<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, 1996 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.)
225 East Kirkham Road St. Louis, Missouri 63119
- -------------------------------------------------------------------------------
(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
preceding 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, 1997. 91,680.00
Issuer's revenues for fiscal year 1996 $1,081,639
The number of shares of Common Stock outstanding as of March 1, 1997:
6,983,000
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, 1996).
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 I
------
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 80 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 46% of the Company's total revenues for 1996.
ITEM 2 - PROPERTIES
- -------------------
The Company's corporate offices are located at 225 East Kirkham Road,
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 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, 1996, 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>
1995 1st $.07 $.06 None
2nd $.07 $.03 None
3rd $.12 $.03 None
4th $.06 $.03 None
- -----------------------------------------------------------------------------
1996 1st $.06 $.06 None
2nd $.09 $.06 None
3rd $.09 $.03 None
4th $.04 $.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, healthcare
and other institutional clients.
4
<PAGE> 5
1996 RESULTS OF OPERATIONS
--------------------------
During 1996, the Company's revenues decreased 21% to $1,081,639 from
$1,363,107 in 1995. The decline in revenues was primarily due to the loss of
clients due to competitive bidding. The Company has added two smaller clients
that has partially offset the previous loss of customers. The two new clients
are smaller in size and revenues than the clients lost. The Company has
reduced expenses to offset the decrease in revenues. The reduction of expenses
offset decreased revenues and resulted in a profit from operations of $16,293 in
1996 compared with loss from operations of $13,948 in 1995 after depreciation
and amortization expense of $ 4,062 in 1996 and $22,199 in 1995.
The Company is continuing to reduce its administrative and operating
expenses to a level to provide profitable operations.
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 than 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.
5
<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash position at December 31, 1996 was $ 9,103, compared
with $32,482 at December 31, 1995; the cash position varies day-to-day,
depending on collections and the timing of payroll obligations. At December 31,
1996 the Company had a $15,000 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, 1996. 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 aforementioned 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 21% in 1996 due to the
loss of several large customers. The Company hopes to reestablish revenue
growth through the recruitment of additional new clients during 1997. If new
clients are not added, Management anticipates the Company's 1997 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, 1996 to December 31, 1996.
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, 1997 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:
- ------------------------- Director, Treasurer, March 31, 1997
Max T. Jackson Chairman of the
Board of Directors
and President
(Principal Executive,
Financial and Accounting
Officer)
- ------------------------- Director and Secretary March 31, 1997
Warren W. Davis
7
<PAGE> 8
INDEX TO FINANCIAL STATEMENTS
-----------------------------
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
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 12b)-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, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity
(deficiency in assets), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 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, 1996 and
1995, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
St. Louis, Missouri
February 20, 1997
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 year ended December 31, 1994, 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 1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 9,103 $ 32,482
Accounts receivable
Trade 79,431 101,772
Other 891 2,412
----------- -----------
80,322 104,184
Prepaid expenses 19,820 9,923
----------- -----------
Total current assets 109,245 146,589
PROPERTY AND EQUIPMENT - at cost
Furniture and equipment 85,034 127,288
Leasehold improvements - 8,880
----------- -----------
85,034 136,168
Less accumulated depreciation
and amortization (83,715) (132,297)
----------- -----------
1,319 3,871
DEFERRED CHARGES - set of
accumulated amortization 11,720 13,230
DUE FROM OFFICER 16,236 14,789
----------- -----------
$ 138,520 $ 178,479
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Line of credit with bank $ 15,000 $ -
Accounts payable and accrued expenses 15,759 19,365
Accrued salaries and related taxes 25,587 72,983
Accrued legal fees 40,722 45,606
Deferred revenue 2,406 1,913
Current portion of capital lease obligation - 569
----------- -----------
Total current liabilities 99,474 140,436
NOTE PAYABLE TO OFFICER 100,000 100,000
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 (1,263,569) (1,264,572)
----------- -----------
Total stockholders' equity
(deficiency in assets) (60,954) (61,957)
----------- -----------
$ 138,520 $ 178,479
=========== ===========
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>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service revenues $1,081,639 $1,363,107 $1,461,519
Cost and expenses
Labor 789,606 1,021,083 1,097,530
General and administrative 271,678 333,773 367,214
Depreciation and amortization 4,062 22,199 16,308
Acquisition/merger expense - - 37,521
------------ ----------- -----------
1,065,346 1,377,055 1,518,573
------------ ----------- -----------
Earnings (loss) from operations 16,293 (13,948) (57,054)
Other income (expense)
Interest expense (15,290) (14,881) (12,688)
Other - net - 1,800 793
------------ ----------- -----------
NET EARNINGS (LOSS) $ 1,003 $ (27,029) $ (68,949)
============ =========== ===========
NET EARNINGS (LOSS) PER
COMMON SHARE $ - $ - $ (O.O1)
============ =========== ===========
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,
<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, 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)
Net earnings - - - 1,003 1,003
----------- ------------ ----------- ------------- -------------
BALANCES, DECEMBER 31,1996 6,983,000 $1,163,830 $ 38,785 $(1,263,569) $ (60,954)
=========== ============ =========== ============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE> 14
<TABLE>
National Industrial Security Corporation
and Susidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 1,003 $ (27,029) $ (68,949)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 4,062 22,199 16,308
Gain on sale of assets - (1,800) -
Changes in assets and liabilities
Accounts receivable 23,862 24,974 15,568
Prepaid expenses (9,897) 4,943 5,666
Due from officer (1,447) 5,921 1,420
Accounts payable and accrued expenses (3,606) 8,268 (400)
Accrued salaries and related taxes (47,396) 1,505 (21,882)
Accrued legal fees (4,884) (20,329) 30,844
Deferred revenue 493 117 (649)
---------- ----------- -------------
Net cash provided by (used in)
operating activities (37,810) 18,769 (22,074)
---------- ----------- -------------
Cash flows from investing activities
Proceeds from sale of property - 1,800 -
---------- ----------- -------------
Net cash provided by investing
activities - 1,800 -
---------- ----------- -------------
Cash flows from financing activities
Borrowings under line of credit with bank 15,000 574,500 1,283,130
Payments under line of credit with bank - (612,241) (1,342,515)
Borrowings on note payable to officer - 40,000 90,000
Payments under note payable to officer - - (30,000)
Payments of capital lease obligations (569) (10,736) (9,767)
---------- ----------- -------------
Net cash provided by (used in)
financing activities 14,431 (8,477) (9,152)
---------- ----------- -------------
NET INCREASE (DECREASE)
IN CASH (23,379) 12,092 (31,226)
Cash at beginning of year 32,482 20,390 51,616
---------- ----------- -------------
Cash at end of year $ 9,103 $ 32,482 $ 20,390
========== =========== =============
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 16,071 $ 14,881 $ 12,688
========== =========== =============
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, 1996, 1995 and 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Entity
----------------
National Industrial Security Corporation primarily provides security guard
services to industrial, commercial, 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,
1996. 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 canceled, 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 $18,912 and $17,403 at
December 31, 1996 and 1995, 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, 1996, 1995 and 1994
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 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, 1996, based on market rates and conditions and the fact that all
such instruments' rates are variable depending on the current quoted prime
rate.
7. Income (loss) Per Share
-----------------------
Income (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.
F-8
<PAGE> 17
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
NOTE B - DEBT
At December 31, 1996, the Company had a $50,000 bank line of credit, of which
$15,000 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 (8.25% at December
31, 1996) plus 2.0%. The line of credit expires in June 1997. The line of
credit was unused at December 31, 1995.
The Company has a $100,000 loan from the President of the Company to meet its
working capital requirements as of December 31, 1996 and 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 (8.25% at December 31, 1996) 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, 1996, 1995 and 1994
is $14,243, $12,677 and $6,378, respectively, of interest related to notes
payable to the President of the Company.
NOTE C - INCOME TAXES
At December 31, 1996, the Company has net operating loss carryforwards
aggregating approximately $792,000 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, 1996, 1995 and 1994
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,
1996 and 1995 as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 316,800 $ 328,000
Tax credit carryforwards 8,450 8,450
----------- -----------
Total deferred tax assets 325,250 336,450
Deferred tax liabilities (2,600) (2,600)
Valuation allowance (322,650) (333,850)
----------- -----------
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 (decreased) by approximately $(11,000),
$7,000 and $26,000 for the years ending December 31, 1996, 1995 and 1994,
respectively.
NOTE D - COMMITMENTS
The Company leases its office space under an operating lease expiring in
August 1998. Future minimum lease commitments under all non-cancelable
operating and capital leases in effect at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ended December 31,
1997 $ 12,000
1998 8,000
----------
$ 20,000
==========
</TABLE>
Rent expense was $20,200, $22,200, and $33,300 in 1996, 1995, and 1994,
respectively.
F-10
<PAGE> 19
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
NOTE E - DUE FROM OFFICER
At December 31, 1996 and 1995, the Company has a note receivable of $7,500
due from the President of the Company. The note is non-interest bearing and
payable on or before December 31, 1997. Also, the Company has non-interest
bearing receivables due from the President in the amount of $8,736 and $7,289
at December 31, 1996 and 1995, respectively. The amounts due are primarily
for a portion of the monthly lease payments and repairs on the Company's
leased automobiles prior to 1996.
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 1996 or 1995.
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,
1996 as detailed below:
<TABLE>
<CAPTION>
Customer 1996 1995 1994
-------- ------ ------ ------
<S> <C> <C> <C>
A 12% 21% 21%
B - % - % 16%
C 16% 12% 12%
D 18% 12% 12%
</TABLE>
Accounts receivable (as a percent of total trade accounts receivable) as of
December 31, 1996 and 1995 from the aforementioned customers are as follows:
<TABLE>
<CAPTION>
Customer 1996 1995
-------- ------ ------
<S> <C> <C>
A - % 20%
B - % - %
C 15% 9%
D 21% 12%
</TABLE>
F-11
<PAGE> 20
National Industrial Security Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
NOTE H - ACQUISITION/MERGER EXPENSE
In 1994, the Company incurred legal and other professional expenses in the
amount of $37,521, for proposed merger transactions which were subsequently
terminated.
F-12
<PAGE> 1
EXHIBIT 22
----------
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,103
<SECURITIES> 0
<RECEIVABLES> 80,322
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 109,245
<PP&E> 85,034
<DEPRECIATION> (83,715)
<TOTAL-ASSETS> 138,520
<CURRENT-LIABILITIES> 99,474
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 138,520
<SALES> 0
<TOTAL-REVENUES> 1,081,639
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,290
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
