<PAGE> 1
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 June 30, 1998
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:
6,994,100 shares of Common Stock
were issued and outstanding as of
June 30, 1998
1
<PAGE> 2
<TABLE>
PART I
FINANCIAL INFORMATION
---------------------
Item 1 - Financial Statements
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
------
<CAPTION>
6/30/98 12/31/97
------- --------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ (8,321) $ 5,741
Accounts Receivable: (Note B & E)
Trade 49,559 64,147
Other 294 336
Prepaid Expenses 21,633 16,996
-------- --------
TOTAL CURRENT ASSETS 63,165 87,220
PROPERTY & EQUIPMENT, at cost (Note D)
Furniture and Equipment 85,034 85,034
Less Accumulated Depreciation
and Amortization (85,034) (85,034)
-------- --------
DEFERRED CHARGES, Net of accumulated
amortization 9,002 9,908
DUE FROM OFFICER 16,235
-------- --------
TOTAL ASSETS $ 72,167 $113,364
======== ========
The accompanying notes to financial statements are an integral
part of these statements.
</TABLE>
2
<PAGE> 3
<TABLE>
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS EQUITY
----------- - ------------ ------
<CAPTION>
6/30/98 12/31/97
------- --------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 17,783 $ 28,288
Accrued salaries and related taxes 20,504 27,892
Accrued legal fees 40,722
Line of Credit 4,963 31,000
Deferred revenue 1,517 1,811
-------- --------
TOTAL CURRENT LIABILITIES 44,767 129,713
Long Term Note (Note B) 95,000 71,000
STOCKHOLDERS' EQUITY (Deficiency in Assets)
Common Stock - authorized
12,000,000 shares; par value
$.1667 per share; issued
and outstanding 6,994,100
shares 1,165,680 1,165,680
Additional Paid in Capital 38,785 38,785
Deficit (1,272,065) (1,291,814)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (87,349) (87,349)
(Deficiency in Assets)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 72,167 $113,364
======== ========
(Deficiency in Assets)
The accompanying notes to financial statements are an integral
part of these statements.
</TABLE>
3
<PAGE> 4
<TABLE>
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30
(UNAUDITED)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SERVICE REVENUES (Note E) $159,441 $158,550
COST AND EXPENSES:
Labor 119,757 121,712
General and Administrative 12,466 46,783
-------- --------
132,223 168,495
-------- --------
PROFIT (LOSS) FROM OPERATIONS 27,218 (9,945)
OTHER INCOME (EXPENSE):
Interest expense (3,202) (2,927)
Investment income 0 0
Miscellaneous (65) (160)
-------- --------
NET (LOSS) PROFIT $ 23,951 $(13,032)
======== ========
NET (LOSS) PROFIT PER COMMON SHARE $ .00 $ (.00)
======== ========
The accompanying notes to financial statements are an integral
part of these statements.
</TABLE>
4
<PAGE> 5
<TABLE>
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SERVICE REVENUES (Note E) $329,852 $342,283
COST AND EXPENSES:
Labor 249,693 261,517
General and Administrative 54,865 100,831
-------- --------
304,558 362,348
-------- --------
PROFIT (LOSS) FROM OPERATIONS 25,294 (20,065)
OTHER INCOME (EXPENSE):
Interest expense (6,160) (6,521)
Investment income 0 42
Miscellaneous 614 (124)
-------- --------
NET PROFIT (LOSS) $ 19,748 $(26,668)
======== ========
NET PROFIT LOSS PER COMMON SHARE $ .00 $ (.00)
======== ========
The accompanying notes to financial statements are an integral
part of these statements.
</TABLE>
5
<PAGE> 6
<TABLE>
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CHANGE IN CASH AND SHORT-TERM INVESTMENTS:
Cash flows from operating activities:
Net PROFIT (LOSS) $ 19,748 $(26,668)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 0 600
Amortization 906 906
Change in assets and liabilities:
Accounts receivable 14,630 43,076
Prepaid expenses (4,637) 9,602
Due from officer 16,235 0
Accounts payable and accrued expenses (10,505) (4,423)
Accrued salaries and related taxes (7,388) (5,703)
Accrued legal fees (40,722) 1,800
Deferred revenue (294) (340)
-------- --------
Net cash provided by (used in) operating
activities (12,025) 18,850
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit with bank
Payments under line-of-credit with bank (26,037) (11,000)
Borrowings on note payable to officer 24,000 0
Payments under note payable to officer 0 (23,000)
Net cash provided by financing activities (2,037) (34,000)
-------- --------
(14,062) (15,150)
NET INCREASE (DECREASE) IN CASH
CASH, beginning of period 5,741 9,103
-------- --------
CASH, end of period $ (8,321) $ (6,047)
======== ========
The accompanying notes to financial statements are an integral part
of these statements.
</TABLE>
6
<PAGE> 7
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1998
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,
1997 or during fiscal 1998. 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 June 30, 1998 and the results of the
operations and changes in their cash flows for the six month period ending
June 30, 1998.
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 June 30, 1998 consist principally of goodwill
and patent costs which are being amortized over 5 to 20 years. Accumulated
amortization of deferred charges was $20,724 at December 31, 1997 and
$21,630 at June 30, 1998.
Income/Loss per share:
----------------------
Income or loss per share computations are based on the weighted
average number of common shares outstanding each year.
7
<PAGE> 8
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1998
(Continued)
NOTE B - DEBT
At June 30, 1998, the Company had a $50,000 bank line of credit,
of which $4,963 was outstanding. 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
plus 2%. The line of credit expires in June 1999.
The Company has a $100,000 loan from the President of the Company
to meet its working capital requirements. As of June 30, 1998, the loan amount
was $95,000 and is due May 31, 1999. 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
plus 5.25%. Interest expense relating this note was $4,217 for the 6 months
ending June 30, 1998.
NOTE C - INCOME TAXES
At June 30, 1998 the Company had net operating loss carryforwards
aggregating approximately $819,000 expiring through 2010 and new jobs tax
credit carryforwards of $8,450 expiring principally in 1998.
8
<PAGE> 9
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1998
NOTE D - COMMITMENTS AND CONTINGENCIES:
Leases:
-------
The Company leases its office space under an operating lease expiring
August 31, 1998. Future minimum lease commitments under all non cancelable
operating and capital leases in effect at June 30, 1998 as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1998 $ 2,000
Total payments $ 2,000
$ 2,000
=======
</TABLE>
Rent expense was $6,000 and $6,000 for the six months ending June 30,
1998 and 1997, respectively.
NOTE E - SIGNIFICANT CUSTOMERS:
Revenues with 2 major customers accounted for approximately 54% of
total service revenues at June 30, 1998. Accounts receivable from these
2 customers represent approximately 67% of total trade accounts receivable
at June 30, 1998.
9
<PAGE> 10
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1998
(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, and industrial clients in
the St. Louis metropolitan area. In addition to guard services, the Company
continues to provide monitoring services for 40 alarm systems already in
service. This activity accounts for less than 1% of the Company's revenues.
The labor market for security guards continues to be extremely
difficult for the Company to obtain sufficient applicants, and to hire staff
replacement personnel when needed. This tight labor condition restricts the
Company's ability to market for new clients, and to maintain its existing
client base. The Company presently employs approximately 50 security guards
and an office staff of 4 part time employees all in St. Louis, Missouri.
The Company is actively seeking merger or acquisition candidates both
through traditional means and through on-line solicitations on the internet.
If the acquiring party considered it advantageous, management of the Company
would consider a transaction in which the purchaser would acquire only the
public shell of the Company and the existing assets and operations would be
transferred to a private entity which would assume all assets and liabilities.
The Company's prior efforts to complete a sale or merger have not been
successful.
RESULTS OF OPERATIONS
Revenues for the six months ending June 30, 1998, decreased $12,431
(4%) compared with the same period in 1997. The decrease in revenues is due
to the loss of clients due to competitive bidding, client restructuring,
relocations and budget reductions. 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 continuing to reduce its administrative and operating
expenses to a level to provide profitable operations.
10
<PAGE> 11
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1998
(Continued)
The percentage of labor expense to service revenues was 76% at
June 30, 1997 and remained 76% at June 30, 1998. At June 30, 1998 general
and administrative expenses decreased by $45,966 due to lower administrative
salaries and reduced rent expense.
Net profit for the six months ended June 30, 1998 was $19,748 compared
with a net loss of $26,668 during the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's independent auditors have concluded that there is
material uncertainty as to the Company's ability to continue as a going
concern. Management of the Company agrees and if operating conditions do not
improve so as to allow for more profitable results from operation, the
Company will consider alternatives such as (1) a sale of all or substantially
all assets, (2) complete wind-down of operations and liquidation of the
Company, or (3) a merger with another entity.
The Company's short term liquidity is dependent on existing loans
from the Company's chairman. Long-term financing is not feasible based on
the Company's poor results from operation. The Company believes it has
adequate financing to continue its current operations in coming months
while a sale, wind-down, or merger of the Company is being arranged.
11
<PAGE> 12
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: August 15, 1998 By: /s/ Max T. Jackson
------------------------------------
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> (8,321)
<SECURITIES> 0
<RECEIVABLES> 49,853
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,167
<PP&E> 85,034
<DEPRECIATION> 85,034
<TOTAL-ASSETS> 72,167
<CURRENT-LIABILITIES> 44,767
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 72,167
<SALES> 0
<TOTAL-REVENUES> 329,852
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,160
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
