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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996
Commission File Number 2-31080
NATIONAL INDUSTRIAL SECURITY CORPORATION
- ------------------------------------------------------------------------------
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 860214815
- ---------------------------------- --------------------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation
or organization)
225 East Kirkham Ave., St. Louis, Missouri 63119
---------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
(314) 962-1414
----------------------------------------------
(Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
------------- --------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date:
6,983,000 shares of Common Stock
were issued and outstanding as of
September 30, 1996
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<TABLE>
PART I
FINANCIAL INFORMATION
---------------------
Item 1 - Financial Statements
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
------
<CAPTION>
9/30/96 12/31/95
------- --------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 30,677 $ 32,482
Accounts Receivable: (Note B & E)
Trade 82,517 101,772
Other 469 2,412
Prepaid Expenses 4,316 9,923
-------- --------
TOTAL CURRENT ASSETS 117,979 146,589
PROPERTY & EQUIPMENT, at cost (Note D)
Furniture and Equipment 85,034 127,288
Leasehold Improvements 8,880 8,880
-------- --------
93,914 136,168
Less Accumulated Depreciation
and Amortization (91,971) (132,297)
-------- --------
1,943 3,871
DEFERRED CHARGES, Net of accumulated
amortization 12,173 13,230
DUE FROM OFFICER 15,972 14,789
-------- --------
TOTAL ASSETS $148,067 $178,479
======== ========
The accompanying notes to financial statements are an integral part
of these statements.
</TABLE>
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<TABLE>
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS EQUITY
---------------------------------
<CAPTION>
9/30/96 12/31/95
------- --------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,226 $ 19,365
Accrued salaries and related taxes 56,467 72,982
Accrued legal fees 43,149 45,606
Current portion of capital lease
obligation (Note D) 0 569
Note payable (line of credit/Note B) 15,000 0
Deferred revenue 2,224 1,913
-------- --------
TOTAL CURRENT LIABILITIES 118,066 140,436
Long Term Note (Note B) 100,000 100,000
STOCKHOLDERS' EQUITY (Deficiency in Assets)
Common Stock - authorized
12,000,000 shares; par value
$.1667 per share; issued
and outstanding 6,983,000
shares 1,163,830 1,163,830
Additional Paid in Capital 38,785 38,785
Deficit (1,272,614) (1,264,572)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (69,999) (61,957)
(Deficiency in Assets)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $148,067 $178,479
======== ========
(Deficiency in Assets)
The accompanying notes to financial statements are an integral part
of these statements.
</TABLE>
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<TABLE>
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
SERVICE REVENUES (Note E) $282,648 $337,651
COST AND EXPENSES:
Labor 213,822 247,655
General and Administrative 63,329 85,610
-------- --------
277,151 333,265
-------- --------
PROFIT FROM OPERATIONS 5,497 4,386
OTHER INCOME (EXPENSE):
Interest expense (4,235) (4,462)
Investment income 61 48
Miscellaneous 242 (1,092)
-------- --------
NET (LOSS) PROFIT $ 1,081 $ (1,120)
======== ========
NET (LOSS) PROFIT PER COMMON SHARE $ .00 $ (.00)
======== ========
The accompanying notes to financial statements are an integral part
of these statements.
</TABLE>
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<TABLE>
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
SERVICE REVENUES (Note E) $ 836,513 $1,041,513
COST AND EXPENSES:
Labor 627,764 793,042
General and Administrative 206,695 247,013
--------- ----------
834,459 1,040,055
--------- ----------
PROFIT FROM OPERATIONS 2,054 1,458
OTHER INCOME (EXPENSE):
Interest expense (11,526) (11,187)
Investment income 170 159
Miscellaneous 1,261 (1,948)
--------- ----------
NET LOSS $ (8,041) $ (11,518)
========= ==========
NET LOSS PER COMMON SHARE $(.00) $(.00)
===== =====
The accompanying notes to financial statements are an integral part
of these statements.
</TABLE>
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<TABLE>
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CHANGE IN CASH AND SHORT-TERM INVESTMENTS:
Cash flows from operating activities:
Net (LOSS) $ (8,041) $ (5,679)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,408 3,625
Amortization 1,057 423
Changes in assets and liabilities:
Accounts receivable 21,198 (15,184)
Prepaid expenses 5,607 884
Due from officer (1,183) (394)
Accounts payable and accrued expenses (18,139) 593
Accrued salaries and related taxes (16,517) (2,829)
Accrued legal fees (2,457) (7,004)
Furniture & Equipment 520
Deferred revenue 311 648
-------- --------
Net cash provided by (used in) operating
activities (16,236) (2,497)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit with bank 15,000 336,500
Payments under line-of-credit with bank (349,343)
Borrowings on note payable to officer 7,000 40,000
Payments under note payable to officer (7,000)
Payments of capital lease obligations (569) (2,590)
-------- --------
Net cash provided by financing activities 14,431 24,567
-------- --------
NET INCREASE (DECREASE) IN CASH (1,805) (350)
CASH, beginning of period 32,482 20,390
-------- --------
CASH, end of period $ 30,677 $ 20,040
======== ========
The accompanying notes to financial statements are an integral part
of these statements.
</TABLE>
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
----------------------------
The consolidated financial statements include the accounts of National
Industrial Security Corporation ("the Company") and its wholly-owned
subsidiaries, none of which operated in the three years ended December 31,
1995 or during fiscal 1996. All material intercompany balances have been
eliminated.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which include only normal
recurring accruals) necessary to fairly present the financial position of
the Company and its subsidiaries at September 30, 1996 and the results of
the operations and changes in their cash flows for the nine month period
ending September 30, 1996.
Depreciation and amortization:
------------------------------
Property and equipment is depreciated on straight-line and
accelerated methods over the useful lives of the related assets which
approximate five years. Leasehold improvements and equipment under capital
leases are amortized over the asset life or the lease term, if shorter.
Deferred charges at September 30, 1996 consist principally of goodwill
and patent costs which are being amortized over 5 to 20 years. Accumulated
amortization of deferred charges was $17,403 at December 31, 1995 and
$18,460 at September 30, 1996.
Income/Loss per share:
----------------------
Income or loss per share computations are based on the weighted average
number of common shares outstanding each year.
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1996
(Continued)
NOTE B - DEBT
At September 30, 1996, the Company had borrowed $15,000 of its $50,000
bank line of credit. Advances under the line of credit are collateralized
by eligible accounts receivable and a personal guarantee of the Company's
President and require monthly interest payments at prime (8.25% at Sept. 30,
1996) plus 2%. The line of credit expires in June 1997.
The Company has a $100,000 loan from the President of the Company to
meet its working capital requirements. As of September 30, 1996, the loan
amount was $100,000 and is due May 31, 1998. The note is collateralized
by accounts receivable and property and equipment of the Company and is
subordinated to the bank line of credit. The note requires monthly
interest payments at prime (8.25% at Sept. 30, 1996) plus 5.25%.
Interest expense relating to the above notes was $11,596 for the
nine months ending September 30, 1996.
A lawsuit against the Company was settled by arbitration in March 1996.
Funds used in the settlement were provided by the Company president and are
reflected in the current liability section of the balance sheet as a note
payable.
NOTE C - INCOME TAXES
At September 30, 1996, the Company had net operating loss carryforwards
aggregating approximately $810,000 expiring through 2010 and new jobs tax
credit carryforwards of $8,450 expiring principally in 1998.
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1996
NOTE D - COMMITMENTS AND CONTINGENCIES:
Leases:
-------
The Company leased its office space under an operating lease expired
on July 31, 1996. The Company has signed a new lease effective August
1996 to increase its square feet from 1,369 to 1,500 with a 45% reduction
in cost. The office relocated to the new nearby location in May 1996.
The new lease expires in August 1998.
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1996 $ 3,000
1997 12,000
1998 8,000
-------
Total payments 23,000
$23,000
=======
</TABLE>
Rent expense was $15,179 and $14,373 for the nine months ending
September 30, 1996 and 1995, respectively.
NOTE E - SIGNIFICANT CUSTOMERS:
Revenues with 3 major customers accounted for approximately 37% of
total service revenues at Sept. 30, 1996. Accounts receivable from these
3 customers represent approximately 50% of total trade accounts receivable
at September 30, 1996.
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1996
(Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a Missouri-based corporation providing security guard
and related security services to commercial, industrial, governmental,
healthcare and other institutional clients. In addition to guard services,
the Company continues to provide monitoring services for alarm systems
already in service (the Company no longer sells the alarm systems).
Approximately 90 alarm systems located in several states are currently
being monitored. This activity accounts for less than 1% of the Company's
revenues. The Company primarily operates in the St. Louis, Missouri
metropolitan area, and presently employs approximately 100 security
guards and an office staff of 5 all in St. Louis, Missouri.
RESULTS OF OPERATIONS
Revenues for the nine months ending Sept. 30, 1996, decreased
$205,000 (19%) compared with the same period in 1995. The decrease in
revenues is due to the loss of several major clients. The Company hopes
to reestablish revenue growth through the recruitment of additional
new clients. Start up costs for new customers vary depending on the
size of that client. Such costs are expensed as incurred.
The Company is seeking suitable merger or acquisition candidates.
Preliminary discussions have been made with two such companies, but no
definitive agreements have been made to date. All prior acquisition
attempts with other companies have been terminated.
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1996
(Continued)
The percentage of labor expense to service revenues decreased from
76% at Sept. 30, 1995 to 75% at Sept. 30, 1996. At Sept. 30, 1996 general
and administrative expenses decreased by $40,318 due to lower administrative
salaries and reduced rent expense.
Net loss for the nine months ended September 30, 1996 was $8,041
compared with a net loss of $11,518 during the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at Sept. 30, 1996 was $30,677. The cash
position varies day-to-day depending on collections and the timing of
payroll obligations.
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SIGNATURE
---------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NATIONAL INDUSTRIAL SECURITY
CORPORATION
Date: November 15, 1996
By:-------------------------------
Max T. Jackson, President,
Treasurer and Chairman of the
Board of Directors
(Principal Executive, Financial
and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 30,677
<SECURITIES> 0
<RECEIVABLES> 82,986
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 117,979
<PP&E> 93,914
<DEPRECIATION> (91,971)
<TOTAL-ASSETS> 148,067
<CURRENT-LIABILITIES> 118,066
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 148,067
<SALES> 0
<TOTAL-REVENUES> 836,513
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,526
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,041)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
