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 December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
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:
December 31, 2003, 7,975,211 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
January 30, 2004
To the Board of Directors and Shareholders
of Federal Security Protection Services, Inc.:
I have reviewed the accompanying consolidated balance sheets of Federal
Security Protection Services, Inc. as of December 31, 2002 and 2003, and
the related consolidated statements of operations for each of the three months
and nine months then ended, and the related consolidated statements of cash
flows for each of the nine 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
consolidated 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 consolidated financial statements in order for
them to be in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Federal Security Protection Services, Inc. will continue as a
going concern. As discussed in Note 8 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. These consolidated 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
December 31, 2002 and 2003
December 31, December 31,
2002 2003
Assets
Current assets
Cash $ 156 315
Total current assets 156 315
Property and equipment
Equipment 2,444 2,444
Accumulated depreciation ( 1,586) ( 2,074)
Property and equipment, net 858 370
Other assets
Investment in Affiliate 111,662 0
Total other assets 111,662 0
Total assets $ 112,676 $ 685
See accompanying notes to financial statements
- Unaudited -
Federal Security Protection Services, Inc.
Balance Sheets
December 31, 2002 and 2003
December 31, December 31,
2002 2003
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 113,810 $ 100,828
Accrued expenses 163,868 48,292
Accrued litigation settlement 42,500 42,500
Short-term borrowings 156,781 184,061
Total current liabilities 476,959 375,681
Shareholders' equity (deficit)
Convertible preferred stock, par value of
$.001, 20,000,000 shares authorized.
70,000 shares designated as Series A with 70,000
shares issued and outstanding at December 31, 2002
and 60,000 shares at December 31, 2003. Aggregate
liquidation preference of $600,000 at
December 31, 2003. 70 60
70,000 shares designated as Series B and
issued and outstanding at December 31, 2002
and 20,000 shares at December 31, 2003. Aggregate
liquidation preference of $2,000,000 at
December 31, 2003. 70 20
10,000 shares designated as Series C with none
issued and outstanding at December 31, 2002
and 3,800 at December 31, 2003. Aggregate
liquidation preference of $380,000 at
December 31, 2003. 0 4
Common stock, par value $.001, 100,000,000
shares authorized, 6,065,209 and 7,975,211
issued and outstanding at December 31, 2002
and 2003, respectively 6,065 7,975
Paid in capital 4,702,223 5,134,043
Accumulated deficit (5,072,711) (5,517,098)
Total shareholders' equity ( 364,283) ( 374,996)
Total liabilities and shareholders' equity $ 112,676 $ 685
See accompanying notes to financial statements
- Unaudited -
Federal Security Protection Services, Inc.
Statements of Operations
For the Nine months Ended December 31, 2002 and 2003
9 Months Ended 9 Months Ended
December 31, December 31,
2002 2003
Revenues $ 0 $ 0
Operating expenses:
General and administrative 420,013 211,928
Total operating expenses 420,013 211,928
Loss from operations (420,013) (211,928)
Equity in net loss of unconsolidated affiliate 91,338 0
Net income (loss) $ (511,351) $ (211,928)
Basic and dilutive income (loss) per share $ (.092) $ (.028)
See accompanying notes to financial statements
- Unaudited -
Federal Security Protection Services, Inc.
Statements of Operations
For the Three Months Ended December 31, 2002 and 2003
3 Months Ended 3 Months Ended
December 31, December 31,
2002 2003
Revenues $ 0 $ 0
Operating expenses:
General and administrative 80,316 109,130
Total operating expenses 80,316 109,130
Loss from operations ( 80,316) (109,130)
Equity in net loss of unconsolidated affiliate 88,738 0
Net income (loss) $ (169,054) $ (109,130)
Basic and dilutive income (loss) per share $ (.028) $ (.014)
See accompanying notes to financial statements
- Unaudited -
Federal Security Protection Services, Inc.
Statements of Cash Flows
For the Nine months Ended December 31, 2002 and 2003
9 Months Ended 9 Months Ended
December 31, December 31,
2002 2003
Cash flows from operating activities
Net income (loss) $ (511,351) $ (211,928)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 366 366
Common stock issued for services 152,100 76,500
Preferred stock issued for services 0 10,000
Changes in operating assets and
liabilities
Prepaid expenses 13,000 0
Accounts payable 12,863 90,663
Accrued expenses 129,590 3,730
Short-term borrowings 500 27,279
Net cash provided by (used in) operating
activities (202,932) (3,390)
Cash flows from investing activities
Net investment in subsidiary 203,000 0
Net cash provided by (used in) investing
activities 203,000 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 68 (890)
Cash, beginning of period 88 1,205
Cash, end of period $ 156 $ 315
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 nine months ended September
30, 2002 and 2003. The Company expects, as a going concern, to derive
revenues from the acquisition of existing companies in subsequent quarters.
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 September
30, 2003 of approximately $3,112,500 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 September30, 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. Reported on the Statements of Operations for the three
and nine months ended December 31, 2002 is the Company's loss from affiliate
of $88,738 and $91,338, respectively.
This plan to reverse the acquisition transaction included 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 transferred 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 nine months ending December 31, 2003, but was reversed by an increase
to paid in capital.
NOTE 3 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 December 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 September 30,
2003.
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.
On November 11, 2003, 20,000 shares of Series B preferred stock were issued
in exchange for management services valued at $10,000, of which $5,000 was
to a related party.
NOTE 4 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 December 31, 2002, the Company had unsecured promissory notes, inclusive
of accrued interest, of $196,899, payable to nine shareholders, and that bear
annual interest at rates of 10% to 12%.
At December 31, 2003, the Company had unsecured promissory notes, inclusive of
accrued interest, of $232,353, payable to six shareholders, and that bear
annual interest at a rate of 12%.
Stock options
Represented in outstanding stock options are 6,200,000 shares at
December 31, 2003, to related parties.
NOTE 5 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 nine months ended December 31, 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 management and legal
services, of which $71,100 had been accrued at March 31, 2002.
During the nine months ended December 31, 2003, the Company issued
1,700,000 shares of its common stock, of which 1,500,000 shares were to
related parties. The shares were compensation in exchange for $76,500
in management and legal services.
During the nine months ended December 31, 2003, the Company
issued 20,000 shares of its Series B preferred stock, of which 10,000 shares
was to a related party. The shares were compensation in exchange for
$10,000 in management services.
Interest paid
During the six months ended December 31, 2002 and 2003, the
Company charged to operations interest expense of $18,826 and $15,909,
respectively. No interest was paid for either period.
NOTE 6 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 were 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 December 31, 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 inviability 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.
On April 25, 2002 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 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 were designed to accelerate the Company's business
realignment.
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. 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 Iris officers and
associates were cancelled upon the approval of the unwind resolution.
Additionally, Iris officers and associates resigned from their respective
Director and employment positions.
BUSINESS
The reversal of the acquisition of Iris necessitated a search for an entity
looking to acquire a publicly-held company. 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 was to be held
ten days after adoption of the Agreement by shareholders of ClearWire.
Approval was never received from the ClearWire shareholders. The merger
with Clearwire did not occur.
The officers of the Company continue to seek suitable buyer or merger
candidates.
RESULTS OF OPERATIONS
There was no revenue for the three months and nine months ended December
31,2003 or 2002. Operating expenses for the three months and nine
months ended December 31,2003 and 2002 consisted entirely of general
and administrative expense. These amounts were $80,316 in 2002 and
$109,130 for the three months ended December 30, 2003. They were $420,013
in 2002 and $211,928 for the nine months ended December 30, 2003.
There was no salary expense for the three months or nine months ended
December 30, 2003 or the three months or nine months ended December 30, 2002.
The Company does not have any non-officer employees.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002 the current asset balance was $156. As of
December 31,2003, the Company had current assets of $315. Total assets for the
same respective periods were $112,676 and $685. As of December 31,
2002, the Company had current liabilities of $476,959. At December 31,
2003 the current liability balance was $375,681. There were no long term
liabilities at December 31, 2002 or 2003.
Total shareholders' equity was ($364,283) and ($374,996) as of December 31,
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 its efforts
and financial resources toward identifying prospective buyers or merger
candidates 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
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 12/31/02 12/31/03 Increase/(Decrease)
Common Stock 6,065,210 7,975,211 1,910,001
Series A Preferred Stock 70,000 60,000 (10,000)
Series B Preferred Stock 70,000 20,000 (50,000)
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: February 13, 2004
/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 December 31,2003 (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
February 13, 2004
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: February 13, 2004 /s/ Blair J. Merriam
________________ __________________________
Blair J. Merriam, President and CEO