) from two providers.
F-10
<PAGE>
DATONE COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
AUDITORS' REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2-3
Statements of Income and Retained Earnings 4
Statements of Cash Flows 5
Notes to Financial Statements 6-10
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholder
Datone Communications, Inc.
We have audited the accompanying balance sheets of Datone Communications, Inc.
as of December 31, 1999 and 1998, and the related statements of income and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Datone Communications, Inc. as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ GRIMALDI & ASSOCIATES
---------------------------
January 31, 2000
1
<PAGE>
DATONE COMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 9,413 $ 10,981
Commissions receivable 194,200 148,407
Inventory 21,434 --
Prepaid insurance 9,889 --
Deposit -- 20,000
--------- ---------
TOTAL CURRENT ASSETS 234,936 179,388
--------- ---------
FIXED ASSETS
Telephone and office equipment 346,094 239,887
Vehicle 18,811 18,811
--------- ---------
Total fixed assets 364,905 258,698
Less: Accumulated depreciation (90,587) (40,028)
--------- ---------
Net fixed assets 274,318 218,670
--------- ---------
OTHER ASSETS
Due from related companies 3,775 --
--------- ---------
Total other assets 3,775 --
--------- ---------
Total assets $ 513,029 $ 398,058
========= =========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of credit $ 33,347 $ 746
Accounts payable 131,407 74,795
Accrued payroll and payroll taxes 3,909 2,150
Accrued state gross receipts taxes 12,657 5,433
Other accrued expenses 10,099 --
Current portion of long-term debt 1,076 6,716
-------- --------
TOTAL CURRENT LIABILITIES 192,495 89,840
LONG-TERM DEBT -- 1,076
-------- --------
Total liabilities 192,495 90,916
-------- --------
STOCKHOLDER'S EQUITY
Common stock, no par value, 200 shares authorized; 100 shares
issued and outstanding 1,000 1,000
Paid in capital 47,334 47,334
Retained earnings 272,200 258,808
-------- --------
Total stockholder's equity 320,534 307,142
-------- --------
Total liabilities and stockholder's equity $513,029 $398,058
======== ========
</TABLE>
3
<PAGE>
DATONE COMMUNICATIONS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------------
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
REVENUES
Commission income $ 517,327 50.6 $ 469,501 62.1
Coin collection income 436,288 42.7 232,587 30.7
Sales, repair and phonecard income 68,379 6.7 54,230 7.2
----------- ------- ------------ --------------
Total revenues 1,021,994 100.0 756,318 100.0
----------- ------- ------------ --------------
COST OF REVENUES
Telecommunications costs 234,168 22.9 268,622 35.5
Commissions 56,625 5.5 45,517 6.0
Repairs and service supplies 88,247 8.6 33,147 4.4
Other direct expenses - travel 43,027 4.2 1,313 0.2
Depreciation 50,559 5.0 26,350 3.5
Subcontractors 52,959 5.2 69,370 9.2
----------- ------- ------------ --------------
Total cost of revenues 525,585 51.4 444,319 58.8
----------- ------- ------------ --------------
GROSS PROFIT 496,409 48.6 311,999 41.2
----------- ------- ------------ --------------
OPERATING EXPENSES
Advertising 7,459 0.7 2,494 0.3
Officers' salaries 58,689 5.8 17,943 2.4
Salaries and wages 126,823 12.4 73,608 9.7
Payroll taxes 17,541 1.7 9,064 1.2
Travel, meals and entertainment 23,693 2.3 985 0.1
Insurance 23,943 2.3 7,504 1.0
Professional fees 15,225 1.5 3,942 0.5
Office supplies and expenses 10,472 1.0 10,223 1.3
Outside services 3,970 0.4 1,222 0.2
Utilities 1,130 0.1 159 --
Vehicle expenses 12,049 1.2 10,730 1.4
Rental expenses 15,051 1.5 11,916 1.6
Miscellaneous expenses 625 0.1 2,060 0.3
----------- ------- ------------ --------------
Total operating expenses 316,670 31.0 151,850 20.0
----------- ------- ------------ --------------
OPERATING INCOME 179,739 17.6 160,149 21.2
INTEREST EXPENSE (1,350) (0.1) (1,347) (0.2)
INCOME BEFORE PROVISION FOR
STATE GROSS RECEIPTS TAXES 178,389 17.5 158,802 21.0
PROVISION FOR STATE GROSS
RECEIPTS TAXES (11,671) (1.2) (7,737) (1.0)
NET INCOME 166,718 16.3 151,065 20.0
======= ==============
RETAINED EARNINGS - BEGINNING
OF YEAR 258,808 117,983
Less: Stockholder distributions (153,326) (10,240)
--------- ---------
RETAINED EARNINGS - END OF YEAR $ 272,200 $ 258,808
========= =========
</TABLE>
4
<PAGE>
DATONE COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 166,718 $ 151,065
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 50,559 26,350
(Increase) decrease in:
Commissions receivable (45,793) (21,556)
Inventories (21,434) --
Prepaid insurance (9,889) --
Deposit 20,000 (20,000)
Due from related companies (3,775) --
Increase (decrease) in:
Accounts payable 56,612 37,222
Accrued expenses and wages 11,858 2,150
Accrued state gross receipts taxes 7,224 (2,198)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 232,080 173,033
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (106,207) (156,971)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (106,207) (156,971)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayments) from (on) line of credit borrowings (net) 32,601 746
Repayments on long term borrowings (6,716) (6,004)
Stockholder distributions (153,326) (10,240)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (127,441) (15,498)
--------- ---------
NET INCREASE (DECREASE) IN CASH (1,568) 564
CASH - BEGINNING OF YEAR 10,981 10,417
--------- ---------
CASH - END OF YEAR $ 9,413 $ 10,981
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,251 $ 1,347
Income taxes $ 4,447 $ 11,250
</TABLE>
5
<PAGE>
DATONE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Datone Communications,
Inc. (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations
of the owners and management who are responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation
of the financial statements.
BUSINESS DESCRIPTION
The Company is a provider of both privately owned and company owned payphones
(COCOT'S) and stations in New York State and Pennsylvania. The Company
receives revenues from the collection of the payphone coinage, a portion of
usage of service from each payphone and a percentage of long distance calls
placed from each payphone from the telecommunications service providers. In
addition, the Company also receives revenues from the service and repair of
privately owned payphones, sales of payphone units and the sales of prepaid
phonecards.
The Company's primary costs are the telecommunications service for each
payphone owned by the Company, commissions to location providers, and
maintenance and associated service costs of the payphones.
CONCENTRATIONS OF CREDIT RISK
The Company's payphones are located primarily in New York State and parts of
Pennsylvania and usage of those phones may be affected by economic conditions
in those areas. However, the use of payphones has demonstrated an immunity to
economic fluctuations.
The Company maintains cash balances with a financial institution insured by
the Federal Deposit Insurance Corporation up to $100,000. There are no
uninsured balances at December 31, 1999 and 1998.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
Management of the Company uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, and the reported revenues and expenses. Actual
results could vary from the estimates that management uses.
6
<PAGE>
NOTE 1 - (Continued)
INVENTORY
Inventory is valued at the lower of cost, determined on the first-in,
first-out basis (FIFO), or market value. At December 31, 1999, inventory
consists of the following:
<TABLE>
<S> <C>
Telephones $ 14,780
Enclosures and pedestals 1,394
Signs 676
Parts and accessories 4,584
-----------
$ 21,434
===========
</TABLE>
FIXED ASSETS AND DEPRECIATION
Fixed assets are recorded at cost, with the exception of the original assets
donated by the sole stockholder in exchange for stock at the inception of the
Company. Those assets, valued at $60,290, were recorded at fair market value
at the time of the nonmonetary exchange. This is in accordance with the
guidance set forth in APB No. 29, ACCOUNTING FOR NONMONETARY TRANSACTIONS.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets for financial reporting purposes. For income tax
purposes, the modified accelerated cost recovery method is used. Depreciation
expense for financial reporting purposes was $50,559 and $26,350 for the
years ended December 31, 1999 and 1998, respectively. Depreciation expense
for tax purposes amounted to $77,712 and $67,257, including section 179
depreciation, for the years ended December 31, 1999 and 1998, respectively.
ADVERTISING
Advertising costs, which are included in operating expenses, are expensed as
incurred. Advertising expense was $7,459 and $2,494 for the years ended
December 31, 1999 and 1998, respectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which is effective for fiscal years beginning
after December 15, 1997. This new statement establishes standards for
reporting and displaying comprehensive income and its components in a basic
set of financial statements. The definition of comprehensive income is all
changes in a company's equity during a period except those resulting from
investments by and distributions to owners. It includes net income and other
changes in assets and liabilities that are not reported in net income, such
as unrealized gains and losses on investments in marketable securities
classified as available-for-sale, foreign currency translation adjustments,
gains and losses from certain foreign currency transactions, changes in the
market value of certain futures contracts that qualify as a hedge and minimum
pension liability adjustments. Under the guidelines of SFAS No. 130, if a
company does not have any of these components of comprehensive income, then
SFAS No. 130 does not apply and the company is not required to report
comprehensive income. Due to the absence of the above mentioned equity
adjustments, this company is not required to show a statement of
comprehensive income.
7
<PAGE>
NOTE 1 - (Continued)
INCOME TAXES
Since its inception, January 3, 1997, the Company, with the consent of its
shareholder, elected, under the Internal Revenue Code, to be a Subchapter S
corporation. In lieu of corporate income taxes, the shareholder of the S
corporation is taxed on his proportionate share of the Company's taxable
income. However, the Company is subject to a New York State tax, Article 9
Sections 186-e and 186-a, on gross receipts from telecommunication revenues
and other business revenues. The tax is applicable to every provider of
telecommunications services. The Company is allowed certain credits against
the tax for costs of the telecommunications services to the Company. The
Company is currently in the process of filing their 1999 and 1998 returns.
However, provisions for the gross receipts taxes in the amounts of $11,671
and $7,737 for the years ended December 31, 1999 and 1998, respectively, have
been included in the financial statements.
NOTE 2 - COMMISSIONS RECEIVABLE
Included in commissions receivable is $62,111 due from a company currently in
a liquidation bankruptcy proceeding. The bankruptcy trustee has represented
that they are unable to provide any position or negative assurance on the
collectibility of this asset as the bankruptcy estate has just begun. The
trustee has advised that collectibility is reliant on the estate collecting a
large receivable held by the estate. Management has asserted that the
receivable will be fully collected in the near future, within a year, and
there are enough assets in the estate to pay all the creditors in full.
NOTE 3 - LINE OF CREDIT
The Company has a cash reserve credit account with their banking institution
in the amount of $1,000, of which $746 was outstanding on December 31, 1998.
This reserve insures payment of any small overdrafts from the business
checking account. This reserve is unsecured and bears interest at the bank's
prime rate plus 6%, 14 1/4% at December 31, 1999.
On February 19, 1999, the Company entered into an agreement to obtain a
revolving line of credit, with its banking institution, with maximum
borrowings of $35,000, of which $33,347 was outstanding on December 31, 1999.
The agreement has a provision that allows the Company to request an
additional line of credit, called a responsive line option, not to exceed 25%
of the original note amount or $10,000, whichever is less. The Company must
meet certain provisions contained in the agreement in order to be eligible to
request activation of the responsive line. The line of credit bears interest
at 2% over the prime rate as published each business day in the "Money Rates"
column of the WALL STREET JOURNAL. The line of credit is secured by a first
security interest in all the Company's assets, including general intangibles,
and the personal guarantee of the Company's sole stockholder.
8
<PAGE>
NOTE 4 - LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Installment loan, to a finance company, payable in monthly
installments of $604, including interest at 11 1/4%, through
February 2000; secured by
a vehicle. $ 1,076 $ 7,792
Less: Current portion (1,076) (6,716)
--------- ---------
Long-term debt $ -- $ 1,076
========= =========
</TABLE>
Principal payments of long-term debt, through maturity, at December 31, 1999,
are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000 $ 1,076
=========
</TABLE>
NOTE 5 - OPERATING LEASES
The Company is the lessee of two vehicles, office equipment and its corporate
offices (see related party transactions) accounted for as non-cancelable
operating leases. The leases have terms of thirty (30) to thirty-six (36)
months, expiring at various months through October 2002. Future minimum lease
payments, in the aggregate, through maturities are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000 $ 53,821
2001 53,088
2002 42,914
-----------
$ 149,823
===========
</TABLE>
NOTE 6 - RELATED PARTY TRANSACTIONS
In November 1999, the Company entered into an agreement to lease their
corporate offices from the stockholder. The monthly rental is $4,000 plus
annual real estate taxes, amortized on a monthly basis. The total rental
expense was approximately $9,050 for the year ended December 31, 1999.
Through July 1999, the sole stockholder was also the sole stockholder of a
major zero-plus compensation provider of the Company. The zero-plus
compensation provider was sold to an outside third party in July 1999. The
Company continues to receive monthly zero-plus compensation from the new
owners. Total revenues recognized were $147,390 and $316,432 for the years
ended December 31, 1999 and 1998, respectively.
9
<PAGE>
NOTE 6 - (Continued)
The Company, from time to time, purchases electronic payphone circuit boards
from a vendor in which the sole stockholder of the Company is also the
majority stockholder of the vendor. In 1998, total purchases from this vendor
were $36,800.
NOTE 7 - MAJOR DIAL AROUND COMPENSATION PROVIDERS (COMMISSIONS)
The Company received approximately 95% of total dial around and zero-plus
compensation (commissions) from two (2) providers in each of the years ended
December 31, 1999 and 1998. The amounts outstanding, included in commissions
receivable, for these two compensation providers (commissions) were $186,258
and $142,207 on December 31, 1999 and 1998, respectively.
NOTE 8 - SUBSEQUENT EVENT
Subsequent to December 31, 1999, the sole stockholder of the Company sold all
his common stock in the Company to an outside unrelated party. The new owners
have indicated they intend to keep the current management of the Company.
Upon completion of the sale, the former sole stockholder of the Company does
not have any equity interest in the Company.
10
<PAGE>
PART III
The following exhibits required by Item 601 of Regulation S-B are attached.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3 Articles of Incorporation
3.1 Amended Articles of Incorporation, dated January 29, 2000
3.2 Amended Articles of Incorporation, dated February 4, 2000
4 By-Laws
5 Specimen Share Certificate for Common Shares
27 Financial Data Schedule
Signature Page
</TABLE>
11
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
USIP.Com, Inc.
By: /s/ Craig Burton Date: July 20, 2000
-------------------------------- ------------------------
Craig Burton
President
By: /s/ Joseph J. Passalaqua Date: July 20, 2000
-------------------------------- ------------------------
Joseph J. Passalaqua
Secretary, Treasurer
By: /s/ Carl E. Worboys Date: July 20, 2000
-------------------------------- ------------------------
Carl E. Worboys
Director
By: /s/ Lilly Beter Date: July 20, 2000
-------------------------------- ------------------------
Lilly Beter
Director
12
