-----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, BZYF1W0eyfrf5TEJvypNCKilIRw11p+TL0tDZrRvqHBXnyvzNlFhAoHzChvtt6M9 3JGCwf+kZvvYofbL5NT0Bw== 0000950134-02-001325.txt : 20020414 0000950134-02-001325.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950134-02-001325 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 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: 1934 Act SEC FILE NUMBER: 001-11900 FILM NUMBER: 02545954 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 d94300e10qsb.txt FORM 10QSB FOR QUARTER ENDING DECEMBER 31, 2001 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 December 31, 2001. [ ] 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 DRIVE, 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 January 31, 2002, 11,143,071 shares of the Registrant's common stock were outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [X] Page 1 of 14 INTEGRATED SECURITY SYSTEMS, INC. INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at December 31, 2001 (unaudited) and June 30, 2001 3 Consolidated Statements of Operations (unaudited) for the three and six months ended December 31, 2001 and 2000 4 Consolidated Statements of Cash Flows (unaudited) for the six months ended December 31, 2001 and 2000 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis or Plan of Operation 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 14
Page 2 of 14 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. INTEGRATED SECURITY SYSTEMS, INC. Consolidated Balance Sheets
December 31, June 30, 2001 2001 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 47,760 $ 70,582 Accounts receivable, net of allowance for doubtful accounts of $93,786 and $94,270, respectively 1,010,395 1,312,464 Inventories 709,283 632,989 Other current assets 76,228 113,844 ------------ ------------ Total current assets 1,843,666 2,129,879 Property and equipment, net 617,347 655,240 Other assets 14,261 14,410 ------------ ------------ Total assets $ 2,475,274 $ 2,799,529 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 951,658 $ 926,076 Accrued liabilities 336,322 425,391 Current portion of long-term debt 1,099,229 494,959 ------------ ------------ Total current liabilities 2,387,209 1,846,426 ------------ ------------ Long-term debt 583,292 620,306 Preferred stock subject to redemption 7,495,052 7,345,052 Stockholders' deficit: Preferred stock, $.01 par value, 750,000 shares authorized; 102,250 shares issued and outstanding (liquidation value of $3,529,875) 1,613 1,608 Common stock, $.01 par value, 35,000,000 shares authorized; 11,061,686 and 10,782,417 shares, respectively, issued 110,617 107,824 Additional paid in capital 16,605,618 16,123,610 Accumulated deficit (24,589,377) (23,126,547) Treasury stock, at cost - 50,000 shares (118,750) (118,750) ------------ ------------ Total stockholders' deficit (7,990,279) (7,012,255) ------------ ------------ Total liabilities and stockholders' deficit $ 2,475,274 $ 2,799,529 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. Page 3 of 14 INTEGRATED SECURITY SYSTEMS, INC. Consolidated Statements of Operations (Unaudited)
For the Three Months Ended For the Six Months Ended December 31, December 31, ----------------------------- ----------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Sales $ 1,216,864 $ 1,338,346 $ 2,203,798 $ 2,561,853 Cost of sales 751,969 868,662 1,484,922 1,789,770 ------------ ------------ ------------ ------------ Gross margin 464,895 469,684 718,876 772,083 ------------ ------------ ------------ ------------ Operating expenses: Selling, general and administrative 679,581 1,014,513 1,499,442 2,097,898 Research and product development 106,250 143,605 217,055 289,080 ------------ ------------ ------------ ------------ 785,831 1,158,118 1,716,497 2,386,978 ------------ ------------ ------------ ------------ Loss from operations (320,936) (688,434) (997,621) (1,614,895) Other income (expense): Interest income -- -- -- 139 Interest expense (350,727) (191,024) (381,883) (363,316) ------------ ------------ ------------ ------------ Net loss (671,663) (879,548) (1,379,504) (1,978,072) Preferred dividends (41,400) (42,081) (83,325) (84,161) ------------ ------------ ------------ ------------ Net loss allocable to common stockholders $ (713,063) $ (921,539) $ (1,462,829) $ (2,062,233) ============ ============ ============ ============ Weighted average common shares outstanding - basic and diluted 10,997,184 10,643,450 10,917,973 10,580,897 ============ ============ ============ ============ Net loss per share - basic and diluted $ (0.06) $ (0.09) $ (0.13) $ (0.19) ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. Page 4 of 14 INTEGRATED SECURITY SYSTEMS, INC. Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended December 31, ---------------------------- 2001 2000 ----------- ----------- Cash flows from operating activities: Net loss $(1,379,504) $(1,978,072) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 67,360 85,643 Amortization -- 113,713 Provision for bad debt 8,500 12,000 Provision for warranty reserve 16,500 34,500 Provision for inventory reserve 8,000 9,000 Unbilled revenue -- 186,206 Expenses paid with stock, warrants and options 371,604 22,901 Changes in operating assets and liabilities: Accounts receivable 293,569 (60,579) Inventories (84,294) (20,145) Other assets 37,765 823 Accounts payable 25,583 318,388 Accrued liabilities (105,564) 74,141 ----------- ----------- Net cash used in operating activities (740,481) (1,201,481) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (29,498) (16,637) ----------- ----------- Net cash used in investing activities (29,468) (16,637) ----------- ----------- Cash flows from financing activities: Issuance of common stock -- 2,183 Issuance of preferred stock 200,000 -- Dividends on preferred stock (20,125) (84,161) Payments on debt and other liabilities (51,242) (83,222) Proceeds from notes payable and long-term debt 618,494 1,434,404 ----------- ----------- Net cash provided by financing activities 747,127 1,269,204 ----------- ----------- Increase/(Decrease) in cash and cash equivalents (22,822) 51,086 Cash and cash equivalents at beginning of period 70,582 99,636 ----------- ----------- Cash and cash equivalents at end of period $ 47,760 $ 150,722 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. Page 5 of 14 INTEGRATED SECURITY SYSTEMS, INC. Notes to Consolidated Financial Statements (Unaudited) Six Months Ended December 31, 2001 and 2000 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, 2002. The accompanying financial statements include the accounts of Integrated Security Systems, Inc. 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 2001 Annual Report on Form 10-KSB filed on October 15, 2001 with the Securities and Exchange Commission. NOTE 2 - RECLASSIFICATION Certain reclassification of prior year amounts have been made to conform to the current period presentation. NOTE 3 - FINANCING In exchange for an aggregate of $50,000 cash investment, on October 12, 2001, the Company issued a promissory note to each of Frost National Bank FBO Renaissance Capital Growth and Income Fund III, Inc. ("Renaissance III") and Frost National Bank FBO Renaissance US Growth & Income Trust PLC ("Renaissance PLC"). Each of the two promissory notes is in the original principal amount of $25,000 and has an annual interest rate of 8%. The promissory notes, plus interest, are due on February 9, 2002. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, on October 12, 2001, the Company issued a stock purchase warrant to each of Renaissance III and Renaissance PLC. Each of the two stock purchase warrants entitles the Renaissance entities to purchase from the Company 125,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. In exchange for an aggregate of $50,000 cash investment received on October 29, 2001, the Company issued a promissory note to each of Renaissance III and Renaissance PLC on October 26, 2001. Each of the two promissory notes is in the original principal amount of $25,000 and has an annual interest rate of 8%. The promissory notes, plus interest, are due on February 23, 2002. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, on October 26, 2001, the Company issued a stock purchase warrant to each of Renaissance III and Renaissance PLC. Each of the two stock purchase warrants entitles the Renaissance entities to purchase from the Company 125,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. In exchange for an aggregate of $50,000 cash investment, on November 9, 2001, the Company issued a promissory note to each of Renaissance III and Renaissance PLC. Each of the two promissory notes is in the original principal amount of $25,000 and has an annual interest rate of 8%. The promissory notes, plus interest, are due on March 9, 2002. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, on November 9, 2001, the Company issued a stock purchase warrant Page 6 of 14 to each of Renaissance III and Renaissance PLC. Each of the two stock purchase warrants entitles the Renaissance entities to purchase from the Company 125,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. In exchange for an aggregate of $50,000 cash investment received on November 8, 2001, the Company issued a promissory note to C. A. Rundell, Jr., the Company's Chairman and Chief Executive Officer, on November 9, 2001. The promissory note is in the original principal amount of $50,000 and has an annual interest rate of 8%. The promissory note, plus interest, is due on March 9, 2002. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, on November 9, 2001, the Company issued a stock purchase warrant to Mr. Rundell. The stock purchase warrant entitles the Mr. Rundell to purchase from the Company 125,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. In exchange for an aggregate of $50,000 cash investment, on November 16, 2001, the Company issued a promissory note to each of Renaissance III and Renaissance PLC. Each of the two promissory notes is in the original principal amount of $25,000 and has an annual interest rate of 8%. The promissory notes, plus interest, are due on March 16, 2002. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, on November 16, 2001, the Company issued a stock purchase warrant to each of Renaissance III and Renaissance PLC. Each of the two stock purchase warrants entitles the Renaissance entities to purchase from the Company 125,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. In exchange for an aggregate of $50,000 cash investment received on November 14, 2001, the Company issued a promissory note to C. A. Rundell, Jr., Chairman and Chief Executive Officer, on November 16, 2001. The promissory note is in the original principal amount of $50,000 and has an annual interest rate of 8%. The promissory note, plus interest, is due on March 16, 2002. Interest is payable in monthly installments on the first day of each month.. As a part of this transaction, on November 16, 2001, the Company issued a stock purchase warrant to Mr. Rundell. The stock purchase warrants entitles Mr. Rundell to purchase from the Company 250,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. In exchange for an aggregate of $50,000 cash investment, on December 28, 2001, the Company issued a promissory note to each of Renaissance III and Renaissance PLC. Each of the two promissory notes is in the original principal amount of $25,000 and has an annual interest rate of 8%. The promissory notes, plus interest, are due on April 26, 2002. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, on December 28, 2001, the Company issued a stock purchase warrant to each of Renaissance III and Renaissance PLC. Each of the two stock purchase warrants entitles the Renaissance entities to purchase from the Company 125,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. The aforementioned warrants were valued at $617,500 which is being amortized over the term of the notes. NOTE 4 - SUBSEQUENT EVENT - FINANCING In exchange for an aggregate of $100,000 cash investment, on January 14, 2002, the Company issued a promissory note to each of Renaissance III and Renaissance PLC. Each of the two promissory notes is in the original principal amount of $50,000 and has an annual interest rate of 8%. The promissory notes, plus interest, are due on May 13, 2002. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, on January 14, 2002, the Company issued a stock purchase warrant to each of Renaissance III and Renaissance PLC. Each of the two stock purchase warrants entitles the Renaissance entities to purchase from the Company 250,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. Page 7 of 14 NOTE 5 - BUSINESS SEGMENTS Information for the Company's reportable segments for the three and six months ended December 31, 2001 and 2000 is as follows:
For the Three Months Ended For the Six Months Ended December 31, December 31, ---------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Sales B&B Electromatic, Inc. $ 1,163,461 $ 1,260,636 $ 2,128,979 $ 2,358,640 Intelli-Site, Inc. 53,403 77,710 74,819 203,213 ----------- ----------- ----------- ----------- $ 1,216,864 $ 1,338,346 $ 2,203,798 $ 2,561,853 =========== =========== =========== =========== Income (loss) from operations B&B Electromatic, Inc. $ 48,650 $ 147,511 $ (129,336) $ 106,901 Intelli-Site, Inc. (285,584) (542,731) (688,287) (1,136,267) Corporate (84,002) (293,214) (179,998) (585,529) ----------- ----------- ----------- ----------- $ (320,936) $ (688,434) $ (997,621) $(1,614,895) =========== =========== =========== ===========
Page 8 of 14 Item 2. Management's Discussion and Analysis or Plan of Operation. FORWARD LOOKING STATEMENTS This quarterly report on Form 10-QSB includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by the use of forward-looking terminology such as "may," "believe," "expect," "intend," "plan," "seek," "anticipate," "estimate," or "continue" or the negative of those words or other variations or comparable terminology. All statements other than statements of historical fact included in this quarterly report on Form 10-QSB, including the statements under "Part I.--Item 2. Management's Discussion and Analysis or Plan of Operation" and located elsewhere in this quarterly report on Form 10-QSB regarding the financial position and liquidity of the Company are forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors regarding forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from the Company's expectations, are disclosed in this quarterly report on Form 10-QSB. The Company does not undertake any obligation to publicly revise its forward-looking statements to reflect events or circumstances that arise after the date of this quarterly report on Form 10-QSB. Important factors that could cause actual results to differ materially from those in the forward-looking statements in this quarterly report on Form 10-QSB include changes from anticipated levels of operations, customer acceptance of existing and new products, anticipated development schedules of new products, anticipated levels of sales, future national or regional economic and competitive conditions, changes in relationships with customers, access to capital, casualty to or other disruption of the Company's production facility and equipment, delays and disruptions in the shipment of the Company's products, government regulations and the ability of the Company to meet its stated business goals. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Company's cautionary statements. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2000 Sales. The Company's total sales decreased by $0.1 million, or 9%, to $1.2 million during the quarter ended December 31, 2001 from $1.3 million during the quarter ended December 31, 2000. This decrease is primarily due to a decline in the volume of road and bridge sales at the Company's B&B Electromatic, Inc. subsidiary For the quarter ended December 31, 2001, approximately 96% of the Company's revenues were generated from the sale of products manufactured by the Company, compared to 94% for the quarter ended December 31, 2000. Gross Margin. Gross margin as a percentage of sales increased slightly, but remained comparable at 38% and 35% for the quarters ending December 31, 2001 and December 31, 2000, respectively. Selling, General and Administrative. Selling, general and administrative expenses decreased by approximately $335,000 or 33% during the quarter ended December 31, 2001 compared to the quarter ended December 31, 2000 due to overall Company reduction in staffing and operating expenses. Page 9 of 14 Research and Product Development. Research and product development expenses decreased by approximately $35,000 or 26% during the quarter ended December 31, 2001 compared to the quarter ended December 31, 2000 due to the decreased expenditures at the Company's Intelli-Site, Inc. subsidiary. Interest Expense. Interest expense increased by approximately $160,000 during the quarter ended December 31, 2001 compared to the quarter ended December 31, 2000. Approximately $300,000 in non-cash interest charges were incurred due to the issuance of warrants in conjunction with securing additional debt required to meet working capital needs. This non-cash expense was offset by a reduction in debt service of approximately $140,000 in interest charges due to the conversion of approximately $8.4 million of the Company's debt to equity during fiscal 2001. SIX MONTHS ENDED DECEMBER 31, 2001 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2000 Sales. The Company's total sales decreased by $0.4 million, or 14%, to $2.2 million during the six months ended December 31, 2001 from $2.6 million during the six months ended December 31, 2000. Sales at the Company's Intelli-Site, Inc. subsidiary decreased from $0.2 million during the six months ended December 31, 2000 to $0.1 million during the six months ended December 31, 2001, primarily due to a decrease in project revenue consistent with the Company's previously announced business refocus on software development. In addition, sales at the Company's B&B Electromatic, Inc. subsidiary decreased from $2.3 million during the six months ended December 31, 2000 to $2.1 million during the six months ended December 31, 2001, due to a decline in the volume of road and bridge sales. Gross Margin. Gross margin as a percent of sales increased slightly, but remained comparable at 33% and 30% for the six months ended December 31, 2001 and December 31, 2000, respectively. Selling, General and Administrative. Selling, general and administrative expenses decreased by approximately $600,000 or 29% during the six months ended December 31, 2001 compared to the six months ended December 31, 2000 due to overall Company reduction in staffing and operating expenses. Research and Product Development. Research and product development expenses decreased by approximately $70,000 or 25% during the six months ended December 31, 2001 compared to the six months ended December 31, 2000 due to the decreased expenditures at the Company's Intelli-Site, Inc. subsidiary. Interest Expense. Interest expense remained comparable during the six months ended December 31, 2001 and December 31, 2000. However, approximately $300,000 in non-cash interest charges were incurred due to the issuance of warrants in conjunction with securing additional debt required to meet working capital needs. This non-cash expense was offset by a reduction in debt service of approximately $280,000 in interest charges due to the conversion of approximately $8.4 million of the Company's debt to equity during fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position decreased by $22,822 during the six months ended December 31, 2001. At December 31, 2001, the Company had $47,760 in cash and cash equivalents and had $468,000 outstanding under its accounts receivable 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 six months ended December 31, 2001, the Company's operating activities used $740,481 of cash compared to $1,201,481 of cash used in operations during the six months ended December 31, 2000. The decrease in cash used in operations is primarily due to an increase in non-cash interest expense. Page 10 of 14 The Company used $29,468 for the purchase of property and equipment during the six months ended December 31, 2001, compared to $16,637 for the six months ended December 31, 2000. During the six months ended December 31, 2001, the Company financed its operations with cash flows from long-term borrowings of $618,494 compared to $1,434,404 during the six months ended December 31, 2000. The Company made payments of $51,242 on debt and other liabilities during the six months ended December 31, 2001, compared to payments of $83,222 on debt and other liabilities during the six months ended December 31, 2000. The cash that the Company receives from the accounts receivable factoring facility is utilized to support Company-wide operations. The Company's working capital requirements will depend upon many factors, including future sales of the Company's products, the Company's operating results, the status of competitive products, and actual profits compared to the Company's business plan. The Company is currently experiencing declining liquidity, which makes it difficult for the Company to meet its current cash requirements and may jeopardize the Company's ability to continue as a going concern. The Company intends to address its liquidity problems by controlling costs, seeking additional funding and maintaining focus on revenues and collections. At the present time and in the foreseeable future, the Company will need to obtain additional financing either through equity placement or additional debt. There can be no assurance that the Company will be able to secure such financing. During the six months ended December 31, 2001, and since December 31, 2001, the Company received cash investments from each of Renaissance Capital Growth & Income Fund III, Inc., Renaissance US Growth & Income Trust PLC, and C. A. Rundell, Jr. Please see Note 3 (Financing) and Note 4 (Subsequent Event - Financing) to the financial statements above for details regarding these transactions. Each of the Renaissance entities are significant stockholders of the Company and Mr. Rundell is Chairman of the Board of Directors and Chief Executive Officer of the Company. If the Company is not able to secure financing from other sources, it will continue to be dependent upon receiving cash investments from the Renaissance entities and Mr. Rundell. There can be no assurance that the Company will be able to receive cash investments from the Renaissance entities and Mr. Rundell in the future. If the Company's liquidity does not improve, it may have to seek a merger partner, limit its operations or seek protection under the federal bankruptcy laws. Any of the foregoing options may be on terms that are unfavorable to the Company or disadvantageous to the Company's stockholders. The Company's backlog is calculated as the aggregate sales prices of firm orders received from customers less revenue recognized. At January 31, 2002, the Company's backlog was approximately $1.7 million. The Company expects that it will fill the majority of this backlog by January 31, 2003. Page 11 of 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None. (b) Reports filed on Form 8-K. The Company filed a Current Report on Form 8-K on October 15, 2001 to report an additional investment of $75,000 in cash from each of Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth & Income Trust PLC in exchange for promissory notes and stock purchase warrants, issued to each of Frost National Bank FBO Renaissance Capital Growth & Income Fund III, Inc. and Frost National Bank FBO Renaissance US Growth & Income Trust PLC in addition to a Registration Rights Agreement, a Borrower Security Agreement and a Stock Pledge Agreement to Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth & Income Trust PLC. The Company filed a Current Report on Form 8-K on November 9, 2001 to report an additional investment of $50,000 in cash from each of Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth & Income Trust PLC in exchange for promissory notes and stock purchase warrants, issued to each of Frost National Bank FBO Renaissance Capital Growth & Income Fund III, Inc. and Frost National Bank FBO Renaissance US Growth & Income Trust PLC. The Company filed a Current Report on Form 8-K on November 13, 2001 to report an additional investment of $25,000 in cash from each of Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth & Income Trust PLC and $50,000 in cash from C. A. Rundell, Jr., Chairman an Chief Executive Officer, in exchange for promissory notes and stock purchase warrants, issued to each of Frost National Bank FBO Renaissance Capital Growth & Income Fund Page 12 of 14 III, Inc., Frost National Bank FBO Renaissance US Growth & Income Trust PLC and C. A. Rundell, Jr. The Company filed a Current Report on Form 8-K on November 30, 2001 to report an additional investment of $25,000 in cash from each of Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth & Income Trust PLC and $50,000 in cash from C. A. Rundell, Jr., Chairman an Chief Executive Officer, in exchange for promissory notes and stock purchase warrants, issued to each of Frost National Bank FBO Renaissance Capital Growth & Income Fund III, Inc., Frost National Bank FBO Renaissance US Growth & Income Trust PLC and C. A. Rundell, Jr. The Company filed a Current Report on Form 8-K on February 7, 2002 to report an additional investment of $50,000 in cash from each of Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth & Income Trust PLC in exchange for promissory notes and stock purchase warrants, issued to each of Frost National Bank FBO Renaissance Capital Growth & Income Fund III, Inc. and Frost National Bank FBO Renaissance US Growth & Income Trust PLC. Page 13 of 14 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: February 14, 2002 /s/ C. A. RUNDELL, JR. ---------------------- C. A. Rundell, Jr. Director, Chairman of the Board, and Chief Executive Officer (Principal Executive and Financial Officer) Date: February 14, 2002 /s/ RICHARD B. POWELL --------------------- Richard B. Powell Vice President, Chief Accounting Officer, Secretary (Principal Accounting Officer) Page 14 of 14 -----END PRIVACY-ENHANCED MESSAGE-----