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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-KSB/A
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee Paid).
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required).
For Fiscal Year Ended June 30, 1999
Commission File Number: 1-11900
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INTEGRATED SECURITY SYSTEMS, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 75-2422983
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(State of Incorporation) (I.R.S. Employer Identification No.)
8200 SPRINGWOOD DRIVE, SUITE 230, IRVING, TX 75063 (972)444-8280
(Address including zip code, area code and telephone number
of Registrant's executive offices.)
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common stock, $.01 par value OTC Bulletin Broad
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $5,828,247
As of September 23, 1999, 10,549,145 shares of the Registrant's common stock
were outstanding and 1,450,000 warrants were outstanding.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: as of September 23, 1999, $2,912,290. This amount was computed by
reference to the average close price of Registrant's common stock.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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. The
Company is a Delaware corporation.
During fiscal 1999, the Company disposed of its two non-core subsidiaries,
Golston Company, Inc. ("Golston") and Tri-Coastal Systems, Inc. ("TCSI"). ISSI
sold Golston in May 1999 and TCSI in August 1999. These dispositions are
consistent with ISSI's previously announced repositioning strategy to focus on
its Intelli-Site subsidiary that manufactures the Intelli-Site software product,
and its B&B subsidiary that manufactures traffic control and safety systems as
well as safety barriers for highway railroad crossings.
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.
RESULTS OF OPERATIONS
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Sales. The Company's sales increased by $1 million (20%) during the fiscal year
ended June 30, 1999 from $4.8 million in fiscal 1998. This increase is
attributable to additional sales of perimeter security and railroad products at
B&B of $864,000 and sales at the Intelli-Site subsidiary of $289,000.
Cost of Sales and Gross Margin. Gross margin as a percent of sales remained
comparable for the fiscal years ended June 30, 1999 and 1998.
Selling, General and Administrative. Selling, general and administrative
expenses increased by 38% or by $1.7 million during the fiscal 1999 period. This
is primarily due to increased expenditures at the Intelli-Site subsidiary as
well as the dissolution of an unaffiliated partnership (Note 6 of Notes to
Financial Statements). In addition, the company also issued warrants to purchase
common stock as a result of the conversion of debt to equity.
Research and Development. Research and product development expenses increased by
approximately $132,000 during the fiscal 1999 period. This is a result of
expenses at the Intelli-Site subsidiary due to the continuing development of the
Intelli-Site software product.
Interest Expense. Interest expense increased by approximately $523,000
primarily to secure additional financing during the fiscal 1999 period.
Loss on disposal of discontinued operations. The loss on disposal of
discontinued operations relates to the sale of Golston and TCSI.
Year Ended June 30, 1998 Compared to Year Ended December 31, 1996
Effective January 1, 1997, the Company changed its fiscal year end from December
31 to June 30.
The years ended June 30, 1998 and December 31, 1996 are included here in order
to compare comparable fiscal periods.
Sales. The Company's sales decreased by $2 million (29%) from $7 million during
the twelve months ended December 31, 1996 to $5 million during the twelve months
ended June 30, 1998. The decrease was primarily attributable to decreased sales
at the B&B subsidiary.
Cost of Sales and Gross Margin. Gross margin as a percent of sales decreased to
33% from 46% for the twelve months ended June 30, 1998 and December 31, 1996,
respectively. The majority of the decrease was due to a less favorable product
mix at B&B compared to the 1996 year.
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Selling, General and Administrative. Selling, general and administrative
expenses increased to $4.3 million during the twelve months ended June 30, 1998
from $3.4 million during the comparable 1996 period. This increase was
attributable to the Company absorbing all of the sales and marketing expenses of
ISI during the 1998 period.
Research and Development. Research and development expenses increased from
$152,239 in fiscal 1996 to $246,433 in fiscal 1998. This increase was due to
additional development of the Company's Intelli-Site products and increased
testing and design of new products at B&B.
Interest Expense. Interest expense decreased to $181,872 during the twelve
months ended June 30, 1998 from $257,693 during the comparable 1996 period due
to reduced short-term financing at ISSI.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position increased by $201,366 during the fiscal year ended
June 30, 1999. The Company used $60,000 of cash for operations, net of $1.5
million of non-cash expenses during this period. Also, during the fiscal year
ended June 30, 1999, the Company financed its continuing operations from
long-term borrowings of $2,561,260. The Company used $1,833,671 to pay principal
on indebtedness
During 1998, the Company received $600,000 in cash in exchange for promissory
notes at 9% interest due and payable February 1999. These notes were refinanced
as demand notes on February 22, 1999 with all other terms and conditions the
same as the original notes.
On January 14, 1999, the Company received $100,000 in cash in exchange for a
promissory note at 12% interest due and payable on January 24, 1999. The Company
paid the note in full on February 2, 1999. In connection with this transaction,
the Company issued warrants to purchase 181,818 shares of common stock at an
exercise price of $0.549 which expire in 2004.
On January 22, 1999, the Company entered into lending agreements with a bank
primarily to replace an existing revolving lending facility and refinance
previously retired facilities. The initial funding consisted of a $150,000 term
loan payable over 24 months at prime interest rate plus 3%, a $300,000 inventory
loan payable on demand at prime interest rate plus 3%, and a $1.8 million
maximum revolving credit facility at prime interest rate plus 3%. The maximum
credit eligibility of the new financing, secured by accounts receivable,
inventory and equipment of $3 million is structured to increase to $5 million
with Company growth. The outstanding balance at June 30, 1999 was $325,480 on
the revolving credit facility.
On March 8, 1999, the Company received $600,000 in cash in exchange for a
promissory note at 9% interest due and payable upon demand or upon the sale of
its Golston subsidiary. In connection with this transaction, the Company issued
warrants to purchase 1,092,897 shares of common stock at an exercise price of
$0.549 which expire in 2004. This loan was repaid on May 31, 1999.
Effective October 1, 1998, the Company disposed of a portion of its Golston
subsidiary, and effective May 31, 1999, the Company disposed of the remaining
portion of its Golston subsidiary. The remaining portion of Golston was sold to
Days Molding & Machinery, LLP for $3.2 million in cash and $100,000 in notes.
Proceeds from the sale were used to reduce the cash accelerator agreement
balance by $900,000, fees of approximately $300,000, note repayments of
$600,000, and the remainder for operations.
The Company's backlog, calculated as the aggregate sales prices of firm orders
received from customers less revenue recognized, was approximately $2.7 million
at September 23, 1999. The Company expects that the majority of this backlog
will be filled during fiscal 2000 and the first quarter of fiscal 2001.
The Company's liabilities are currently in excess of its assets and ISSI has
experienced significant losses during fiscal 1998 and 1999. During this period,
ISSI has shifted its business focus to the B&B and ISI subsidiaries and divested
of its other subsidiaries. Management expects losses to continue through the
first half of fiscal 2000. In order to meet working capital needs, the Company
raised $1.5 million through the sale of convertible preferred stock through a
private placement in October 1999. The Company believes proceeds from this
funding combined with results from operations will be sufficient to finance its
future cash requirements through fiscal 2000.
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CAPITAL EXPENDITURES
During the year ended June 30, 1999, the Company acquired $266,192 of property
and equipment and $200,090 of software technology with both short-term and
long-term borrowings. The Company does not anticipate any significant capital
expenditures during fiscal 2000.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on the Company's sales or
operating results.
SEASONALITY
Historically the Company has experienced seasonality in its business due to
fluctuations in the weather. The Company typically experiences a decline in
sales and operating results during the quarter ended March 31 due to winter
weather conditions.
ENVIRONMENTAL MATTERS
The Company believes that it is currently in compliance with all applicable
environmental regulations. Compliance with these regulations has not had, and is
not anticipated to have, any material impact upon the Company's capital
expenditures, earnings or competitive position.
YEAR 2000 ISSUE
The Year 2000 issue concerns the ability of computer software programs,
including the logic contained within embedded chips, to correctly identify and
process date-sensitive calculations across and beyond the Year 2000 dateline.
The Company believes the products and systems it manufactures to be unaffected
by the Year 2000 issue. The Company currently utilizes third-party equipment and
software that may be affected by the Year 2000 issue and continues to address
its critical business information and production systems regarding the Year 2000
issue for both Information Technology ("IT") and non-IT systems. The reporting
process used by the Company to assess its Year 2000 readiness has identified
some systems where potential problems may exist. The Company is currently
implementing solutions for these areas. Regardless of the resolution selected,
the Company believes that the associated financial impact will not be material.
There can be no assurance that there will be no disruptions or that the Company
will not incur significant costs to avoid such disruptions.
SIGNATURES
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Integrated Security Systems, Inc.
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(Registrant)
Date: November 19, 1999 /s/ GERALD K. BECKMANN
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Gerald K. Beckmann
Director, President and Chief Executive Officer
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