-----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, SMBPA9Sm4nUGRQT2k12J+WT7BomuNVDhUjnvVeFXUqcbKVsKcdAFrl0ixdhy1IVj /l7ahgRe1z5nSMdz56/MIw== 0000741114-98-000004.txt : 19980518 0000741114-98-000004.hdr.sgml : 19980518 ACCESSION NUMBER: 0000741114-98-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: BSE SROS: NASD 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: 98624012 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 3QUARTER10Q U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 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 incorporation or organization (I.R.S. Employer 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 May 1, 1998, 8,155,158 shares of Registrant's common stock were outstanding. Page 1 of 12 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 12 INTEGRATED SECURITY SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30, 1998 1997 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 613,920 $ 1,581,191 Accounts receivable, net of allowance for doubtfulaccounts of $61,963 and $54,733, 1,559,415 2,457,596 respectively Inventories 1,055,344 867,898 Restricted cash 58,121 54,928 Other current assets 339,686 312,234 ---------------- ---------------- Total current assets 3,626,486 5,273,847 Property and equipment, net 5,696,647 5,278,689 Intangible assets, net 2,111,642 2,283,970 Capitalized software development costs, 350,298 493,350 net Deferred income taxes 205,384 205,384 Other assets 19,893 18,295 ---------------- ---------------- Total assets $ 12,010,350 $ 13,553,535 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 821,318 $ 690,712 Accrued liabilities 395,278 672,340 Deferred revenue 249,179 116,028 Current portion of long-term debt and 507,243 495,737 other liabilities ---------------- ---------------- Total current liabilities $ 1,973,018 $ 1,974,817 ---------------- ---------------- Long-term debt and other liabilities 7,972,845 7,630,956 Stockholders' equity: Preferred stock, $.01 par value, 750,000 shares authorized;15,750 and 17,250 shares issued and outstanding 157 172 Common stock, $.01 par value, 30,000,000 shares Authorized; 8,205,158 and 7,955,212 shares, respectively, Issued; and 8,155,158 and 7,905,212 shares, respectively, Outstanding 82,052 79,552 Additional paid in capital 10,766,050 10,523,546 Accumulated deficit (8,665,022) (6,536,758) Treasury stock, 50,000 shares (118,750) (118,750) ---------------- ---------------- Total stockholders' equity 2,064,487 3,947,762 ---------------- ---------------- Total liabilities and stockholders' $ 12,010,350 $ 13,553,535 equity ================ ================
The accompanying notes are an integral part of the consolidated financial statements Page 3 of 12 INTEGRATED SECURITY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended For the Nine Months Ended March 31, March 31, -------------------------- -------------------------- 1998 1997 1998 1997 ----------- ------------ ------------ ------------ Sales $2,350,663 $3,572,822 $8,061,015 $8,401,548 Cost of sales 1,532,527 2,164,316 4,937,235 4,731,204 ------------ ----------- ------------ ------------ Gross margin 818,136 1,408,506 3,123,780 3,670,344 ------------ ------------ ------------ ------------ Operating expenses: Selling,general and administrataive 1,462,805 1,212,828 4,370,475 3,080,755 Research and product development 58,343 13,558 276,992 156,786 ------------ ------------ ------------ ------------ 1,521,148 1,226,386 4,647,467 3,237,541 ------------ ------------ ------------ ------------ Income (loss) from operations (703,012) 182,120 (1,523,687) 432,803 Other income (expense): Interest income 7,705 3,399 33,337 5,342 Interest expense (216,926) (159,162) (628,294) (245,418) Gain on sale of assets (2,499) 23,446 36,786 23,446 Other (19,604) 165 (41,433) (5,132) ------------ ------------ ------------ ------------ Income (loss) before income taxes (934,336) 49,968 (2,123,291) 211,041 Benefit (provision) for income taxes (249) (3,663) (4,974) (5,998) ------------ ------------ ------------ ------------ Net income (loss) $(934,585) $ 46,305 $(2,128,265) $ 205,043 ============ ============ ============ ============ Weighted average common and common equivalent shares outstanding 8,204,386 6,961,398 8,148,285 6,326,630 Potential common shares outstanding 69,968 2,244,054 609,384 2,343,675 ----------- ------------ ------------ ------------ Weighted average common and potential common shares outstanding 8,274,354 9,205,452 8,757,669 8,670,305 ============ ============ ============ ============ Net income (loss) per share: Basic $ (0.11) $ 0.01 $ (0.26) $ 0.03 ============ ============ ============ ============ Diluted $ (0.11) $ 0.01 $ (0.24) $ 0.02 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements Page 4 of 12 INTEGRATED SECURITY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Net income (loss) $(2,128,265) $ 205,043 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 437,955 258,998 Amortization 311,270 213,669 Bad debt expense 12,825 16,900 Provision for warranty reserve 66,785 154,500 Provision (benefit) for inventory reserve 9,000 (12,999) Deferred revenue 133,151 (5,398) Gain on sale of assets (36,786) (23,446) Other non-cash expenses (income) 18,228 (93,247) Net change in assets and liabilities of discontinued operations -- (49,463) Changes in operating assets and liabilities, net of effects from acquisition of Golston Company: Accounts receivable 885,356 (675,239) Inventories (196,446) 201,270 Restricted cash (3,0193) 74,605 Other assets (29,050) (232,229) Accounts payable 130,606 107,137 Accrued liabilities (301,847) (14,719) ----------- -------- Net cash provided (used) by operating activities (690,411) 125,382 ----------- -------- Cash flows from investing activities: Purchase of property and equipment (907,287) (44,584) Sale of property and equipment 88,160 112,256 Acquisition of Golston Company -- (4,851,406) ------------ -------- Net cash used by investing activities (819,127) (4,783,734) ------------- -------- Cash flows from financing activities: Issuance of common stock 188,871 1,082,895 Payments on debt and other liabilities (380,408) (288,211) Proceeds from notes payable and long-term debt 733,804 4,777,500 Acquisition costs -- (9,950) ----------- --------- Net cash provided by financing activities 542,267 5,562,234 ------------ ---------- Increase (decrease) in cash and cash equivalents (967,271) 903,882 Cash and cash equivalents at beginning of period 1,581,191 130,305 ------------- --------- Cash and cash equivalents at end of period $ 613,920 $1,034,187 ============== ==========
The accompanying notes are an integral part of the consolidated financial statements. Page 5 of 12 INTEGRATED SECURITY SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) QUARTERS ENDED MARCH 31, 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, 1998. The accompanying financial statements include the accounts of Integrated Security Systems, Inc. (`ISSI') and all of its subsidiaries (collectively, the `Company'), 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 1997 Annual Report on Form 10-KSB filed September 25, 1997. NOTE 2 - RECLASSIFICATION Certain reclassification of prior year amounts have been made to conform to the current period presentation. NOTE 3 - WARRANT EXCHANGE On April 17, 1998 the Company completed an offer to exchange the Company's previously outstanding redeemable common stock purchase warrants (the `Public Warrants') for new redeemable common stock purchase warrants (the `Exchange Warrants'). Pursuant to the terms of the exchange offer, the Company accepted all Public Warrants tendered of 1,335,005 and issued the comparable number of exchange warrants. NOTE 4 - EARNINGS PER SHARE In February 1997, the Financial Accounting and Standards Board issued the 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. Accordingly, basic and diluted income (loss) per share amounts are reported for all periods presented. Page 6 of 12 The following table sets forth the basic and diluted net income (loss) per share computation for the periods ending March 31, 1997 and 1998:
For the Three Months Ended For the Nine Months Ended March 31, March 31, -------------------------- ------------------------- 1998 1997 1998 1997 -------------------------- ------------------------- Net Income (loss) $(934,585) $ 46,305 $(2,128,265) $ 205,043 Net Income available to common shareholders $(934,585) $ 46,305 $(2,128,265) 205,043 ========== ============= ============ ============ Basic: Weighted average number of common shares outstanding 8,204,386 6,961,398 8,148,285 6,326,630 ========== ============= ============ ============ Net Income (loss) per share $ (0.11) $ 0.01 $ (.26) $ 0.03 ========== ============= ============ ============ Dilutive: Weighted average number of common shares outstanding 8,204,386 6,961,398 8,148,285 6,326,630 Potential common shares from assumed exercises of dilutive stock options, warrants and conversion of preferred stock 69,968 2,244,054 609,384 2,343,675 --------- ------------- ------------ ------------ Weighted average number of common shares and potential commmon shares used to calculate diluted net income loss per share 8,274,354 9,205,452 8,757,669 8,670,305 ========== ============ ============ =========== Net Income (loss) per share $ (0.11) $ 0.01 $ (0.24) $ 0.02 =========== ============ ============ ===========
There were 2,474,977 potential common shares which were not included in average weighted shares and potential common shares outstanding at March 31, 1998 because to do so would have been antidilutive. 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. Effective January 1, 1997, the Company changed its fiscal year end from December 31 to June 30. References to fiscal 1996 refer to the twelve months ended December31, 1996, references to fiscal 1997 refer to the six months ended June 30, 1997, and references to fiscal 1998 refer to the twelve months ending June 30, 1998. Page 7 of 12 RESULTS OF OPERATIONS Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997 SALES. The Company's sales decreased by $1.2 million (34%) to $2.4 million during the quarter ended March 31, 1998 from $3.6 million during the comparable 1997 period. The Company's Security Systems Group experienced a 64% decline in sales compared to the prior year period due primarily to Tri-Coastal Systems, Inc. (`TCSI') client construction delays and decreased sales at the Innovative Security Technologies, Inc. (`IST') subsidiary. Sales at the Company's manufacturing subsidiaries decreased 27% due to decreased sales at B&B Electromatic, Inc. (`B&B'). For the quarter ended March 31, 1998, approximately 72% of the Company's revenues were generated from the sale of products manufactured by the Company compared to 70% for the same 1997 period. COST OF SALES AND GROSS MARGIN. Gross margin as a percent of sales decreased to 35% from 39% for the quarters ended March 31, 1998 and 1997, respectively. The majority of the decrease was due to a less favorable product mix at B&B compared to the prior year period. During the 1997 period, B&B experienced a higher percentage of sales of road and bridge products, which have higher gross margins. The TCSI subsidiary also contributed to the lower gross margin due to the completion of a large job with lower than normal margins. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased to $1.5 million during the quarter ended March 31, 1998 from $1.2 million during the comparable 1997 period. Most of the increase was attributable to the Company absorbing all of the sales and marketing expenses of IST during the 1998 period. RESEARCH AND PRODUCT DEVELOPMENT. Research and product development expenses increased by approximately $45,000 during the quarter ended March 31, 1998 compared to the comparable 1997 period due to additional development of the Company's Intelli-Site -Registered Trademark- products and increased testing and design of new products at B&B. (These costs were partially offset by the IST partnership during the 1997 period.) INTEREST EXPENSE. Interest expense increased by approximately $58,000 during the quarter ended March 31, 1998, compared to the comparable 1997 period due to financing at the Golston subsidiary. OTHER. The $19,439 increase in other expenses was almost entirely related to the factoring facility at TCSI. Nine Months Ended March 31, 1998 Compared to nine Months Ended March 31, 1997. SALES. The Company's sales decreased by $340,000 (4%) to $8.1 million during the first nine months of fiscal 1998 from $8.4 million during the comparable 1997 period. The Company's Security Systems Group experienced a 33% decline in sales compared to the prior year period. Sales at the Company's manufacturing subsidiaries increased 8.4% with the inclusion of Golston, acquired on December 31, 1996, offset in part by decreased business at B&B. For the first nine months of fiscal 1998, approximately 75% of the Company's revenues were generated from the sale of products manufactured by the Company compared to 71% for the same 1997 period. COST OF SALES AND GROSS MARGIN. Gross margin as a percent of sales decreased to 39% from 44% for the nine months ended March 31, 1998 and 1997, respectively. The majority of the decrease was due to lower sales and a less favorable product mix at B&B compared to the prior year period. During the 1997 period, B&B experienced a higher percentage of sales of road and bridge products, which have higher gross margins. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased to $4.4 million during the first nine months of fiscal 1998 from $3.1 million during the comparable 1997 period. Most of the increase was attributable to the Company absorbing all of the sales and marketing expenses of IST during the 1998 period. (These costs were partially offset by the IST partnership during the 1997 period) and the inclusion of Golston for the entire nine months of fiscal 1998 versus three months of fiscal 1997. RESEARCH AND PRODUCT DEVELOPMENT. Research and product development expenses increased by approximately $120,000 during the first nine months of fiscal 1998 compared to the comparable 1997 period due to additional development of the Company's Intelli-Site products and increased testing and design of new products at B&B (these costs were partially offset by the partnership during the 1997 period.) GAIN ON SALE OF ASSETS. The Company recorded a $37,000 gain on the sale of assets during the first nine months of fiscal 1998, principally from the sale of assets at Golston. OTHER. The $22,000 increase in other expenses was almost entirely related to the factoring facility at TCSI established during fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position decreased by $967,271 during the first nine months of fiscal 1998, using $690,411 for operations during the period and $819,127 for purchasing property and equipment as compared to $125,382 generated from operations and $67,672 generated from property and equipment in the 1997 period. During the first nine months of fiscal 1998, the Company financed its operations from cash generated from operations and through the exercise of outstanding warrants to purchase the Company's common stock. The Company also received $733,804 in proceeds from long-term debt used for capital expenditures at Golston and made payments of $380,408 on debt and other liabilities. Page 9 of 12 Historically, the Company's manufacturing subsidiaries have generated positive cash flow from operations. This positive cash flow, in conjunction with the existing financing facilities should position the Company to cover its working capital needs for all subsidiaries except IST. Development of distribution channels for Intelli-Site will continue, with a significant portion of future investments being utilized to launch Intelli-Site through the PSA Security Network. Training and pre-sales support of the PSA channel and other channels will require sizable expenditures by the Company in time and dollars before significant revenues are realized. To finance these activities, the Company anticipates that it will need to raise additional funds through debt, equity or the divestiture of certain assets or a combination of such. The Company is currently in violation of certain debt covenants relating to the convertible debentures issued in December 1996. The Company anticipates these violations will be remedied, or a waiver issued by the lender, before the end of the Company's fiscal year. Page 10 of 12 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. None. Page 11 of 12 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, 1998 /s/ GERALD K. BECKMANN -------------- ------------------------------------ Gerald K. Beckmann Director, Chairman of the Board, President and Chief Executive Officer
Page 12 of 12 EX-27 2 EX27 AND ARTICLE 5
5 9-MOS JUN-30-1998 JAN-01-1998 MAR-31-1998 613,920 0 1,559,415 0 1,055,344 3,626,486 5,696,647 0 12,010,350 1,973,018 0 0 157 82,052 1,982,277 12,010,350 8,061,015 8,061,015 4,937,235 4,937,235 4,647,467 0 628,294 (2,123,291) 4,974 (2,128,265) 0 0 0 (2,128,265) (0.26) (0.26)
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