-----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, L2D5MrTNKE/noEXMDt5ezVv5E3DnjS4bnTZ+T6tE6zFlgEjVJTKP9WmIfeRka8CC v0BFv74HzCqSb9FROXpJZw== 0000950134-97-003965.txt : 19970520 0000950134-97-003965.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950134-97-003965 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11900 FILM NUMBER: 97606390 BUSINESS ADDRESS: STREET 1: 8200 SPRINGWOOD DR STE 230 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 2144448280 MAIL ADDRESS: STREET 1: 8200 SPRINGWOOD DR SUITE 230 STREET 2: 8200 SPRINGWOOD DR SUITE 230 CITY: IRVING STATE: TX ZIP: 75063 10QSB 1 FORM 10-QSB FOR QUARTER ENDED MARCH 31, 1997 1 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, 1997 . -------------------------- OR [ ] 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, 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 5, 1997, 6,954,852 shares of Registrant's common stock were outstanding. Page 1 of 11 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Index to Integrated Security Systems, Inc. Consolidated Financial Statements:
Page ---- Balance Sheets 3 Statement of Operations 4 Statement of Cash Flows 5 Notes to Financial Statements 6
Page 2 of 11 3 INTEGRATED SECURITY SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1997 1996 ---------------- ---------------- (UNAUDITED) ASSETS Current assets: Cash $ 1,034,187 $ 1,097,891 Accounts receivable, net of allowance for doubtful accounts of $70,508 and $65,687, respectively 2,655,866 2,629,909 Inventories 890,335 1,086,985 Restricted cash 54,640 8,232 Other current assets 287,372 193,960 Net assets of discontinued operations 11,724 25,760 --------------- ---------------- Total current assets 4,934,124 5,042,737 Property and equipment, net 5,295,082 5,502,284 Intangible assets, net 1,616,526 1,598,632 Capitalized software development costs, net 542,427 591,505 Deferred income taxes 205,384 205,384 Other assets 23,077 31,325 --------------- ---------------- Total assets $ 12,616,620 $ 12,971,867 =============== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 919,195 $ 881,221 Accrued liabilities 378,290 691,208 Deferred revenue 127,000 209,296 Notes payable -- 8,080 Notes payable to related parties -- 7,110 Current portion of long-term debt 213,975 213,975 Net liabilities of discontinued operations 13,692 49,252 --------------- ---------------- Total current liabilities 1,652,152 2,060,142 --------------- ---------------- Long-term debt 6,742,145 6,784,582 Stockholders' equity: Preferred stock, $.01 par value, 750,000 shares authorized, 59,168 shares issued and outstanding 591 591 Common stock, $.01 par value, 18,000,000 shares authorized, 7,004,852 and 6,958,852, respectively, shares issued and 6,954,852 and 6,908,852, respectively, shares outstanding 70,048 69,588 Additional paid-in-capital 10,430,630 10,382,215 Accumulated deficit (6,160,196) (6,206,501) Treasury stock, 50,000 shares (118,750) (118,750) --------------- ---------------- Total stockholders' equity 4,222,323 4,127,143 --------------- ---------------- Total liabilities and stockholders' equity $ 12,616,620 $ 12,971,867 =============== ================
The accompanying notes are an integral part of the consolidated financial statements. Page 3 of 11 4 INTEGRATED SECURITY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------------------------- 1997 1996 ---------------- ----------------- Sales $ 3,572,822 $ 1,809,059 Cost of sales 2,164,316 1,155,881 ---------------- ----------------- Gross margin 1,408,506 653,178 ---------------- ----------------- Operating expenses: Selling, general and administrative 1,212,828 782,395 Research and product development 13,558 2,389 ---------------- ----------------- 1,226,386 784,784 ---------------- ----------------- Income (loss) from operations 182,120 (131,606) Other income (expense): Interest income 3,399 2,317 Interest expense (159,162) (108,464) Gain (loss) on sale of assets 23,446 (121) Other 165 6,121 ---------------- ----------------- Income (loss) from continuing operations before income tax 49,968 (231,753) (Provision) benefit for income taxes (3,663) 23,000 ---------------- ----------------- Income (loss) from continuing operations 46,305 (208,753) Discontinued operations: Gain on disposal of discontinued operations -- 22,789 ---------------- ----------------- Income from discontinued operations -- 22,789 ---------------- ----------------- Net income (loss) $ 46,305 $ (185,964) ================ ================= Weighted average common and common equivalent shares outstanding 7,875,063 5,401,848 ================ ================= Net income (loss) per share: Continuing operations $ .01 $ (.03) Discontinued operations -- -- ---------------- ----------------- Total $ .01 $ (.03) ================ =================
The accompanying notes are an integral part of the consolidated financial statements. Page 4 of 11 5 INTEGRATED SECURITY SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, --------------------------------------- 1997 1996 -------------- ------------- Cash flows from operating activities: Net income (loss) $ 46,305 $ (185,964) Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation 161,783 47,078 Amortization 60,666 114,495 Bad debt expense 4,900 6,000 Provision for warranty reserve 20,800 21,144 Provision for inventory reserve 1,000 9,000 Deferred revenue (82,296) (115,333) Gain (loss) on sale of assets (23,446) 121 Non-cash income (24,014) (268,731) Net change in assets and liabilities of discontinued operations (21,524) (113,015) Changes in operating assets and liabilities: Accounts receivable (66,807) 422,970 Inventories 195,650 (99,477) Restricted cash (46,408) 95,441 Other assets (85,164) 3,296 Accounts payable 37,974 (308,708) Accrued liabilities (333,327) (226,722) -------------- ------------- Net cash used by operating activities (153,908) (598,405) -------------- ------------- Cash flows from investing activities: Purchase of property and equipment (13,299) (24,402) Sale of property and equipment 112,256 5,000 Intangible assets -- (66,178) -------------- ------------- Net cash provided (used) by investing activities 98,957 (85,580) -------------- ------------- Cash flows from financing activities: Issuance of preferred stock, net -- 190,000 Issuance of common stock, net 48,875 760,000 Payments on notes payable and long-term debt (57,628) (34,773) Proceeds from notes payable and long-term debt -- 335,000 -------------- ------------- Net cash (used) provided by financing activities (8,753) 1,250,227 -------------- ------------- (Decrease) increase in cash (63,704) 566,242 Cash at beginning of period 1,097,891 209,655 -------------- ------------- Cash at end of period $ 1,034,187 $ 775,897 ============== =============
The accompanying notes are an integral part of the consolidated financial statements. Page 5 of 11 6 INTEGRATED SECURITY SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) QUARTERS ENDED MARCH 31, 1997 AND 1996 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 (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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 1996 Annual Report on Form 10- KSB filed March 25, 1997. NOTE 2 - RECLASSIFICATION Certain reclassification of prior year amounts have been made to conform to the current period presentation. NOTE 3 - ACQUISITION OF GOLSTON COMPANY, INC. On December 31, 1996, the Company acquired all of the outstanding stock of Golston Company, Inc. ("GCI") for approximately $4.8 million in a combination of cash and seller notes, and the assumption of an additional $650,000 in existing debt. This transaction was accounted for as a purchase with the excess of the purchase price over the fair market value of the net assets acquired of $1,319,628 recorded as goodwill. During the first quarter of 1997, goodwill increased by $17,106 related to the write-off of certain accounts receivable. As of March 31, 1997, amortization expense of $4,164 has been recorded. NOTE 4 - EARNINGS PER SHARE In February 1997, the Financial Accounting and Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." This statement specifies the computation, presentation and disclosure requirements for earnings per share for financial statements issued for periods ending after December 31, 1997. The Company has determined that basic and diluted earnings per share for the three months ended March 31, 1997 would have been $.01 if the Company had adopted the standard. NOTE 5 - SUBSEQUENT EVENTS On April 11, 1997, GCI entered into a $1.95 million financing arrangement with Finova Capital Corporation, of which $775,000 was borrowed on terms at the closing. The balance of the arrangement consists of $675,000 in additional borrowing potential and a $500,000 revolving line of credit. The initial $775,000 is due in 60 monthly principal and interest payments beginning May 1, 1997. The additional borrowing may take place over the next six to twelve months for fixed asset additions, with principal and interest payments due over 60 months beginning May 1, 1998. Interest on the term borrowings is at prime plus 2%, currently 10.5%. Although there are no principal payment requirements on the line of credit, interest is due monthly at the prime rate plus 1.75% based on the average daily borrowings during the prior month. To date, GCI has not drawn against the line of credit. The financing arrangement is guaranteed by the Company and is secured by certain tangible and intangible assets of GCI. Page 6 of 11 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL Incorporated in Delaware on December 19, 1991, the Company is a holding company that conducts its operations principally through four wholly-owned subsidiaries: B&B Electromatic, Inc. ("B&B"), Golston Company, Inc. ("GCI"), Innovative Security Technologies, Inc. ("IST"), and Tri-Coastal Systems, Inc. ("TCSI"). On January 1, 1992, the Company acquired B&B from an affiliate in a transaction which was accounted for similar to a pooling of interests. B&B designs, manufactures, and distributes commercial and industrial security products, and traffic control gates, barriers and lighting for the road and bridge industry. B&B has been in operation since 1925. On March 16, 1993, the Company organized IST, which is a retail seller of security products and microprocessor-based systems to large customers. On August 23, 1993, the Company announced the development of its PC-based security network, Intelli-Site(R), that integrates multiple security functions into a centralized management system for single and/or multiple site locations. IST is responsible for the sales and marketing of this product. The first beta site installations for this product were completed during the fourth quarter of 1994 and the first quarter of 1995. On September 18, 1995, the Company purchased substantially all of the assets and liabilities of TCSI. TCSI sells and installs security and safety systems to end users. On December 31, 1996, the Company acquired all of the outstanding stock of GCI. GCI's primary business is the design, manufacture, and marketing of pneumatic tube carriers for use in financial institutions and hospitals. In addition, GCI leases modular buildings to financial institutions. Effective January 1, 1992, the Company purchased all of the outstanding stock of Automatic Access Controls, Inc. ("AAC"), an independent distributor of commercial and industrial security products. The Company discontinued the operations of AAC during 1995. Accordingly, AAC is reported as a discontinued operation for all periods presented. The Company's executive offices are located at 8200 Springwood Drive, Suite 230, Irving, Texas 75063. The Company's telephone number is (972) 444-8280. R&D PARTNERSHIP Effective September 1, 1996, the Company entered into an agreement with I.S.T. Partners, Ltd., an unaffiliated limited partnership, whereby the partnership made an initial payment of $250,000 to the Company and since has funded the sales, engineering, and order fulfillment expenses of the Company's IST subsidiary. In exchange, the partnership receives, as compensation from IST, 85% of the revenue generated from the sales of the Company's Intelli-Site products until such time as the partnership has achieved a return of at least 150% on its investment. After such time, the partnership will dissolve. The Company retains full ownership of all other rights to the Intelli-Site product, and also retains the responsibility for managing IST's business activities, including customer relationships. As of March 31, 1997, the partnership has not received any return on its investment. EARNINGS PER SHARE In February 1997, the Financial Accounting and Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." This statement specifies the computation, presentation and disclosure requirements for earnings per share for financial statements issued for periods ending after December 31, 1997. The Company has determined that basic and diluted earnings per share for the three months ended March 31, 1997 would have been $.01 if the Company had adopted the standard. Page 7 of 11 8 RESULTS OF OPERATIONS Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996 Sales. The Company's sales increased by 97% from $1.8 million in the first quarter of 1996 to $3.6 million in the first quarter of 1997. Contributing to this increase were record sales at TCSI and IST and the inclusion of GCI revenue in the quarter ended March 31, 1997, with no equivalent revenue last year. Sales at TCSI and IST more than doubled compared to last year due to larger and more contracts, respectively. B&B experienced a 5% increase in sales during the first quarter of 1997. Cost of Sales and Gross Profit. Gross profit as a percent of sales increased to 39% from 36% for the first quarters of 1997 and 1996, respectively. This increase was primarily due to a favorable change in the Company's product mix from the prior year. With the inclusion of GCI results in the quarter ended March 31, 1997, 70% of the Company's sales were from products manufactured by the Company, which generally have higher gross margins. Selling, General and Administrative. Selling, general and administrative expenses increased by 55% from $.8 million in the first quarter of 1996 to $1.3 million in the first quarter of 1997. This increase was primarily attributable to the inclusion of GCI expenses for the quarter ended March 31, 1997. Interest Expense. Interest expense increased from $108,464 in the first quarter of 1996 to $159,162 in the comparable 1997 period due to the financing related to the acquisition of GCI. Gain on sale of assets. The Company recorded a $23,446 gain on the sale of assets during the first quarter of 1997, primarily from the sale of a modular building at GCI. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position decreased by $63,704 during the first quarter of 1997. The Company used $153,908 for operations during this period as compared to $598,405 used during the comparable 1996 period. Discontinued operations used $21,524 of cash during the first quarter of 1997 compared to $113,015 used during the comparable 1996 period. During the first quarter of 1997, the Company generated $98,957 in net proceeds from the sale and purchase of property and equipment. The Company received $48,875 from the exercise of warrants during the first quarter of 1997 and made payments of $57,628 on notes payable and long-term debt. The Company has a factoring facility with Union Planters Bank, Baton Rouge, Louisiana, pursuant to which it may factor accounts receivable (with recourse) and receive a total of up to $700,000 in credit. This factoring facility expires April 15, 1998 and has an adjustable factoring fee which ranges from 3% to 3.5% of the total amount borrowed. As of March 31, 1997, the Company did not have any money borrowed under this factoring facility. On April 11, 1997, GCI entered into a $1.95 million financing arrangement with Finova Capital Corporation, of which $775,000 was borrowed at the closing. The balance of the arrangement consists of $675,000 in additional borrowing potential and a $500,000 revolving line of credit. The initial $775,000 is due in 60 monthly principal and interest payments beginning May 1, 1997. The additional borrowing may take place over the next six to twelve months for fixed asset additions, with principal and interest payments due over 60 months beginning May 1, 1998. Interest on the term borrowings is at prime plus 2%, currently 10.5%. Although there are no principal payment requirements on the line of credit, interest is due monthly at the prime rate plus 1.75% based on the average daily borrowings during the prior month. To date, GCI has not drawn against the line of credit. The financing arrangement is guaranteed by the Company and is secured by certain tangible and intangible assets of GCI. Page 8 of 11 9 Historically, GCI has generated positive cash flow from operations. The Company anticipates this trend to continue. This positive cash flow, in conjunction with the existing factoring facility and the financing arrangement described in the preceding paragraph should position the Company to cover its working capital needs. As the Company continues to operate, additional financing will be necessary to fund growth plans at all of the Company's major business units. The information contained in the previous paragraph included certain forward-looking statements. It is important to note that the Company'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: anticipated seasonal changes may not occur or operations may not improve as projected. Page 9 of 11 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. Form 8-K, filed January 10, 1997 announcing the acquisition of Golston Company, Inc. Form 8-K/A, filed March 11, 1997 announcing the acquisition of Golston Company, Inc. Page 10 of 11 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: May 14, 1997 /s/ GERALD K. BECKMANN ------------------- ------------------------------------- Gerald K. Beckmann Director, Chairman of the Board, President and Chief Executive Officer Page 11 of 11 12 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 - Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1,034,187 0 2,655,866 0 890,335 4,934,124 5,295,082 0 12,616,620 1,652,152 0 0 591 70,048 4,151,684 12,616,620 3,572,822 3,572,822 2,164,316 2,164,316 1,226,386 0 (159,162) 49,968 (3,663) 46,305 0 0 0 46,305 .01 .01
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