-----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, CiRqC891U/HS4GEb9VIiN8nlhc3lBBmgXibCeu2fs+aCjax49KmNg6hKmrC2m0ar Bv4itShP4TOeIq1fJFSNmw== 0000950134-98-001310.txt : 19980218 0000950134-98-001310.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950134-98-001310 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 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: 98543396 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 DECEMBER 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 December 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 (I.R.S. Employer of 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, 1998, 8,152,379 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 Statements of Operations 4 Statements of Cash Flows 5 Notes to Financial Statements 6
Page 2 of 11 3 INTEGRATED SECURITY SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, 1997 1997 ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 834,548 $ 1,581,191 Accounts receivable, net of allowance for doubtful Accounts of $62,652 and $54,733, respectively 1,757,061 2,457,596 Inventories 1,042,509 867,898 Restricted cash 58,121 54,928 Other current assets 283,447 312,234 ------------ ------------ Total current assets 3,975,686 5,273,847 Property and equipment, net 5,796,233 5,278,689 Intangible assets, net 2,168,097 2,283,970 Capitalized software development costs, net 395,194 493,350 Deferred income taxes 205,384 205,384 Other assets 23,701 18,295 ------------ ------------ Total assets $ 12,564,295 $ 13,553,535 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 649,477 $ 690,712 Accrued liabilities 426,881 672,340 Deferred revenue 118,871 116,028 Current portion of long-term debt and other liabilities 507,242 495,737 ------------ ------------ Total current liabilities $ 1,702,471 $ 1,974,817 ------------ ------------ Long-term debt and other liabilities 7,862,781 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; 8,202,379 and 7,955,212 shares, respectively, Issued; and 8,152,379 and 7,905,212 shares, respectively, Outstanding 82,024 79,552 Additional paid in capital 10,766,050 10,523,546 Accumulated deficit (7,730,438) (6,536,758) Treasury stock, 50,000 shares (118,750) (118,750) ------------ ------------ Total stockholders' equity 2,999,043 3,947,762 ------------ ------------ Total liabilities and stockholders' equity $ 12,564,295 $ 13,553,535 ============ ============
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 FOR THE SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------------ ------------------------------ 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Sales $ 2,680,379 $ 2,340,427 $ 5,710,352 $ 4,828,726 Cost of sales 1,654,023 1,332,967 3,404,708 2,566,888 ----------- ----------- ----------- ----------- Gross margin 1,026,356 1,007,460 2,305,644 2,261,838 ----------- ----------- ----------- ----------- Operating expenses: Selling, general and administrative 1,463,489 884,033 2,907,670 1,967,527 Research and product development 99,108 3,996 218,649 43,628 ----------- ----------- ----------- ----------- 1,562,597 888,029 3,126,319 2,011,155 ----------- ----------- ----------- ----------- Income (loss) from operations (536,241) 119,431 (820,675) 250,683 Other income (expense): Interest income 10,231 900 25,632 1,943 Interest expense (221,374) (26,765) (411,368) (86,256) Gain on sale of assets 36,971 -- 39,285 -- Other (22,095) (1,055) (21,829) (5,297) ----------- ----------- ----------- ----------- Income (loss) before income taxes (732,508) 92,511 (1,188,955) 161,073 Benefit (provision) for income taxes (386) 18,043 (4,725) (2,335) ----------- ----------- ----------- ----------- Net income (loss) $ (732,894) $ 110,554 $(1,193,680) $ 158,738 =========== =========== =========== =========== Weighted average common shares Outstanding 8,152,379 6,061,451 8,070,844 5,990,842 Potential common shares outstanding -- 2,294,899 -- 2,260,224 ----------- ----------- ----------- ----------- Weighted average common and potential common shares outstanding 8,152,379 8,356,350 8,070,844 8,251,066 =========== =========== =========== =========== Net income (loss) per share: Basic $ (0.09) $ 0.02 $ (0.15) $ 0.03 =========== =========== =========== =========== Diluted $ (0.09) $ 0.01 $ (0.15) $ 0.02 =========== =========== =========== ===========
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 SIX MONTHS ENDED DECEMBER 31, ------------------------------ 1997 1996 ----------- ----------- Cash flows from operating activities: Net income (loss) $(1,193,680) $ 158,738 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 282,322 97,215 Amortization 209,919 153,003 Bad debt expense 12,825 12,000 Provision for warranty reserve 40,785 133,700 Provision (benefit) for inventory reserve 6,000 18,000 Deferred revenue 2,843 76,898 Gain on sale of assets (39,285) -- Other non-cash expenses (income) 18,228 (69,233) Net change in assets and liabilities of discontinued operations -- (27,939) Changes in operating assets and liabilities, net of effects from acquisition of Golston Company: Accounts receivable 687,710 (608,432) Inventories (180,611) (26,379) Restricted cash (3,193) 121,013 Other assets 23,381 (147,065) Accounts payable (41,235) 69,163 Accrued liabilities (244,244) 318,608 ----------- ----------- Net cash provided (used) by operating activities (418,235) 279,290 ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (848,741) (31,285) Sale of property and equipment 88,160 -- Acquisition of Golston Company -- (4,851,406) ----------- ----------- Net cash used by investing activities (760,581) (4,882,691) ----------- ----------- Cash flows from financing activities: Issuance of common stock 188,843 1,034,020 Payments on debt and other liabilities (245,474) (230,583) Proceeds from notes payable and long-term debt 488,804 4,777,500 Acquisition costs -- (9,950) ----------- ----------- Net cash provided by financing activities 432,173 5,570,987 ----------- ----------- Increase (decrease) in cash and cash equivalents (746,643) 967,586 Cash and cash equivalents at beginning of period 1,581,191 130,305 ----------- ----------- Cash and cash equivalents at end of period $ 834,548 $ 1,097,891 =========== ===========
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 DECEMBER 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 (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 - FINANCING On October 31, 1997, Tri-Coastal Systems, Inc. ("TCSI") entered into a Business Manager factoring facility with Plano Bank & Trust to factor accounts receivable with recourse. This factoring facility expires October 31, 1998, has an adjustable factoring fee of 3.4%, and a maximum borrowing amount of $800,000. This facility is secured by all assets of TCSI and is guaranteed by ISSI. At December 31, 1997, TCSI had factored receivables of approximately $289,000. In connection with the factoring facility, the Company agreed to an increase in the interest rate related to $4.6 million in convertible debentures from 9% to 12%. In exchange for the increased interest rate, the holders of the convertible debentures agreed to release their security interest in TCSI's assets. Effective February 1, 1998, the interest rate has been reduced to the original 9%. 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 11 7 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 December 31, 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. RESULTS OF OPERATIONS Quarter Ended December 31, 1997 Compared to Quarter Ended December 31, 1996 Sales. The Company's sales increased by $.3 million (15%) to $2.6 million during the quarter ended December 31, 1997 from $2.3 million during the comparable 1996 period. The Company's Security Systems Group experienced a 13% decline in sales compared to the prior year period due primarily to TCSI client construction delays. Sales at the Company's manufacturing subsidiaries increased 21% with the inclusion of Golston Company ("Golston"), acquired on December 31, 1996, offset in part by decreased revenue at B&B Electromatic, Inc. ("B&B"). For the quarter ended December 31, 1997, approximately 85% of the Company's revenues were generated from the sale of products manufactured by the Company compared to 81% for the same 1996 period. Cost of Sales and Gross Margin. Gross margin as a percent of sales decreased to 38% from 43% for the quarters ended December 31, 1997 and 1996, 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 1996 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 $1.5 million during the quarter ended December 31, 1997 from $.9 million during the comparable 1996 period. Most of the increase was attributable to the inclusion of Golston expenses and the Company absorbing all of the sales and marketing expenses of Innovative Security Technologies, Inc. ("IST") during the 1997 period. During the 1996 period, these costs were partially offset by IST Partners, Ltd. ("the partnership"), an unaffiliated investment partnership. Page 7 of 11 8 Research and Product Development. Research and product development expenses increased by approximately $95,000 during the quarter ended December 31, 1997 compared to the comparable 1996 period due to additional development of the Company's Intelli-Site(R) products and increased testing and design of new products at B&B. (These costs were partially offset by the partnership during the 1996 period.) Interest Expense. Interest expense increased by approximately $195,000 during the quarter ended December 31, 1997, compared to the comparable 1996 period due to the financing related to the acquisition of Golston. Gain on Sale of Assets. The Company recorded a $37,000 gain on the sale of assets during the quarter ended December 31, 1997, principally from the sale of assets at Golston. Other. The $21,000 increase in other expenses was almost entirely related to the new factoring facility at TCSI. Six Months Ended December 31, 1997 Compared to Six Months Ended December 31, 1996. Sales. The Company's sales increased by $.9 million (19%) to $5.7 million during the first six months of fiscal 1998 from $4.8 million during the comparable 1996 period. The Company's Security Systems Group experienced a 7% growth in sales compared to the prior year period. Sales at the Company's manufacturing subsidiaries increased 28% with the inclusion of Golston, acquired on December 31, 1996, offset in part by decreased business at B&B. For the first six months of fiscal 1998, approximately 85% of the Company's revenues were generated from the sale of products manufactured by the Company compared to 78% for the same 1996 period. Cost of Sales and Gross Margin. Gross margin as a percent of sales decreased to 40% from 47% for the six months ended December 31, 1997 and 1996, 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 1996 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 $2.9 million during the first six months of fiscal 1998 from $2 million during the comparable 1996 period. Most of the increase was attributable to the inclusion of Golston expenses and the Company absorbing all of the sales and marketing expenses of IST during the 1997 period. (These costs were partially offset by the partnership during the 1996 period). Research and Product Development. Research and product development expenses increased by approximately $175,000 during the first six months of fiscal 1998 compared to the comparable 1996 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 1996 period.) Page 8 of 11 9 Gain on Sale of Assets. The Company recorded a $39,000 gain on the sale of assets during the first six months of fiscal 1998, principally from the sale of assets at Golston. Other. The $17,000 increase in other expenses was almost entirely related to the new factoring facility at TCSI. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position decreased by $746,643 during the first six months of fiscal 1998, using $418,235 for operations during the period and $848,741 for property and equipment as compared to $279,290 generated from operations and $31,285 used for property and equipment in the 1996 period. During the first six months of fiscal 1998, the Company financed its operations from cash flow from operations and through the exercise of outstanding warrants to purchase the Company's common stock. The Company also received $488,804 in proceeds from long-term debt related to capital expenditures at Golston and made payments of $245,474 on debt and other liabilities. On October 31, 1997, TCSI entered into a Business Manager factoring facility with Plano Bank & Trust to factor accounts receivable with recourse. This factoring facility expires October 31, 1998, has an adjustable factoring fee of 3.4% and a maximum borrowing amount of $800,000. This facility is secured by all assets of TCSI and is guaranteed by ISSI. At December 31,1997, TCSI had factored receivables of approximately $289,000. In connection with the factoring facility, the Company agreed to an increase in the interest rate related to $4.6 million in convertible debentures from 9% to 12%. In exchange for the increased interest rate, the holders of the convertible debentures agreed to release their security interest in TCSI's assets. Effective February 1, 1998, the interest rate has been reduced to the original 9%. Historically, the Company's manufacturing subsidiaries have generated positive cash flow from operations. The Company anticipates this trend to continue. This positive cash flow, in conjunction with the existing revolving line of credit 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 and has engaged a financial adviser to assist with this process. Page 9 of 11 10 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. Form 8-K, filed December 2, 1997 announcing warrant exchange. 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: February 17, 1998 /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 NO. DESCRIPTION - ----------- ----------- 27 Financial Data Schedule.
EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS JUN-30-1998 OCT-01-1997 DEC-31-1997 834,548 0 1,757,061 0 1,042,509 3,975,686 5,796,233 0 12,564,295 1,702,471 0 0 157 82,024 2,916,862 12,564,295 5,710,352 5,710,352 3,404,708 3,404,708 3,126,319 0 411,368 (1,188,955) 4,725 (1,193,680) 0 0 0 (1,193,680) (.15) (.15)
-----END PRIVACY-ENHANCED MESSAGE-----