-----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, BIfTs44gQl6qsaSzXi4aeWUq3Oqk9DYsp92eenFffTmkuUfcEIleE0xmWGD3T+pt YHcOAkyrq4aCaHpCbA93lg== 0001158957-02-000303.txt : 20021114 0001158957-02-000303.hdr.sgml : 20021114 20021114145932 ACCESSION NUMBER: 0001158957-02-000303 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 02824624 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 CITY: IRVING STATE: TX ZIP: 75063 10QSB 1 form10qsb093002.txt INTEGRATED SECURITY SYSTEMS, INC. 10-QSB 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, 2002. |_| 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 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 October 31, 2002, 11,945,836 shares of the Registrant's common stock were outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [X] INTEGRATED SECURITY SYSTEMS, INC. INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at September 30, 2002 (unaudited) and June 30, 2002 3 Consolidated Statements of Operations (unaudited) for the three months ended September 30, 2002 and 2001 4 Consolidated Statements of Cash Flows (unaudited) for the three months ended September 30, 2002 and 2001 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis or Plan of Operation 8 Item 3. Controls and Procedures 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements.
INTEGRATED SECURITY SYSTEMS, INC. Consolidated Balance Sheets September 30, June 30, 2002 2002 ------------- ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 127,449 $ 28,958 Accounts receivable, net of allowance for doubtful accounts of $99,271and $100,692, respectively 874,195 1,035,833 Inventories 639,341 710,700 Other current assets 68,145 74,999 ------------- ------------- Total current assets 1,709,130 1,850,490 Property and equipment, net 530,752 551,935 Capitalized software development costs 128,772 -- Other assets 18,181 18,181 ------------- ------------- Total assets $ 2,386,835 $ 2,420,606 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 615,631 $ 684,146 Accrued liabilities 409,302 477,873 Current portion of long-term debt 1,417,268 631,779 ------------- ------------- Total current liabilities $ 2,442,201 $ 1,793,798 ------------- ------------- Long-term debt 613,640 1,230,916 Preferred stock subject to redemption 7,495,052 7,495,052 Stockholders' deficit: Preferred stock, $.01 par value, 750,000 shares authorized; 161,345 shares issued and outstanding (liquidation value of $3,529,875) 1,613 1,613 Common stock, $.01 par value, 75,000,000 shares authorized; 11,923,653 and 11,834,589 shares, respectively, issued 119,237 118,346 Additional paid in capital 17,262,892 17,234,734 Accumulated deficit (25,429,050) (25,335,103) Treasury stock, at cost - 50,000 common shares (118,750) (118,750) ------------- ------------- Total stockholders' deficit (8,164,058) (8,099,160) ------------- ------------- Total liabilities and stockholders' deficit $ 2,386,835 $ 2,420,606 ============= =============
The accompanying notes are an integral part of the consolidated financial statements. 3
INTEGRATED SECURITY SYSTEMS, INC. Consolidated Statements of Operations (Unaudited) For the Three Months Ended September 30, ----------------------------- 2002 2001 ------------ ------------ Sales $ 1,413,095 $ 986,963 Cost of sales 828,426 732,983 ------------ ------------ Gross margin 584,669 253,980 ------------ ------------ Operating expenses: Selling, general and administrative 590,486 819,862 Research and product development 34,982 110,805 ------------ ------------ 625,468 930,667 ------------ ------------ Loss from operations (40,799) (676,687) Other income (expense): Interest expense (53,148) (31,155) ------------ ------------ Net loss (93,947) (707,842) Preferred dividends (154,950) (41,925) ------------ ------------ Net loss allocable to common stockholders $ (248,897) $ (749,767) ============ ============ Weighted average common and common equivalent shares outstanding - basic and diluted 11,891,825 10,790,659 ============ ============ Net loss per share $ (0.02) $ (0.07) ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 4
INTEGRATED SECURITY SYSTEMS, INC. Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended September 30, -------------------------- 2002 2001 --------- --------- Cash flows from operating activities: Net loss $ (93,947) $(707,842) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 30,388 33,945 Provision for bad debt -- 6,000 Provision for warranty reserve 12,000 10,500 Provision for inventory reserve 18,000 6,000 Expenses paid with stock, warrants and options 24,924 25,000 Changes in operating assets and liabilities: Accounts receivable 161,638 577,982 Inventories 53,359 (28,263) Other assets 6,854 13,022 Accounts payable (68,513) (134,144) Accrued liabilities (80,572) (61,530) --------- --------- Net cash provided/(used) in operating activities 64,131 (259,330) --------- --------- Cash flows from investing activities: Purchase of property and equipment (9,206) (12,354) Capitalized software development costs (128,772) -- --------- --------- Net cash used in investing activities (137,978) (12,354) --------- --------- Cash flows from financing activities: Issuance of preferred stock -- 200,000 Dividends on preferred stock -- (41,925) Employee stock option exercise 4,125 -- Payments on debt and other liabilities (19,749) (101,217) Proceeds from notes payable and long-term debt 187,962 150,000 --------- --------- Net cash provided by financing activities 172,338 206,858 --------- --------- Increase (decrease) in cash and cash equivalents 98,491 (64,826) Cash and cash equivalents at beginning of period 28,958 70,582 --------- --------- Cash and cash equivalents at end of period $ 127,449 $ 5,756 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 5 INTEGRATED SECURITY SYSTEMS, INC. Notes to Consolidated Financial Statements (Unaudited) Quarters Ended September 30, 2002 and 2001 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, 2003. 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 2002 Annual Report on Form 10-KSB filed on September 30, 2002 with the Securities and Exchange Commission. Note 2 - Reclassification Certain reclassifications of prior year amounts have been made to conform to the current period presentation. Note 3 - Software Development Costs We account for software developments costs in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." All costs incurred to establish the technological feasibility of a computer product to be sold, leased or otherwise marketed are charged to research and development expense as incurred. Technological feasibility of a computer software product is established when the Company has completed all planning, designing, coding and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features and technical performance requirements. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. Prior to a product's release, we expense, as part of product development costs, capitalized costs when we believe such amounts are not recoverable. Amounts related to development which are not capitalized are charged to product development expense. The capitalized costs relate to software which will become an integral part of the Company's revenue producing products and are amortized in relation to expected revenues from the product. Such capitalized costs are reported at the lower of unamortized cost or net realizable value. The Company ceases capitalization of computer software costs when the product is available for general release to customers. Cost of maintenance and customer support are charged to expense when the related revenue is recognized or when those costs are incurred, whichever occurs first. We evaluate the future recoverability of capitalized software development costs on a quarterly basis. These software development costs are reviewed for impairment, and a loss is recognized when the net realizable value by product falls below the unamortized cost. 6 Prior to July 1, 2002 the Company did not capitalize software development costs because of the uncertain recoverability of these costs. Unamortized computer software costs were $128,772 and $0 at September 30, 2002 and 2001, respectively. Amortization expense related to computer software development costs was $0 for each of the quarters ended September 30, 2002 and 2001. Note 4 - Financing In exchange for an aggregate of $150,000 cash investment received on September 5, 2002, the Company issued a promissory note to each of Frost National Bank FBO Renaissance Capital Growth & Income Fund III, Inc. ("Renaissance III") and Frost National Bank FBO Renaissance US Growth & Income Trust PLC (Renaissance PLC"). Both of Renaissance III and Renaissance PLC are investment funds and major stockholders of the Company. Each of the two promissory notes is in the original principal amount of $75,000 and has an annual interest rate of 8%. The promissory notes, plus interest, are due on September 5, 2003. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, 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 375,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. The value assigned to the warrants of approximately $127,500 is being amortized over the terms of the notes. At September 30, 2002, the Company had dividends in arrears in the amount of $781,048 related to its outstanding Series A, D, F and G preferred stock, which consists of the following: Shares Dividends Outstanding In Arrears ----------- ----------- Series A $20 9,500 $ -- Series D $20 91,250 152,822 Series F $25 60,595 105,626 ----------- ----------- 161,345 $ 258,448 =========== =========== Convertible Preferred Stock Subject to Redemption Series G $25 299,802 $ 522,600 =========== =========== Total Dividends in Arrears $ 781,048 =========== Note 5 - Business Segments Information for the Company's reportable segments for the three months ended September 30, 2002 and 2001 is as follows: For the Three Months Ended September 30, -------------------------- 2002 2001 ----------- ----------- Sales B&B Electromatic, Inc. $ 1,374,880 $ 965,547 Intelli-Site, Inc. 38,215 21,416 ----------- ----------- $ 1,413,905 $ 986,963 =========== =========== Income (loss) from operations B&B Electromatic, Inc. $ 113,098 $ (177,988) Intelli-Site, Inc. (72,231) (402,703) Corporate (81,665) (95,996) ----------- ----------- $ (40,798) $ (676,687) =========== =========== 7 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 September 30, 2002 Compared to Three Months Ended September 30, 2001 Sales. The Company's total sales increased by $0.4 million, or 44%, to $1.4 million during the quarter ended September 30, 2002 from $1.0 million during the quarter ended September 30, 2001. This increase is due to increased sales at the Company's B&B Electromatic, Inc. subsidiary. For the quarters ended September 30, 2002 and 2001, approximately 98% of the Company's revenues were generated from the sale of products manufactured by the Company. Gross Margin. Gross margin as a percentage of sales increased to 41% during the quarter ending September 30, 2002 from 26% during the quarter ending September 30, 2001. This increase is due to a more favorable product mix at the Company's B&B Electromatic, Inc. subsidiary. Selling, General and Administrative. Selling, general and administrative expenses decreased by approximately $229,000 or 28% during the quarter ended September 30, 2002 compared to the quarter ended September 30, 2001 due to continued overall Company reduction in staffing and operating expenses coupled with the capitalization of approximately $33,000 in software development costs. 8 Research and Product Development. Research and product development expenses decreased by approximately $76,000 or 69% during the quarter ended September 30, 2002 compared to the quarter ended September 30, 2001 primarily due to the capitalization of approximately $96,000 in software development costs at the Company's Intelli-Site, Inc. subsidiary. This decrease was partially offset by an increase in research and development expenditures of approximately $27,000 at the Company's B&B subsidiary. Interest Expense. Interest expense increased by approximately $22,000 during the quarter ended September 30, 2002 compared to the quarter ended September 30, 2001 due to the issuance of warrants in conjunction with securing additional debt and the interest on this new debt that was required to meet working capital needs. Liquidity and Capital Resources The Company's cash position increased by $98,491 during the quarter ended September 30, 2002, compared to the quarter ended September 30, 2001. At September 30, 2002, the Company had $127,449 in cash and cash equivalents and had approximately $600,000 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 $800,000, subject to availability under its borrowing base. For the three months ended September 30, 2002, the Company's operating activities provided $64,131 of cash compared to $259,330 of cash used in operations during the three months ended September 30, 2001. The decrease in cash used in operations is primarily due a reduction in the net loss coupled with the collections of accounts receivable at the Company's B&B subsidiary. The Company used $9,206 for the purchase of property and equipment during the quarter ended September 30, 2002, compared to $12,354 for the quarter ended September 30, 2001. In addition, the Company capitalized software development costs totaling $128,772. During the quarter ended September 30, 2002, the Company financed its operations with cash flows from borrowings of $187,962 compared to $150,000 during the quarter ended September 30, 2001. The Company made payments of $19,749 on debt and other liabilities during the quarter ended September 30, 2001, compared to payments of $101,217 on debt and other liabilities during the quarter ended September 30, 2000. During the fiscal quarter ended September 30, 2002, the Company received a $150,000 cash investment from Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth & Income Trust PLC. Please see Note 4 (Financing) to the financial statements above for details regarding these investments. 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. 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. 9 The Company's backlog is calculated as the aggregate sales prices of firm orders received from customers less revenue recognized. At October 31, 2002, the Company's backlog was approximately $2.2 million. The Company expects that it will fill the majority of this backlog by December 31, 2003. Item 3. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. Based on his evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-QSB, the Company's principal executive and principal financial officer has concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. (b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of his evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. During the three months ended September 30, 2002, the Company issued unregistered securities in connection with the transactions described below. The issuances of promissory notes and convertible warrants were exempt from the registration requirements of the Securities Act, as amended, by virtue of Section 4(2) thereof, as transactions not involving a public offering and an appropriate restrictive legend was affixed to the warrants. In exchange for an aggregate of $150,000 cash investment received on September 5, 2002, the Company issued a promissory note to each of Frost National Bank FBO Renaissance Capital Growth & Income Fund III, Inc. ("Renaissance III") and Frost National Bank FBO Renaissance US Growth & Income Trust PLC (Renaissance PLC"). Both of Renaissance III and Renaissance PLC are investment funds and major stockholders of the Company. Each of the two promissory notes is in the original principal amount of $75,000 and has an annual interest rate of 8%. The promissory notes, plus interest, are due on September 5, 2003. Interest is payable in monthly installments on the first day of each month. As a part of this transaction, 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 375,000 fully paid and non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20 per share. The value assigned to the warrants of approximately $127,500 is being amortized over the terms of the notes. 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 September 10, 2002 to report the announcement the Company's earnings results for the for the fiscal year ending June 30, 2002. The Company filed a Current Report on Form 8-K on September 23, 2002 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. The Company filed a Current Report on Form 8-K on September 30, 2002 to report the certification of C. A. Rundell, Jr., the Company's Chief Executive Officer and Principal Executive and Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002, and certification of Richard B. Powell, the Company's Vice President, Chief Accounting Officer, Secretary and Principal Accounting Officer, under Section 906 of the Sarbanes-Oxley Act of 2002. 11 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 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: November 14, 2002 /s/ RICHARD B. POWELL --------------------- Richard B. Powell Vice President, Chief Accounting Officer, Secretary (Principal Accounting Officer) 12 CERTIFICATION I, C. A. Rundell, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Integrated Security Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ C. A. RUNDELL, JR. ---------------------------- C. A. Rundell, Jr., Chief Executive Officer and Principal Executive and Financial Officer 13 -----END PRIVACY-ENHANCED MESSAGE-----