-----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, FJ0NKC+QGSi5clhKuZ4gPwAjsVY2ke1C2Jyj37IdCr81TVRzGYw8Dh9m5uxsvoDI iBbn0dj2e6JS3o8x6iDleQ== 0000950134-00-004689.txt : 20000516 0000950134-00-004689.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950134-00-004689 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 635496 BUSINESS ADDRESS: STREET 1: 8200 SPRINGWOOD DR STE 230 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 9724448280 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 10QSB FOR QUARTER ENDING MARCH 31, 2000 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 March 31, 2000. -------------- [ ] 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 incorporation or organization) Identification No.) 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 May 1, 2000, 10,564,145 shares of Registrant's common stock were outstanding. Page 1 of 10 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 10 3 INTEGRATED SECURITY SYSTEMS, INC. Consolidated Balance Sheets
March 31, June 30, 2000 1999 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 144,856 $ 251,113 Accounts receivable, net of allowance for doubtful accounts of $69,255 and $54,383, respectively 1,337,077 1,381,879 Inventories 568,828 529,198 Notes receivable 133,966 340,000 Other current assets 109,944 156,165 Assets of discontinued operations -- 626,220 ------------ ------------ Total current assets 2,294,671 3,284,575 Property and equipment, net 944,295 1,019,993 Capitalized software development costs, net 162,232 332,802 Deferred income taxes -- 205,384 Other assets 23,884 74,653 ------------ ------------ Total assets $ 3,425,082 $ 4,917,407 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 404,766 $ 625,964 Accrued liabilities 477,408 1,004,253 Advances under factoring agreement 486,910 -- Current portion of long-term debt and other liabilities 1,534,359 1,330,566 Liabilities of discontinued operations -- 249,654 ------------ ------------ Total current liabilities $ 2,903,443 $ 3,210,437 ------------ ------------ Long-term debt and other liabilities 4,317,544 4,608,003 Stockholders' equity: Preferred stock, $.01 par value, 750,000 shares authorized; 102,250 and 10,250 shares, respectively, issued and outstanding 1,023 102 Common stock, $.01 par value, 35,000,000 shares authorized; 10,564,145 and 10,513,993 shares, respectively, issued; and 10,514,145 and 10,463,993 shares, respectively, outstanding 105,641 105,140 Additional paid-in-capital 14,498,569 12,704,653 Accumulated deficit (18,282,388) (15,592,178) Treasury stock, 50,000 shares (118,750) (118,750) ------------ ------------ Total stockholders' deficit (3,795,905) (2,901,033) ------------ ------------ Total liabilities and stockholders' deficit $ 3,425,082 $ 4,917,407 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. Page 3 of 10 4 INTEGRATED SECURITY SYSTEMS, INC. Consolidated Statements of Operations (Unaudited)
For the Three Months Ended For the Nine Months Ended March 31, March 31, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Sales $ 1,509,601 $ 1,430,217 $ 4,977,783 $ 4,370,597 Cost of sales 1,131,576 936,629 3,328,342 2,867,702 ------------ ------------ ------------ ------------ Gross margin 378,025 493,588 1,649,441 1,502,895 ------------ ------------ ------------ ------------ Operating expenses: Selling, general and administrative 1,251,366 1,510,127 3,610,550 3,878,314 Research and product development 88,293 93,742 280,246 283,274 ------------ ------------ ------------ ------------ 1,339,659 1,603,869 3,890,796 4,161,588 ------------ ------------ ------------ ------------ Loss from operations (961,634) (1,110,281) (2,241,355) (2,658,693) Other income (expense): Interest income 9,928 15,709 32,457 37,116 Interest expense (155,394) (418,304) (467,326) (726,296) Gain on sale of assets -- -- -- 101,643 Other -- (9,110) -- (60,982) ------------ ------------ ------------ ------------ Loss before income taxes (1,107,100) (1,521,986) (2,676,224) (3,307,212) ------------ ------------ ------------ ------------ Benefit for income taxes 51,856 -- 51,856 -- Net loss from continuing operations (1,055,244) (1,521,986) (2,624,368) (3,307,212) Income from discontinued operations -- 82,342 -- 269,578 ------------ ------------ ------------ ------------ Net loss $ (1,055,244) $ (1,439,644) $ (2,624,368) $ (3,037,634) Preferred dividends (40,765) -- (65,843) -- ------------ ------------ ------------ ------------ Net loss allocable to common stockholders $ (1,096,009) $ (1,439,644) $ (2,690,211) $ (3,037,634) ============ ============ ============ ============ Weighted average common shares outstanding 10,514,145 9,263,993 10,506,672 8,956,722 Basic and diluted loss per share: Continuing operations $ (0.10) $ (0.16) $ (0.25) $ (0.37) Discontinued operations -- -- -- 0.03 ------------ ------------ ------------ ------------ Net loss per share $ (0.10) $ (0.16) $ (0.25) $ (0.34) ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. Page 4 of 10 5 INTEGRATED SECURITY SYSTEMS, INC. Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended March 31, -------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net loss $(2,624,368) $(3,037,634) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 333,593 328,687 Bad debt expense 17,400 14,360 Provision for warranty reserve 41,500 92,652 Provision for inventory reserve 4,000 4,500 Deferred revenue 26,511 (128,797) Non-cash expenses paid with stock 107,318 514,414 Discontinued operations -- 269,578 Changes in operating assets and liabilities: Accounts receivable 27,402 (103,142) Inventories (43,631) (27,607) Other assets 481,900 (691,567) Accounts payable (221,198) 214,641 Accrued liabilities (191,780) 279,111 ----------- ----------- Cash used in continuing operations (2,041,353) (2,270,804) Cash used in discontinued operations -- (41,818) ----------- ----------- Net cash used in operating activities (2,041,353) (2,312,622) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (87,325) (218,203) ----------- ----------- Net cash used in investing activities (87,325) (218,203) ----------- ----------- Cash flows from financing activities: Issuance of common stock -- 17 Issuance of preferred stock 1,688,021 -- Dividends on preferred stock (65,844) -- Payments on long-term debt and other liabilities (427,146) (1,159,134) Proceeds from long-term debt 827,390 3,820,968 ----------- ----------- Net cash provided by financing activities 2,022,421 2,661,851 ----------- ----------- Increase (decrease) in cash and cash equivalents (106,257) 131,026 Cash and cash equivalents at beginning of period 251,113 49,747 ----------- ----------- Cash and cash equivalents at end of period $ 144,856 $ 180,773 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. Page 5 of 10 6 INTEGRATED SECURITY SYSTEMS, INC. Notes to Consolidated Financial Statements (Unaudited) Nine Months Ended March 31, 2000 and 1999 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, 2000. 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 1999 Annual Report on Form 10-KSB filed October 13, 1999. NOTE 2 - RECLASSIFICATION Certain reclassification of prior year amounts have been made to conform to the current period presentation. In October 1998, the Company sold a portion of its Golston Company, Inc. ("Golston") subsidiary and in May 1999 sold the remaining operations of Golston. In August 1999, the Company sold its Tri-Coastal Systems, Inc. subsidiary. The Company has reflected the disposition of these subsidiaries as discontinued operations in the accompanying financial statements for the three and nine months ended March 31, 1999. Accordingly, the consolidated statement of operations and statement of cash flows for the nine months ended March 31, 1999 and the related footnotes have been reclassified. NOTE 3 - FINANCING On March 3, 2000, the Company replaced all lending agreements with Frost Capital Group by entering into an Account Transfer Agreement with Evergreen Funding Corporation to factor accounts receivable with recourse. This factoring facility expires September 3, 2000, but is extendable at the discretion of the Company. The Agreement has an advance rate of 80%, factoring fee of 1.5%, an interest rate equal to the prime rate charged by Chase Bank of Texas. N.A. plus 2% per annum and a maximum borrowing amount of $800,000. This facility is secured by the accounts receivable and inventory of the Company's B&B Electromatic, Inc. ("B&B") subsidiary and is guaranteed by ISSI and the Company's Intelli-Site, Inc. ("ISI") subsidiary. At March 31, 2000, the Company had received advances of $486,910 under this Agreement. Page 6 of 10 7 NOTE 4 - BUSINESS SEGMENTS Information for the Company's reportable segments for the three and nine months ended March 31, 2000 and 1999 is as follows:
For the Three Months Ended For the Nine Months Ended March 31, March 31, --------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Sales B&B $ 1,200,921 $ 1,330,212 $ 4,102,666 $ 4,130,005 ISI 308,680 100,005 875,117 240,592 ----------- ----------- ----------- ----------- $ 1,509,601 $ 1,430,217 $ 4,977,783 $ 4,370,597 =========== =========== =========== =========== Income (loss) from operations B&B $ 13,950 $ 7,414 $ 303,450 $ (138,467) ISI (584,319) (534,789) (1,483,942) (1,341,378) Corporate (391,266) (582,906) (1,060,863) (1,178,848) ----------- ----------- ----------- ----------- $ (961,634) $(1,110,281) $(2,241,355) $(2,658,693) =========== =========== =========== ===========
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 Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999 Sales. The Company's sales increased by $0.1 million (5.5%) to $1.5 million during the quarter ended March 31, 2000 from $1.4 million during the comparable 1999 period. This increase is the result of an increase of end-user system installations at the Company's Intelli-Site, Inc. ("ISI") subsidiary. For the quarter ended March 31, 2000, approximately 80% of the Company's revenues were generated from the sale of products manufactured by the Company compared to 93% for the same 1999 period. Cost of Sales and Gross Margin. Gross margin as a percent of sales decreased to 26% for the quarter ended March 31, 2000 from 35% during the comparable 1999 period. This decrease is due to a cost overrun on a project installation by the Company's ISI subsidiary that was completed during the current quarter. Selling, General and Administrative. Selling, general and administrative expenses decreased to $1.2 million during the third quarter of fiscal 2000 from $1.5 million during the comparable 1999 period. In the 1999 period, the Company incurred non-cash expenses of approximately $0.3 million in connection with the conversion of debt to equity. Research and Product Development. Research and product development expenses remained comparable for the three months ended March 31, 2000 and 1999. Interest Expense. Interest expense decreased $0.3 million for the quarter ending March 31, 2000, compared to the comparable 1999 period. In the 1999 period, the Company incurred non-cash interest expense of approximately $0.3 million in connection with the issuance of additional debt. Page 7 of 10 8 Benefit for Income Taxes. The Company realized a net benefit for income taxes of $0.05 million during the quarter ending March 31, 2000 due to the settlement of a carryback refund filed with the Internal Revenue Service. The carryback refund was for $0.3 million and $0.25 million was utilized to eliminate the Company's preexisting income tax receivable. Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999 Sales. The Company's sales increased by $0.6 million (14%) to $5.0 million during the nine months ended March 31, 2000 from $4.4 million during the comparable 1999 period. This increase is primarily due to increased software and first and third quarter end-user system installations at the Company's ISI subsidiary. For the nine months ended March 31, 2000, approximately 82% of the Company's revenues were generated from the sale of products manufactured by the Company compared to 94% for the same 1999 period. Cost of Sales and Gross Margin. Gross margin as a percent of sales remained comparable for the nine months ended March 31, 2000 and 1999. Selling, General and Administrative. Selling, general and administrative expenses decreased to $3.6 million during the third quarter of fiscal 2000 from $3.9 million during the comparable 1999 period. In the 1999 period, the Company incurred non-cash expenses of approximately $0.3 million in connection with the conversion of debt to equity. Research and Product Development. Research and product development expenses remained comparable for the nine months ended March 31, 2000 and 1999. Interest Expense. Interest expense decreased $0.3 million for the nine months ending March 31, 2000, compared to the comparable 1999 period. In the 1999 period, the Company incurred non-cash interest expense of approximately $0.3 million in connection with the issuance of additional debt. Benefit for Income Taxes. The Company realized a net benefit for income taxes of $0.05 million during the nine months ending March 31, 2000 due to the settlement of a carryback refund filed with the Internal Revenue Service. The carryback refund was for $0.3 million and $0.25 million was utilized to eliminate the Company's preexisting income tax receivable. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position decreased $106,257 during the first nine months of fiscal 2000 . At March 31, 2000, the Company had $144,856 in cash and cash equivalents and had $486,910 outstanding under its factoring facility. The factoring facility, which is secured by accounts receivable, and inventory, permits the Company to borrow up to $0.8 million, subject to availability under its borrowing base. For the nine months ended March 31, 2000, the Company's operating activities used $2,041,353 of cash compared to $2,312,622 of cash used in operations during the nine months ended March 31, 1999. The decrease in cash used in operations is primarily due to the receipt of the income tax carryback refund. The Company used $87,325 for the purchase of property and equipment during the first nine months of fiscal 2000 compared to $218,203 for the previous nine month fiscal 1999 period. The purchases from fiscal 1999 of a new computer system and truck at B&B and a trade show booth at ISI accounted for the majority of this variance. During the first nine months of fiscal 2000, the Company financed its operations with cash flows from long-term borrowings of $827,390 and received $1,688,021 from the sale of preferred stock. The Company made payments of $427,146 on debt and other liabilities. Page 8 of 10 9 On March 3, 2000, the Company replaced all lending agreements with Frost Capital Group by entering into an Account Transfer Agreement with Evergreen Funding Corporation to factor accounts receivable with recourse. This factoring facility expires September 3, 2000, but is extendable at the discretion of the Company. The Agreement has an advance rate of 80%, a factoring fee of 1.5%, and an interest rate equal to the prime rate charged by Chase Bank of Texas. N.A. plus 2% per annum and a maximum borrowing amount of $800,000. This facility is secured by the accounts receivable and inventory of the Company's B&B Electromatic, Inc. ("B&B") subsidiary and is guaranteed by ISSI and the Company's Intelli-Site, Inc. ("ISI") subsidiary. At March 31, 2000, the Company had received advances of $486,910 under this Agreement. The Company believes borrowing under the new factoring facility combined with results from operations will be sufficient to finance future cash requirements at its manufacturing subsidiary. In order to maximize the current market opportunity for ISI, the Company will need to receive additional financing either through equity placement and/or additional debt. The Company's backlog, calculated as the aggregate sales price of firm orders received from customers less revenue recognized, was approximately $1.8 million at May 1, 2000. Due to the change in business focus from project sales to product sales at the ISI subsidiary, the Company's backlog will continue to decrease as projects are completed. The Company expects that the majority of the remaining backlog will be filled during the last quarter of fiscal 2000 and the first quarter of fiscal 2001. Page 9 of 10 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (b) Reports filed on Form 8-K. None. 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: May 12, 2000 /s/ GERALD K. BECKMANN --------------------- -------------------------------------------- Gerald K. Beckmann Director, President and Chief Executive Officer Page 10 of 10 11 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-30-2000 JUL-01-1999 MAR-31-2000 144,856 0 1,337,077 0 568,828 2,294,671 944,295 0 3,425,082 2,903,443 0 0 1,023 105,641 (3,902,569) 3,425,082 4,977,783 4,977,783 3,328,342 3,328,342 3,890,796 0 434,869 (2,676,224) (51,858) (2,624,368) 0 0 0 (2,624,368) (0.25) (0.25)
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