<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
December 31, 1995----------------------------------------------2-31080-----
(For fiscal year ended) (Commission File No.)
NATIONAL INDUSTRIAL SECURITY CORPORATION
(Exact name of Small Business Issuer as specified in
its charter)
- -----------------Delaware------------- --86-0214815-----
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation of Organization) Identification No.)
-----2025 South Brentwood. St. Louis, Missouri-----------------------63144-
(Address of Principal Executive Offices) (Zip)
- --------------------------------(314)962-1414------------------------------
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.16 2/3 per share
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pre-
ceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes-X--No----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
Aggregate market value of Common Stock held by non-affiliates of Registrant
as of March 1, 1996: $88,920.00
Issuer's revenues for fiscal year 1995: $1,363,107
The number of shares of Common Stock outstanding as of March 1, 1996:
6,983
Total number of pages, including cover page -- 21
1
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
The portions of this report listed below have been incorporated by
reference from the Company's Proxy Statement. All references herein to the
"Proxy Statement" refer to the definitive Proxy Statement of the Company to
be filed with the Securities and Exchange Commission within 120 days after
the close of the Company's fiscal year (December 31, 1995).
PART III
ITEM 10 - DIRECTORS AND Proxy Statement - "Information
EXECUTIVE OFFICERS Concerning Nominees"
OF THE REGISTRANT
ITEM 11 - EXECUTIVE Proxy Statement - "Renumeration
COMPENSATION of Officers and Directors"
ITEM 12 - SECURITY OWNERSHIP Proxy Statement:
OF CERTAIN BENEFICIAL (a) "Voting"
OWNERS AND MANAGEMENT (b) "Stock Ownership"
ITEM 13 - CERTAIN RELATIONSHIPS Proxy Statement:
AND RELATED "Other Transactions"
TRANSACTIONS
With the exception of those portions of the Proxy Statement which are
expressly incorporated by reference in this Form 10-KSB Report, the Proxy
Statement is not to be deemed filed as part of this Report.
2
<PAGE> 3
NATIONAL INDUSTRIAL SECURITY CORPORATION
----------------------------------------
FORM 10-KSB
-----------
PART 1
------
ITEM 1 - BUSINESS
- -----------------
The Company is a Delaware corporation originally organized in 1967.
The Company primarily provides security guard services to industrial,
commercial, governmental, healthcare and other institutional clients in the
St. Louis metropolitan area. The Company also provides monitored alarm
system services. During the past three years, the Company has derived
approximately 99% of its total revenues from the services provided by its
uniformed security guards. Accordingly, the Company does not report under
more than one segment.
The Company's corporate offices are in St. Louis, Missouri. The Company
currently employs approximately 100 security guards in St. Louis, and has
an office staff of 5 persons. The Company has not engaged in any
overseas operations nor does it have foreign customers.
The security guard business of the Company is highly competitive both on
the basis of price and service. The Company competes in its market with
several established nationwide security firms which are considerably
larger, have greater financial resources and a more diversified business
range than the Company. The Company's knowledge of the local market and low
cost structure allows the Company to compete effectively in the St. Louis
guard service market. The Company does not experience any significant
seasonal fluctuations. Transactions with three major clients of the
Company accounted for approximately 45% of the Company's total revenues for
1995.
ITEM 2 - PROPERTIES
- -------------------
The Company's corporate offices are located at 2025 South Brentwood
Boulevard, St. Louis, Missouri 63144. The Company has signed a new lease
effective July 1996 to increase its square feet from 1,369 to 1,500 with a
45% reduction in cost. The office will be relocated to the new nearby
location in April 1996. The new lease expires in August 1998 and is not
material in term or amount.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any
of its subsidiaries is a party or to which any of their property is the
subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of stockholders, through the solicitation
of proxies or otherwise.
3
<PAGE> 4
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK
- -------------------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
MARKET INFORMATION
The Company's Common Stock has traded in the "Over the Counter" market
during the past ten (10) years. The Company's stock currently trades in
the NASD "OTC Bulletin Board," the NASD automated system for reporting non-
NASDAQ quotes. There are currently four (4) market makers for the
Company's stock. The stock historically trades at a very low volume and
frequently experiences periods where there are no shares being traded.
Approximately 1,163,000 shares of the company's currently outstanding stock
have been registered. As of December 31, 1995, there were approximately 445
holders of the Company's common stock.
The following table sets forth the high and low bid prices for the
Company's stock as reported by inter-dealer market quotations in the Market
Chronicle of the National Quotation Bureau. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Calendar Market Bid Price Dividend
Quarter High Low Declared
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 1st $.07 $.06 None
2nd $.12 $.06 None
3rd $.12 $.06 None
4th $.08 $.06 None
---------------------------------------------------------------------
1995 1st $.07 $.06 None
2nd $.07 $.03 None
3rd $.12 $.03 None
4th $.06 $.03 None
</TABLE>
ITEM 6 - 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 industrial, commercial, governmental,
health care and other institutional clients.
4
<PAGE> 5
1995 RESULTS OF OPERATIONS
--------------------------
During 1995, the Company's revenues decreased 7% to $1,363,107 from
$1,461,519 in 1994. The decline in revenues was primarily due to the loss
of clients due to competitive bidding. The Company has added six smaller
clients that has partially offset the previous loss of customers. The six
new clients are smaller in size and revenues then the clients lost. The
decreased revenues resulted in a loss from operations of $13,948 in 1995
compared with loss from operations of $57,054 in 1994 after depreciation
and amortization expense of $22,199 in 1995 and $16,308 in 1994. The
Company produced a positive cash flow from operations of $8,251 in 1995.
The Company is continuing to reduce its administrative and operating
expenses to a level to provide profitable operations.
1994 RESULTS OF OPERATIONS
--------------------------
During 1994, the Company's revenues decreased 22% to $1,461,519 from
$1,883,829 in 1993. The decline in revenues was primarily due to the
termination of a contract with one major client that filed for bankruptcy,
and one client lost to competitive bidding. The decreased revenues
resulted in a loss from operations of $57,054 in 1994 compared with loss
from operations of $55,812 in 1993 after merger and acquisition expense of
$37,521 in 1994 and $44,891 in 1993, and after depreciation and
amortization expense of $16,308 in 1994 and $16,335 in 1993.
In January 1994 the Company began negotiations to acquire a St. Louis
based company that produced video training films. The merger agreements
signed in March 1994 were subsequently terminated. Shortly thereafter a
modified merger agreement was entered into with Norcom Entertainment and
Communications, Inc. This agreement was also terminated without having been
submitted for approval by shareholders due to the failure of certain
conditions to the merger. The incompleted merger expenses were $37,521 in
1994.
5
<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash position at December 31, 1995 was $32,482, compared
with $20,390 at December 31, 1994;the cash position varies day-to-day,
depending on collections and the timing of payroll obligations. At
December 31, 1995 the Company had a zero balance on its $50,000 bank line
of credit. The Company also has a $100,000 loan from the President of the
Company, of which $100,000 remained outstanding as of December 31,
1995. This loan is collateralized by the Company's accounts receivable.
The Company has a $7,500 non interest-bearing note receivable due from
the President, and intends to eliminate this loan over the next 12 months.
The aformentioned loan by the President to the Company is for working
capital purposes and is treated separately.
The Company's core business of providing security guard services in the
St. Louis metropolitan area was down approximately 7% in 1995 due to the
loss of several large customers. The Company hopes to reestablish revenue
growth through the recruitment of additional new clients during 1996. If new
clients are not added, Management anticipates the Company's 1996 revenues
based on existing customers will be approximately $1 million. Several new
clients have been added over the past six months to partially offset the
previous loss of customers. Start up costs for new customers vary depending
on the size of that client. Such costs are expensed as incurred.
In addition to guard services, the Company continues to provide
monitoring services for alarm systems already in service. Approximately
80 alarm systems located in several states are currently being monitored.
This activity accounts for less than 1% of the Company's revenues.
ITEM 7 - FINANCIAL STATEMENTS
- -----------------------------
The Company's Consolidated Financial Statements and the Independent
Auditors` Report are presented in a separate section of this report -- see
page 8, Index to Financial Statements.
ITEM 8 - CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ---------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
6
<PAGE> 7
PART III
---------
ITEMS 9, 10, 11 AND 12 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
- ----------------------------------------------------------------------------
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------------------------------
AND MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------
In accordance with the instructions for Part III, the information called
for by these items is incorporated by reference from the Company's
definitive proxy statement which will be filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal
year.
PART IV
-------
ITEM 13 - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1) Financial Statements - see index on page 8.
2) Exhibits - see Index to Exhibits on page 8.
(b) No current reports on Form 8-K were filed by the Company during the
period from September 30, 1995 to December 31, 1995.
SIGNATURES
----------
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: March 31, 1996 By:----------------------------------
Max T. Jackson, President,
Treasurer, Director and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
- ---------------------------------------- Director, Treasurer, March 31, 1995
Max T. Jackson Chairman of the
Board of Directors
and President
(Principal Executive,
Financial and Accounting
Officer)
- ---------------------------------------- Director and Secretary March 31, 1995
Warren W. Davis
</TABLE>
7
<PAGE> 8
<TABLE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
MANAGEMENTS' DISCLOSURE REGARDING PRIOR PERIOD
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Consolidated balance sheets F-3
Consolidated statements of operations F-4
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7
</TABLE>
All other schedules are not submitted because they are not applicable
or not required, or because the required information is included in the
financial statements or the notes thereto.
INDEX TO EXHIBITS
Exhibit and Number
(Ref. to Item 601(a)
Exhibit Table of
Regulation S-B) Description of Document
-----------------------
Exhibit 3 Articles of Incorporation and By-Laws
-------------------------------------
Incorporated herein by reference pursuant to Rule 12(b)-23
from Exhibit A and Exhibit C to Annual Report on Form
10-KSB for the year ended December 31, 1983,
File No. 2-31080.
Exhibit 22 Subsidiaries of the Company
---------------------------
Located at page F-13 herein.
8
<PAGE> 9
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders of
National Industrial Security Corporation
We have audited the consolidated balance sheets of National
Industrial Security Corporation and subsidiaries as of December 31,
1995, and the related consolidated statements of operations,
stockholders' equity (deficiency in assets), and cash flows for the
year 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 audit.
We conducted our audit 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 1995 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of National Industrial Security Corporation and
subsidiaries at December 31, 1995, and the results of their
operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
St. Louis, Missouri
March 14, 1996
F-1
<PAGE> 10
Management's Disclosure Regarding Prior Period Independent Auditors Report
- --------------------------------------------------------------------------
The financial statements of National Industrial Security
Corporation as of and for the years ended December 31, 1994 and
1993, were audited by Deloitte and Touche LLP whose report dated
March 17, 1995, expressed an unqualified opinion on those
statements. The report of Deloitte and Touche LLP was included in
the Form 10-K filing for fiscal year ended December 31, 1994.
Deloitte and Touche LLP has refused to reissue their report on the
basis of a fee dispute in the amount of $8,350; consisting of
$3,350 relating to preparation of the 1988 tax return and $5,000
relating to consulting services for the 1994 proposed merger with
Norcom Entertainment and Communications, Inc. Management of
National Industrial Security Corporation requested additional
information supporting the fees in dispute from Deloitte and Touche
LLP by letter dated February 19, 1996. National Industrial
Security Corporation has not received satisfactory response to the
February 19, 1996 request and considers the fees in
dispute.
F-2
<PAGE> 11
<TABLE>
National Industrial Security Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
<CAPTION>
ASSETS 1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 32,482 $ 20,390
Accounts receivable
Trade 101,772 128,931
Other 2,412 227
---------- ----------
104,184 129,158
Prepaid expenses 9,923 14,866
---------- ----------
Total current assets 146,589 164,414
PROPERTY AND EQUIPMENT - at cost
Furniture and equipment 127,288 127,288
Leasehold improvements 8,880 8,880
---------- ----------
136,168 136,168
Less accumulated depreciation
and amortization (132,217) (110,365)
---------- ----------
3,871 25,803
DEFERRED CHARGES - net of
accumulated amortization 13,230 13,497
DUE FROM OFFICER 14,789 20,710
---------- ----------
$ 178,479 $ 224,424
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Line of credit with bank $ - $ 37,741
Note payable to officer - 60,000
Accounts payable and accrued expenses 19,365 11,097
Accrued salaries and related taxes 72,983 71,478
Accrued legal fees 45,606 65,935
Deferred revenue 1,913 1,796
Current portion of capital lease obligation 569 10,736
---------- ----------
Total current liabilities 140,436 258,783
NOTE PAYABLE TO OFFICER 100,000 -
CAPITAL LEASE OBLIGATION - 569
COMMITMENTS - -
STOCKHOLDERS' EQUITY
(DEFICIENCY IN ASSETS)
Common stock - authorized 12,000,000
shares; par value $.1667 per share;
6,983,000 shares issued and outstanding 1,163,830 1,163,830
Additional paid-in capital 38,785 38,785
Deficit (1,264,572) (1,237,543)
---------- ----------
Total stockholders' equity
(deficiency in assets) (61,957) (34,928)
---------- ----------
$ 178,479 $ 224,424
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
F-3
<PAGE> 12
<TABLE>
National Industrial Security Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Service revenues $ 1,363,107 $ 1,461,519 $ 1,883,829
Costs and expenses
Labor 1,021,083 1,097,530 1,470,072
General and administrative 333,773 367,214 408,343
Depreciation and amortization 22,199 16,308 16,335
Acquisition/merger expense - 37,521 44,891
----------- ----------- -----------
1,377,055 1,518,573 1,939,641
----------- ----------- -----------
Loss from operations (13,948) (57,054) (55,812)
Other income (expense)
Interest expense (14,881) (12,688) (11,302)
Other - net 1,800 793 1,059
----------- ----------- -----------
NET LOSS $ (27,029) $ (68,949) $ (66,055)
=========== =========== ===========
NET LOSS PER
COMMON SHARE $ - $ (0.01) $ (0.01)
=========== =========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
F-4
<PAGE> 13
<TABLE>
National Industrial Security Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIENCY IN ASSETS)
Years ended December 31, 1995, 1994 and 1993
<CAPTION>
Total
Stockholders'
Common Stock Additional Equity
----------------------- Paid-in (Deficiency in
Shares Amount Capital Deficit Assets)
--------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1992 6,983,000 $ 1,163,830 $ 38,785 $(1,102,539) $ 100,076
Net loss - - - (66,055) (66,055)
--------- ----------- -------- ----------- ---------
BALANCES, DECEMBER 31, 1993 6,983,000 1,163,830 38,785 (1,168,594) 34,021
Net loss - - - (68,949) (68,949)
--------- ----------- -------- ----------- ---------
BALANCES, DECEMBER 31, 1994 6,983,000 1,163,830 38,785 (1,237,543) (34,928)
Net loss - - - (27,029) (27,029)
--------- ----------- -------- ----------- ---------
BALANCES, DECEMBER 31, 1995 6,983,000 $ 1,163,830 $ 38,785 $(1,264,572) $ (61,957)
========= =========== ======== =========== =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE> 14
<TABLE>
National Industrial Security Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<CAPTION>
1995 1994 1993
---------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (27,029) $ (68,949) $ (66,055)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 22,199 16,308 16,335
Gain on sale of assets (1,800) - -
Changes in assets and liabilities
Accounts receivable 24,974 15,568 87,393
Prepaid expenses 4,943 5,666 (5,614)
Due from officer 5,921 1,420 (14,579)
Accounts payable and accrued expenses 8,268 (400) 10,715
Accrued salaries and related taxes 1,505 (21,882) (4,534)
Accrued legal fees (20,329) 30,844 32,091
Deferred revenue 117 (649) (632)
--------- ----------- -----------
Net cash provided by (used in) operating
activities 18,769 (22,074) 55,120
--------- ----------- -----------
Cash flows from investing activities
Additions to property and equipment - - (4,217)
Proceeds from sale of property 1,800 - -
--------- ----------- -----------
Net cash provided by (used in) investing
activities 1,800 - (4,217)
--------- ----------- -----------
Cash flows from financing activities
Borrowings under line of credit with bank 574,500 1,283,130 1,625,636
Payments under line of credit with bank (612,241) (1,342,515) (1,667,020)
Borrowings on note payable to officer 40,000 90,000 -
Payments under note payable to officer - (30,000) -
Payments of capital lease obligations (10,736) (9,767) (8,884)
--------- ----------- -----------
Net cash used in financing activities (8,477) (9,152) (50,268)
--------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH 12,092 (31,226) 635
Cash at beginning of year 20,390 51,616 50,981
--------- ----------- -----------
Cash at end of year $ 32,482 $ 20,390 $ 51,616
========= =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 14,881 $ 12,688 $ 11,302
========= =========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE> 15
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Entity
----------------
National Industrial Security Corporation primarily provides
security guard services to industrial, commerical, governmental
and other institutional clients in the St. Louis, Missouri
metropolitan area.
2. 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. All material intercompany balances
have been eliminated.
3. Revenue Recognition
-------------------
In general, the Company's contracts with its clients have terms
of one year with an automatic renewal. The contracts can be
cancelled, however, at any time upon 30 days notice. The
contracts contain hourly rates for guard services provided. The
Company recognizes revenue as services are performed in accordance
with the contract terms.
4. Depreciation and Amortization
-----------------------------
Property and equipment is stated at cost and is depreciated on
straight-line and accelerated methods over the estimated useful
lives of the related assets, which approximates five years.
Leasehold improvements and equipment under capital lease are
amortized over the shorter of the useful life of the asset or the
lease term.
Deferred charges consist principally of goodwill and patent costs
which are being amortized on the straight-line basis over the
expected period of recoverability of such costs based upon
expected future operating results, which is 15 to 20 years.
Recoverability is reviewed on an annual basis. Accumulated
amortization of deferred charges was $17,403 and $17,134 at
December 31, 1995 and 1994, respectively.
5. Income Taxes
------------
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". The Company adopted the provisions of SFAS No. 109
as of January 1, 1993. There was no cumulative income effect
attributable to this change.
F-7
<PAGE> 16
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. Income Taxes - Continued
------------------------
The adoption of SFAS No. 109 changed the Company's method of
accounting for income taxes from the deferred method as required
by Accounting Principles Board Opinion No. 11 to an asset and
liability approach. Under the deferred method, annual income tax
expense prior to 1993 was based on pretax financial accounting
income and deferred taxes were provided at current rates for
timing differences between financial accounting and taxable
earnings. Under the asset and liability method, deferred taxes
are established for the temporary differences between the
financial reporting basis and the tax basis of the Company's
assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
6. Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist primarily of cash,
trade receivables, trade payables and debt instruments. The book
values of cash, trade receivables and trade payables are
representative of their fair values due to the short-term maturity
of these instruments. The book value of the Company's debt
instruments is considered to approximate their fair value at
December 31, 1995, based on market rates and conditions and the
fact that all such instruments' rates are variable depending on
the current quoted prime rate.
7. Loss Per Share
--------------
Loss per share computations are based on the weighted average
number of common shares outstanding each year.
8. Use of Estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
9. Reclassification
----------------
Certain reclassifications in the 1994 and 1993 financial
statements were made to conform to the 1995 classifications.
F-8
<PAGE> 17
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
NOTE B - DEBT
At December 31, 1995, the Company had an unused $50,000 bank line
of credit. At December 31, 1994, the Company had a $50,000 bank
line of credit, of which $37,741 was outstanding. Advances under
the line of credit are collateralized by eligible accounts
receivable and by a personal guarantee of the Company's President
and require monthly interest payments at prime (8.5% at December
31, 1995) plus 2.0%. The line of credit expires in June 1996.
The terms of the bank line of credit included a loan agreement
with various covenants which provided, among other things, for the
maintenance of consolidated net worth of not less than $150,000,
and the maintenance of a ratio of liabilities to consolidated
stockholders' equity of not more than 2:1. The Company was not
in compliance with these financial covenants at December 31, 1994.
The bank terminated the loan agreement August 5, 1995.
The Company has a $100,000 loan from the President of the Company
to meet its working capital requirements as of December 31, 1995.
As of December 31, 1994, the loan amount was $60,000 and was due
May 31, 1995. 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 (8.5% at December 31, 1995) plus 5.25% and is
due May 31, 1998. Included in interest expense on the
consolidated statement of operations for the years ended December
31, 1995 and 1994 is $12,677 and $6,378, respectively, of interest
related to this note.
NOTE C - INCOME TAXES
At December 31, 1995, the Company has net operating loss
carryforwards aggregating approximately $810,000 expiring through
2010 (the majority of such net operating loss carryforwards expire
in 1999 and 2001). The Company also has general business credit
carryforwards of $8,450 expiring principally in 1998.
F-9
<PAGE> 18
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
NOTE C - INCOME TAXES - Continued
Temporary differences and the aforementioned net operating loss
carryforwards and tax credit carryforwards gave rise to deferred
tax assets at December 31, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 328,000 $ 321,000
Tax credit carryforwards 8,450 8,450
--------- ---------
Total deferred tax assets 336,450 329,450
Deferred tax liabilities (2,600) (2,600)
Valuation allowance (333,850) (326,850)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
</TABLE>
Management has determined, based on the Company's history of prior
operating earnings and its expectations for the future, that it
is not likely that future operating income of the Company will be
sufficient to fully recognize the net deferred tax asset.
Therefore, a valuation allowance for the entire amount of the net
deferred tax asset has been recorded.
The valuation allowance increased by approximately $7,000, $26,000
and $24,000 for the years ending December 31, 1995, 1994 an 1993,
respectively.
NOTE D - COMMITMENTS
The Company leases its office space under an operating lease
expiring in July 1996. In addition, the Company entered into
capital leases during 1992 for two automobiles. Future minimum
lease commitments under all non-cancelable operating and capital
leases in effect at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Lease Lease
--------- ---------
<S> <C> <C>
Year ended December 31,
1996 $569 $ 12,194
==== ========
</TABLE>
The net book value of equipment under capital lease was $582 at
December 31, 1995. Rent expense was $22,200, $33,300 and $41,500
in 1995, 1994 and 1993, respectively.
F-10
<PAGE> 19
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
NOTE E - DUE FROM OFFICER
At December 31, 1995 and 1994, the Company has a note receivable
of $7,500 and $15,000 due from the President of the Company. The
note is non-interest bearing and payable on or before December 31,
1996. Also, the Company has non-interest bearing receivables due
from the President in the amount of $7,289 and $5,710 at December
31, 1995 and 1994, respectively. The amounts due are primarily
for a portion of the monthly lease payments and repairs on the
Company's leased automobiles.
NOTE F - STOCKHOLDERS' EQUITY
In 1994, the Company granted to the President and two other
stockholders, options to purchase 500,000, 250,000 and 250,000
shares of common stock, respectively. The options are exercisable
at a price of $.10 per share and expire March 18, 1997.
On February 10, 1995, the Company granted options to purchase
4,000,000 shares of common stock. The options are contingent on
certain performance levels achieved in a currently inactive
subsidiary. The options are exercisable at a price of $.10 per
share and expire February 10, 1998 or upon dissolution of the
subsidiary. No options were exercised during 1995 or 1994.
NOTE G - SIGNIFICANT CUSTOMERS
The Company generated service revenues (as a percentage of total
service revenues) with major customers during the three years
ending December 31, 1995 as detailed below:
<TABLE>
<CAPTION>
Customer 1995 1994 1993
-------- ------ ------ ------
<S> <C> <C> <C>
A 21% 21% 14%
B - 16% 14%
C 12% 12% 9%
D 12% 12% 10%
</TABLE>
Accounts receivable (as a percent of total trade accounts
receivable) as of December 31, 1995 and 1994 from the
aforementioned customers are as follows:
<TABLE>
<CAPTION>
Customer 1995 1994
-------- ------ ------
<S> <C> <C>
A 20% 38%
B - -
C 9% 11%
D 12% 7%
</TABLE>
F-11
<PAGE> 20
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
NOTE H - ACQUISITION/MERGER EXPENSE
In 1994 and 1993, the Company incurred legal and other
professional expenses in the amount of $37,521 and $44,891,
respectively, for proposed merger transactions which were
subsequently terminated.
F-12
<PAGE> 1
EXHIBIT 22
----------
<TABLE>
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<CAPTION>
Percentage
of Capital
Name of State of Stock Owned
Subsidiary Incorporation by Registrant
---------- ------------- -------------
<S> <C> <C>
National Industrial Security New York 100%
Corporation of New York
Centrix Entertainment and Missouri 100%
Communications, Inc.
</TABLE>
F 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 32,482
<SECURITIES> 0
<RECEIVABLES> 104,184
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 146,589
<PP&E> 136,168
<DEPRECIATION> (132,217)
<TOTAL-ASSETS> 178,479
<CURRENT-LIABILITIES> 140,436
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 178,479
<SALES> 0
<TOTAL-REVENUES> 1,363,107
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,881
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,029)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
