<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
at the Securities Exchange Act of 1934
For Quarter Ended March 31, 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)
275 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
March 31, 1998
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PART I
FINANCIAL INFORMATION
---------------------
Item 1 - Financial Statements
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<CAPTION>
3/31/98 12/31/97
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 7,906 $ 5,741
Accounts Receivable: (Note B & E)
Trade 42,231 64,147
Other 361 336
Prepaid Expenses 20,474 16,996
-------- --------
TOTAL CURRENT ASSETS 70,972 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 9,455 9,908
DUE FROM OFFICER 16,235
-------- --------
TOTAL ASSETS $ 80,427 $113,364
======== ========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
2
<PAGE> 3
NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS EQUITY
<CAPTION>
3/31/98 12/31/97
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 17,895 $ 28,288
Accrued salaries and related taxes 26,502 27,892
Accrued legal fees 40,722 40,722
Line of Credit 30,963 31,000
Deferred revenue 1,897 1,811
----------- -----------
TOTAL CURRENT LIABILITIES 117,979 129,713
Long Term Note (Note B) 54,000 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 (1,296,017) (1,291,814)
TOTAL STOCKHOLDERS' EQUITY (91,552) (87,349)
(Deficiency in Assets)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 80,427 $ 113,364
(Deficiency in Assets) =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
3
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SERVICE REVENUES (Note E) $170,411 $183,733
COST AND EXPENSES:
Labor 129,936 139,805
General and Administrative 42,399 54,048
-------- --------
172,335 193,853
-------- --------
(LOSS) FROM OPERATIONS (1,924) (10,120)
OTHER INCOME (EXPENSE):
Interest expense (2,958) (3,594)
Investment income 0 42
Miscellaneous 679 36
-------- --------
NET (LOSS) $ (4,203) $ 13,636
======== ========
NET (LOSS) PER COMMON SHARE $ (.00) $ (.00)
======== ========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
4
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
(UNAUDITED)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CHANGE IN CASH AND SHORT-TERM INVESTMENTS:
Cash flows from operating activities:
Net (LOSS) $ (4,203) $(13,636)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 0 300
Amortization 453 451
Changes in assets and liabilities:
Accounts receivable 21,891 34,926
Prepaid expenses (3,478) 4,792
Due from officer 16,235 0
Accounts payable and accrued expenses (10,393) (3,920)
Accrued salaries and related taxes (1,390) 1,551
Accrued legal fees 0 900
Deferred revenue 89 173
-------- --------
Net cash provided by (used in) operating
activities 19,202 25,191
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit with bank
Payments under line-of-credit with bank (37) (10,000)
Borrowings on note payable to officer
Payments under note payable to officer (17,000) (20,000)
Net cash provided by financing activities (17,037) (20,000)
-------- --------
NET INCREASE (DECREASE) IN CASH 2,165 5,191
CASH, beginning of period 5,741 9,103
-------- --------
CASH, end of period $ 7,906 $ 14,294
======== ========
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 MARCH 31, 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 March 31, 1998 and the results of the
operations and changes in their cash flows for the nine month period ending
March 31, 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 March 31, 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 $21,177
at March 31, 1998.
Income/Loss per share:
---------------------
Income or loss per share computations are based on the weighted average
number of common shares outstanding each year.
6
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 31, 1998
(Continued)
NOTE B - DEBT
At March 31, 1998, the Company had a $50,000 bank line of credit, of
which $30,963 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 1998.
The Company has a $100,000 loan from the President of the Company to
meet its working capital requirements. As of March 31, 1998, the loan amount
was $54,000 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 to this note was $2,168 for the
3 months ending March 31, 1998.
NOTE C - INCOME TAXES
At March 31, 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.
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 31, 1998
(Continued)
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 March 31, 1998 as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1998 $ 5,000
Total payments $ 5,000
$ 5,000
=======
</TABLE>
Rent expense was $3,000 and $3,000 for the three months ending March 31,
1998 and 1997, respectively.
NOTE E - SIGNIFICANT CUSTOMERS:
Revenues with 3 major customers accounted for approximately 74% of total
service revenues at March 31, 1998. Accounts receivable from these 3 customers
represent approximately 86% of total trade accounts receivable at March 31,
1998.
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 31, 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 be successful.
RESULTS OF OPERATIONS
Revenues for the three months ending March 31, 1998, decreased $13,322
(7%) 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.
9
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NATIONAL INDUSTRIAL SECURITY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 31, 1998
(Continued)
The percentage of labor expense to service revenues decreased from 76%
at March 31, 1997 to 75% at March 31, 1998. At March 31, 1998 general and
administrative expenses decreased by $11,649 due to lower administrative
salaries and reduced rent expense.
Net loss for the three months ended March 31, 1998 was $4,203 compared
with a net loss of $13,636 during the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at March 31, 1998 was $7,906. The cash
position varies day-to-day depending on collections and the timing of payroll
obligations.
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.
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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: May 15, 1998
By:
-------------------------------------
Max T. Jackson, President,
Treasurer and Chairman of the
Board of Directors
(Principal Executive, Financial
and Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,906
<SECURITIES> 0
<RECEIVABLES> 42,592
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 80,427
<PP&E> 85,034
<DEPRECIATION> 85,034
<TOTAL-ASSETS> 80,427
<CURRENT-LIABILITIES> 117,979
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 80,427
<SALES> 0
<TOTAL-REVENUES> 170,411
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 679
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,958
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,203)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
