UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OF 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
Commission file number 000-28335
Federal Security Protection Services, Inc.
____________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware
____________________________________________________________
(State or other jurisdiction of incorporation or organization)
84-1080043IRS
____________________________________________________________
(Employer Identification No.)
400 Poydras Street, Suite 1510
New Orleans, LA 70130
(Address of principal executive offices)
(866) 932-2628
____________________________________________________________
(Issuer's telephone number)
(Former name, former address, and former fiscal year, if changed since last
report)
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
August 12,2003, 9,975,211 shares.
Transitional Small Business Format (Check one): Yes [ ] No [x]
FEDERAL SECURITY PROTECTION SERVICES, INC.
FORM 10-QSB
TABLE OF CONTENTS
Page PART I--FINANCIAL INFORMATION
Item 1. Financial Statements------------------------------------------ 3
Independent Accountant's Review Report--------------------------------- 3
Balance Sheets--------------------------------------------------------- 4
Statements of Operations----------------------------------------------- 6
Statements of Cash Flows----------------------------------------------- 8
Notes to Financial Statements------------------------------------------ 9
Item 2. Management's Discussion and Analysis or Plan of Operation----- 14
PART II OTHER INFORMATION--------------------------------------------- 21
Item 1. Legal Proceedings-------------------------------------------- 21
Item 2. Changes in Securities---------------------------------------- 21
Item 3. Defaults Upon Senior Securities------------------------------ 21
Item 4. Submission of Matters to a Vote of Security Holders---------- 21
Item 5. Other Information-------------------------------------------- 21
Item 6. Exhibits and Reports----------------------------------------- 21
Signatures------------------------------------------------------------- 21
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
Independent Accountant's Review Report
July 29, 2003
To the Board of Directors and Shareholders
of Federal Security Protection Services, Inc.:
I have reviewed the accompanying balance sheets of Federal Security Protection
Services, Inc. as of June 30, 2002 and 2003, and the related statements of
operations and cash flows for each of the three months then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation
of the management of Federal Security Protection Services, Inc.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than
an audit in accordance with generally accepted accounting standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles. The accompanying
financial statements have been prepared assuming that Federal Security
Protection Services, Inc. will continue as a going concern. As discussed in
Note 7 to the financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Carl S. Sanko
Topanga, California
Federal Security Protection Services, Inc.
Balance Sheets
June 30, 2002 and 2003
June 30, June 30,
2002 2003
Assets
Current assets
Cash $ 220 $ 583
Prepaid expenses 1,250 0
Total current assets 1,470 583
Property and equipment
Equipment 2,444 2,444
2,444 2,444
Accumulated depreciation (1,342) (1,830)
Property and equipment, net 1,102 614
Other assets
Investment in Affiliate 0 0
Total other assets 0 0
Total assets $ 2,572 $ 1,197
See accompanying notes to financial statements
- Unaudited -
Federal Security Protection Services, Inc.
Balance Sheets
June 30, 2002 and 2003
June 30, June 30,
2002 2003
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 81,970 $ 60,621
Accrued expenses 31,349 37,475
Accrued litigation settlement 42,500 42,500
Short-term borrowings 156,580 178,960
Total current liabilities 312,399 319,556
Shareholders' equity (deficit)
Convertible preferred stock, par value of $.001,
20,000,000 shares authorized.
70,000 shares designated Series A and 70,000
shares issued and outstanding at June 30, 2002,
and 60,000 shares at June 30, 2003. Aggregate
liquidation preference of $600,000 at
June 30, 2003. 70 60
10,000 shares designated Series C and none
issued and outstanding at June 30, 2002,
and 3,800 shares at June 30, 2003. Aggregate
liquidation preference of $380,000 at
June 30, 2003. 0 4
Common stock, par value $.001,
100,000,000 shares authorized,
5,750,209 and 6,275,211 issued
and outstanding at June 30, 2002
and 2003, respectively 5,750 6,275
Paid in capital 4,459,426 5,049,263
Accumulated deficit (4,775,073) (5,373,961)
Total shareholders' equity (309,827) (318,359)
Total liabilities and shareholders' equity $ 2,572 $ 1,197
See accompanying notes to financial statements
- Unaudited -
Federal Security Protection Services, Inc.
Statements of Operations
For the Three Months Ended June 30, 2002 and 2003
3 Months Ended 3 Months Ended
June 30, June 30,
002 2003
Revenues $ 0 $ 0
Operating expenses:
General and administrative 213,713 68,791
Total operating expenses 213,713 68,791
Loss from operations (213,713) ( 68,791)
Other income 0 0
Net income (loss) $ (213,713) $ ( 68,791)
Basic and dilutive income (loss) per share $ (.045) $ (.011)
See accompanying notes to financial statements
- Unaudited -
Federal Security Protection Services, Inc.
Statements of Cash Flows
For the Three Months Ended June 30, 2002 and 2003
3 Months Ended 3 Months Ended
June 30, June 30,
2002 2003
Cash flows from operating activities
Net income (loss) $ (213,713) $ ( 68,791)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 122 122
Common stock issued for services 216,213 0
Changes in operating assets and
liabilities
Prepaid expenses 11,750 0
Accounts payable (18,978) 50,456
Accrued expenses 4,438 (7,087)
Short-term borrowings 300 22,179
Net cash provided by (used in) operating
activities 132 (3,121)
Cash flows from investing activities 0 0
Net cash provided by (used in) investing
activities 0 0
Cash flows from financing activities
Proceeds from paid in capital 0 2,500
Net cash provided by (used in) financing
activities 0 2,500
Net increase (decrease) in cash 132 (621)
Cash, beginning of period 88 1,204
Cash, end of period $ 220 $ 583
See accompanying notes to financial statements
- Unaudited -
NOTES TO FINANCIAL STATEMENTS
NOTE 1 Summary of significant accounting policies
Organization and business
Federal Security Protection Services, Inc. ("the Company"), a Delaware
Corporation, was incorporated on January 19, 1988 as Windom, Inc. On August
22, 1997, Windom, Inc., as a non-operating public shell, merged with New York
Bagel Exchange, Inc. with each then outstanding share of New York Bagel
Exchange, Inc. common stock being, by virtue of the merger, cancelled. The
then outstanding shares of Windom, Inc. common stock continued unchanged as
the outstanding shares of the surviving corporation. The surviving
corporation continued the business of wholesale and retail sale of bagels
and related items.
On January 26, 1999, New York Bagel Exchange, Inc. changed its name to
Webboat.com, Inc. On March 22, 1999, the Board of Directors approved the
sale of the Company's inventory and fixed assets for $120,000. The Company
ceased its bagel business operations on March 25, 1999. The actual disposal
date of assets subject to the sale was on April 19, 1999. A gain of
approximately $72,000 resulted upon the disposition for the year ended
December 31, 1999. On April 2, 1999, Webboat.com, Inc. changed its name to
Windom.com, Inc., on April 20, 1999, Windom.com, Inc. changed its name to
Web4boats.com, Inc., and during fiscal year 1999, the Company began making
plans to develop a commercial internet site in which boat builders,
manufacturers, dealers, marinas, individual buyers and sellers would come
to advertise sales and services related to the boating industry.
Subsequently, through November 30, 1999 the Company continued to invest
substantially in website development and related costs. While all such
development costs were expensed as incurred, the Company expected, as a
going concern, to realize future benefits from these costs.
On December 1, 2001, the Company ended its pursuit of developing an Internet
boating site. The much slower than anticipated growth in popularity of its
website, with correspondingly minimal revenues, rendered putting further
resources into Internet boating unviable. Accordingly, the boating website
was closed in January, 2002. On March 12, 2002 Web4Boats.com, Inc. changed
its name to Federal Security Protection Services, Inc. The acquisition of
Iris Broadband, Inc. (see note 2)
on September 6, 2002, allowed the Company to become a full-service managed
security services company and a secure Internet Protocol ("IP") network
services provider. The Company provides its products and services to
customers (carriers, other IP-based service providers, systems integrators,
business enterprises) on a turnkey or per-requirement basis. It develops
custom solutions for securing virtual private networks, email/document
security management, digital rights management, content delivery networks,
IP-based video products suite and others requiring IP based network security
solutions. These integrated solutions can be deployed on a secure network
which provides integrated access to 85% of the United States and in 115
countries. The Company also provides desktop-to-desktop managed security
network solutions and other policy-based services.
The Company had no revenues for the three months ended June 30,
2002 and 2003. The Company expects, as a going concern, to derive revenues
from the acquisition of existing security related companies in the remaining
quarters of fiscal year 2003.
Property and equipment
Equipment is recorded at cost and depreciated over estimated useful
lives of five years using the straight-line method. Trademarks are recorded
at cost and amortized over estimated useful lives of five years using the
straight-line method. For the year ended March 31, 2002, all trademarks
related to Web4Boats.com, Inc. were written down to zero.
Income taxes
The Company has total net operating loss carryforwards at June 30,
2003 of approximately $2,798,326 for federal tax purposes. A deferred asset
for these amounts has not been accrued due to the uncertain nature of its
being realized. Net operating loss carryforwards begin to expire in fiscal
year 2011.
NOTE 2 Acquisition
Iris Broadband, Inc.
On September 6, 2002, the Company acquired all of the outstanding capital
stock of Iris Broadband, Inc. ("Iris") in exchange for 70,000 shares of
the Company's Series B preferred stock valued at $203,000. The plan of
reorganization was made pursuant to the provisions of Internal Revenue Code
Section 368 (a)(1)(B). In keeping with the provisions of SFAS No. 141
"Business Combinations" for such transactions completed after June 30, 2001,
the acquisition was accounted for by the purchase method. A major shareholder,
creditor and former officer of the Company and a major shareholder and officer
of Iris are related parties. Per terms of the contract between the
two companies, within nine months of the acquisition, should the Company
be unsuccessful in raising a minimum of $750,000 in capital and maintaining a
minimum average stock price of twenty-five cents per share for a consecutive
ten day period, Iris, at its sole discretion, has the option of disengaging
from the Company by reversing and nullifying the acquisition transaction. On
June 9, 2003, the Company and Iris Broadband, Inc. agreed to disengage and to
reverse and nullify the acquisition transaction. According to Accounting
Research Bulletin No. 51, while a controlling interest of 50% or more by a
parent company requires consolidated financial statements with the subsidiary,
this is not the case where such control of the subsidiary is temporary.
Accordingly, the financial statements of the Company do not include the
accounts of Iris Broadband, Inc. Instead, the Company's investment in Iris
Broadband, Inc. has been accounted for by applying the equity method of
accounting per Accounting Principles Board Opinion No. 18. A net loss by
Iris Broadband, Inc. of approximately $457,000 for the period September 6,
2002 to March 31, 2003, under the application of the equity method resulted
in the reduction in the Company's entire investment in affiliate of $203,000
and was reported on the Income Statement "Equity in net loss of
unconsolidated affiliate" for the period ending March 31, 2003.
This plan to reverse the acquisition transaction includes transferring
back to the Company, all the issued and outstanding shares of Preferred
Series B Stock of the Company, by the former Iris Broadband, Inc.
shareholders. In return, the Company will transfer back to the former
Iris Broadband, Inc. shareholders, all the shares of common stock they
possessed prior to the September 6, 2002 reorganization. In addition,
the seven year employment agreement with three officers, who, as formerly,
were also the officers of Iris Broadband, Inc., under which the Company
agreed to pay $480,000 in annual salary, 3,000,000 of its common shares
in stock options, various employment benefits, and an annual bonus based on
meeting certain performance criteria was cancelled as well and made effective
June 9, 2003. Also, all liability that the Company had incurred to Iris
Broadband, Inc. and to these officers from the date of reorganization to its
reversal on June 9, 2003 will be forgiven by Iris Broadband, Inc. As of June
9, 2003, this amount totaled $299,708. Due to the elimination of this
liability as a result of the reversal of the acquisition and due to the
related party nature of these transactions, the $299,708 was not treated as
extraordinary income for the current period ending June 30, 2003, but was
reversed by an increase to paid in capital.
NOTE 2 Shareholders' equity
Stock options
During fiscal year 1998, the Company recorded a charge to operations of
$687,500 for marketing and other services in exchange for issuance of stock
options. The value for such services was computed as the difference between
the quoted market price at the option's measurement date and the option
price. All options were exercisable at time of grant and no options had been
exercised as of March 31, 2002. On April 24, 2002, all previously issued
stock options that had not already expired totalling 3,525,000 shares with
an option price of $.07 to $1.00 per share, and $1,487,500 in total were
cancelled and the Company's Board of Directors took the action of reissuing
3,525,000 shares with an option price of $.15 per share. Additionally, the
Board of Directors granted 2,700,000 in stock options with an option price
of $.15 per share to three related parties to be earned during the period
April 25, 2002 to October 25, 2002. These 6,225,000 in stock options were
valued as of the date of grant using the Black-Scholes option pricing model
and determined to have a fair value per option of $.0142 with the following
assumptions: expected price volatility of 32.8%, expected option lives of
five years, risk free interest rate of 6.0%. The number of shares
represented by stock options outstanding at March 31, 2003 is 6,275,000
shares with an option price of $.15-.16 per share, and $941,750 in total, and
with a market price at date of grant of $.08-.11 per share, and $503,500 in
total. Outstanding options expire from April to December, 2007.
Issuance of preferred stock
In September, 1999, the Company authorized the issuance of 20,000,000
shares of $.001 par value, preferred stock. In August, 1999, 10,000 shares
of preferred stock was designated as Series A preferred stock with conversion
rights of one share of Series A preferred to 100 shares of common stock.
Subsequently, the 10,000 shares of Series A preferred were sold for $100,000
to a related party. A beneficial conversion feature of $100,000 was present
in the transaction and is reflected in stockholders' equity at June 30, 2002.
In August, 2000, the outstanding 10,000 shares of Series A preferred
stock were converted to 1,000,000 shares of common stock. The Series A
preferred shares were then cancelled and returned to the status of authorized
and unissued.
In November, 2001, 70,000 shares of Series A preferred stock were
issued as incentive to four related parties for providing the Company with
operating capital from loans totaling $20,000 and from purchase of common
stock for $50,000.
On March 12, 2002, the Company effected a ten for one reverse split of its
common stock. As a result of the split, the conversion and voting rights
of Series A preferred changed from 100 to 10 shares of common stock.
On January 15, 2003, 10,000 shares of preferred stock was designated as
Series C preferred stock with conversion rights of one share of Series C
preferred to 100 shares of common stock. Also, on that date, 3,800 shares,
valued at $37,566, were issued to a creditor of Iris in exchange for a
reduction in the Company's liabilities to Iris for the same amount.
NOTE 3 Related parties
Short term borrowings
During the year ended March 31, 2001, the Company received $140,000
from eight lenders, two of which were related parties, in exchange for
promissory notes with interest at 12% per year and terms ranging from seven
days to six months. As inducement to obtain the unsecured loans, the Company
issued a total of 560,000 shares of common stock, valued at $123,800, which
was recorded as interest expense during the year ended March 31, 2001.
At June 30, 2002, the Company had unsecured promissory notes, inclusive
of accrued interest, of $187,630, payable to nine shareholders, and that bear
annual interest at rates of 10% to 12%.
At June 30, 2003, the Company had unsecured promissory notes, inclusive of
accrued interest, of $216,435, payable to seven shareholders, and that bear
annual interest at a rate of 12%.
Stock options
Represented in outstanding stock options are 6,200,000 shares at June
30, 2003, to related parties.
NOTE 4 Statements of Cash Flows
Financial instruments
The Company considers all liquid interest-earning investments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
Noncash transactions
During the three months ended June 30, 2002, the Company issued 3,042,000
shares of its common stock, of which 2,650,000 shares were to related
parties. The shares were compensation in exchange for $152,100 in services,
of which $71,100 had been accrued at March 31, 2002.
Interest paid
During the three months ended June 30, 2002 and 2003, the Company charged
to operations interest expense of $8,688 and $5,092, respectively. No
interest was paid for either period.
NOTE 5 Commitments and Contingencies
Contract commitments
On April 5, 1999, the Company entered into a one year consulting agreement,
with a related party, under which the Company agreed to pay $10,000 per month,
payable in cash or stock, for management and advisory services. The contract
was renewed through March 31, 2002. For the year ended March 31, 2002, $4,500
in cash and 2,790,000 shares of common stock, valued at $83,700 were issued as
payment for services received from April through December, 2001. A balance of
$30,000 under the contract that was accrued as of March 31, 2002 was paid in
the quarter ended June 30, 2002 with the issuance of 600,000 shares of common
stock.
On April 25, 2002, the Company entered into a six month professional
services agreement with Iris Broadband, Inc. under which the Company agreed
to pay $20,000 per month and 2,700,000 in stock options (see Note 2). Iris
Broadband, Inc.'s responsibilities under the agreement will be to fully
develop and refine the Company's business plan, and establish the Company in
the Internet and private network security business. Coincidental with the
professional services agreement, the Company signed a letter of intent to
negotiate, execute and consummate a tax-free stock exchange acquisition of
Iris Broadband, Inc. by September 30, 2002 that resulted in Iris Broadband,
Inc. becoming a wholly-owned subsidiary of the Company on September 6, 2002
in a transaction whereby the stockholders of Iris Broadband, Inc. received
70,000 shares of the Company's $.001 par value Series B preferred stock.
On April 5, 1999, the Company entered into a one year consulting
agreement, with a related party, under which the Company agreed to pay $10,000
per month, payable in cash or stock, for management and advisory services.
The contract was renewed through March 31, 2002. For the year ended March
31, 2002, $4,500 in cash and 2,790,000 shares of common stock, valued at
$83,700 were issued as payment for services received from April through
December, 2001. A balance of $30,000 under the contract that was accrued as
of March 31, 2002 was paid in the quarter ended June 30, 2002 with the
issuance of 600,000 shares of common stock.
Litigation
During fiscal 1999, a lawsuit was filed against the Company in
which the plaintiff, a former officer, claimed breach of employment contract
related to fiscal year 1998. In May, 1999, the dispute was settled for
$42,500. The unpaid settlement amount remains accrued as of June 30, 2003.
NOTE 6 Subsequent event
Subsequent to June 30, 2003, the Company issued 3,700,000 shares of
restricted common stock to related parties and others in payment of $166,500
in consulting and legal services rendered during the period January 1 through
July 31, 2003 of which $48,964 was accrued at June 30, 2003.
NOTE 7 Going concern
The Company has suffered recurring losses from operations and has a net
capital deficiency that raise substantial doubt about its ability to continue
as a going concern. During the year ended March 31, 2002, as a result of
considering the unviability of remaining in the Internet boating industry, and
as described in Note 1 above, the Company saw no alternative but to cease
activities in that industry and look for a new economic model and opportunity.
Note 1 also describes management's plans in regard to perpetuating its
existence through this new opportunity related to the managed security and
IP secured services industry. The Company has the ability to raise funds
through the public equity market and, as stated in Notes 3 and 4, has paid
significant liabilities to related and other parties with common stock and
raised substantial funds from a related party in the private sector as well.
Additionally, management is actively looking for a profitable private company
that is intent on becoming publicly held by acquisition in a manner similar
to the Iris Broadband, Inc. transaction. While such plans and fundraising
ability seem to mitigate the effect of prior years' losses and deficits, the
Company is essentially only beginning to operate in a new industry. The
inability to assess the likelihood of the effective implementation of
management's plans in this new environment also raises substantial doubt
about its ability to continue as a going concern.
Item 2. Management's Discussion and Analysis or Plan of Operation.
You should read the following discussion of our results of operations and
financial condition in conjunction with our consolidated financial statements
and related notes included elsewhere in this Form 10-QSB. Unless specified
otherwise as used herein, the terms "we", "us" or "our" refers to Federal
Security Protection Services, Inc.
The following Management's Discussion and Analysis or Plan of Operation
contains certain forward-looking statements regarding future financial
condition and results of operations and the company's business operations.
We have based these statements on our expectations about future events. The
words "may," "intend," "will," "expect," "anticipate," "objective,"
"projection," "forecast," "position" or negatives of those terms or other
variations of them or comparable terminology are intended to identify forward-
looking statements. We have based these statements on our current expectations
about future events. Although we believe that our expectations reflected in or
suggested by our forward-looking statements are reasonable, we cannot assure
you that these expectations will be achieved. Our actual results may differ
materially from what we currently expect. Important factors which could cause
our actual results to differ materially from the forward-looking statements
include, without limitation: (1)general economic and business conditions,
(2) effect of future competition, and (3) failure to raise needed capital.
OVERVIEW
The Company was organized under and pursuant to the laws of the State of
Delaware on January 19, 1988. Refer to Note 1 of the Financial Statements
for a description of the organizational history of the Company.
The Company's corporate headquarters and its operating office are located
at 400 Poydras Street, Suite 1510, New Orleans, LA 70130.
In March 2002, The Company's then General Manager was authorized by
the Directors of the Company to seek suitable candidates in the field of
security, for acquisition by the Company. In furtherance of this aim the
Company executed an agreement with Iris Broadband, Inc., a corporation
organized and existing under and pursuant to the laws of the State of
Louisiana, (hereinafter "Iris") pursuant to which it was agreed that the
Company would acquire all of the issued and outstanding stock of Iris. Iris
and the Company executed a letter of intent on April 25, 2002 to negotiate,
execute and consummate a tax-free stock exchange acquisition of Iris by
September 30, 2002 in which Iris would become a wholly-owned subsidiary of
the Company whereby the stockholders of Iris would receive 70,000 shares of
the Company's $.001 par value Series B preferred stock. On April 25, 2002,
the Company also entered into an agreement with Iris whereby Iris agreed to
render certain services to the Company that are designed to accelerate the
Company's business realignment.
In contemplation of the consummation of the acquisition, on May 23, 2002, Mr.
Dennis Schlagel, the Company's then President and Mr. Blair Merriam, the
Company's then General Manager, resigned their offices (both, however,
remained as Directors of the Company) and Mr. Gary O'Neal, and Mr. Michael
Landers (respectively Chief Executive Officer and President of Iris)
became respectively President and Vice President of Finance of the Company.
Messrs. O'Neal and Landers were also appointed Directors of the Company.
On the same date, Mr. Daniel Thornton (Secretary and a Director of the Company)
was appointed Vice President - Business Development of the Company.
On September 6, 2002 the Company acquired all of the outstanding stock of Iris
and thus acquired the business of Iris.
On June 9,2003, The Board of Directors approved the reversal of the
plan of reorganization of Iris Broadband, Inc. and the Company. This
action came about as an assessment was done of the costs
required to be a public company, particularly in light of recently
enacted Sarbanes-Oxley regulations. Iris had underwritten all costs
since prior to the merger, and could not afford to continue to do so.
Compliance with these new regulations is onerous for small publicly-held
companies without the financial and staff resources necessary to be
devoted to all of the requirements. The issued and outstanding shares of
Preferred Series B stock of FSPS were transferred back to FSPS by the
former Iris shareholders in return for the Iris shares. All stock options
issued to Gary O'Neal, Michael Landers,Edward Reynolds, John Fentum
and Thomas Polich were cancelled upon the approval of the unwind
resolution. Additionally, Gary O'Neal, Michael Landers and Edward
Reynolds resigned from their respective Director and employment positions.
Mr. Fentum and Mr. Polich resigned from the Board of Directors.
BUSINESS
Upon consummation of the acquisition of all of the outstanding stock of Iris,
the Company marketed IP-based products and services with emphasis on
Internet and data security. Development of a market for these services
has been extremely difficult without adequate capital. The reversal of
the acquisition of Iris necessitates a search for an entity looking to
acquire a publicly-held company.
RESULTS OF OPERATIONS
The financial statements contained herein reflect the reversal of the
acquisition of Iris, and therefore show unconsolidated financial
statements reflecting only FSPS results, not including Iris results.
There was no revenue for the three months ended June 30,2003 or 2002.
Operating expenses for the three months ended June 30,2003 and 2002
consisted entirely of general and administrative expense. These amounts
were $213,713 in 2002 and $68,791 for the three months ended June 30, 2003.
$59,139, or 86%, of the 2003 total was for professional fees, and of this
amount, $16,639 was for accounting and legal fees and $42,500 was for
consulting fees.
There was no salary expense for the three months ended June 30,2003 or
the three months ended June 30, 2002.
The Company does not have any non-officer employees.
LIQUIDITY AND CAPITAL RESOURCES
At June 30,2002 the current asset balance was $1,470. As of June 30,
2003, the Company had current assets of $583. Total assets for the
same respective periods were $2,572 and $1,197. As of June 30,
2002, the Company had current liabilities of $312,399. At June 30,
2003 the current liability balance was $319,556. There were no long term
liabilities at June 30, 2002 or 2003.
Total shareholders' equity was ($309,827) and ($318,359) as of June 30,
2002 and 2003, respectively.
The Company's auditor has issued an opinion questioning the Company's ability
to continue as a going concern, and we believe our current cash and cash
equivalents are, in fact, not sufficient to meet our anticipated cash needs
for working capital and capital expenditures. The Company intends to meet
its needs through the issuance of equity or a merger.
PLAN OF OPERATION
Over the coming months the Company plans to devote most of its efforts
and financial resources toward identifying prospective buyers of the Company.
There can be no assurance that funding or deals will be available to the
Company. In the event that such funding is not available to the Company,
then FSPS would be forced to use whatever cash is generated.
Any additional equity financing may be dilutive to our stockholders, and debt
financing, if available, may involve restrictive covenants with respect to
dividends, raising capital and other financial and operational matters which
could restrict our operations or finances. If we are unable to obtain
additional financing as needed, we may be required to further reduce the scope
of our operations which could have a material adverse effect on the business,
results of operations and financial condition.
SUBSEQUENT EVENTS
On July 31, 2003 the FSPS Board of Directors approved the merger of ClearWire
Networks, Inc. ("ClearWire") and FSPS into a single corporation pursuant to
the "Agreement and Plan of Merger between ClearWire Networks, Inc. and Federal
Security Protection Services, Inc." Closing is to be held ten days after
adoption of the Agreement by shareholders of ClearWire. As of August 14,
2003, approval had not been given by the ClearWire shareholders.
On July 31, 2003 a Form S-8 was filed with the Securities and Exchange
Commission notifying of the issuance of 3,700,000 shares of common stock
for services rendered to nine individuals,including John E. Shaunfield,
Todd T. Grassi, Blair J. Merriam, Daniel W. Thornton, Dennis Schlagel,
Richard A. Hennig, Michael T. Landers, Gary S. O'Neal and Theodore A.
Merriam. Refer to the SEC EDGAR website to obtain a copy of this Form
S-8 filing:http://www.sec.gov/cgi-bin/browse-edgar?company=federal+security+
protection+services&CIK=&State=&SIC=&action=getcompany.
KNOWN RISKS AND TRENDS
SEASONALITY
The Company does not expect to be sensitive to seasonal fluctuation.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
-Shares Outstanding-
Type of Security 6/30/02 6/30/03 Increase
Common Stock 5,750,209 6,275,211 525,002
Series A Preferred Stock 70,000 60,000 (10,000)
Series B Preferred Stock 70,000 -0- (70,000)
Series C Preferred Stock -0- 3,800 3,800
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports.
Exhibit 1.1
CERTIFICATION BY BLAIR J. MERRIAM PURSUANT TO SECURITIES EXCHANGE ACT RULE
13a-14
I, Blair J. Merriam, certify that:
I have reviewed this quarterly report on Form 10-QSB of Federal Security
Protection Services, Inc. (the "Registrant").
1. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
2. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
3. As the Registrant's certifying officer, I am responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the Evaluation Date); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. As the Registrant's certifying officer, I have disclosed, based on our
most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. As the Registrant's certifying officer, I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weakness.
Date: August 14, 2003
/s/ Blair J. Merriam
- - -----------------------
Blair J. Merriam
President, Chief Executive Officer & Treasurer
Exhibit 1.2
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 Quarterly Report of Federal Security
Protection Services, Inc. (the "Company") on Form 10-QSB for the
period ended June 30, 2003 (the "Report"), as filed with the
Securities and Exchange Commission on the date hereof, I, Blair J. Merriam,
President and Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley
Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Blair J. Merriam
- - -------------------------------------
Blair J. Merriam
President, Chief Executive Officer & Treasurer
August 14, 2003
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed in its behalf by the undersigned, thereunto
duly authorized.
Federal Security Protection Services, Inc.
Date: August 14, 2003 /s/ Blair J. Merriam
________________ __________________________
Blair J. Merriam, President and CEO