-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GiziVOKsGfoUKOTtlb3v05jqniFW9dgZdYV6E4sS+fPf6ZO4FSxiA5PhQe4e8ybL cdgde8spN9zy6Eo4N+gmwg== 0000950134-98-008997.txt : 19981118 0000950134-98-008997.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950134-98-008997 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTEGRATED SECURITY SYSTEMS INC CENTRAL INDEX KEY: 0000741114 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 752422983 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-11900 FILM NUMBER: 98751082 BUSINESS ADDRESS: STREET 1: 8200 SPRINGWOOD DR STE 230 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 2144448280 MAIL ADDRESS: STREET 1: 8200 SPRINGWOOD DR SUITE 230 STREET 2: 8200 SPRINGWOOD DR SUITE 230 CITY: IRVING STATE: TX ZIP: 75063 10QSB 1 FORM 10-QSB FOR QUARTER ENDED SEPTEMBER 30, 1998 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------------------- FORM 10-QSB -------------------------- [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1998. ------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO__________. Commission file number 1-11900 INTEGRATED SECURITY SYSTEMS, INC. --------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 75-2422983 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization 8200 SPRINGWOOD, SUITE 230, IRVING, TEXAS 75063 (Address of principal executive offices) (Zip Code) (972) 444-8280 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 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 ----- ----- As of October 23, 1998, 9,312,603 shares of Registrant's common stock were outstanding. Page 1 of 9 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Index to Integrated Security Systems, Inc. Consolidated Financial Statements:
Page ---- Balance Sheets..............................................................3 Statements of Operations....................................................4 Statements of Cash Flows....................................................5 Notes to Financial Statements...............................................6
Page 2 of 9 3 INTEGRATED SECURITY SYSTEMS, INC. Consolidated Balance Sheets
September 30, June 30, 1998 1998 --------------- --------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 227,039 $ 311,117 Accounts receivable, net of allowance for doubtful accounts of $57,882 and $45,159, respectively 1,841,034 2,204,005 Inventories 973,785 926,442 Restricted cash 48,315 107,039 Other current assets 270,118 192,987 --------------- --------------- Total current assets 3,285,291 3,741,590 Property and equipment, net 5,805,105 5,610,622 Intangible assets, net 1,998,592 2,055,117 Capitalized software development costs, net 286,607 318,453 Deferred income taxes 205,384 205,384 Other assets 23,107 19,642 --------------- --------------- Total assets $ 11,679,086 $ 11,950,808 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,335,376 $ 1,002,375 Accrued liabilities 751,944 675,616 Deferred revenue 196,651 159,945 Current portion of long-term debt and other liabilities 1,708,961 1,564,617 --------------- --------------- Total current liabilities $ 3,992,932 $ 3,402,553 --------------- --------------- Long-term debt and other liabilities 7,488,717 7,490,753 Stockholders' equity: Preferred stock, $.01 par value, 750,000 shares authorized; 10,250 shares issued and outstanding 102 102 Common stock, $.01 par value, 30,000,000 shares authorized; 8,527,476 and 8,525,808 shares, respectively, issued; and 8,477,476 and 8,475,808 shares, respectively, outstanding 85,275 85,258 Additional paid in capital 10,922,802 10,822,802 Accumulated deficit (10,691,992) (9,731,910) Treasury stock, 50,000 shares (118,750) (118,750) --------------- --------------- Total stockholders' equity 197,437 1,057,502 --------------- --------------- Total liabilities and stockholders' equity $ 11,679,086 $ 11,950,808 =============== ===============
The accompanying notes are an integral part of the consolidated financial statements. Page 3 of 9 4 INTEGRATED SECURITY SYSTEMS, INC. Consolidated Statements of Operations (Unaudited)
For the Three Months Ended September 30, ------------------------------------ 1998 1997 --------------- --------------- Sales $ 2,577,542 $ 3,029,973 Cost of sales 1,562,447 1,750,685 --------------- --------------- Gross margin 1,015,095 1,279,288 --------------- --------------- Operating expenses: Selling, general and administrative 1,641,355 1,444,181 Research and product development 110,528 119,541 --------------- --------------- 1,751,883 1,563,722 --------------- --------------- Income (loss) from operations (736,788) (284,434) Other income (expense): Interest income 1,516 15,401 Interest expense (213,221) (189,994) Other (11,589) 2,580 --------------- --------------- Income (loss) before income taxes (960,082) (456,447) Benefit (provision) for income taxes -- (4,339) --------------- --------------- Net income (loss) $ (960,082) $ (460,786) =============== =============== Weighted average common and common equivalent shares outstanding 8,477,095 7,989,310 =============== =============== Net income (loss) per share $ (0.11) $ (0.06) =============== ===============
The accompanying notes are an integral part of the consolidated financial statements. Page 4 of 9 5 INTEGRATED SECURITY SYSTEMS, INC. Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended September 30, ------------------------------------ 1998 1997 --------------- --------------- Cash flows from operating activities: Net income (loss) $ (960,082) $ (460,786) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 149,389 141,841 Amortization 88,371 104,932 Bad debt expense 4,282 6,000 Provision for warranty reserve 26,652 22,585 Provision for inventory reserve 24,182 3,000 Deferred revenue 36,706 (52,603) Gain (loss) on sale of assets 1,078 (2,314) Other non-cash expenses 26,272 13,333 Changes in operating assets and liabilities: Accounts receivable 358,689 165,209 Inventories (71,525) (145,068) Restricted cash 58,724 54,928 Other assets (5,596) 33,318 Accounts payable 333,001 108,562 Accrued liabilities 49,676 (166,117) --------------- --------------- Net cash provided (used) by operating activities 119,819 (173,180) --------------- --------------- Cash flows from investing activities: Purchase of property and equipment (348,522) (541,279) Sale of property and equipment 2,300 2,500 --------------- --------------- Net cash used by investing activities (346,222) (538,779) --------------- --------------- Cash flows from financing activities: Issuance of common stock 17 188,843 Payments on debt and other liabilities (690,024) (122,262) Proceeds from notes payable and long-term debt 832,332 195,471 --------------- --------------- Net cash provided by financing activities 142,325 262,052 --------------- --------------- Increase (decrease) in cash and cash equivalents (84,078) (449,907) Cash and cash equivalents at beginning of period 311,117 1,581,191 --------------- --------------- Cash and cash equivalents at end of period $ 227,039 $ 1,131,284 =============== ===============
The accompanying notes are an integral part of the consolidated financial statements. Page 5 of 9 6 INTEGRATED SECURITY SYSTEMS, INC. Notes to Consolidated Financial Statements (Unaudited) Quarters Ended September 30, 1998 and 1997 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (all of which are normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 1999. The accompanying financial statements include the accounts of Integrated Security Systems, Inc. ("ISSI" or the "Company") and all of its subsidiaries, with all significant intercompany accounts and transactions eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's fiscal 1998 Annual Report on Form 10-KSB filed October 13, 1998. NOTE 2 - RECLASSIFICATION Certain reclassification of prior year amounts have been made to conform to the current period presentation. NOTE 3 - FINANCING On July 14, 1998, B&B Electromatic, Inc. ("B&B") entered into a business manager factoring facility with a bank to factor accounts receivable with recourse. This factoring facility expires July 15, 1999, has a factoring fee of 2.75%, and had an original maximum borrowing amount of $300,000. On September 24, 1998, this factoring facility was increased to $1,000,000. This facility is secured by the accounts and inventory of B&B and is guaranteed by ISSI. The factoring facility replaces B&B's credit facility with the same institution which was terminated on July 14, 1998. NOTE 4 - SUBSEQUENT EVENT - DISPOSITION OF ASSETS Effective October 1, 1998, the Company disposed of the MPA portion ("MPA") of its subsidiary, Golston Company, Inc. ("Golston"). The asset sale disposed of $1.7 million of fixed assets as well as approximately $200,000 of prepaid contracts and deposits. The Company sold MPA for $2.8 million consisting of $700,000 notes receivable and the remainder in cash. In conjunction with this transaction, the Company also retired debt of approximately $1.7 million. The Company recognized approximately $250,000 as a gain on this sale. MPA was sold to MPA Systems, Inc., a corporation partially owned by James W. Casey, a former employee and former director of the Company. This disposition will be recorded on the October 1998 financials. NOTE 5 - SUBSEQUENT EVENT - DEBT CONVERSION During October 1998, a portion of the convertible debentures held by funds managed by Renaissance Capital Group, Inc. were exercised, with $431,798 converted into 786,517 shares of common stock. NOTE 6 - NET LOSS PER SHARE In February 1997, the Financial Accounting and Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." This statement establishes a new methodology for reporting earnings per share for interim financial information and annual financial statements issued with periods ending after December 15, 1997. Net loss per common share for each period is computed using the weighted average number of common and common equivalent shares outstanding during the respective periods. At September 30, 1998, there were 11,238,442 potentially dilutive common shares which were not included in weighted average shares outstanding because to do so would have been anti-dilutive. Page 6 of 9 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition GENERAL The following information contains certain forward-looking statements. It is important to note that ISSI's actual results could differ materially from those projected by such forward-looking statements. Important factors that could cause actual results to differ materially from those projected in the forward-looking statements include, but are not limited to, the following: operations may not improve as projected, new products may not be accepted by the marketplace as anticipated, or new products may take longer to develop than anticipated. RESULTS OF OPERATIONS Sales. The Company's sales decreased by $.4 million (15%) to $2.6 million during the quarter ended September 30, 1998 from $3 million during the comparable 1997 period. The Company's installation division of the Security Systems Group ("SSG") experienced a $293,000 decline in sales compared to the prior year period due to installation timing issues on several projects. For the quarter ended September 30, 1998, approximately 92% of the Company's revenues were generated from the sale of products manufactured by the Company compared to 84% for the same 1997 period. Cost of Sales and Gross Margin. Gross margin as a percent of sales remained comparable for the quarters ended September 30, 1998 and 1997. Selling, General and Administrative. Selling, general and administrative expenses increased to $1.6 million during the quarter ended September 30, 1998 from $1.4 million during the comparable 1997 period. Most of the increase was attributable to a 9% increase in sales and marketing expenses and the addition and relocation of newly hired staff and the realignment of the reporting structure of SSG during the 1999 period. Research and Product Development. Research and product development expenses decreased by approximately $10,000 during the quarter ended September 30, 1998 compared to the comparable 1997 period due to the completion of the development of a new railroad barrier product at B&B. Interest Expense. Interest expense increased by approximately $23,000 during the quarter ended September 30, 1998, compared to the comparable 1997 period due to the increased utilization of a revolving credit facility. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position decreased by $84,078 during the first quarter of fiscal 1999 using $348,522 for property and equipment net of $119,821 provided from operations. During the 1997 period, the Company used $541,279 for property and equipment and $173,180 for operations. During the first quarter of fiscal 1999, the Company financed its operations from cash flow from long-term borrowings of $832,330 and made payments of $690,024 on debt and other liabilities. Payments on debt and other liabilities consisted of retiring a credit facility of $300,000 and long-term borrowings consisted of a new factoring facility utilized of $625,000. On July 14, 1998, B&B Electromatic, Inc. ("B&B") entered into a business manager factoring facility with a bank to factor accounts receivable with recourse. This factoring facility expires July 15, 1999, has a factoring fee of 2.75%, and had an original maximum borrowing amount of $300,000. On September 24, 1998, this factoring facility was increased to $1,000,000. This facility is secured by the accounts and inventory of B&B and is guaranteed by ISSI. The factoring facility replaces B&B's credit facility with the same institution which was terminated on July 14, 1998. Effective October 1, 1998, the Company disposed of the MPA portion ("MPA") of its subsidiary, Golston Company, Inc. ("Golston"). The asset sale disposed of $1.7 million of fixed assets as well as approximately $200,000 of prepaid contracts and deposits. The Company sold MPA for $2.8 million Page 7 of 9 8 consisting of $700,000 notes receivable and the remainder in cash. In conjunction with this transaction, the Company also retired debt of approximately $1.7 million. The Company recognized approximately $250,000 as a gain on this sale. MPA was sold to MPA Systems, Inc., a corporation partially owned by James W. Casey, a former employee and former director of the Company. This disposition will be recorded on the October 1998 financials. The Company has experienced a significant increase in orders received. The Company's backlog, calculated as the aggregate sales prices of firm orders received from customers less revenue recognized, was approximately $6.25 million at October 31, 1998. The Company expects that the majority of this backlog will be filled during fiscal 1999 and the first half of fiscal 2000. Historically, the Company's manufacturing subsidiaries have generated positive cash flow from operations. This positive cash flow, in conjunction with the existing financing facilities or any future financing facilities, should position the Company to cover its working capital needs for all subsidiaries except Intelli-Site. Development of distribution channels for Intelli-Site(R) will continue, with a significant portion of future investments being utilized to launch Intelli-Site through direct sales, equipment manufacturers, and national security networks. To finance these activities, the Company anticipates that it will need to raise additional funds in the upcoming fiscal year through consolidating debt and/or equity. The Company has engaged an investment banker to assist with this process and is currently evaluating several financing proposals. YEAR 2000 ISSUE The Year 2000 issue concerns the ability of computer software programs, including the logic contained within embedded chips, to correctly identify and process date-sensitive calculations across and beyond the Year 2000 dateline. The Company believes the products and systems it manufactures to be unaffected by the Year 2000 issue. The Company currently utilizes third-party equipment and software that may be affected by the Year 2000 issue and has begun to assess and address its critical business information and production systems regarding the Year 2000 issue for both Information Technology ("IT") and non-IT systems. Although the Company does not expect Year 2000 issues to have a material impact on its financial results or operations, there can be no assurance that there will be no disruptions or that the Company will not incur significant costs to avoid such disruptions. The Company's Year 2000 full disclosure as contained in its most recent 10-KSB reflects the current status in addressing the Year 2000 issue as there have been no substantial changes since that filing. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. Form 8-K, filed October 16, 1998, announcing the disposition of the MPA portion of its Golston subsidiary, and the extension of the expiration date of its currently outstanding Common Stock Purchase Warrants. Form 8-K/A, filed October 23, 1998, announcing the disposition of the MPA portion of its Golston subsidiary, and the extension of the expiration date of its currently outstanding Common Stock Purchase Warrants. Page 8 of 9 9 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Integrated Security Systems, Inc. ------------------------------------- (Registrant) Date: November 16, 1998 /s/ GERALD K. BECKMANN ------------------ ------------------------------------- Gerald K. Beckmann Director, Chairman of the Board, President and Chief Executive Officer Page 9 of 9 10 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 227,039 0 1,841,034 0 973,785 3,285,291 5,805,105 0 11,679,086 3,992,932 0 0 102 85,275 112,060 11,679,086 2,577,542 2,557,542 1,562,447 1,562,447 1,751,883 0 213,221 (960,082) 0 (960,082) 0 0 0 (960,082) (0.11) (0.11)
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